10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2006

Commission File Number 0-22280

PHILADELPHIA CONSOLIDATED HOLDING CORP.

(Exact name of registrant as specified in its charter)

PENNSYLVANIA	23-2202671
(State of Incorporation)	(IRS Employer Identification No.)

One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
(610) 617-7900

(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)

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.

YES: þ NO: o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (see definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer: þ           Accelerated Filer: o           Non-accelerated Filer: o

Indicate by check mark whether the registrant is a shell company (as defined in Section 12b-2 of the Exchange Act).

YES: o NO: þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October 31, 2006.

Common Stock, no par value, 70,440,485 shares outstanding

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
INDEX
For the Quarterly Period Ended September 30, 2006

Part I — Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets –September 30, 2006 and December 31, 2005	3
Consolidated Statements of Operations and Comprehensive Income — For the three and nine months ended September 30, 2006 and 2005	4
Consolidated Statements of Changes in Shareholders’ Equity — For the nine months ended September 30, 2006 and the year ended December 31, 2005	5
Consolidated Statements of Cash Flows — For the nine months ended September 30, 2006 and 2005	6
Notes to Consolidated Financial Statements	7-24
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations	25-42
Item 3.
Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.
Controls and Procedures	44
Part II — Other Information
Item 1.
Legal Proceedings	45
Item 1A.
Risk Factors	45
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.
Defaults Upon Senior Securities	45
Item 4.
Submission of Matters to a Vote of Security Holders	45
Item 5.
Other Information	46
Item 6.
Exhibits	46
Signatures	47
Casualty (Clash) Excess of Loss Reinsurance Agreement
Addendum No. 3 to the 3rd and 4th Property Excess of Loss Reinsurance Agreement
Casualty Excess of Loss Reinsurance Contract
Endorsement No. 4 to the Property Per Risk
Commutation and Release Agreement
$6,150,000 Excess $10,000,000 Catastrophe Reinsurance Contract
First Excess Reinstatement Premium Protection Reinsurance Contract
Second and third Excess Reinstatement Premium Protection Reinsurance Contract
Florida Hurricane Catastrophe Fund Reimbursement Contract
Florida Hurricane Catastrophe Fund Reimbursement Contract
Certification of the Company's chief executive officer
Certification of the Company's chief financial officer
Certification of the Company's chief executive officer pursuant to Section 906
Certification of the Company's chief financial officer pursuant to Section 906

2

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

	As of
	September 30, 2006			December 31,
	(Unaudited)			2005
ASSETS
INVESTMENTS:
FIXED MATURITIES AVAILABLE FOR SALE AT MARKET (AMORTIZED COST $2,053,568 AND $1,778,215)	$	2,045,960		$	1,761,530
EQUITY SECURITIES AT MARKET (COST $245,989 AND $160,926)		275,542			173,455
TOTAL INVESTMENTS		2,321,502			1,934,985
CASH AND CASH EQUIVALENTS		116,294			74,385
ACCRUED INVESTMENT INCOME		18,505			18,095
PREMIUMS RECEIVABLE		342,240			286,778
PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES		272,838			396,248
DEFERRED INCOME TAXES		32,251			31,893
DEFERRED ACQUISITION COSTS		157,457			129,486
PROPERTY AND EQUIPMENT, NET		26,441			23,886
OTHER ASSETS		41,893			32,070
TOTAL ASSETS	$	3,329,421		$	2,927,826
LIABILITIES AND SHAREHOLDERS’ EQUITY
POLICY LIABILITIES AND ACCRUALS:
UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES	$	1,243,411		$	1,245,763
UNEARNED PREMIUMS		758,141			631,468
TOTAL POLICY LIABILITIES AND ACCRUALS		2,001,552			1,877,231
FUNDS HELD PAYABLE TO REINSURER		—			39,221
PREMIUMS PAYABLE		59,721			58,839
OTHER LIABILITIES		194,486			136,039
TOTAL LIABILITIES		2,255,759			2,111,330
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, 70,441,872 AND 69,266,016 SHARES ISSUED AND OUTSTANDING		360,790			332,757
NOTES RECEIVABLE FROM SHAREHOLDERS		(10,118	)		(7,217	)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		14,264			(2,702	)
RETAINED EARNINGS		708,726			493,658
TOTAL SHAREHOLDERS’ EQUITY		1,073,662			816,496
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,329,421		$	2,927,826

2005 share information restated to reflect a three-for-one split of the Company’s common stock distributed on March 1, 2006.

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

3

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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,
	2006			2005			2006			2005
REVENUE:
NET EARNED PREMIUMS	$	296,366		$	244,770		$	861,706		$	714,661
NET INVESTMENT INCOME		23,833			16,979			65,572			45,843
NET REALIZED INVESTMENT GAIN (LOSS)		(6,976	)		1,097			(9,782	)		12,191
OTHER INCOME		795			600			1,703			1,380
TOTAL REVENUE		314,018			263,446			919,199			774,075
LOSSES AND EXPENSES:
LOSS AND LOSS ADJUSTMENT EXPENSES		95,662			162,254			353,289			459,111
NET REINSURANCE RECOVERIES		(10,956	)		(20,395	)		(16,163	)		(74,979	)
NET LOSS AND LOSS ADJUSTMENT EXPENSES		84,706			141,859			337,126			384,132
ACQUISITION COSTS AND OTHER UNDERWRITING EXPENSES		89,052			67,542			251,406			189,316
OTHER OPERATING EXPENSES		3,364			5,142			8,644			15,091
TOTAL LOSSES AND EXPENSES		177,122			214,543			597,176			588,539
INCOME BEFORE INCOME TAXES		136,896			48,903			322,023			185,536
INCOME TAX EXPENSE (BENEFIT):
CURRENT		49,725			13,544			116,448			67,404
DEFERRED		(2,719	)		269			(9,493	)		(9,669	)
TOTAL INCOME TAX EXPENSE		47,006			13,813			106,955			57,735
NET INCOME	$	89,890		$	35,090		$	215,068		$	127,801
OTHER COMPREHENSIVE INCOME, NET OF TAX:
HOLDING GAIN (LOSS) ARISING DURING PERIOD	$	29,929		$	(8,619	)	$	10,608		$	(11,895	)
RECLASSIFICATION ADJUSTMENT		4,534			(713	)		6,358			(7,924	)
OTHER COMPREHENSIVE INCOME (LOSS)		34,463			(9,332	)		16,966			(19,819	)
COMPREHENSIVE INCOME	$	124,353		$	25,758		$	232,034		$	107,982
PER AVERAGE SHARE DATA:
NET INCOME – BASIC	$	1.28		$	0.51		$	3.08		$	1.87
NET INCOME — DILUTED	$	1.22		$	0.48		$	2.94		$	1.76
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING		69,991,728			69,008,412			69,717,194			68,386,476
WEIGHTED-AVERAGE SHARE EQUIVALENTS OUTSTANDING		3,488,999			4,368,114			3,470,645			4,381,077
WEIGHTED-AVERAGE SHARES AND SHARE EQUIVALENTS OUTSTANDING		73,480,727			73,376,526			73,187,839			72,767,553

2005 share information restated to reflect a three-for-one split of the Company’s common stock distributed on March 1, 2006.

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

4

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

	For the Nine
	Months Ended
	September 30, 2006			For the Year Ended
	(Unaudited)			December 31, 2005
COMMON SHARES:
BALANCE AT BEGINNING OF YEAR		69,266,016			66,821,751
ISSUANCE OF SHARES PURSUANT TO STOCK PURCHASE PLANS, NET		235,260			1,589,406
ISSUANCE OF SHARES PURSUANT TO STOCK BASED COMPENSATION PLANS		940,596			854,859
BALANCE AT END OF PERIOD		70,441,872			69,266,016
COMMON STOCK:
BALANCE AT BEGINNING OF YEAR	$	332,757		$	292,856
ISSUANCE OF SHARES PURSUANT TO STOCK PURCHASE PLANS		6,626			27,817
EFFECTS OF ISSUANCE OF SHARES PURSUANT TO STOCK BASED COMPENSATION PLANS		21,123			11,939
OTHER		284			145
BALANCE AT END OF PERIOD		360,790			332,757
NOTES RECEIVABLE FROM SHAREHOLDERS:
BALANCE AT BEGINNING OF YEAR		(7,217	)		(5,465	)
NOTES RECEIVABLE ISSUED PURSUANT TO EMPLOYEE STOCK PURCHASE PLANS		(4,879	)		(4,095	)
COLLECTION OF NOTES RECEIVABLE		1,978			2,343
BALANCE AT END OF PERIOD		(10,118	)		(7,217	)
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF DEFERRED INCOME TAXES:
BALANCE AT BEGINNING OF YEAR		(2,702	)		19,796
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES		16,966			(22,498	)
BALANCE AT END OF PERIOD		14,264			(2,702	)
RETAINED EARNINGS:
BALANCE AT BEGINNING OF YEAR		493,658			336,970
NET INCOME		215,068			156,688
BALANCE AT END OF PERIOD		708,726			493,658
TOTAL SHAREHOLDERS’ EQUITY	$	1,073,662		$	816,496

2005 share information restated to reflect a three-for-one split of the Company’s common stock distributed on March 1, 2006.

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

5

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)

	For the Nine Months Ended September 30,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME	$	215,068		$	127,801
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET REALIZED INVESTMENT (GAIN) LOSS		9,782			(12,191	)
AMORTIZATION OF INVESTMENT PREMIUMS, NET OF DISCOUNT		7,452			8,794
DEPRECIATION		4,297			3,436
DEFERRED INCOME TAX BENEFIT		(9,493	)		(9,669	)
CHANGE IN PREMIUMS RECEIVABLE		(55,462	)		(49,865	)
CHANGE IN PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES, NET OF FUNDS HELD PAYABLE TO REINSURER		84,189			44,087
CHANGE IN OTHER RECEIVABLES		(410	)		(3,773	)
CHANGE IN DEFERRED ACQUISITION COSTS		(27,971	)		(35,953	)
CHANGE IN INCOME TAXES PAYABLE		11,957			(2,718	)
CHANGE IN OTHER ASSETS		(8,126	)		5,551
CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES		(2,352	)		124,710
CHANGE IN UNEARNED PREMIUMS		126,673			97,800
CHANGE IN OTHER LIABILITIES		26,164			14,202
FAIR VALUE OF STOCK BASED COMPENSATION		9,780			297
TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO STOCK BASED COMPENSATION PLANS		—			5,352
EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO STOCK BASED COMPENSATION PLANS		(8,411	)		—
NET CASH PROVIDED BY OPERATING ACTIVITIES		383,137			317,861
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITIES		133,439			147,466
PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITIES		206,316			147,169
PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES		71,858			135,646
COST OF FIXED MATURITIES ACQUIRED		(603,243	)		(694,353	)
COST OF EQUITY SECURITIES ACQUIRED		(156,679	)		(165,170	)
SETTLEMENT OF CASH FLOW HEDGE		—			(3,148	)
PURCHASE OF PROPERTY AND EQUIPMENT		(6,852	)		(5,451	)
NET CASH USED BY INVESTING ACTIVITIES		(355,161	)		(437,841	)
CASH FLOWS FROM FINANCING ACTIVITIES:
REPAYMENTS ON LOANS PAYABLE		—			(44,787	)
PROCEEDS FROM LOANS PAYABLE		—			11,381
PROCEEDS FROM EXERCISE OF EMPLOYEE STOCK OPTIONS		6,474			3,808
PROCEEDS FROM COLLECTION OF NOTES RECEIVABLE		1,978			1,767
PROCEEDS FROM SHARES ISSUED PURSUANT TO STOCK PURCHASE PLANS		1,746			23,703
EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO STOCK BASED COMPENSATION PLANS		8,411			—
COST OF SHARES WITHHELD TO SATISFY MINIMUM REQUIRED TAX WITHHOLDING OBLIGATION ARISING UPON EXERCISE OF OPTIONS		(4,676	)		—
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES		13,933			(4,128	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		41,909			(124,108	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		74,385			195,496
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	116,294		$	71,388
NON-CASH TRANSACTIONS:
ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN IN EXCHANGE FOR NOTES RECEIVABLE	$	4,879		$	4,555

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

6

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

1.	Basis of Presentation
	The consolidated financial statements for the quarterly period ended September 30, 2006 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 normal recurring adjustments and accruals, necessary for a fair statement of the information set forth therein. The results of operations for the nine months ended September 30, 2006 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 consolidated 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, 2005.
2.	Investments
	The carrying amount 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 third party broker-dealers. Material assumptions and factors utilized by such broker-dealers in pricing these securities include: future cash flows, constant default rates, recovery rates and any market clearing activity that may have occurred since the prior month-end pricing period. For mortgage and asset-backed securities (“structured securities”) of high credit quality, changes in expected cash flows are recognized using the retrospective method. For structured securities where the possibility of credit loss is other than remote, changes in expected cash flows are recognized on the prospective method over the remaining life of the securities. Cash flow assumptions for structured securities are obtained from a primary market provider of such information. These assumptions represent a market based best estimate of the amount and timing of estimated principal and interest cash flows based on current information and events.
	The Company regularly performs impairment reviews with respect to its investments. For investments other than interests in securitized assets, these reviews include identifying any security whose fair value is below its cost and an analysis of securities meeting predetermined impairment thresholds to determine whether such decline is other than temporary. If the Company determines that it does not intend to hold a security to maturity or 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 investment loss in the period the impairment arose. This evaluation resulted in non-cash realized investment losses of $5.7 million and $0.1 million, respectively, for the three months ended September 30, 2006 and 2005, and $7.0 million and $0.3 million, respectively, for the nine months ended September 30, 2006 and 2005. The Company’s impairment review also includes an impairment evaluation for interests in securitized assets conducted in accordance with the guidance provided by the Emerging Issues Task Force of the Financial Accounting Standards Board. There were no non-cash realized investment losses recorded for the three or nine months ended September 30, 2006 or 2005 as a result of the Company’s impairment evaluation for investments in securitized assets.
	The following table identifies the period of time securities with an unrealized loss at September 30, 2006 have continuously been in an unrealized loss position. Included in the amounts displayed in the table are approximately $600 of unrealized losses due to non-investment grade fixed maturity securities having a fair value of $2.4 million. No issuer of securities or industry represents more than 3.8% and 26.1%, respectively, of the total estimated fair value, or 5.3% and 28.0%, respectively, of the total gross unrealized loss included in the table below. This industry concentration represents investments in “AAA” rated Mortgage Backed Securities issued by Agencies of the U.S. Government which are collateralized by pools of residential mortgage loans. The unrealized losses on these securities are attributable generally to interest rate increases. The contractual repayment of these securities is guaranteed by Agencies of the U.S. Government, and it is therefore expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. At the present time, the Company has the ability and intent to hold these securities until a recovery of fair value,

7

which may be at maturity; therefore the Company does not consider these investments to be other than temporarily impaired at September 30, 2006.

	Less Than 12 Months				12 Months or More				Total
			Unrealized				Unrealized				Unrealized
As of September 30, 2006	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(In Thousands)
Fixed Maturities Available for Sale
U.S. Treasury Securities and Obligations of U.S. Government Agencies	$	1,407	$	14	$	12,695	$	257	$	14,102	$	271
Obligations of States and Political Subdivisions		40,753		213		385,271		4,834		426,024		5,047
Corporate Debt Securities		5,556		20		112,797		2,803		118,353		2,823
Asset Backed Securities		36,300		211		34,311		424		70,611		635
Mortgage Pass-Through Securities		121,890		1,081		175,383		5,123		297,273		6,204
Collateralized Mortgage Obligations		84,253		705		80,347		1,957		164,600		2,662
Total Fixed Maturities Available for Sale	$	290,159	$	2,244	$	800,804	$	15,398	$	1,090,963	$	17,642
Equity Securities		47,123		4,512		—		—		47,123		4,512
Total Investments	$	337,282	$	6,756	$	800,804	$	15,398	$	1,138,086	$	22,154

The Company’s impairment evaluation as of September 30, 2006 resulted in the following conclusions:

US Treasury Securities and Obligations of U.S. Government Agencies:
The unrealized losses on the Company’s Aaa/AAA rated investments in U.S. Treasury Securities and Obligations of U.S. Government Agencies are attributable to interest rate increases. Of the 32 investment positions held, approximately 71.9% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investments.

Obligations of States and Political Subdivisions:
The unrealized losses on the Company’s investments in long term tax exempt securities which have ratings of A2/A to AAA/Aaa are generally caused by interest rate increases. Of the 635 investment positions held, approximately 53.5% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investments. The Company currently believes it is probable that it will be able to collect all amounts due according to the contractual terms of the investments.

Corporate Debt Securities:
The unrealized losses on the Company’s long term investments in Corporate bonds which have ratings from Ba1/BB+ to Aaa/AAA are generally caused by interest rate increases. Of the 158 investment positions held, approximately 71.5% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investments. Therefore, it is expected that the securities would not be settled at a price less than the amortized cost of the investments. The Company currently believes it is probable that it will be able to collect all amounts due according to the contractual terms of the investments.

Asset Backed Securities:
The unrealized losses on the Company’s investments in Asset Backed Securities which have ratings of Aa1/AA+ to Aaa/AAA are generally caused by interest rate increases. Of the 163 investment positions held, approximately 40.5% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the security at a price less than the amortized cost of the investments. The

8

Company currently believes it is probable that it will be able to collect all amounts due according to the contractual terms of the investments.

Mortgage Pass-Through Securities:
The unrealized losses on the Company’s investments in Mortgage Pass-Through Securities which have ratings of Aaa/AAA are generally caused by interest rate increases. Of the 131 investment positions held, approximately 58.0% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the security at a price less than the amortized cost of the investments. The Company currently believes it is probable that it will be able to collect all amounts due according to the contractual terms of the investments.

Collateralized Mortgage Obligations:
The unrealized losses on the Company’s investments in Collateralized Mortgage Obligations which have ratings of Aaa/AAA are generally caused by interest rate increases. Of the 168 investment positions held, approximately 57.7% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the security at a price less than the amortized cost of the investments. The Company currently believes it is probable that it will be able to collect all amounts due according to the contractual terms of the investments.

Equity Securities:

Based upon the analytical procedures performed with respect to the Company’s equity securities, the Company does not consider the equity securities to be other than temporarily impaired. Of the 3,589 investment positions held, approximately 22.5% were in an unrealized loss position.

The following table identifies the period of time securities with an unrealized loss at December 31, 2005 have continuously been in an unrealized loss position. None of the amounts displayed in the table are due to non-investment grade fixed maturity securities. No issuer of securities or industry represents more than 1.5% and 19.4%, respectively, of the total estimated fair value, or 2.2% and 20.9%, respectively, of the total gross unrealized loss included in the table below.

	Less Than 12 Months				12 Months or More				Total
			Unrealized				Unrealized				Unrealized
As of December 31, 2005	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(In Thousands)
Fixed Maturities Available for Sale
U.S. Treasury Securities and Obligations of U.S. Government Agencies	$	10,968	$	141	$	47,030	$	505	$	57,998	$	646
Obligations of States and Political Subdivisions		391,586		4,732		107,099		2,135		498,685		6,867
Corporate Debt Securities		84,848		2,367		125,359		3,896		210,207		6,263
Asset Backed Securities		75,151		648		20,029		545		95,180		1,193
Mortgage Pass-Through Securities		202,901		3,661		61,399		1,860		264,300		5,521
Collateralized Mortgage Obligations		175,397		2,387		20,865		575		196,262		2,962
Total Fixed Maturities Available for Sale	$	940,851	$	13,936	$	381,781	$	9,516	$	1,322,632	$	23,452
Equity Securities		38,709		3,012		—		—		38,709		3,012
Total Investments	$	979,560	$	16,948	$	381,781	$	9,516	$	1,361,341	$	26,464

Based upon the Company’s impairment evaluation as of December 31, 2005, it was concluded that the remaining unrealized losses in the table above were not other than temporary.

9

	There are certain risks and uncertainties inherent in the Company’s impairment methodology, including, but not limited to, the financial condition of specific industry sectors and the resultant effect on any such underlying security collateral values and changes in accounting, tax, and/or regulatory requirements which may have an effect on either, or both, the investor and/or the issuer. Should the Company subsequently determine that it does not intend to hold the security until maturity or should it determine that 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 investment loss for the period such determination was made.
3.	Restricted Assets
	The Insurance Subsidiaries have investments, principally U.S. Treasury securities, Obligations of U.S. Government Corporations and Agencies and Obligations of States and Political Subdivisions, on deposit with the various states in which they are licensed insurers. At September 30, 2006 and December 31, 2005, the carrying value of the securities on deposit totaled $14.8 million and $15.1 million, respectively.
4.	Derivative Instruments
	Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), as amended, requires that derivatives be recorded on the balance sheet as either assets or liabilities measured at fair value. Changes in the fair value of derivatives are recorded either through current earnings or as other comprehensive income, depending on the type of hedge transaction. Gains and losses on the derivative instrument reported in other comprehensive income are reclassified into earnings in the periods in which earnings are impacted by the variability of the cash flow of the hedged item. The ineffective portion of all hedge transactions is recognized in current period earnings.
	During the first quarter of 2005, a cash flow hedge derivative instrument was purchased to manage interest rate risk for a potential debt offering. Subsequent to the purchase of the cash flow hedge, the Company decided against the issuance of a debt offering, and as a result, the cash flow hedge became an ineffective hedge. For the three months ended March 31, 2005, the Company recorded the change in fair value of $0.3 million as a reduction to net realized investment gain. Subsequently, upon settlement, the loss in fair value increased to $3.2 million. The $2.9 million change in fair value since March 31, 2005 was recorded as a net realized investment loss during the three months ended June 30, 2005. The Company does not hold any other derivative instruments.
5.	Liability for Unpaid Loss and Loss Adjustment Expenses
	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. The process of establishing the ultimate claims liability is necessarily a complex and imprecise process, requiring the use of informed estimates and judgments using data currently available. The liability includes an amount determined on the basis of claim adjusters’ evaluations with respect to insured events that have occurred and been reported to the Company and an amount for losses incurred that have not yet been reported to the Company. 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. Estimates for unpaid loss and loss adjustment expenses are based upon management’s assessment of known facts and circumstances, review of past loss experience and settlement patterns and consideration of other internal and external factors. These factors include, but are not limited to, the Company’s growth, changes in the Company’s operations, and legal, social, and economic developments. These estimates are reviewed regularly and any resulting adjustments are made in the accounting period in which the adjustment arose. If the Company’s ultimate losses, net of reinsurance, prove to differ substantially from the amounts recorded at September 30, 2006, the related adjustments could have a material adverse impact on the Company’s financial condition and results of operations.

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During the three months ended September 30, 2006, the Company decreased the estimated net unpaid loss and loss adjustment expenses for accident years 2005 and prior by the following amounts:

	Net Basis Decrease
	(In millions)
Accident Year 2005	$	32.2
Accident Year 2004		8.0
Accident Year 2003		2.5
Accident Years 2002 and prior		—
Total Decrease	$	42.7

	For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for all coverages on commercial package policies due to better than expected case incurred loss development.
	For accident year 2004, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for general liability and automobile coverages on commercial package polices due to better than expected case incurred loss development.
	For accident year 2003, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial automobile policies and automobile coverages on commercial package policies due to better than expected case incurred loss development.
	In addition, during the three months ended September 30, 2006, the Company lowered its estimated net unpaid loss and loss adjustment expenses for the 2006 accident year as a result of the implications of the favorable development observed on the prior accident years noted previously. The impact of this lower loss estimate related to the net earned premiums for the six months ended June 30, 2006 was a reduction of approximately $14.8 million to net unpaid loss and loss adjustment expenses during the three months ended September 30, 2006.
6.	Funds Held Payable To Reinsurer
	Effective April 1, 2003, the Company entered into a quota share reinsurance agreement. Under this agreement, the Company ceded 22% of its net written premiums and loss and loss adjustment expenses for substantially all of the Company’s lines of business on policies effective April 1, 2003 through December 31, 2003, and 10% of its commercial and specialty lines net written premiums and loss and loss adjustment expenses for policies effective January 1, 2004 through December 31, 2004. The Company received a provisional commission of 33% adjusted pro-rata based upon the ratio of losses incurred to premiums earned. Pursuant to this reinsurance agreement the Company withheld 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 was also reduced by ceded paid losses and loss adjustment expenses under this agreement, and increased by an interest credit. In addition, the agreement allowed for a profit commission to be paid to the Company upon commutation. Effective January 1, 2006 and January 1, 2005, the Company entered into Reinsurance Commutation and Release Agreements with respect to the 2004 Whole Account Net Quota Share Reinsurance Contract and the 2003 Whole Account Net Quota Share Reinsurance Contract, respectively. As a result of the commutation effective January 1, 2006, the Funds Held Payable to Reinsurer liability was reduced by approximately $39.2 million, offset by an increase to net Unpaid Loss and Loss Adjustment Expenses of $31.9 million, an increase to net Unearned Premiums of $0.3 million, and a reduction to the profit commission receivable of approximately $7.0 million. No gain or loss was realized as a result of this commutation.

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Activity for the Funds Held Payable to Reinsurer is summarized as follows (in thousands):

	As of and for the			As of and for the
	Nine Months Ended			Year Ended
	September 30, 2006			December 31, 2005
Funds Held Payable to Reinsurer Balance at Beginning of Period	$	39,221		$	131,119
Net Written Premiums Ceded		—			(316	)
Reinsurer Expense Allowance		—			11
Provisional Commission		—			(6,722	)
Paid Loss and Loss Adjustment Expenses		—			(8,451	)
Interest Credit		—			1,486
Commutation		(39,221	)		(77,906	)
Other		—			—
Subtotal Activity		(39,221	)		(91,898	)
Funds Held Payable to Reinsurer Balance at End of Period	$	—		$	39,221

7.	Shareholders’ Equity
	The Philadelphia Consolidated Holding Corp Amended and Restated Employees’ Stock Incentive and Performance Based Compensation Plan (the “Plan”) (formerly known as Philadelphia Consolidated Holding Corp. Stock Option Plan) provides incentives and awards to those employees and members of the Board of Directors (“participants”) largely responsible for the long term success of the Company.
	The maximum number of shares of the Company’s common stock which may be subject to awards granted under the Plan are 18,750,000 (restated to reflect a three-for-one split of the Company’s common stock distributed on March 1, 2006), and the Plan permits (but does not require) the grant of restricted stock awards under conditions meeting the “performance based” compensation requirements of Section 162(m) of the Internal Revenue Code. The maximum number of             shares includes all shares previously available for grants under the stock option plan prior to the adoption of this Plan. As of September 30, 2006, 5,006,466 shares of common stock remain reserved for future issuance pursuant to awards granted under the Plan. Under the Plan, the Company may grant stock options, stock settled appreciation rights (“SARS”), restricted stock awards and restricted stock units to participants. Stock options, restricted stock awards and SARS have been granted to employees, and restricted stock awards have been granted to the Company’s non-employee directors pursuant to the Plan as of September 30, 2006.
	During 2006, the Company granted SARS and restricted stock awards to certain employees and granted restricted stock awards to its non-employee directors. All stock options that have been granted have provided for the purchase of common stock at a price not less than the fair market value on the grant date. A SAR grant consists of a right that is the economic equivalent of a stock option that could have been granted under the Plan, except that on the exercise of a SAR, the employee receives shares of the Company’s common stock having a fair market value that is equal to the fair market value of the shares of common stock that would be subject to such hypothetical option, reduced by the amount that would be required to be paid by the employee as the purchase price on exercise of such hypothetical option. All grants of SARS have provided for a hypothetical option purchase price of not less than the fair market value on the grant date. Stock options and SARS are generally exercisable after the expiration of five years following the grant date and expire ten years following the grant date. Compensation expense for stock options and SARS is recognized ratably over the vesting period. Stock options and SARS are generally forfeited by participants who terminate employment prior to vesting.
	Compensation expense for restricted stock awards is recognized ratably over the vesting period (“Restriction Period”). Stock subject to restricted stock awards granted to employees during 2006 become free of the risk of forfeiture (i.e., become vested) generally after the expiration of five years following the grant date (the applicable Restriction Period). Stock subject to restricted stock awards granted to the Company’s non-

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employee directors during 2006 become free of the risk of forfeiture after the expiration of three years following the grant date. Generally, if a participant terminates employment prior to the expiration of the Restriction Period, the award will lapse and all shares of common stock still subject to the restriction are forfeited.

The following table presents certain information regarding stock option transactions.

	As of and for the Nine Months					As of and for the Year Ended
	Ended September 30, 2006 (1)					December 31, 2005 (1)
				Exercise Price					Exercise Price
	Options			Per Option(2)		Options			Per Option(2)
Outstanding at beginning of period		8,483,991		$	13.54		7,931,100		$	10.86
Granted		—		$	—		1,485,000		$	23.34
Exercised		(1,050,843	)	$	6.16		(854,859	)	$	5.36
Canceled		(358,500	)	$	17.62		(77,250	)	$	17.58
Outstanding at end of period		7,074,648		$	14.43		8,483,991		$	13.54
Exercisable at end of period		1,719,648		$	8.22		1,474,491		$	6.18
Weighted-average fair value of options granted during the period (3)				$	—				$	9.40

The total intrinsic value of options exercised during the nine months ended September 30, 2006 and the year ended December 31, 2005 was $28.4 million and $18.6 million, respectively.

(1)	Restated to reflect a three-for-one split of the Company’s common stock distributed on March 1, 2006.
(2)	Weighted Average.
(3)	The Company uses the Black-Scholes pricing model to calculate the fair value of the options awarded as of the date of grant.

The aggregate intrinsic value of outstanding and exercisable options as of September 30, 2006 was $179.0 million and $54.2 million, respectively. The total fair value of exercisable options as of September 30, 2006 was $5.8 million. The weighted average remaining contractual life of options outstanding as of September 30, 2006 was 6.4 years.

The following table presents information regarding SARS transactions.

	As of and for the Nine Months		As of and for the Year Ended
	Ended September 30, 2006		December 31, 2005 (1)
	SARS		SARS
Outstanding at beginning of period		—		—
Granted		949,000		—
Exercised		—		—
Canceled		—		—
Outstanding at end of period		949,000		—
Exercisable at end of period		—		—
Weighted-average fair value of SARS granted during the period (2)	$	16.54	$	—

⁽¹⁾ Restated to reflect a three-for-one split of the Company’s common stock distributed on March 1, 2006.

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⁽²⁾ The Company uses the Black-Scholes pricing model to calculate the fair value of the options awarded as of the date of grant.

The aggregate intrinsic value of outstanding SARS as of September 30, 2006 was $6.0 million. The weighted average remaining contractual life of SARS outstanding as of September 30, 2006 was 9.4 years.

The following table presents information regarding restricted stock award transactions.

	As of and for the Nine Months					As of and for the Year Ended
	Ended September 30, 2006 (1)					December 31, 2005 (1)
				Weighted					Weighted
				Average Grant					Average Grant
	Restricted Stock			Date Fair		Restricted Stock			Date Fair
	Shares			Value (2)		Shares			Value (2)
Unvested at beginning of period		141,465		$	27.75		—		$	—
Granted		42,680		$	33.67		145,140		$	27.74
Vested		—		$	—		—		$	—
Forfeited		(8,436	)	$	25.28		(3,675	)	$	27.52
Unvested at end of period		175,709		$	29.31		141,465		$	27.75

(1)	Restated to reflect a three-for-one split of the Company’s common stock distributed on March 1, 2006.
(2)	The Company uses the Black-Scholes pricing model to calculate the fair value of the options awarded as of the date of grant.

As of September 30, 2006, there was $31.4 million of pre-tax unrecognized compensation costs related to stock options, SARS and restricted stock granted under the Company’s Plan. This unrecognized compensation cost is expected to be recognized over a weighted-average period of 3.4 years.

The fair value of each stock option and SAR award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company’s common stock. The Company uses historical data to estimate stock option and SAR terms, and employee terminations that are utilized within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of stock options and SARS granted represents the period of time that granted stock option and SAR awards are expected to be outstanding. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant appropriate for the expected life of the Company’s stock options and SARS. The dividend yield assumption is based on history and expectation of dividend payouts. The ranges given below result from certain groups of employees exhibiting different behavior and from the differing market conditions which existed on the various grant dates.

	For the Nine Months
	Ended September 30,	For the Year Ended
	2006	December 31, 2005
Expected Stock Volatility	33.4% - 35.5%	33.9%
Weighted Average Expected Stock Volatility	33.9%	33.9%
Risk-Free Interest Rate	4.4% - 4.8%	3.8% - 4.2%
Weighted Average Risk-Free Interest Rate	4.6%	3.8%
Expected Life (Years)	6.0 – 9.0	6.0
Weighted Average Expected Life (Years)	6.5	6.0
Expected Dividends	0.0%	0.0%

The Company has established the following stock purchase plans (all 2005 share and purchase rights granted amounts have been restated to reflect a three-for-one split of the Company’s common stock which was distributed on March 1, 2006):

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	Employee Stock Purchase Plan (the “Stock Purchase Plan”): The aggregate maximum number of shares that may be issued pursuant to the Stock Purchase Plan, as amended, is 3,000,000. Shares may be purchased under the Stock Purchase Plan by eligible employees during designated one-month offering periods established by the Compensation Committee of the Board of Directors at a purchase price of the lesser of 85% of the fair market value of the shares on the first business day of the offering period or the date the shares are purchased. Shares purchased are restricted for a period of two years from the first day of the offering period. The purchase price of shares may be paid by the employee over six years pursuant to the execution of a promissory note. The promissory note(s) are collateralized by such shares purchased under the Stock Purchase Plan and are interest free. Under the Stock Purchase Plan, the Company issued 180,322 shares during the nine months ended September 30, 2006 and issued 217,806 shares during the year ended December 31, 2005. The weighted-average fair value per share of those purchase rights granted in 2006 and 2005 was $5.94 and $4.13, respectively.
	The Nonqualified Employee Stock Purchase Plan (the “Nonqualified Stock Plan”): The aggregate maximum number of shares that may be issued pursuant to the Nonqualified Stock Plan is 3,000,000. Shares may be purchased under the Nonqualified Stock Plan by eligible employees during designated one-month offering periods established by the Compensation Committee of the Board of Directors at a purchase price of the lesser of 85% of the fair market value of the shares on the first business day of the offering period or the date the shares are purchased. Shares purchased are restricted for a period of five years from the first day of the offering period. The purchase price of shares may be paid by the employee over nine years pursuant to the execution of a promissory note. The promissory note(s) are collateralized by such shares purchased under the Nonqualified Stock Plan and are interest free. Under the Nonqualified Stock Plan, the Company issued 4,733 shares during the nine months ended September 30, 2006 and issued 1,263,600 shares during the year ended December 31, 2005. The weighted-average fair value per share of those purchase rights granted in 2006 and 2005 was $5.94 and $4.03, respectively.
	Directors Stock Purchase Plan (“Directors Plan”): The Directors Plan has been established for the benefit of non-employee Directors. The aggregate maximum number of shares that may be issued pursuant to the Directors Plan is 150,000. Non-employee Directors, during monthly offering periods, may designate a portion of his or her fees to be used for the purchase of shares under the terms of the Directors Plan at a purchase price of the lesser of 85% of the fair market value of the shares on the first business day of the offering period or the date the shares are purchased. Under the Directors Plan, the Company issued 6,348 shares during the nine months ended September 30, 2006 and 8,883 shares during the year ended December 31, 2005. The weighted-average fair value per share of those purchase rights granted in 2006 and 2005 was $5.82 and $3.90, respectively.
	Preferred Agents Stock Purchase Plan (“Preferred Agents Plan”): The Preferred Agents Plan has been established for the benefit of eligible Preferred Agents. The aggregate maximum number of shares that may be issued pursuant to the Preferred Agents Plan is 600,000. During designated offering periods, eligible Preferred Agents may either remit cash or have the Company withhold from commissions or other compensation amounts to be used for the purchase of shares under the terms of the Preferred Agents Plan at a purchase price of the lesser of 85% of the fair market value of the shares on the first business day of the offering period or the date the shares are purchased. Shares purchased are restricted for a period of two years from the first day of the offering period. Under the Preferred Agent Plan, the Company issued 60,492 shares during the nine months ended September 30, 2006. There were no shares issued during the year ended December 31, 2005. The weighted-average fair value of those purchase rights granted in 2006 was $5.80.
8.	Earnings Per Share
	Earnings per common share have 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, 2006 and 2005, respectively (in thousands, except per share data):

15

	As of and For the Three				As of and For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2006		2005 (1)		2006		2005 (1)
Weighted-Average Common Shares Outstanding		69,992		69,009		69,717		68,387
Weighted-Average Potential Shares Issuable		3,489		4,368		3,471		4,381
Weighted-Average Shares and Potential Shares Issuable		73,481		73,377		73,188		72,768
Net Income	$	89,890	$	35,090	$	215,068	$	127,801
Basic Earnings per Share	$	1.28	$	0.51	$	3.08	$	1.87
Diluted Earnings per Share	$	1.22	$	0.48	$	2.94	$	1.76

⁽¹⁾ Share information restated to reflect a three-for-one split of the Company’s common stock and distributed on March 1, 2006.

9.	Stock Based Compensation
	Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment” (“SFAS 123(R)”) using the modified prospective transition method, which requires the measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors including stock options, stock settled appreciation rights (“SARS”), restricted stock and employee and director stock purchases related to the Employee Stock Purchase Plan, Nonqualified Employee Stock Purchase Plan, and Directors Stock Purchase Plan based on fair values. The Company’s financial statements as of and for the three and nine months ended September 30, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Share-based compensation expense recognized is based on the value of the portion of share-based payment awards that is ultimately expected to vest. Share-based compensation expense recognized in the Company’s Consolidated Statement of Operations and Comprehensive Income for the three and nine months ended September 30, 2006 included compensation expense for share-based payment awards granted prior to, but not yet vested as of December 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123 and compensation expense for the share-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R), the Company elected to attribute the value of share-based compensation to expense using the straight-line method, which was previously used for its pro forma information required under SFAS 123. Share-based compensation expense related to stock options and SARS was $2.0 million and $5.0 million, respectively, before income taxes for the three and nine months ended September 30, 2006. During the three and nine months ended September 30, 2005, no share-based compensation expense related to stock options was recognized under the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB 25”). During the three and nine months ended September 30, 2006, share-based compensation expense related to restricted stock grants and employee and director stock purchase plans was $0.9 million and $2.5 million, respectively. During the three and nine months ended September 30, 2005, share-based compensation expense related to restricted stock grants was $0.2 million and $0.2 million, respectively, under APB 25.
	Upon adoption of SFAS 123(R), the Company elected to value share-based payment awards granted beginning in 2006 using the Black-Scholes option-pricing model, (the “Black-Scholes model”), which was also previously used for the pro forma information required under SFAS 123. The Black-Scholes model requires the input of certain assumptions. The Company’s stock options and the option component of the Employee Stock Purchase Plan shares have characteristics significantly different from those of traded options, and changes in the assumptions can materially affect the fair value estimates.

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The expected term of stock options and SARS represent the weighted-average period the stock options and SARS are expected to remain outstanding. The expected term is based on the observed and expected time to post-vesting exercise and forfeitures of options by the Company’s employees. The Company uses historical volatility in deriving the expected volatility assumption. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant appropriate for the expected life of the Company’s stock options and SARS. The dividend yield assumption is based on history and expectation of dividend payouts.

As the share-based compensation expense recognized in the Consolidated Statement of Operations and Comprehensive Income for the three and nine months ended September 30, 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. In the Company’s pro forma information required under SFAS 123 for the periods prior to January 1, 2006, forfeitures were estimated based on historical experience.

SFAS 123(R) requires that share-based compensation cost is recorded in the financial statements in the same classifications as the related employees’ cash compensation. Accordingly, upon adoption of SFAS 123(R), a portion of the share-based compensation cost related to unvested awards and new awards has been capitalized as part of the Company’s Deferred Acquisition Costs. As of September 30, 2006, approximately $2.2 million of share-based compensation cost is included in Deferred Acquisition Costs on the Consolidated Balance Sheet. In the Company’s pro forma information required under SFAS 123 for the periods prior to January 1, 2006, share-based compensation costs were not capitalized.

The effect of recording share-based compensation expense for the three and nine months ended September 30, 2006 is as follows:

	Three Months Ended			Nine Months Ended
(In thousands, except per share amounts)	September 30, 2006			September 30, 2006
Stock-based compensation expense	$	2,872		$	7,540
Tax benefit		(1,005	)		(2,639	)
Net decrease in net income	$	1,867		$	4,901
Stock-based compensation cost capitalized (gross of amortization) as deferred acquisition costs	$	1,181		$	3,440
Effect on:
Cash flows from operating activities	$	172		$	1,419
Cash flows from financing activities	$	323		$	8,411
Effect on:
Net earnings per share — Basic	$	0.03		$	0.07
Net earnings per share — Diluted	$	0.00		$	0.01

SFAS 123(R) requires the Company to present pro forma information for the comparative period prior to the adoption as if it had accounted for all of its share-based compensation under the fair value method of SFAS 123. The following table illustrates the pro forma information regarding the effect on net earnings and net earnings per share if the Company had accounted for the share-based employee compensation under the fair value method of accounting:

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	Three Months Ended			Nine Months Ended
(In thousands, except per share amounts)	September 30, 2005(1)			September 30, 2005(1)
Net income, as reported	$	35,090		$	127,801
Add: Stock-based employee compensation expense included in reported net income under APB No. 25, net of related tax effects		—			—
Deduct: Total stock-based employee compensation determined under the fair value method for all awards, net of related tax effects		(1,550	)		(4,577	)
Pro forma net income	$	33,540		$	123,224
Net earnings per share — Basic:
As reported	$	0.51		$	1.87
Pro forma	$	0.49		$	1.80
Net earnings per share — Diluted:
As reported	$	0.48		$	1.76
Pro forma	$	0.46		$	1.69

(1) Share information restated to reflect a three-for-one split of the Company’s common stock distributed on March 1, 2006.

10.	Income Taxes
	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.
11.	Reinsurance
	In the normal course of business, the Company has entered into various reinsurance contracts with unrelated reinsurers. The Company participates in such agreements for the purpose of limiting loss exposure, managing capacity constraints and diversifying business. Reinsurance contracts do not relieve the Company from its obligations to policyholders. The effect of reinsurance on premiums written and earned is as follows:

(In thousands)

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2006						September 30, 2006
	Written			Earned			Written			Earned
Direct Business	$	455,446		$	348,926		$	1,122,553		$	996,011
Reinsurance Assumed		1,145			1,048			3,444			3,312
Reinsurance Ceded		(64,525	)		(53,608	)		(149,723	)		(137,617	)
Net Premiums	$	392,066		$	296,366		$	976,274		$	861,706

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2005						September 30, 2005
	Written			Earned			Written			Earned
Direct Business	$	387,392		$	291,049		$	954,837		$	857,215
Reinsurance Assumed		1,129			907			3,135			2,956
Reinsurance Ceded		(48,152	)		(47,186	)		(113,467	)		(145,510	)
Net Premiums	$	340,369		$	244,770		$	844,505		$	714,661

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	Certain of the Company’s reinsurance contracts have provisions whereby the Company is entitled to a return profit commission based on the ultimate experience of the underlying business ceded to the contracts. Under the terms of these contracts, the Company accrued profit commissions of $0.8 million and $3.3 million for the three and nine months ended September 30, 2005, respectively. There were no profit commissions recognized during 2006. The profit commissions reduce ceded written and earned premiums and increase net written and earned premiums.
	Approximately $16.9 million of the Company’s reinsurance receivable balances at September 30, 2006 are with Converium Reinsurance North American Inc. (“CRNA”). During 2004, Converium AG (Switzerland), CRNA’s parent company, placed CRNA into an orderly runoff. On October 17, 2006, Converium AG (Switzerland) announced that it had signed a definitive agreement to sell CRNA to National Indemnity Company, a subsidiary of Berkshire Hathaway, that is rated A++ (Superior) by A.M. Best Company. Of the $16.9 million reinsurance receivable balances with CRNA, $0.6 million are receivables on paid losses and $16.3 million are receivables on unpaid loss and loss adjustment expense. The Company continues to monitor CRNA’s ability to pay claims, and at this time, believes that the amounts with CRNA will be collectible.
12.	Commitments and Contingencies
	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.
	Credit Agreement: On June 30, 2006, the Company entered into an unsecured Credit Agreement (the “Credit Agreement”) which establishes a revolving credit facility providing for loans to the Company of up to $50.0 million in principal amount outstanding at any one time, with a maturity date of June 29, 2007. The Credit Agreement contains an annual commitment fee of 8.0 basis points per annum on the unused commitments under the Credit Agreement. As of September 30, 2006, no borrowings have been made by the Company under this Credit Agreement.
	Each loan under the Facility will bear interest at a per annum rate equal to, at the Company’s option, (i) Libor plus 0.40% or the higher of the Administrative Agent and Lender’s prime rate and/or the Federal Funds rate plus 0.50%. The Credit Agreement contains various representations, covenants and events of default typical for credit facilities of this type. As of September 30, 2006, the Company was in compliance with all covenants contained in the Credit Agreement.
	State Insurance Guaranty Funds: As of September 30, 2006 and December 31, 2005, included in Other Liabilities in the Consolidated Balance Sheets were $22.1 million and $12.8 million, respectively, of liabilities for state guaranty funds. As of September 30, 2006 and December 31, 2005, included in Other Assets in the Consolidated Balance Sheets were $0.1 million and $0.1 million , respectively, of related assets for premium tax offsets or policy surcharges, The related asset is limited to the amount that is determined based upon future premium collections or policy surcharges from policies in force.
	State Insurance Facility Assessments: The Company continually monitors developments with respect to state insurance facilities. The Company is required to participate in various state insurance facilities that provide insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Because of the Company’s participation, it may be exposed to losses that surpass the capitalization of these facilities and/or to assessments from these facilities.
	Among other state insurance facilities, the Company is subject to assessments from Florida Citizens Property Insurance Corporation (“Florida Citizens”), which was created by the state of Florida to provide insurance to property owners unable to obtain coverage in the private insurance market. Florida Citizens, at the discretion and direction of its Board of Governors (“Florida Citizens Board”), can levy a regular assessment on

19

participating companies for a deficit in any calendar year up to a maximum of the greater of 10% of the deficit or 10% of Florida property premiums industry-wide for the prior year. The portion of the total assessment attributable to the Company is based on its market share. An insurer may recoup a regular assessment through a surcharge to policyholders. If a deficit remains after the regular assessment, Florida Citizens can also fund any remaining deficit through emergency assessments in the current and subsequent years. Companies are required to collect the emergency assessments directly from residential property policyholders and remit to Florida Citizens as collected. In addition, Florida Citizens may issue bonds to further fund a deficit. Participating companies are obligated to purchase any unsold bonds issued by Florida Citizens.

Florida Citizens reported a deficit for the 2004 plan year. During 2005, the Company recognized a pre-tax $3.9 million net (of reinsurance recoveries) assessment expense for Florida Citizen’s amounts assessed and paid during 2005. Any recoupments of the Florida Citizens assessment through future policy surcharges will be allocated between the Company and its reinsurers. Recoupments are recorded by the Company as the related premiums are written. During the three and nine months ended September 30, 2006, the Company recognized a pre-tax reduction to its net (of reinsurance recoveries) expense related to the Florida Citizens 2004 plan year of $0.4 million and $1.4 million, respectively, primarily attributable to policy surcharge recoupments.

During 2005, Florida Citizens also reported losses from Hurricane Wilma, which followed the deficit for the 2004 plan year, and announced that a future assessment as a result of Florida Citizens’ current financial deficit was both probable and could be reasonably estimated. As of December 31, 2005, the Company accrued its estimated gross (of reinsurance recoveries) assessment of $12.4 million, which represented its portion of the maximum regular assessment available to Florida Citizens, and resulted in a $2.0 million net (of reinsurance recoveries) assessment expense during 2005. During the second quarter of 2006, the Florida legislature approved a $715 million budget appropriation to be used to reduce the Florida Citizens deficit. During the third quarter of 2006, Florida Citizens submitted a request to the Florida Office of Insurance Regulation (“FLOIR”) seeking approval of an assessment for the 2005 Plan Year. As a result, during the third quarter of 2006, the Company reduced its accrual of its estimated gross (of reinsurance recoveries) assessment to $2.8 million, which represents its portion of the regular assessment for the Florida Citizens 2005 plan year, which is pending approval by FLOIR. During the three and nine months ended September 30, 2006, the Company recognized a reduction to its net (of reinsurance recoveries) expense related to this assessment of $0.1 million and $1.8 million, respectively, due primarily to changes in related reinsurance recoveries resulting from updated estimates of 2005 hurricane losses reported by Florida citizens during 2006 as well as the impact of the budget appropriation noted above.

The Company continues to monitor developments with respect to various other state facilities such as the Mississippi Windstorm Underwriting Association, the Alabama Insurance Underwriting Association, and the Texas Windstorm Insurance Association. The ultimate impact of the 2005 hurricane season on these facilities is currently uncertain, but could result in the facilities recognizing a financial deficit or a financial deficit greater than the level currently estimated by the facility. They may, in turn, have the ability to assess participating insurers when financial deficits occur, adversely affecting the Company’s results of operations.

Florida Hurricane Catastrophe Fund:
The Company and other insurance companies writing residential property policies in Florida must participate in the Florida Hurricane Catastrophe Fund (“FHCF”). If the FHCF does not have sufficient funds to pay its ultimate reimbursement obligations to participating insurance companies, it has the authority to issue bonds, which are funded by assessments on generally all property and casualty premiums in Florida. By law, these assessments are the obligation of insurance policyholders, which insurance companies must collect. The FHCF assessments are limited to 6% of premiums per year beginning the first year in which reimbursements require bonding, and up to a total of 10% of premiums per year for assessments in the second and subsequent years, if required to fund additional bonding. Upon the order of the Florida Office of Insurance Regulation (“FLOIR”), companies are required to collect the FHCF assessments directly from its policyholders and remit them to the FHCF as they are collected.

During June 2006, the FLOIR approved a 1% emergency assessment effective January 1, 2007 which the Company must collect from its policyholders and remit to the FHCF beginning January 1, 2007.

20

13.	Comprehensive Income
	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, 2006 and 2005 was $16.1 million and $(4.6) million, respectively, and $5.7 million and $(6.4) million, respectively. The related tax effect of Reclassification Adjustments for the three and nine months ended September 30, 2006 and 2005 was $2.4 million and $(0.4) million, respectively, and $3.4 million and $(4.3) million, respectively.
14.	New Accounting Pronouncements
	In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS No. 155”). Under current generally accepted accounting principles, an entity that holds a financial instrument with an embedded derivative must bifurcate the financial instrument, resulting in the host and the embedded derivative being accounted for separately. SFAS No. 155 permits, but does not require, entities to account for financial instruments with an embedded derivative at fair value thus negating the need to bifurcate the instrument between its host and the embedded derivative. SFAS No. 155 is effective as of the beginning of the first annual reporting period that begins after September 15, 2006. Subsequently, SFAS No. 155 was modified.
	At the FASB meeting on October 25, 2006, the FASB approved a narrow scope exception for certain beneficial interests that require an embedded derivative analysis. The issue is not whether the beneficial interests contain an embedded derivative, but when the embedded derivative is required to be separately accounted for in accordance with Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). The Board directed the FASB Staff to prepare an exposure draft for a 30 day comment period with the expectation that final guidance in the form of an SFAS No. 133 Implementation Issue will be issued in the first quarter of 2007.
	The narrow scope exception approved by the FASB appears to exempt securities backed by financial assets where the only embedded derivative is prepayment based. This appears to exempt fixed rate asset backed, mortgage pass-through, and collateralized mortgage obligation securities previously thought to be subject to SFAS No. 155. Should the final determination be that these securities are exempt from SFAS No. 155, the Company believes that the financial impact of application will not be significant.
	In July 2006, the FASB released Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48, which is effective for fiscal years beginning after December 15, 2006, also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition. The Company is currently in the process of evaluating the impact of FIN 48.
	In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”), which clarifies that the term fair value is intended to mean a market-based measure, not an entity-specific measure and gives the highest priority to quoted prices in active markets in determining fair value. SFAS No. 157 requires disclosures about (1) the extent to which companies measure assets and liabilities at fair value, (2) the methods and assumptions used to measure fair value, and (3) the effect of fair value measures on earnings. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently in the process of evaluating the impact of SFAS No. 157.
15.	Segment Information
	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 multi-peril package, commercial automobile and commercial property

21

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 homeowners and manufactured housing 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 been reported to the Company, 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 three and nine months ended September 30, 2006 and 2005. Corporate information is included to reconcile segment data to the consolidated financial statements (in thousands):

22

	Three Months Ended September 30,
	Commercial		Specialty		Personal
	Lines		Lines		Lines			Corporate			Total
2006:
Gross Written Premiums	$	367,785	$	62,602	$	26,204			—		$	456,591
Net Written Premiums	$	339,409	$	50,217	$	2,440			—		$	392,066
Revenue:
Net Earned Premiums	$	246,905	$	45,415	$	4,046			—		$	296,366
Net Investment Income		—		—		—			23,833			23,833
Net Realized Investment Loss		—		—		—			(6,976	)		(6,976	)
Other Income		—		—		677			118			795
Total Revenue		246,905		45,415		4,723			16,975			314,018
Losses and Expenses:
Net Loss and Loss Adjustment Expenses		54,841		26,385		3,480			—			84,706
Acquisition Costs and Other Underwriting Expenses		—		—		—			89,052			89,052
Other Operating Expenses		—		—		508			2,856			3,364
Total Losses and Expenses		54,841		26,385		3,988			91,908			177,122
Income Before Income Taxes		192,064		19,030		735			(74,933	)		136,896
Total Income Tax Expense		—		—		—			47,006			47,006
Net Income	$	192,064	$	19,030	$	735		$	(121,939	)	$	89,890
Total Assets		—		—	$	143,860		$	3,185,561		$	3,329,421
2005:
Gross Written Premiums	$	305,482	$	55,463	$	27,577		$	—		$	388,522
Net Written Premiums	$	284,315	$	44,751	$	11,303		$	—		$	340,369
Revenue:
Net Earned Premiums	$	197,400	$	39,006	$	8,364		$	—		$	244,770
Net Investment Income		—		—		—			16,979			16,979
Net Realized Investment Gain									1,097			1,097
Other Income		—		—		259			341			600
Total Revenue		197,400		39,006		8,623			18,417			263,446
Losses and Expenses:
Net Loss and Loss Adjustment Expenses		107,237		25,535		9,087			—			141,859
Acquisition Costs and Other Underwriting Expenses		—		—		—			67,542			67,542
Other Operating Expenses		—		—		242			4,900			5,142
Total Losses and Expenses		107,237		25,535		9,329			72,442			214,543
Income (Loss) Before Income Taxes		90,163		13,471		(706	)		(54,025	)		48,903
Total Income Tax Expense		—		—		—			13,813			13,813
Net Income (Loss)	$	90,163	$	13,471	$	(706	)	$	(67,838	)	$	35,090
Total Assets	$	—	$	—	$	184,277		$	2,560,271		$	2,744,548

23

	Nine Months Ended September 30,
	Commercial		Specialty		Personal
	Lines		Lines		Lines		Corporate			Total
2006:
Gross Written Premiums	$	875,386	$	175,097	$	75,514		—		$	1,125,997
Net Written Premiums	$	814,543	$	140,081	$	21,650		—		$	976,274
Revenue:
Net Earned Premiums	$	706,445	$	129,278	$	25,983		—		$	861,706
Net Investment Income		—		—		—		65,572			65,572
Net Realized Investment Loss		—		—		—		(9,782	)		(9,782	)
Other Income		—		—		1,459		244			1,703
Total Revenue		706,445		129,278		27,442		56,034			919,199
Losses and Expenses:
Net Loss and Loss Adjustment Expenses		250,013		74,580		12,533		—			337,126
Acquisition Costs and Other Underwriting Expenses		—		—		—		251,406			251,406
Other Operating Expenses		—		—		1,022		7,622			8,644
Total Losses and Expenses		250,013		74,580		13,555		259,028			597,176
Income Before Income Taxes		456,432		54,698		13,887		(202,994	)		322,023
Total Income Tax Expense		—		—		—		106,955			106,955
Net Income	$	456,432	$	54,698	$	13,887	$	(309,949	)	$	215,068
Total Assets		—		—	$	143,860	$	3,185,561		$	3,329,421
2005:
Gross Written Premiums	$	727,292	$	157,286	$	73,394	$	—		$	957,972
Net Written Premiums	$	686,689	$	120,660	$	37,156	$	—		$	844,505
Revenue:
Net Earned Premiums	$	564,575	$	111,227	$	38,859	$	—		$	714,661
Net Investment Income		—		—		—		45,843			45,843
Net Realized Investment Gain		—		—		—		12,191			12,191
Other Income		—		—		709		671			1,380
Total Revenue		564,575		111,227		39,568		58,705			774,075
Losses and Expenses:
Net Loss and Loss Adjustment Expenses	$	280,161	$	75,276	$	28,695	$	—		$	384,132
Acquisition Costs and Other Underwriting Expenses		—		—		—		189,316			189,316
Other Operating Expenses		—		—		285		14,806			15,091
Total Losses and Expenses		280,161		75,276		28,980		204,122			588,539
Income (Loss) Before Income Taxes		284,414		35,951		10,588		(145,417	)		185,536
Total Income Tax Expense		—		—		—		57,735			57,735
Net Income (Loss)	$	284,414	$	35,951	$	10,588	$	(203,152	)	$	127,801
Total Assets	$	—	$	—	$	184,277	$	2,560,271		$	2,744,548

24

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Although the Company’s financial performance is dependent upon its own specific business characteristics, certain risk factors can affect the profitability and/or the financial condition of the Company. These include, but are not limited to the risk factors set forth in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

These 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, 2005.

Critical Accounting Estimates

The preparation of the Company’s financial statements and related disclosures in conformity with generally accepted accounting principles, or GAAP, requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical experience and on various other factors that the Company believes are reasonable under the circumstances. Accounting policies and estimates are periodically reviewed and adjustments are made when facts and circumstances dictate. Critical accounting policies that are affected by accounting estimates include share-based compensation expense; fair value of investments, other than temporary impairments and impairment recognition for investments in securitized assets; liability for unpaid loss and loss adjustment expenses and reinsurance receivables. Such accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the Consolidated Financial Statements, and actual results could differ materially from these estimates. For a discussion of how these estimates and other factors may affect the Company’s business, also see the Risk Factors listed under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

Share-based Compensation Expense

Effective January 1, 2006, the Company adopted on a modified prospective transition method Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including stock options, stock settled stock appreciation rights (“SARS”), restricted stock and employee and director stock purchases related to the Employee Stock Purchase Plan, Nonqualified Employee Stock Purchase Plan, and Directors Stock Purchase Plan based on fair values. The Company’s financial statements as of and for the three and nine months ended September 30, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Share-based compensation expense recognized is based on the value of the portion of share-based payment awards that is ultimately expected to vest. Share-based compensation expense recognized in the Company’s Consolidated Statement of Operations and Comprehensive Income for the three and nine months ended September 30, 2006 includes compensation expense for share-based payment awards granted prior to, but not yet vested as of December 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123, and compensation expense for the share-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R), the Company elected to attribute the value of share-based compensation to expense using the straight-line method, which was previously used for its pro forma information required under SFAS 123. Share-based compensation expense related to stock options and SARS was $2.0 million and $5.0 million, respectively, before income taxes for the three and nine months ended September 30, 2006. During the three and nine months ended September 30, 2005, no share-based compensation expense related to stock options was recognized under the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB 25”). During the three and nine months ended September 30, 2006, share-based compensation expense related to restricted stock grants and employee and director stock purchase plans was $0.9 million and $2.5 million, respectively. During the three and nine months ended September 30, 2005, share-based compensation expense related to restricted stock grants was $0.2 million and $0.2 million, respectively under APB 25. See Note 9 to the Consolidated Financial Statements for additional information.

25

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

Upon adoption of SFAS 123(R), the Company elected to value share-based payment awards granted beginning in 2006 using the Black-Scholes option-pricing model, (“Black-Scholes model”) which was also previously used for the pro forma information required under SFAS 123. For additional information, see Note 9 to the Consolidated Financial Statements. The determination of fair value of share-based payment awards on the date of grant using the Black-Scholes model is affected by the Company’s stock price, as well as the input of other subjective assumptions. These assumptions include, but are not limited to the expected term of stock options and SARS and the Company’s expected stock price volatility over the term of the awards. Options and the option component of the Employee and Directors Stock Purchase Plans shares have characteristics significantly different from those of traded options, and changes in the assumptions can materially affect the fair value estimates.

The expected term of stock options and SARS represents the weighted-average period the stock options and SARS are expected to remain outstanding. The expected term is based on the observed and expected time to post-vesting exercise and forfeitures of options by the Company’s employees. Upon the adoption of SFAS 123(R), the expected term of stock options and SARS was determined based on the demographic grouping of employees. Prior to January 1, 2006, the expected term of stock options was determined based on a single grouping of employees. Upon adoption of SFAS 123(R), historical volatility was utilized in deriving the expected volatility assumption as allowed under SFAS 123(R). Prior to January 1, 2006, the historical stock price volatility in accordance with SFAS 123 for purposes of the Company’s pro forma information was utilized. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant appropriate for the expected life of the Company’s stock options and SARS. The dividend yield assumption is based on the history and the expectation of no dividend payouts.

Since share-based compensation expense recognized in the Consolidated Statement of Operations and Comprehensive Income for the three and nine months ended September 30, 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on historical experience. In the Company’s pro-forma information required under SFAS 123 for the periods prior to January 1, 2006, forfeitures were estimated based upon historical performance. If factors change and different assumptions are employed in the application of SFAS 123(R) in future periods, the actual compensation expense under SFAS 123(R) may differ significantly from what was recorded in the current period.

As of September 30, 2006 there was $31.4 million of total unrecognized compensation costs related to stock options, SARS and restricted stock granted under the Company’s compensation plan. This unrecognized compensation cost is expected to be recognized over a weighted-average period of 3.4 years.

Results of Operations (Nine Months ended September 30, 2006 vs. September 30, 2005)

Premiums: Premium information for the nine months ended September 30, 2006 vs. September 30, 2005 for the Company’s business segments is as follows (dollars in millions):

	Commercial Lines			Specialty Lines			Personal Lines			Total
2006 Gross Written Premiums	$	875.4		$	175.1		$	75.5		$	1,126.0
2005 Gross Written Premiums	$	727.3		$	157.3		$	73.4		$	958.0
Percentage Increase		20.4	%		11.3	%		2.9	%		17.5	%
2006 Gross Earned Premiums	$	761.8		$	161.0		$	76.5		$	999.3
2005 Gross Earned Premiums	$	643.2		$	143.6		$	73.4		$	860.2
Percentage Increase		18.4	%		12.1	%		4.2	%		16.2	%

The overall growth in gross written premiums is primarily attributable to the following:

26

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

• Prospecting efforts by marketing personnel in conjunction with long term relationships formed by the Company’s marketing Regional Vice Presidents continue to result in additional prospects and increased premium writings, most notably for the Company’s various commercial package and non profit management liability product lines.

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

• The introduction of several new niche product offerings, including religious organization commercial package and sports and fitness products.

• An increase to in-force policy counts as of September 30, 2006 versus September 30, 2005 of 39.2% and 17.3% for the commercial lines and specialty lines segments, respectively, primarily as a result of the factors discussed above.

• Realized average rate increases on renewal business approximating 0.9%, and 20.4% for the commercial and personal lines segments, respectively.

• An increase of $9.1 million in homeowners gross written premium as a result of Liberty American Insurance Group, Inc.’s continued planned shift in product mix of increasing homeowners product policies and reducing mobile homeowners product policies.

This growth was offset in part by:

• The decision by an automobile leasing customer to self-insure business previously written by the Company. As a result, gross written premiums for the commercial lines segment were reduced by $12.7 million.

• A decrease in mobile homeowners gross written premium of $12.2 million resulting from the continued planned shift in product mix noted above.

• A decrease in in-force policy counts for the personal lines segment of 24.2%, resulting from a decrease to the in-force counts for the mobile homeowners product of 79.1% and an increase to the in-force policy counts for the homeowners product of 14.7%, as a result of the continued planned shift in product mix noted above.

• Realized average rate decreases on renewal business approximating 0.8% for the specialty lines segment.

The respective net written premiums, and net earned premiums for commercial lines, specialty lines and personal lines segments for the nine months ended September 30, 2006 vs. September 30, 2005, were as follows (dollars in millions):

	Commercial Lines			Specialty Lines			Personal Lines			Total
2006 Net Written Premiums	$	814.5		$	140.1		$	21.7		$	976.3
2005 Net Written Premiums	$	686.7		$	120.6		$	37.2		$	844.5
Percentage Increase (Decrease)		18.6	%		16.2	%		(41.7	)%		15.6	%
2006 Net Earned Premiums	$	706.4		$	129.3		$	26.0		$	861.7
2005 Net Earned Premiums	$	564.6		$	111.2		$	38.9		$	714.7
Percentage Increase (Decrease)		25.1	%		16.3	%		(33.2	)%		20.6	%

The differing percentage changes in net written premiums and/or net earned premiums versus gross written premiums and/or gross earned premiums for the commercial lines, specialty lines and personal lines segments during the period results primarily from the following:

27

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

• A change in the Company’s net liability cession percentage under its quota share reinsurance agreement whereby the Company ceded 10% of its commercial and specialty lines net written and earned premiums and loss and loss adjustment expenses for policies incepting during 2004, due to its decision to terminate this agreement on a run-off basis effective December 31, 2004. Pursuant to the agreement, during the nine months ended September 30, 2006 and 2005, the Company ceded $(0.3) million (commercial lines segment) and $(0.5) million ($0.2 million for the commercial lines segment, $(0.7) million for the specialty lines segment) of net written premiums, respectively, and $0 million and $41.0 million ($34.2 million for the commercial lines segment, $6.7 million for the specialty lines segment, and $0.1 million for the personal lines segment) of net earned premiums, respectively.

• Certain of the Company’s reinsurance contracts have reinstatement or additional premium provisions under which the Company must pay reinstatement or additional reinsurance premiums to reinstate coverage provisions upon utilization of initial reinsurance coverage. During the nine months ended September 30, 2006 and 2005, the Company accrued $3.4 million ($1.4 million for the commercial lines segment and $2.0 million for the specialty lines segment) and $2.4 million ($1.0 million for the commercial lines segment and $1.4 million for the specialty lines segment) respectively, of reinstatement or additional reinsurance premium under its casualty excess of loss reinsurance treaty, as a result of changes in ultimate loss estimates. The reinstatement premium increased ceded written and earned premiums and reduced net written and earned premiums.

• During the nine months ended September 30, 2005, the Company experienced catastrophe losses attributable to Hurricanes Dennis, Katrina and Rita. These multiple hurricane events resulted in the recognition of reinstatement and accelerated catastrophe reinsurance premium expense of $1.4 million ($1.0 million for the Commercial Lines Segment and $0.4 million for the Personal Lines Segment) during the nine months ended September 30, 2005 due to the utilization of certain of the catastrophe reinsurance coverages. This recognition of reinstatement and accelerated reinsurance premium expense increased reinsurance ceded written and earned premiums and reduced net written and earned premiums.

• The Company also experienced higher property catastrophe reinsurance costs, increased catastrophe loss retentions, and decreased catastrophe coverage limits for its June 1, 2006 reinsurance renewal compared to the June 1, 2005 renewal as a result of the hardening property catastrophe reinsurance market. This hardening of the property catastrophe reinsurance market is generally due to the extent of catastrophe losses incurred by reinsurers during 2004 and 2005, along with the revision of reinsurers’ predictive models of potential future catastrophe risk. The Company’s property catastrophe reinsurance coverage effective June 1, 2006 through May 31, 2007 is summarized as follows:

- For its personal lines catastrophe losses, the Company’s reinsurance coverage is approximately $200.2 million in excess of the Company’s $7.5 million per occurrence retention. Of this total amount, the Florida Hurricane Catastrophe Fund (the “FHCF”) provides on an aggregate basis for Liberty American Select Insurance Company (“LASIC”) and Liberty American Insurance Company (“LAIC”) 90% coverage for approximately $108.6 million in excess of $34.4 million. In addition, LASIC purchased additional reimbursement coverage of $10.0 million in excess of approximately $7.5 million, which includes one prepaid reinstatement premium at no additional charge. The FHCF coverage inures to the benefit of the Company’s open-market catastrophe program. The coverage provided by the open-market catastrophe program (large reinsurers that are rated at least “A-” (Excellent) by A.M. Best Company) includes one mandatory reinstatement, but the FHCF coverage does not reinstate, except for the $10.0 million provided for in LASIC’s additional reimbursement coverage. Since the FHCF reimbursement coverage cannot be reinstated, the Company’s open-market program is structured such that catastrophe reinsurance coverage in excess of the FHCF coverage will “drop down” and fill in any portion of the FHCF coverage which has been utilized.

- In addition, the Company has purchased reinstatement premium protection reinsurance contracts for its personal lines open-market catastrophe reinsurance contracts, effective September 1, 2006, which pay 100% of the reinstatement premium for the one mandatory reinstatement which the Company becomes liable to pay as a result of loss occurrences exceeding $17.5 million for its personal lines open-market catastrophe reinsurance program.

28

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

- For its commercial lines catastrophe losses, the Company’s open-market catastrophe reinsurance coverage is $90.0 million in excess of the Company’s $10.0 million per occurrence retention. In addition, the FHCF provides on an aggregate basis for Philadelphia Indemnity Insurance Company 90% coverage for approximately $1.1 million in excess of $0.4 million, resulting in total commercial lines reinsurance coverage of approximately $91.1 million in excess of the Company’s $10.0 per occurrence retention.

          Net Investment Income: Net investment income approximated $65.6 million for the nine months ended September 30, 2006 and $45.8 million for the same period of 2005. Total investments grew to $2,321.5 million as of September 30, 2006 from $1,833.1 million as of September 30, 2005. The growth in investment income is primarily due to increased investments which arose from investing net cash flows provided from operating activities, during a period in which the general level of interest rates increased. The Company’s average duration of its fixed income portfolio was 3.9 years and 4.1 years at September 30, 2006 and September 30, 2005, respectively. The Company’s taxable equivalent book yield on its fixed income holdings approximated 5.3% at September 30, 2006, compared to 4.8% at September 30, 2005. Net investment income was reduced by $1.3 million for the nine months ended September 30, 2005 due to the interest credit on the Funds Held Account balance pursuant to the Company’s quota share reinsurance agreement (see Note 6).

          The total pre-tax return, which includes the effects of both income and price returns on securities, of the Company’s fixed income portfolio was 3.33% and 1.70% for the nine months ended September 30, 2006 and 2005, respectively, compared to the Lehman Brothers Intermediate Aggregate Bond Index (“the Index”) total pre-tax return of 3.27% and 1.45% for the same periods, respectively. The Company expects some variation in its portfolio’s total return compared to the Index because of the differing sector, security and duration composition of its portfolio as compared to the Index.

          Net Realized Investment Gain (Loss): Net realized investment gains (losses) were $(9.8) million for the nine months ended September 30, 2006 and $12.2 million for the same period in 2005. The Company realized net investment losses of $1.3 million and $1.5 million from the sale of fixed maturity and equity securities, respectively, for the nine months ended September 30, 2006, and $4.6 million and $2.4 million in non-cash realized investment losses for fixed maturity and equity securities, respectively, as a result of the Company’s impairment evaluation. The $4.6 million in non-cash realized investment losses for fixed maturities resulting from the Company’s impairment evaluation included approximately $4.2 million of non-cash realized investment losses on available for sale fixed maturity investments that have been sold during the fourth quarter of 2006 as a result of tax planning and investment portfolio management strategies.

          The Company realized net investment gains of $3.8 million and $11.9 million from the sale of fixed maturity and equity securities, respectively, for the nine months ended September 30, 2005, and $0 million and $0.3 million in non-cash realized investment losses for fixed maturity and equity securities, respectively, as a result of the Company’s impairment evaluation. The $11.9 million net realized gains from the sale of equity securities included approximately $11.0 million of net realized gains as a result of the liquidation of certain of the Company’s equity portfolios following the Company’s decision to change four of its common stock investment managers. Net realized investment gain was reduced by $3.2 million for the nine months ended September 30, 2005 due to the recognized loss of the change in fair value of a cash flow hedge entered into by the Company for which the anticipated transaction did not occur (see Note 4).

          Other Income: Other income approximated $1.7 million for the nine months ended September 30, 2006 and $1.4 million for the same period of 2005. Other income consists primarily of commissions earned on brokered personal lines business, fees earned on servicing personal lines business, and to a lesser extent brokered commercial lines business.

29

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

          Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment expenses decreased $47.0 million (12.2%) to $337.1 million for the nine months ended September 30, 2006 from $384.1 million for the same period of 2005, while the loss ratio decreased to 39.1% in 2006 from 53.8% in 2005.

The decrease in net loss and loss adjustment expenses was primarily due to:

• Net reserve actions taken during the nine months ended September 30, 2006, wherein the net estimated unpaid loss and loss adjustment expenses for accident years 2005 and prior were decreased by $78.3 million, as compared to net reserve actions taken during the nine months ended September 30, 2005 wherein the estimated net unpaid loss and loss adjustment expenses for accident years 2004 and prior were decreased by $14.7 million. Decreases in the estimated net unpaid loss and loss adjustment expenses for prior accident years during the nine months ended September 30, 2006 were as follows:

	Net Basis Decrease
	(In millions)
Accident Year 2005	$	58.6
Accident Year 2004		11.6
Accident Year 2003		3.1
Accident Years 2002 and prior		5.0
Total Decrease	$	78.3

• For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for all coverages on commercial package policies and for professional liability policies due to better than expected case incurred loss development.

• For accident year 2004, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for all coverages on commercial package polices due to better than expected case incurred loss development.

• For accident year 2003, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial automobile policies and automobile coverages on commercial package policies due to better than expected case incurred development.

• For accident years 2002 and prior, the decrease in net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial automobile policies due to lower than expected case incurred development.

	Establishing loss reserve estimates is a necessarily complex and imprecise process. The Company’s methodology is to employ several generally accepted actuarial methods to determine net unpaid loss and loss adjustment expenses. Over time, more reliance is placed on actuarial methods based on actual loss development, and accordingly, over time, less reliance is placed on actuarial methods based on expected loss development.
	The principal factor contributing to the decreases in the estimated net unpaid loss and loss adjustment expenses for prior accident years is the reconsideration of an assumption underlying previous estimates that loss ratio deterioration would result from the high growth rates experienced by the Company in the most recent accident years. As actual losses experienced on these accident years have continued to be lower than anticipated, it has become more likely that the ultimate loss ratio will prove to be better than originally estimated. Over time, greater credibility has been given to this favorable trend by applying greater weight to actuarial methods based on actual loss development. The result is a reduction to these years’ net unpaid loss and loss adjustment expenses, which, in turn, leads to lower ultimate loss ratio expectations for the more recent accident years. As significant weight is given to actuarial methods based on expected losses for the more recent accident years, the result of lower expectations is a reduction to these years’ net unpaid loss and loss adjustment expenses.
•	A reduction in the current accident year net ultimate loss and loss adjustment expense ratio, excluding catastrophe losses for the nine months ended September 30, 2006 compared to the same period in 2005. During the nine months ended September 30, 2006, a net ultimate loss and loss adjustment expense ratio, excluding catastrophe losses, of 48.2% was estimated for the 2006 accident year. During the nine months

30

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

	ended September 30, 2005, a net ultimate loss and loss adjustment expense ratio, excluding catastrophe losses, of 53.3% was estimated for the 2005 accident year.
	Since expectations for the current accident year ultimate loss ratio are derived from the Company’s expectations with respect to the preceding accident years, the improvement with respect to the 2003 to 2005 accident years due to better than expected case incurred development has favorable implications for the Company’s outlook of accident year 2006 as well. Therefore, ultimate loss ratio expectations for 2006 have been reassessed to reflect that business in the most recent accident years now appears to have better ultimate loss ratios than previously expected. However, while recognizing that better than originally expected ultimate loss ratios now appear to be emerging in 2005 and possibly 2006, sustainability remains in some doubt for the remainder of accident year 2006 and beyond due primarily to plans for continued high rates of growth as well as increasing competition. Though not yet strong enough to have material adverse effects on pricing or coverage terms, competitive pressures have been increasing since 2004. Premium rates have fallen slightly in some of the Company’s business segments. The impact of a softening insurance market on the Company’s underwriting results cannot be fully quantified in advance.
•	A $17.0 million reduction in hurricane catastrophe losses incurred. During the nine months ended September 30, 2005, the Company incurred $17.0 million of net loss and loss adjustment expenses related to Hurricanes Dennis, Katrina and Rita. There were no such catastrophe losses during the nine months ended September 30, 2006.
•	During the nine months ended September 30, 2005, the Company incurred $3.0 million of net loss and loss adjustment expenses attributable to estimated personal lines catastrophe losses from hailstorms which struck Florida in March 2005. There were no such catastrophe losses during the nine months ended September 30, 2006.

These decreases to net loss and loss adjustment expenses incurred were partially offset by:

• The growth in net earned premiums.

• An $18.6 million reduction in ceded loss and loss adjustment expenses pursuant to a 10% quota share agreement (See Premiums). Ceded loss and loss adjustment expenses pursuant to this quota share agreement for the nine months ended September 30, 2005 were $18.6 million; however, due to the Company’s decision to terminate this agreement on a run-off basis effective December 31, 2004, there were no losses ceded to this agreement during 2006.

          Acquisition Costs and Other Underwriting Expenses: Acquisition costs and other underwriting expenses increased $62.1 million (32.8%) to $251.4 million for the nine months ended September 30, 2006 from $189.3 million for the same period of 2005, and the expense ratio increased to 29.2% in 2006 from 26.5% in 2005. The increase in acquisition costs and other underwriting expenses was due primarily to the following:

• The growth in net earned premiums.

• An increase in insurance guaranty fund assessment expenses.

• Share-based compensation expense recognized under SFAS 123(R), which was adopted by the Company on January 1, 2006.

• An $18.9 million decrease in ceding commission earned pursuant to the Company’s quota share agreements (See “Premiums”). During the nine months ended September 30, 2006, the Company earned no ceding commissions related to quota share agreements as compared to $18.9 million during the same period of 2005. There were no ceded earned premiums pursuant to these quota share agreements for the nine months

31

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

ended September 30, 2006 as compared to $41.0 million for the same period of 2005 due to the Company’s decision to terminate its 10% quota share agreement on a run-off basis effective December 31, 2004.

          Other Operating Expenses: Other operating expenses decreased by $6.5 million to $8.6 million for the nine months ended September 30, 2006 from $15.1 million for the same period of 2005. Of this decrease, $2.0 million is due to a bonus accrual for the nine months ended September 30, 2005 related to the terms of an employment agreement with the Company’s founder and Chairman.

          Income Tax Expense: The Company’s effective tax rate for the nine months ended September 30, 2006 and 2005 was 33.2% and 31.1%, 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, 2006 vs. September 30, 2005)

          Premiums: Premium information for the three months ended September 30, 2006 vs. September 30, 2005 for the Company’s business segments is as follows (dollars in millions):

	Commercial Lines			Specialty Lines			Personal Lines			Total
2006 Gross Written Premiums	$	367.8		$	62.6		$	26.2		$	456.6
2005 Gross Written Premiums	$	305.4		$	55.5		$	27.6		$	388.5
Percentage Increase (Decrease)		20.4	%		12.8	%		(5.1	)%		17.5	%
2006 Gross Earned Premiums	$	268.7		$	56.0		$	25.3		$	350.0
2005 Gross Earned Premiums	$	220.2		$	49.1		$	22.7		$	292.0
Percentage Increase		22.0	%		14.1	%		11.5	%		19.9	%

The overall growth in gross written premiums is primarily attributable to the following:

• Prospecting efforts by marketing personnel in conjunction with long term relationships formed by the Company’s marketing Regional Vice Presidents continue to result in additional prospects and increased premium writings, most notably for the Company’s various commercial package and non-profit management liability product lines.

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

• The introduction of several new niche product offerings, including religious organization commercial package and sports and fitness products.

• An increase to in-force policy counts as of September 30, 2006 versus September 30, 2005 of 39.2% and 17.3% for the commercial lines and specialty lines segments, respectively, primarily as a result of the factors discussed above.

• Realized average rate increases on renewal business approximating 0.8%, and 39.1% for the commercial and personal lines segments, respectively.

This growth was partially offset by:

• A decrease in mobile homeowners gross written premium of $2.7 million, resulting from the continued planned shift in product mix to homeowners product policies.

32

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

• A decrease in in-force policy counts for the personal lines segment of 24.2%, resulting from a decrease to the in-force counts for the mobile homeowners product of 79.1% and an increase to the in-force policy counts for the homeowners product of 14.7%, as a result of the continued planned shift in product mix noted above.

• Realized average rate decreases on renewal business approximating 1.1% for the specialty lines segment.

The respective net written premiums, and net earned premiums for commercial lines, specialty lines and personal lines segments for the three months ended September 30, 2006 vs. September 30, 2005, were as follows (dollars in millions):

	Commercial Lines			Specialty Lines			Personal Lines			Total
2006 Net Written Premiums	$	339.4		$	50.2		$	2.5		$	392.1
2005 Net Written Premiums	$	284.3		$	44.8		$	11.3		$	340.4
Percentage Increase (Decrease)		19.4	%		12.1	%		(77.9	)%		15.2	%
2006 Net Earned Premiums	$	246.9		$	45.4		$	4.1		$	296.4
2005 Net Earned Premiums	$	197.4		$	39.0		$	8.4		$	244.8
Percentage Increase (Decrease)		25.1	%		16.4	%		(51.2	)%		21.1	%

The differing percentage changes in net written premiums and/or net earned premiums versus gross written premiums and/or gross earned premiums for the commercial lines, specialty lines and personal lines segments during the year results primarily from the following:

• A change in the Company’s net liability cession percentage under its quota share reinsurance agreement, whereby the Company ceded 10% of its commercial and specialty lines net written and earned premiums and loss and loss adjustment expenses for policies incepting during 2004, due to its decision to terminate this agreement on a run-off basis effective December 31, 2004. Pursuant to the agreement, during the three months ended September 30, 2006 and 2005, the Company ceded $0 million and $(0.1) million for the commercial lines segment of net written premiums, respectively, and $0 million and $7.8 million ($6.5 million for the commercial lines segment, $1.3 million for the specialty lines segment, and $0 million for the personal lines segment) of net earned premiums, respectively.

• During the three months ended September 30, 2005, the Company experienced catastrophe losses attributable to Hurricanes Dennis, Katrina and Rita. These events resulted in the recognition of reinstatement and accelerated catastrophe reinsurance premium expense of $1.4 million ($1.0 million for the Commercial Lines Segment, and $0.4 million for the Personal Lines Segment) during the three months ended September 30, 2005 due to the utilization of certain of the catastrophe reinsurance coverage. This recognition of reinstatement and accelerated reinsurance premium expense increased reinsurance ceded written and earned premiums and reduced net written and earned premiums.

The hardening of the reinsurance market, generally due to catastrophe losses incurred by reinsurers during 2004 and 2005 along with reinsurers’ revised models of potential future catastrophe risk, have led to higher property catastrophe reinsurance costs in 2006 compared to 2005. The Company’s catastrophe reinsurance premium rates for its June 1, 2006 catastrophe reinsurance program renewal are higher than originally anticipated, its catastrophe reinsurance loss retentions are increased, and its catastrophe reinsurance coverage limits are decreased, as compared to its June 1, 2005 catastrophe reinsurance program set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

          Net Investment Income: Net investment income was $23.8 million for the three months ended September 30, 2006 and $17.0 million for the same period of 2005. Total investments grew to $2,321.5 million as of September 30, 2006 from $1,833.1 million as of September 30, 2005. The growth in investment income is primarily due to increased investments which arose from investing net cash flows provided from operating activities. The

33

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

Company’s average duration of its fixed income portfolio was 3.9 years and 4.1 years as of September 30, 2006 and September 30, 2005, respectively. The Company’s taxable equivalent book yield on its fixed income holdings approximated 5.3% as of September 30, 2006, compared to 4.8% as of September 30, 2005. Net investment income was reduced by $0.5 million for the three months ended September 30, 2005 due to the interest credit on the Funds Held Account balance pursuant to the Company’s quota share reinsurance agreement (see Note 6).

          The total pre-tax return, which includes the effects of both income and price returns on securities, of the Company’s fixed income portfolio was 3.01% and (0.16)% for the three months ended September 30, 2006 and 2005, respectively, compared to the Lehman Brothers Intermediate Aggregate Bond Index (“the Index”) total pre-tax return of 3.41% and (0.39)% for the same periods, respectively. The Company expects some variation in its portfolio’s total return compared to the Index because of the differing sector, security and duration composition of its portfolio as compared to the Index.

          Net Realized Investment Gain (Loss): Net realized investment gains (losses) were $(7.0) million for the three months ended September 30, 2006 and $1.1 million for the same period in 2005. The Company realized net investment losses of $0 million and $1.3 million from the sale of fixed maturity and equity securities, respectively, for the three months ended September 30, 2006, and $4.5 million and $1.2 million in non-cash realized investment losses for fixed maturity and equity securities, respectively, as a result of the Company’s impairment evaluation. The $4.5 million in non-cash realized investment losses for fixed maturities resulting from the Company’s impairment evaluation included approximately $4.2 million of non-cash realized investment losses on available for sale fixed maturity investments that have been sold during the fourth quarter of 2006 as a result of tax planning and investment portfolio management strategies.

The Company realized net investment gains of $0.1 million and $1.1 million from the sale of fixed maturity and equity securities, respectively, for the three months ended September 30, 2005, and $0 million and $0.1 million in non-cash realized investment losses for fixed maturity and equity securities, respectively, as a result of the Company’s impairment evaluation.

          Other Income: Other income approximated $0.8 million for the three months ended September 30, 2006 and $0.6 million for the same period of 2005. Other income consists primarily of commissions earned on brokered personal lines business, fees earned on servicing of personal lines business, and to a lesser extent brokered commercial lines business.

          Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment expenses decreased $57.2 million (40.3%) to $84.7 million for the three months ended September 30, 2006 from $141.9 million for the same period of 2005, and the loss ratio decreased to 28.6% in 2006 from 58.0% in 2005.

The decrease in net loss and loss adjustment expenses was primarily due to:

• Net reserve actions taken during the three months ended September 30, 2006, wherein the net estimated unpaid loss and loss adjustment expenses for accident years 2005 and prior were decreased by $42.7 million as compared to reserve actions taken during the three months ended September 30, 2005 wherein the estimated net unpaid loss and loss adjustment expenses for accident years 2004 and prior were decreased by $7.3 million. Decreases in the estimated net unpaid loss and loss adjustment expenses for prior accident years during the three months ended September 30, 2006 were as follows:

34

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

	Net Basis Decrease
	(In millions)
Accident Year 2005	$	32.2
Accident Year 2004		8.0
Accident Year 2003		2.5
Accident Years 2002 and prior		—
Total Decrease	$	42.7

• For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for all coverages on commercial package policies due to better than expected case incurred loss development.

• For accident year 2004, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for general liability and automobile coverages on commercial package polices due to better than expected case incurred loss development.

• For accident year 2003, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial automobile policies and automobile coverages on commercial package policies due to better than expected case incurred development.

	Establishing loss reserve estimates is a necessarily complex and imprecise process. The Company’s methodology is to employ several generally accepted actuarial methods to determine net unpaid loss and loss adjustment expenses. Over time, more reliance is placed on actuarial methods based on actual loss development, and accordingly, over time, less reliance is placed on actuarial methods based on expected loss development.
	The principal factor contributing to the decreases in the estimated net unpaid loss and loss adjustment expenses for prior accident years is the reconsideration of an assumption underlying previous estimates that loss ratio deterioration would result from the high growth rates experienced by the Company in the most recent accident years. As actual losses experienced on these accident years have continued to be lower than anticipated, it has become more likely that the ultimate loss ratio will prove to be better than originally estimated. Over time, greater credibility has been given to this favorable trend by applying greater weight to actuarial methods based on actual loss development. The result is a reduction to these years’ net unpaid loss and loss adjustment expenses, which, in turn, leads to lower ultimate loss ratio expectations for the more recent accident years. As significant weight is given to actuarial methods based on expected losses for the more recent accident years, the result of lower expectations is a reduction to these years’ net unpaid loss and loss adjustment expenses.
•	A reduction in the current accident year net ultimate loss and loss adjustment expense ratio, excluding catastrophe losses for the three months ended September 30, 2006, compared to the same period in 2005. During the three months ended September 30, 2006, a net ultimate loss and loss adjustment expense ratio, excluding catastrophe losses, of 43.0% was estimated for the 2006 accident year. During the three months ended September 30, 2005, a net ultimate loss and loss adjustment expense ratio, excluding catastrophe losses, of 54.0% was estimated for the 2005 accident year..
	Since expectations for the current accident year ultimate loss and loss adjustment expense ratio are derived from the Company’s expectations with respect to the preceding accident years, the improvement with respect to the 2003 to 2005 accident years due to better than expected case incurred development has favorable implications for the Company’s outlook of accident year 2006 as well. Therefore, ultimate loss ratio expectations for 2006 have been reassessed to reflect that business in the most recent accident years now appears to have better ultimate loss ratios than previously expected. However, while recognizing that better than originally expected ultimate loss ratios now appear to be emerging in 2005 and possibly 2006, sustainability remains in some doubt for the remainder of accident year 2006 and beyond due primarily to plans for continued high rates of growth as well as increasing competition. Though not yet strong enough to have material adverse effects on pricing or coverage terms, competitive pressures have been increasing since 2004. Premium rates have fallen slightly in some of the Company’s business segments. The impact of a softening insurance market on the Company’s underwriting results cannot be fully quantified in advance.

35

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

• A $17.0 million reduction in hurricane catastrophe losses incurred. During the three months ended September 30, 2005, the Company incurred $17.0 million of net loss and loss adjustment expenses related to Hurricanes Dennis, Katrina and Rita. There were no such catastrophe losses during the three months ended September 30, 2006.

These decreases to the net loss and loss adjustment expenses incurred were partially offset by the growth in net earned premiums.

          Acquisition Costs and Other Underwriting Expenses: Acquisition costs and other underwriting expenses increased $21.6 million (32.0%) to $89.1 million for the three months ended September 30, 2006 from $67.5 million for the same period of 2005, and the expense ratio increased to 30.0% in 2006 from 27.6% in 2005. The increase in acquisition costs and other underwriting expenses was due primarily to the following:

• The growth in net earned premiums.

• An increase in insurance guaranty fund assessment expenses.

• Share-based compensation expense recognized under SFAS 123(R), which was adopted by the Company on January 1, 2006.

• A $3.9 million decrease in ceding commission earned pursuant to quota share agreements (See Premiums). During the three months ended September 30, 2006, the Company earned no ceding commissions related to quota share agreements as compared to $3.9 million of earned ceding commissions related to quota share agreements during the same period of 2005. There were no ceded earned premiums pursuant to these quota share agreements for the three months ended September 30, 2006 as compared to $7.8 million for the same period of 2005, due to the Company’s decision to terminate its 10% quota share agreement on a run-off basis effective December 31, 2004.

These increases to acquisition costs and other underwriting expenses incurred were partially offset by a $3.9 million reduction in expenses related to insurance related assessments from Citizens Property Insurance Corporation (“Florida Citizens”), which was created by the state of Florida to provide insurance to property owners unable to obtain coverage in the private insurance market. During the three months ended September 30, 2006 and 2005, the Company recognized a $0.4 million benefit and $3.5 million expense, respectively, related to Florida Citizens.

          Other Operating Expenses: Other operating expenses decreased by $1.7 million to $3.4 million for the three months ended September 30, 2006 from $5.1 million for the same period of 2005.

          Income Tax Expense: The Company’s effective tax rate for the three months ended September 30, 2006 and 2005 was 34.3% and 28.2%, 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.

Investments

The Company’s investment objectives are the realization of relatively high levels of after-tax net investment income with competitive after-tax total rates of return and a prudent level of risk. The Company also maintains securities in an amount and a duration adequate to meet the Company’s cash requirements, 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, 2006 approximately 85.7% and 10.3% 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 90.1% and 8.1%, respectively, as of December 31, 2005.

36

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

Of the total investments in fixed maturity securities, asset backed, mortgage pass-through, and collateralized mortgage obligation securities, on a cost basis, amounted to $266.7 million, $440.8 million and $329.1 million, respectively, as of September 30, 2006, and $138.3 million, $282.3 million and $227.0 million, respectively, as of December 31, 2005.

The Company regularly performs impairment reviews with respect to its investments. For investments other than interests in securitized assets, these reviews include identifying any security whose fair value is below its cost and an analysis of securities meeting predetermined impairment thresholds to determine whether such decline is other than temporary. If the Company determines that it does not intend to hold a security to maturity or 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. This evaluation resulted in non-cash realized investment losses of $5.7 million and $0.1 million, respectively, for the three months ended September 30, 2006 and 2005, and $7.0 million and $0.3 million, respectively, for the nine months ended September 30, 2006 and 2005. The Company’s impairment review also includes an impairment evaluation for interests in securitized assets conducted in accordance with the guidance provided by the Emerging Issues Task Force of the Financial Accounting Standards Board. There were no non-cash realized investment losses recorded for the three or nine months ended September 30, 2006 or 2005 as a result of the Company’s impairment evaluation for investments in securitized assets.

The Company’s fixed maturity portfolio amounted to $2,046.0 million and $1,761.5 million, as of September 30, 2006 and December 31, 2005, respectively, of which 99.8% of the portfolio as of September 30, 2006 and 99.9% of the portfolio as of December 31, 2005 was comprised of investment grade securities. The Company had fixed maturity investments with gross unrealized losses amounting to $17.7 million and $23.5 million as of September 30, 2006 and December 31, 2005, respectively. Of these amounts, interests in securitized assets had gross unrealized losses amounting to $9.5 million and $9.7 million as of September 30, 2006 and December 31, 2005, respectively.

The following table identifies the period of time securities with an unrealized loss as of September 30, 2006 have continuously been in an unrealized loss position. Included in the amounts displayed in the table are approximately $600 of unrealized losses due to non-investment grade fixed maturity securities having a fair value of $2.4 million. No issuer of securities or industry represents more than 3.8% and 26.1%, respectively, of the total estimated fair value, or 5.3% and 28.0%, respectively, of the total gross unrealized loss included in the table below. The industry concentration represents investments in “AAA” rated Mortgage Backed Securities issued by agencies of the U.S. Government which are collateralized by pools of residential mortgage loans. The unrealized losses on these securities are generally attributable to interest rate increases. The contractual repayment of these securities is guaranteed by agencies of the U.S. Government, and it is therefore expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. At the present time the Company has the ability and intent to hold these securities until a recovery of fair value, which may be maturity; therefore the Company does not consider these investments to be other than temporarily impaired as of September 30, 2006.

37

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

	Gross Unrealized Losses as of September 30, 2006
	(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	$	—	$	0.1	$	0.1	$	1.1	$	1.2
4 – 6 months		0.1		—		0.1		1.6		1.7
7 – 9 months		0.1		1.2		1.3		1.8		3.1
10 – 12 months		0.1		0.7		0.8		—		0.8
13 – 18 months		2.4		4.2		6.6		—		6.6
19 – 24 months		4.2		2.5		6.7		—		6.7
> 24 months		1.3		0.8		2.1		—		2.1
Total Gross Unrealized Losses	$	8.2	$	9.5	$	17.7	$	4.5	$	22.2
Estimated fair value of securities with a gross unrealized loss	$	558	$	533	$	1,091	$	47	$	1,138

The Company’s impairment evaluation as of September 30, 2006 for fixed maturities available for sale excluding interests in securitized assets resulted in the following conclusions:

US Treasury Securities and Obligations of U.S. Government Agencies:

The unrealized losses on the Company’s Aaa/AAA rated investments in U.S. Treasury Securities and Obligations of U.S. Government Agencies are attributable to interest rate increases. Of the 32 investment positions held, approximately 71.9% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investments.

Obligations of States and Political Subdivisions:

The unrealized losses on the Company’s investments in long term tax exempt securities which have ratings of A2/A to AAA/Aaa are generally caused by interest rate increases. Of the 635 investment positions held, approximately 53.5% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investments.

Corporate Debt Securities:

The unrealized losses on the Company’s long term investments in Corporate bonds which have ratings from Ba1/BB+ to Aaa/AAA are generally caused by interest rate increases. Of the 158 investment positions held, approximately 71.5% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investments. Therefore, it is expected that the securities would not be settled at a price less than the amortized cost of the investments.

The Company’s impairment evaluation as of September 30, 2006 for interests in securitized assets resulted in the following conclusions:

Asset Backed Securities:

The unrealized losses on the Company’s investments in Asset Backed Securities which have ratings of Aa1/AA+ to Aaa/AAA are generally caused by interest rate increases. Of the 163 investment positions held, approximately 40.5% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the security at a price less than the amortized cost of the investments.

38

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

Mortgage Pass-Through Securities:

The unrealized losses on the Company’s investments in Mortgage Pass-Through Securities which have ratings of Aaa/AAA are generally caused by interest rate increases. Of the 131 investment positions held, approximately 58.0% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the security at a price less than the amortized cost of the investments.

Collateralized Mortgage Obligations:

The unrealized losses on the Company’s investments in Collateralized Mortgage Obligations which have ratings of Aaa/AAA are generally caused by interest rate increases. Of the 168 investment positions held, approximately 57.7% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the security at a price less than the amortized cost of the investments.

The Company’s impairment evaluation as of September 30, 2006 for equity securities resulted in the following conclusions:

Equity Securities:

Based upon the analytical procedures performed with respect to the Company’s equity securities, the Company does not consider the equity securities to be other than temporarily impaired. Of the 3,589 investment positions held, approximately 22.5% were in an unrealized loss position.

As mentioned above, there are certain risks and uncertainties inherent in the Company’s impairment methodology, including, but not limited to, the financial condition of specific industry sectors and the resultant effect on any underlying security collateral values and changes in accounting, tax, and/or regulatory requirements which may have an effect on either, or both, the investor and/or the issuer. Should the Company subsequently determine that it does not intend to hold the security until maturity or should it determine that 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 as a realized loss for the period in which such determination was made, thereby reducing earnings for such period by the amount of such realized loss.

For the three months ended September 30, 2006, the Company’s gross loss on the sale of fixed maturity and equity securities amounted to $0 million and $2.3 million, respectively. The fair value of the fixed maturity and equity securities at the time of sale was $0.4 million and $10.8 million, respectively. For the three months ended September 30, 2005, the Company’s gross loss on the sale of fixed maturity and equity securities amounted to $0.2 million and $0.5 million, respectively. The fair value of the fixed maturity and equity securities at the time of sale was $6.3 million and $7.2 million, respectively.

For the nine months ended September 30, 2006, the Company’s gross loss on the sale of fixed maturity and equity securities amounted to $1.3 million and $6.7 million, respectively. The fair value of the fixed maturity and equity securities at the time of sale was $55.3 million and $37.0 million, respectively. For the nine months ended September 30, 2005, the Company’s gross loss on the sale of fixed maturity and equity securities amounted to $0.5 million and $3.5 million, respectively. The fair value of the fixed maturity and equity securities at the time of sale was $26.9 million and $38.6 million, respectively.

$1.2 million of the $3.5 million gross loss on the sale of equity securities for the nine months ended September 30, 2005 was the result of the liquidation of certain of the Company’s equity portfolios following the Company’s decision to change four of its common stock investment managers. This $1.2 million realized gross loss was in addition to the previously reported $1.4 million impairment loss recognized during the three months ended December 31, 2004 upon the Company’s initial decision to change three of its common stock investment managers and no longer hold the securities to recovery.

39

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

Liquidity and Capital Resources

For the nine months ended September 30, 2006, the Company’s fixed maturity investments experienced unrealized investment appreciation of $5.9 million, net of the related deferred tax expense of $3.2 million and its equity investments experienced unrealized investment appreciation of $11.1 million, net of the related deferred tax expense of $6.0 million. At September 30, 2006, the Company had total investments with a carrying value of $2,321.5 million, of which 88.1% 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, mortgage pass-through and asset backed securities. The remaining 11.9% of the Company’s total investments consisted primarily of publicly traded common stock securities.

The Company produced net cash from operations of $383.1 million and $317.9 million for the nine months ended September 30, 2006 and 2005, respectively. Sources of operating funds consist primarily of net premiums written 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, 2006 was primarily generated from premium growth during the current year due to increases in the number of policies written and, to a lesser extent, price increases realized on renewal business. Net loss and loss expense payments were $256.7 million and $217.2 million, respectively, for the nine months ended September 30, 2006 and 2005. The nine months ended September 30, 2005 includes a $5.4 million tax benefit from the exercise of stock options issued under the Company’s performance based compensation plan. Management believes that the Company has adequate liquidity to pay all of its currently foreseeable claims and meet all other cash needs.

The Company generated $13.9 million of net cash from financing activities during the nine months ended September 30, 2006. Cash provided from financing activities consisted of an $8.4 million excess tax benefit from the issuance of shares pursuant to stock based compensation plans; $6.5 million and $1.7 million of proceeds from the issuance of shares pursuant to the Company’s stock based compensation and stock purchase plans, respectively, and $2.0 million from the collection of notes receivable associated with the Company’s employee stock purchase plans. Cash used for financing activities consisted of $4.7 million for shares withheld to satisfy a minimum required tax withholding obligation arising upon the exercise of employee stock options.

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. The insurance subsidiaries in the past 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. At September 30, 2006, no borrowings were outstanding, and the insurance subsidiaries’ unused borrowing capacity was $569.9 million. The borrowing capacity provides an immediately available line of credit based upon the companies’ FHLB eligible collateral.

On June 30, 2006, the Company entered into an unsecured Credit Agreement (the “Credit Agreement”) which establishes a revolving credit facility providing for loans to the Company of up to $50.0 million in principal amount outstanding at any one time, with a maturity date of June 29, 2007. The Credit Agreement contains an annual commitment fee of 8.0 basis points per annum on the unused commitments under the Credit Agreement and provides capacity for working capital and other general corporate purposes. As of September 30, 2006, no borrowings have been made by the Company under the Credit Agreement. Each loan under the facility will bear interest at a per annum rate equal to, at the Company’s option, (i) Libor plus 0.40% or the higher of the Administrative Agent and Lender’s prime rate and the Federal Funds rate plus 0.50%. The Credit Agreement contains various representations, covenants and events of default typical for credit facilities of this type.

On February 8, 2006, the Company announced the declaration of a three-for-one stock split of its common stock, which was effected in the form of a stock dividend. Record holders of the Company’s common stock at the

40

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

close of business on February 20, 2006 (the “Shareholders of Record”) received two additional shares of common stock for each share held on that date. The additional shares of common stock were distributed to the Shareholders of Record in the form of a stock dividend on March 1, 2006. All share and per share amounts in this Management Discussion and Analysis have been adjusted to reflect the stock split for all periods presented.

The NAIC’s risk-based capital method is 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 capital and surplus of the Company’s insurance subsidiaries is in excess of the prescribed risk-based capital requirements.

New Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 155 “Accounting for Certain Hybrid Financial Instruments” (“SFAS No. 155”). Under current generally accepted accounting principles, an entity that holds a financial instrument with an embedded derivative must bifurcate the financial instrument, resulting in the host and the embedded derivative being accounted for separately. SFAS No. 155 permits, but does not require, entities to account for financial instruments with an embedded derivative at fair value thus negating the need to bifurcate the instrument between its host and the embedded derivative. SFAS No. 155 is effective as of the beginning of the first annual reporting period that begins after September 15, 2006. Subsequently, SFAS No. 155 was modified.

At the FASB meeting on October 25, 2006, the FASB approved a narrow scope exception for certain beneficial interests that require an embedded derivative analysis. The issue is not whether the beneficial interests contain an embedded derivative, but when the embedded derivative is required to be separately accounted for in accordance with Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). The Board directed the FASB Staff to prepare an exposure draft for a 30 day comment period with the expectation that final guidance in the form of an SFAS 133 Implementation Issue will be issued in the first quarter of 2007.

The narrow scope exception approved by the FASB appears to exempt securities backed by financial assets where the only embedded derivative is prepayment based. This appears to exempt fixed rate asset backed, mortgage pass-through, and collateralized mortgage obligation securities previously thought to be subject to SFAS No. 155. Should the final determination be that these securities are exempt from SFAS No. 155, the Company believes that the financial impact of application will not be significant.

In July 2006, the FASB released Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48, which is effective for fiscal years beginning after December 15, 2006, also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition. The Company is currently in the process of evaluating the impact of FIN 48.

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”), which clarifies that the term fair value is intended to mean a market-based measure, not an entity-specific measure and gives the highest priority to quoted prices in active markets in determining fair value. SFAS No. 157 requires disclosures about (1) the extent to which companies measure assets and liabilities at fair value, (2) the methods and assumptions used to measure fair value, and (3) the effect of fair value measures on earnings. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently in the process of evaluating the impact of SFAS No. 157.

41

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

Forward-Looking Information

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 those matters referred to under the caption “General”, above. The Company does not intend to publicly update any forward looking statement, except as may be required by law.

42

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 classified as Available For Sale and consist of diversified issuers and issues.

The tables below provide information about the Company’s financial instruments that are sensitive to changes in interest rates and shows the effect of hypothetical changes in interest rates as of September 30, 2006 and 2005. The selected hypothetical changes do not indicate what could be the potential best or worst case scenarios. The information is presented in U.S. dollar equivalents, which is the Company’s reporting currency.

				Estimated		Hypothetical Percentage
			Hypothetical Change	Fair Value after		Increase (Decrease) in
	Estimated		in Interest Rates	Hypothetical Changes					Shareholders’
	Fair Value		(bp=basis points)	in Interest Rates		Fair Value			Equity
	(Dollars in Thousands)
September 30, 2006:
Investments
Total Fixed Maturities Available For Sale	$	2,045,960	200 bp decrease	$	2,203,927		7.7	%		9.6	%
			100 bp decrease	$	2,125,622		3.9	%		4.8	%
			50 bp decrease	$	2,086,185		2.0	%		2.4	%
			50 bp increase	$	2,005,102		(2.0	)%		(2.5	)%
			100 bp increase	$	1,963,708		(4.0	)%		(5.0	)%
			200 bp increase	$	1,880,367		(8.1	)%		(10.0	)%
September 30, 2005:
Investments
Total Fixed Maturities Available For Sale	$	1,670,815	200 bp decrease	$	1,796,534		7.5	%		10.4	%
			100 bp decrease	$	1,737,497		4.0	%		5.5	%
			50 bp decrease	$	1,705,111		2.0	%		2.8	%
			50 bp increase	$	1,635,843		(2.1	)%		(2.9	)%
			100 bp increase	$	1,600,881		(4.2	)%		(5.8	)%
			200 bp increase	$	1,532,688		(8.3	)%		(11.4	)%

43

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. The Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are designed with the objective of providing reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). In designing and evaluating the Company’s disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, rather than absolute, assurance of achieving the desired control objectives.

An evaluation was performed by management, with the participation of the Company’s chief executive officer (“CEO”) and chief financial officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

(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.

44

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Not Applicable.

Item 1A. Risk Factors

There were no material changes to the risk factors disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company’s purchases of its common stock during the third quarter of 2006 are shown in the following table:

						(c) Total		(d)
						Number of		Approximate
						Shares		Dollar Value of
						Purchased as		Shares That
						Part of		May Yet Be
						Publicly		Purchased
	(a) Total Number			(b) Average		Announced		Under the
	of Shares			Price Paid per		Plans or		Plans or
Period	Purchased			Share		Programs		Programs
July 1 – July 31		875	(1)	$	27.83		—		—
								$	45,000,000	(2)
August 1 – August 31		483	(1)	$	27.85		—		—
								$	45,000,000	(2)
September 1 – September 30		150	(1)	$	27.79		—		—
								$	45,000,000	(2)

(1)	Such shares were issued under the Company’s Employee Stock Purchase Plan and Amended and Restated Employees’ Stock Incentive and Performance Based Compensation Plan and were repurchased by the Company upon the employee’s termination.
(2)	The Company’s total stock purchase authorization, which was publicly announced in August 1998 and subsequently increased, amounted to $75.3 million, of which $30.3 million has been utilized.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

45

Item 5. Other information

Not Applicable.

Item 6. Exhibits

Exhibits:

Exhibit No.	Description
10.1	Casualty (Clash) Excess of Loss Reinsurance Agreement with Swiss Reinsurance America Corporation effective January 1, 2006
10.2	Addendum No. 3 to the 3rd and 4th Property Excess of Loss Reinsurance Agreement with Swiss Reinsurance America Corporation — 50% Placement — effective January 1, 2006
10.3	Casualty Excess of Loss Reinsurance Contract effective January 1, 2006 — 20% Placement with Employers Reinsurance Corporation
10.4	Endorsement No. 4 to the Property Per Risk 1st and 2nd Excess of Loss and Terrorism Reinsurance Contract with General Reinsurance Corporation effective January 1, 2006
10.5	Commutation and Release Agreement with Trenwick America Reinsurance Corporation
10.6	$6,150,000 Excess $10,000,000 Catastrophe Reinsurance Contract with Aspen Insurance Limited effective June 1, 2006
10.7	First Excess Reinstatement Premium Protection Reinsurance Contract with Subscribing Reinsurers effective June 1, 2006 (Liberty American and Liberty American Select Insurance Companies)
10.8	Second and Third Excess Reinstatement Premium Protection Reinsurance Contract with Subscribing Reinsurers effective June 1, 2006 (Liberty American and Liberty American Select Insurance Companies)
10.9	Florida Hurricane Catastrophe Fund Reimbursement Contract and Addendum No. 1 effective June 1, 2006 (Liberty American Insurance Company)
10.10	Florida Hurricane Catastrophe Fund Reimbursement Contract and Addendums No. 1 and No. 2 effective June 1, 2006 (Liberty American Select Insurance Company)
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

46

SIGNATURES

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.

PHILADELPHIA CONSOLIDATED HOLDING CORP.

Registrant

Date November 9, 2006	James J. Maguire, Jr.
	James J. Maguire, Jr.
	President and Chief Executive Officer
	(Principal Executive Officer)
Date November 9, 2006	Craig P. Keller
	Craig P. Keller
	Executive Vice President, Secretary, Treasurer
	and Chief Financial Officer (Principal
	Financial and Accounting Officer)

47

EX-10.1

                                                                    Exhibit 10.1

                                                                    (SWISS LOGO)

                             CASUALTY EXCESS OF LOSS
                              REINSURANCE AGREEMENT
                          NO. POR376426-/376428-/376430

                           EFFECTIVE: January 1, 2006

                                     between
                 PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
                           following member Companies:
                    PHILADELPHIA INDEMNITY INSURANCE COMPANY
                         PHILADELPHIA INSURANCE COMPANY
                        both of Bala Cynwyd, Pennsylvania

                                       and

                      SWISS REINSURANCE AMERICA CORPORATION
                                Armonk, New York

POR376426-/376428-/376430                                        Revised 9/15/06



                                                                    (SWISS LOGO)

                  CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
                          NO. POR376426-/376428-/376430



ARTICLE   CONTENTS                          PAGE
- -------   --------                          ----
                                      
          PREAMBLE                           1
I         BUSINESS COVERED                   1
II        EFFECTIVE DATE AND TERMINATION     2
III       TERRITORY                          2
IV        LIMIT AND RETENTION                3
V         WARRANTY                           4
VI        REINSTATEMENT                      4
VII       ULTIMATE NET LOSS                  5
VIII      LOSS IN EXCESS OF POLICY LIMITS    6
IX        EXTRA CONTRACTUAL OBLIGATIONS      6
X         EXCLUSIONS                         7
XI        SPECIAL ACCEPTANCE                13
XII       LOSS OCCURRENCE                   13
XIII      REINSURANCE PREMIUM               14
XIV       REPORTS AND REMITTANCES           15
XV        CLAIMS                            16
XVI       SALVAGE AND SUBROGATION           17
XVII      TERRORISM EXCESS RECOVERY         17
XVIII     ACCESS TO RECORDS                 19
XIX       TAXES                             19
XX        CURRENCY                          19
XXI       OFFSET                            20
XXII      ERRORS OR OMISSIONS               20
XXIII     DISPUTE RESOLUTION                20
XXIV      INSOLVENCY                        22
XXV       SPECIAL TERMINATION               23
XXVI      AMENDMENTS                        24
          SIGNATURES                        25


ATTACHMENTS: POLLUTION LIABILITY EXCLUSION CLAUSE - REINSURANCE
             INSOLVENCY FUNDS EXCLUSION CLAUSE
             NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY -
                REINSURANCE  - U.S.A.
             NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY -
                REINSURANCE - CANADA
             NUCLEAR INCIDENT EXCLUSION CLAUSE -
                REINSURANCE - NO. 4

POR376426-/376428-/376430                                        Revised 9/15/06



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               PHARMACEUTICAL / MEDICAL COMPANY EXCLUSION LISTING

POR376426-/376428-/376430                                        Revised 9/15/06



                                                                    (SWISS LOGO)

                             CASUALTY EXCESS OF LOSS
                              REINSURANCE AGREEMENT
                          NO. POR376426-/376428-/376430
                  (hereinafter referred to as the "Agreement")

                                     between
                 PHILADELPHIA CONSOLIDATED HOLDING CORPORATION'S
                           following member Companies:
                    PHILADELPHIA INDEMNITY INSURANCE COMPANY
                         PHILADELPHIA INSURANCE COMPANY
                        both of Bala Cynwyd, Pennsylvania
                   (hereinafter referred to as the "Company")

                                       and

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

ARTICLE I - BUSINESS COVERED

A.   The Reinsurer shall indemnify the Company on an excess of loss basis in
     respect of the Company's Ultimate Net Loss paid by the Company as a result
     of losses occurring during the term of this Agreement, for Policies in
     force as of January 1, 2006, and new and renewal Policies becoming
     effective on or after said date, subject to the terms and conditions
     contained herein.

B.   This Agreement is solely between the Company and the Reinsurer, and nothing
     contained in this Agreement shall create any obligations or establish any
     rights against the Reinsurer in favor of any person or entity not a party
     hereto.

C.   The performance of obligations by both parties under this Agreement shall
     be in accordance with a fiduciary standard of good faith and fair dealing.

D.   The term "Policies" shall mean each of the Company's binders, policies and
     contracts of insurance on the business covered hereunder.

E.   Under this Agreement, the indemnity for reinsured loss applies only to the
     following Classes of Insurance, except as excluded under Article X-
     Exclusions of this Agreement.


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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, Advertising Injury Liability shall only apply
          to this Agreement when written as part of a Commercial Package Policy
          or a Commercial General Liability Coverage Form.

     3.   Commercial Umbrella Liability.

     4.   Professional Liability:

          Director's 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 Professional Liability, Employment Practices Liability.

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, 2006, and ending 12:01 a.m.,
     Eastern Standard Time, January 1, 2007.

B.   During the running of such notice as stipulated in Paragraph A. above, the
     Reinsurer shall participate in business coming within the terms of this
     Agreement until the date of termination of this Agreement.

C.   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.

ARTICLE III - TERRITORY

This Agreement applies to Policies issued by the Company within the United
States of America, its territories and possessions, and Canada and shall apply
to losses covered hereunder wherever occurring.


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ARTICLE IV - LIMIT AND RETENTION

A.   The limits and retentions provided under this Agreement are set forth in
     the following Parts I, II and III:

     Part I - First Excess of Loss (Accounting Code No. POR376426)

     The Company shall retain the first $2,000,000 of Ultimate Net Loss as
     respects any one Loss Occurrence. The Reinsurer shall then be liable for
     the amount by which the Company's Ultimate Net Loss exceeds the Company's
     retention of $2,000,000, but the liability of the Reinsurer shall never
     exceed $3,000,000 with respect to any one Loss Occurrence. However, in no
     event shall the liability of the Reinsurer arising out of Act(s) of
     Terrorism exceed $3,000,000 during the term of this Agreement.

     Part II - Second Excess of Loss (Accounting Code No POR376428)

     The Company shall retain the first $5,000,000 of Ultimate Net Loss as
     respects any one Loss Occurrence. The Reinsurer shall then be liable for
     the amount by which the Company's Ultimate Net Loss exceeds the Company's
     retention of $5,000,000, but the liability of the Reinsurer shall never
     exceed $5,000,000 with respect to any one Loss Occurrence. However, in no
     event shall the liability of the Reinsurer arising out of Act(s) of
     Terrorism exceed $5,000,000 during the term of this Agreement.

     Part III - Third Excess of Loss (Accounting Code No. POR376430)

     The Company shall retain the first $10,000,000 of Ultimate Net Loss as
     respects any one Loss Occurrence. The Reinsurer shall then be liable for
     the amount by which the Company's Ultimate Net Loss exceeds the Company's
     retention of $10,000,000, but the liability of the Reinsurer shall never
     exceed $10,000,000 with respect to any one Loss Occurrence. However, in no
     event shall the liability of the Reinsurer arising out of Act(s) of
     Terrorism exceed $10,000,000 during the term of this Agreement.

B.   The Company's retention and the Reinsurer's limit of liability for each
     Loss Occurrence, set forth in Parts I, II and III above, shall apply
     irrespective of the number of Policies affected or number of hazards in one
     Policy and regardless of the number of Classes of Insurance involved.

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

D.   An "Act of Terrorism" for purposes of this Agreement shall mean:


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                                                                    (SWISS LOGO)

     1.   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, (b) 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 (c) retaliating against any country for
          direct or vicarious support by that country of any other government or
          political system.

     2.   Any act declared pursuant to the Terrorism Risk Insurance Act of 2002,
          as amended, shall also be considered an "Act of Terrorism" for
          purposes of this Agreement.

ARTICLE V - WARRANTY

A.   It is warranted, or so deemed, that Casualty reinsurance is in effect for
     all policies issued by or on behalf of the Company with limits greater than
     $1,000,000 per occurrence or per claim made. It is also warranted, or so
     deemed, that the Company has in effect an Insurance Company Errors and
     Omissions policy with a limit of $10,000,000 and a retention /deductible of
     $1,000,000. This insurance, or reinsurance, whether collectible or not, and
     retention/deductible, shall be maintained until all losses reinsured under
     this Agreement are fully discharged and shall inure to the benefit of the
     reinsurer.

B.   It is further warranted that Policies subject to this Agreement with
     inuring coverage as deemed above, shall not exceed a combined limit for
     both the Primary Policy and Umbrella Policy of $11,000,000 per occurrence,
     or so deemed.

C.   The maximum policy period on business covered by this Agreement is one year
     plus odd time, not to exceed 120 days.

ARTICLE VI - REINSTATEMENT

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.   For each amount so reinstated the Company agrees to pay an additional
     premium calculated at pro rata of the annual premium hereon, being pro rata
     only as to the fraction of the limit of liability of this Agreement (i.e.,
     the fraction of $3,000,000 as respects Part I and $5,000,000 as respects
     Part II and $10,000,000 as respects Part III) so reinstated and 100% as to
     the term.


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C.   Nevertheless, the Reinsurer's liability hereunder shall never exceed
     $3,000,000 as respects Part I and $5,000,000 as respects Part II and
     $10,000,000 as respects Part III in respect of any one Loss Occurrence and
     shall be further limited in all during the term of this Agreement to
     $6,000,000 as respects Part I and $10,000,000 as respects Part II and
     $20,000,000 as respects Part III.

ARTICLE VII - ULTIMATE NET LOSS

A.   The term "Ultimate Net Loss" shall mean the actual sum paid by the Company
     in settlement of losses or liability including interest accrued prior to
     judgment after making deductions for all recoveries, including subrogation,
     salvages, and claims upon other reinsurances, whether collectible or not,
     which inure to the benefit of the Reinsurer under this Agreement, and shall
     include Loss Adjustment Expenses incurred by the Company; provided,
     however, that in the event of the insolvency of the Company, Ultimate Net
     Loss shall mean the amount of loss and Loss Adjustment Expenses for which
     the Company is liable, and payment by the Reinsurer shall be made to the
     liquidator, receiver, conservator or statutory successor of the Company in
     accordance with the provisions of Article XXIV- Insolvency of this
     Agreement.

B.   The term "Ultimate Net Loss" shall include 90% of Loss In Excess of Policy
     Limits and 90% of Extra Contractual Obligations, as defined herein, but
     only as respects business covered under this Agreement.

C.   The term "Loss Adjustment Expenses" shall mean all expenses incurred by the
     Company in connection with the investigation, settlement, defense or
     litigation, including court costs and post-judgment interest, of any claim
     or loss covered by the Policies reinsured under this Agreement, and shall
     include Declaratory Judgment Expenses. However, the term "Loss Adjustment
     Expenses" shall not include the salaries and expenses of Company employees,
     office expenses and other overhead expenses.

D.   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 applicable to Policies subject
     to this Agreement. In addition, the Company shall promptly notify the
     Reinsurer of any Declaratory Judgment Expenses subject to this Agreement.

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


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                                                                    (SWISS LOGO)

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

ARTICLE VIII - LOSS IN EXCESS OF POLICY LIMITS

A.   "Loss in Excess of Policy Limits" is defined as loss in excess of the limit
     of the original Policy, such loss in excess of the limit having been
     incurred because of 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.   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.

C.   For the purposes of this Article, the word "loss" shall mean any amounts
     which the Company would have been contractually liable to pay had it not
     been for the limit of the original Policy.

D.   With respect to coverage provided under this Article, recoveries from any
     insurance or reinsurance other than this Agreement shall be deducted to
     arrive at the amount of the Company's Ultimate Net Loss.

ARTICLE IX - EXTRA CONTRACTUAL OBLIGATIONS

A.   "Extra Contractual Obligations" are defined as those liabilities not
     covered under any other provision of this Agreement 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, 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.   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 accident, casualty, disaster or loss occurrence.


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                                                                    (SWISS LOGO)

C.   However, coverage hereunder as respects Extra Contractual Obligations shall
     not apply where the loss has been incurred due to the fraud of 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.

D.   Recoveries, collectibles or retention from any other form of insurance or
     reinsurance including deductibles or self-insured retention which protect
     the Company against Extra Contractual Obligations shall inure to the
     benefit of the Reinsurer and shall be deducted from the total amount of
     Extra Contractual Obligations for purposes of determining the loss
     hereunder.

E.   If any provision of this Article shall be rendered illegal or unenforceable
     by the laws, regulations or public policy of the of any state, such
     provision shall be considered void in such state, but this shall not affect
     the validity or enforceability of any other provision of this Article or
     the enforceability of such provision in any other jurisdiction.

ARTICLE X- EXCLUSIONS

THIS AGREEMENT DOES NOT COVER:

A.   THE FOLLOWING GENERAL CATEGORIES

     1.   Ex-gratia payments.

     2.   Risks subject to a deductible or a self-insured retention excess of
          $250,000.

     3.   Loss or damage caused directly or indirectly by: (a) enemy attack by
          armed forces including action taken by military, naval or air forces
          in resisting an actual or an immediately impending enemy attack; (b)
          invasion; (c) insurrection; (d) rebellion; (e) revolution; (f)
          intervention; (g) civil war; and (h) usurped power.

     4.   Reinsurance assumed by the Company.

     5.   Business derived from any Pool, Association, including Joint
          Underwriting Association, Syndicate, Exchange, Plan, Fund or other
          facility directly as a member, subscriber or participant, or
          indirectly by way of reinsurance or assessments; provided this
          exclusion shall not apply to Automobile or Workers Compensation
          assigned risks which may be currently or subsequently covered
          hereunder.


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                                                                    (SWISS LOGO)

     6.   Pollution Liability as per the attached Pollution Liability Exclusion
          Clause - Reinsurance.

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

     8.   Nuclear Incident Exclusion Clauses which are attached and made part of
          this Agreement:

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

          b.   Nuclear Incident Exclusion Clause - Liability - Reinsurance -
               Canada.

          c.   Nuclear Incident Exclusion Clause - Reinsurance - No. 4.

     9.   Any actual or alleged liability whatsoever for any claim or claims in
          respect of loss or losses, directly or indirectly arising out of,
          resulting from, or in consequence of asbestos, in whatever form or
          quantity.

     10.  Any liability, loss, cost or expense of whatsoever nature directly or
          indirectly caused by, contributed to by, resulting from, arising out
          of or in connection with the use or release, or threat thereof, of any
          nuclear weapon or device or chemical or biological agent, regardless
          of any other cause or event contributing concurrently or in any other
          sequence to the loss.

     11.  Policies covering the liability of any original insured whose annual
          gross revenue, sales or receipts exceed $5,000,000,000.

B.   THE FOLLOWING INSURANCE COVERAGES

     1.   Fiduciary Liability except as respects Non Profits and private For
          Profit entities other than financial institutions.

     2.   Fidelity and Surety except as respects Non Profits and private For
          Profit entities other than financial institutions.

     3.   Credit and Financial Guarantee.

     4.   Securities and Exchange Liability.

     5.   Retroactive coverage.

     6.   Personal Excess or Umbrella Liability.


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                                                                    (SWISS LOGO)

     7.   Medical Malpractice for Doctors, Physicians, Surgeons, Nurses,
          Hospitals and Clinics. This does not apply to medical professionals
          when written in the Company's Human Services Program or for other non
          profit entities when the professionals are not directly employed by
          the entity and who maintain an underlying medical professional
          liability policy with limits of 1,000,000/3,000,000 which is primary
          to the Company's insured policy, or so deemed.

     8.   Advertisers,' Broadcasters' and Telecasters' Liability as respects
          Personal Injury Liability except as provided under Commercial Package
          Policies or Commercial General Liability Coverage Forms.

     9.   Liquor Law Liability when written as such, except Host Liquor Law
          Liability.

     10.  Kidnap, Extortion and Ransom Liability.

     11.  Boiler and Machinery Insurance.

     12.  Protection and Indemnity (Ocean Marine) when written as such.

     13.  Workers Compensation.

     14.  Business classified by the Company as Primary Rental Liability,
          Supplemental Liability, Residual Value or GAAP Liability.

     15.  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 by the
          applicable regulatory authority(ies) to renew any insured(s) policy.

     16.  Products recall, Products integrity or Products impairment.

C.   THE FOLLOWING RISKS AS RESPECTS AUTOMOBILE LIABILITY

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

     2.   All vehicles classified as "Public Automobiles" except church buses,
          social service agency automobiles, van pools and vehicles used for the
          transportation of employees.

     3.   Fire, police, emergency or municipal vehicles except when written as
          part of the Company's Municipality program.

     4.   Motorcycles except when written as part of the Company's Motorcycle
          School program and Municipality program, but not when operated on
          public roads.


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                                                                    (SWISS LOGO)

     5.   The rental or leasing of vehicles to others.

     6.   Logging trucks.

     7.   Vehicles regularly used to haul property of others and operating
          beyond a 200 mile radius.

     8.   Newspaper delivery trucks.

     9.   Vehicles engaged in the transportation or distribution of fireworks,
          fuses, explosives, ammunitions, natural or artificial fuel, gas, or
          liquefied petroleum gases or gasoline.

D.   THE FOLLOWING AS RESPECTS LIABILITY OTHER THAN AUTOMOBILE

     1.   Risks involving known exposure to the following substances:

          a.   dioxin.

          b.   polychlorinated biphenols.

          c.   lead.

          d.   silica.

     2.   Liability as respects Products and Completed Operations:

          a.   The manufacture, labeling or re-labeling, importation or
               wholesale distribution of:

               (i)  Drugs or pharmaceuticals.

               (ii) Cosmetics.

               (iii) Herbicides, insecticides or pesticides.

               (iv) Petrochemical or electrical equipment used for heating,
                    lighting or cooking.

               (v)  Industrial or toxic chemicals.

               (vi) Valves, gaskets or seals of a hydraulic, petrochemical or
                    high pressure nature.

               (vii) Medical supplies.

               (viii) Heavy machinery and equipment.

               (ix) Power tools.

               (x)  Medical equipment used for diagnostic or life sustaining
                    purposes.

          b.   The manufacture or importing of motorized or self-propelled
               vehicles and equipment.

          c.   The manufacturing, importing, packing, canning, bottling or
               processing of foodstuffs.

          d.   The blending, mixing, processing or importing of animal feed.

          e.   The manufacture, sale, distribution, handling, servicing or
               maintenance of aircraft, aerospacecraft, missiles, satellites or
               any component or components thereof.

          f.   Exterior installation finishing systems (EIFS) or synthetic
               stucco manufacturing, importation, or installation.


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                                                                    (SWISS LOGO)

          g.   Any insured contractors' or developers' operations which are
               involved in the new construction of apartments, condominiums,
               cooperatives, town houses or single family dwellings in Arizona,
               California, Colorado, Hawaii, Nevada, South Carolina, Utah or
               Washington.

     3.   Ownership, operation or use of vessels exceeding 58 feet in length.

     4.   All railway operations except sidetrack agreements.

     5.   Amusement parks, carnivals or circuses.

     6.   Public assembly exposure in excess of 10,000 seating capacity or
          admissions per event, per building or stadium; however, this exclusion
          does not apply to walk-a-thons, bicycle races or similar events.

     7.   Public Gas, electric, and water utility companies.

     8.   Subaqueous operations.

     9.   Mining.

     10.  Blasting operations.

     11.  Demolition of buildings or structures in excess of two stories.

     12.  Shoring, underpinning or moving of buildings or structures.

     13.  Manufacture, sale, rental, lease, erection or repair of scaffolds.

     14.  Construction of bridges, tunnels or dams.

     15.  a.   Manufacturers or importers of fireworks, fuses, or any substance,
               as defined and noted below, intended for use as an explosive.

          b.   Loading of fireworks, fuses, or any explosive substance defined
               below into containers for use as explosive objects, propellant
               charges or detonation devices and the storage thereof.

          c.   Manufacturers or importers of any product in which fireworks,
               fuses, or any explosive substance defined below is an ingredient.

          d.   Handling, storage, transportation or use of fireworks, fuses, or
               any explosive substance defined below.


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          NOTE: An explosive substance is defined as any substance manufactured
          for the express purpose of exploding as differentiated from
          commodities used industrially and which are only incidentally
          explosive.

     16.  Manufacture, production, refining, storage, wholesale distribution or
          transportation of natural or artificial fuel, gas, butane, propane or
          liquefied petroleum gases or gasoline.

     17.  Onshore and offshore gas and oil drilling operations.

     18.  Ownership, maintenance or use of any airport or aircraft, including
          fueling, or any device or machine intended for and/or aiding in the
          achievement of atmospheric flight, projection or orbit.

     19.  Municipalities with populations over 75,000.

     20.  Liability as respects companies identified in the attached
          Pharmaceutical / Medical Company Exclusion Listing, including all
          affiliates and subsidiaries thereof.

E.   Those exclusions set forth under Items 5. and 16. of Section D. shall not
     apply if the exposure is incidental to the regular operations of the
     insured covered hereunder. An exposure shall be considered incidental if it
     comprises 15% or less of the insured's exposure base.

F.   In the event the Company is inadvertently bound on any risk which is
     excluded under this Agreement and identified below, the reinsurance
     provided under this Agreement shall apply to such risk until discovery by
     the Company within its Home Office of the existence of such risk and for 30
     days thereafter, and shall then cease unless within the 30 day period, the
     Company has received from the Reinsurer written notice of its approval of
     such risk:

     1.   As respects Automobile Liability:

          Items 2. through 9. of Section C.

     2.   As respects Liability Other Than Automobile:

          Items 2. through 19. of Section D.


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ARTICLE XI - SPECIAL ACCEPTANCE

Policies which are beyond the terms, conditions or limitations of this Agreement
may be submitted to the Reinsurer for special acceptance hereunder; and such
Policies, if accepted in writing by the Reinsurer, shall be subject to all of
the terms, conditions and limitations of this Agreement, except as modified by
the special acceptance. Premiums and losses derived from any special acceptance
shall be included with other data for rating purposes under this Agreement.

ARTICLE XII - LOSS OCCURRENCE

The provisions under this Article are set forth in the following Parts I, II and
III:

Part I - As respects Policies written on an occurrence basis:

The term "Loss Occurrence" shall mean any accident or occurrence or series of
accidents or occurrences arising out of any one event and happening within the
term and scope of this Agreement. Without limiting the generality of the
foregoing, the term "Loss Occurrence" shall be held to include:

A.   As respects Products Bodily Injury and Products Property Damage Liability,
     injuries to all persons and all damage to property of others occurring
     during a Policy Period and proceeding from or traceable to the same
     causative agency shall be deemed to arise out of one Loss Occurrence, and
     the date of such Loss Occurrence shall be deemed to be the commencing date
     of the Policy Period. For the purpose of this provision, each annual period
     of a Policy which continues in force for more than one year shall be deemed
     to be a separate Policy Period.

B.   As respects Bodily Injury Liability (other than Automobile and Products),
     said term shall also be understood to mean, as regards each original
     assured, injuries to one or more than one person resulting from infection,
     contagion, poisoning, or contamination proceeding from or traceable to the
     same causative agency.

C.   As respects Property Damage Liability (other than Automobile and Products),
     said term shall also, subject to Provisions 1. and 2. below, be understood
     to mean loss or losses caused by a series of operations, events, or
     occurrences arising out of operations at one specific site and which cannot
     be attributed to any single one of such operations, events or occurrences,
     but rather to the cumulative effect of the same. In assessing each and
     every Loss Occurrence within the foregoing definition, it is understood and
     agreed that:

     1.   the series of operations, events or occurrences shall not extend over
          a period longer than 12 consecutive months; and


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                                                                    (SWISS LOGO)

     2.   the Company may elect the date on which the period of not exceeding 12
          consecutive months shall be deemed to have commenced.

     In the event that the series of operations, events or occurrences extend
     over a period longer than 12 consecutive months, then each consecutive
     period of 12 months, the first of which commences on the date elected under
     2. above, shall form the basis of claim under this Agreement.

Part II - As respects Policies written on a claims made basis:

A.   The term "Loss Occurrence" shall mean each claim or series of claims made
     to the Company or the insured, during the term of this Agreement arising
     out of one casualty or event.

B.   As respects a Loss Occurrence involving one or more Policies written on a
     claims made basis, the date of Loss Occurrence for purposes of reinsurance,
     shall be considered the earliest date when notice of claims is first
     received and recorded by the Company or the insured, and any related claims
     reported subsequent to such date shall be included in such loss. However,
     if notice of claims is first received and recorded by the Company or the
     insured, during an Extended Reporting Period, the date of occurrence shall
     be deemed to be the last day of the Policy period.

Part III - As respects loss occurrence and claims-made Policies involved in the
same Loss Occurrence:

As respects a Loss Occurrence involving one or more Policies written on an
occurrence basis and one or more Policies written on a claims made basis, it is
understood that the earliest date on which bodily injury or property damage
occurs, and any related claims reported subsequent to such date shall be
included in such loss whether they are covered under occurrence or claims-made
Policies.

ARTICLE XIII - REINSURANCE PREMIUM

A.   The Company shall pay to the Reinsurer a premium for the reinsurance
     provided under the First, Second and Third Excess of Loss Layers at the
     rates set forth in Paragraph B. below. Such rates shall be applied to the
     Company's Subject Earned Premium for the term of this Agreement.


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B.   A deposit premium for each layer set forth below, shall be payable by the
     Company to the Reinsurer in four equal installments each due January 1,
     April 1, July 1 and October 1. Within 60 days 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 within 60 days after the termination of this Agreement.
     However, in no event shall the adjusted premium be less than the minimum
     premium for each layer, set forth below.



                               Deposit     Minimum   Quarterly
                      Rate     Premium     Premium    Deposit
                      ----   ----------   --------   ---------
                                         
First Excess Layer    .06%   $  510,000   $408,000   $127,500
Second Excess Layer   .07%   $  595,000   $476,000   $148,750
Third Excess Layer    .13%   $1,105,000   $884,000   $276,250


C.   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.

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

ARTICLE XIV - REPORTS AND REMITTANCES

A.   The Company shall furnish the Reinsurer with all necessary data respecting
     premiums and losses for as long as one of the parties hereto has a claim
     against the other arising from this Agreement.

B.   All checks and supporting documentation shall be sent via wire transfer to
     the Reinsurer through one of the options set forth below:

          a.   WIRE TRANSFER

               (i)  All wires should be sent to:

                    The Bank of New York
                    1 Wall Street
                    New York, NY 10286
                    Account Name: Swiss Reinsurance America Corporation
                    Account Number: 8900489197
                    ABA Number: 021000018 (SWIFT: IRVTUS3N)


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               (ii) All supporting documentation should be sent to:
                    Swiss Reinsurance America Corporation
                    Accounting Department
                    175 King Street
                    Armonk, NY 10504

          b.   LOCK BOX

               Both checks and supporting documentation shall be sent to:

               Swiss Reinsurance America Corporation
               P.O. Box 7247-7281
               Philadelphia, PA 19170-7281

C.   Payment by the Reinsurer of its portion of loss and Loss Adjustment
     Expenses paid by the Company shall be made by the Reinsurer to the Company
     within 15 days after proof of payment is received by the Reinsurer.

ARTICLE XV - CLAIMS

A.   The Company shall promptly notify the Reinsurer of each claim which may
     involve the reinsurance provided hereunder and of all subsequent
     developments relating thereto, stating the amount claimed and estimate of
     the Company's Ultimate Net Loss and Loss Adjustment Expenses.
     Notwithstanding the provisions set forth in any other Article herein,
     prompt notification of loss shall be considered a condition precedent to
     liability under this Agreement.

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

     1.   Are reserved by the Company for an amount in excess of 50% of its
          retention;

     2.   Originate from fatal injuries;

     3.   Originate from the following kinds of bodily injury:

          a.   Brain injuries resulting in impairment of physical function;

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

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

          d.   Severe burn injuries;

          e.   Loss of sight in one or both eyes;


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          f.   All other injuries likely to result in a permanent disability
               rate of 50% or more.

     4.   Any action alleging Extra Contractual Obligations against the Company.

     5.   Any Declaratory Judgment action brought by or against the Company.

     6.   Any judgment against an insured for an amount in excess of the
          Company's policy limit.

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

ARTICLE XVI - SALVAGE AND SUBROGATION

A.   In the event of the payment of any indemnity by the Reinsurer under this
     Agreement, the Reinsurer shall be subrogated, to the extent of such
     payment, to all of the rights of the Company against any person or entity
     legally responsible for damages of the loss. The Company agrees to enforce
     such rights; but, in case the Company refuses or neglects to do so, the
     Reinsurer is hereby authorized and empowered to bring any appropriate
     action in the name of the Company or their policyholders or otherwise to
     enforce such rights.

B.   From any amount recovered by subrogation, salvage or other means, there
     shall first be deducted the expenses incurred in effecting the recovery.
     The balance shall then be used to reimburse the excess carriers in the
     inverse order to that in which their respective liabilities attached,
     before being used to reimburse the Company for its primary loss.

ARTICLE XVII - TERRORISM EXCESS RECOVERY

A.   For purposes of this Article:

     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.


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B.   This reinsurance shall not apply to any fines, civil penalties or
     surcharges assessed pursuant to the Act.

C.   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.

D.   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. For each Program Year, the
     liability of the Reinsurer for Insured Losses under this Agreement shall be
     reduced by the ratio that the financial assistance under the Act allocated
     to Policies subject to this Agreement bears to the Company's total Insured
     Losses subject to this Agreement. If the Company does not make such
     allocation, the liability of the Reinsurer for Insured Losses in any
     Program Year under this Agreement shall 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.

E.   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.


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F.   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 to the extent that the Company has not been
          deemed to have forfeited the right to financial assistance under the
          Act by virtue of the attempted assignment.

G.   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.

ARTICLE XVIII - ACCESS TO RECORDS

The Reinsurer or its duly authorized representatives shall have the right to
examine, at the offices of the Company at a reasonable time, during the currency
of this Agreement or anytime thereafter, all books and records of the Company
relating to business which is the subject of this Agreement.

ARTICLE XIX - TAXES

The Company shall be liable for all taxes on premiums paid to the Reinsurer
under this Agreement, except income or profit taxes of the Reinsurer, and shall
indemnify and hold the Reinsurer harmless for any such taxes which the Reinsurer
may become obligated to pay to any local, state or federal taxing authority.

ARTICLE XX - CURRENCY

Wherever the word "dollars" or the "$" symbol is used in this Agreement, it
shall mean dollars of the United States of America, excepting in those cases
where the Policy is issued by the Company in Canadian dollars, in which case it
shall mean dollars of Canada. In the event the Company is involved in a loss
requiring payment in United States and Canadian currency, the Company's
retention and the limit of liability of the Reinsurer shall be apportioned
between the two currencies in the


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same proportion as the amount of net loss in each currency bears to the total
amount of net loss paid by the Company. For the purposes of this Agreement,
where the Company receives premiums or pays losses in currencies other than
United States or Canadian currency, such premiums and losses shall be converted
into United States dollars at the actual rates of exchange at which the premiums
and losses are entered in the Company's books.

ARTICLE XXI - OFFSET

Each party to this Agreement together with their successors or assigns shall
have and may exercise, at any time, the right to offset any balance or balances
due the other (or, if more than one, any other). Such offset may include
balances due under this Agreement and any other agreements heretofore or
hereafter entered into between the parties regardless of whether such balances
arise from premiums, losses or otherwise, and regardless of capacity of any
party, whether as assuming insurer and/or ceding insurer, under the various
agreements involved, provided however, that in the event of insolvency of a
party hereto, offsets shall only be allowed in accordance with the provisions of
Section 7427 of the Insurance Law of the State of New York to the extent such
statute or any other applicable law, statute or regulation governing such offset
shall apply.

ARTICLE XXII - ERRORS OR OMISSIONS

Errors or omissions of an administrative nature on the part of the Company shall
not invalidate the reinsurance under this Agreement, provided such errors or
omissions are corrected promptly after discovery thereof; but the liability of
the Reinsurer under this Agreement or any exhibits, addenda, or endorsements
attached hereto shall in no event exceed the limits specified herein nor be
extended to cover any risks, perils, lines of business or classes of insurance
generally or specifically excluded herein.

ARTICLE XXIII - DISPUTE RESOLUTION

Part I - Choice Of Law And Forum

Any dispute arising under this Agreement shall be resolved in the State of
Pennsylvania, and the laws of the State of Pennsylvania shall govern the
interpretation and application of this Agreement.

Part II - Mediation

If a dispute between the Company and the Reinsurer, arising out of the
provisions of this Agreement or concerning its interpretation or validity and
whether arising before or after termination of this Agreement has not been
settled through negotiation, both parties agree


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to try in good faith to settle such dispute by nonbinding mediation, before
resorting to arbitration.

Part III - Arbitration

A.   Resolution of Disputes - As a condition precedent to any right of action
     arising hereunder, any dispute not resolved by mediation between the
     Company and the Reinsurer arising out of the provisions of this Agreement
     or concerning its interpretation or validity, whether arising before or
     after termination of this Agreement, shall be submitted to arbitration in
     the manner hereinafter set forth.

B.   Composition of Panel - Unless the parties agree upon a single arbitrator
     within 15 days after the receipt of a notice of intention to arbitrate, all
     disputes shall be submitted to an arbitration panel composed of two
     arbitrators and an umpire chosen in accordance with Paragraph C. hereof.

C.   Appointment of Arbitrators - The members of the arbitration panel shall be
     chosen from persons knowledgeable in the insurance and reinsurance
     business. Unless a single arbitrator is agreed upon, the party requesting
     arbitration (hereinafter referred to as the "claimant") shall appoint an
     arbitrator and give written notice thereof by certified mail, to the other
     party (hereinafter referred to as the "respondent") together with its
     notice of intention to arbitrate. Within 30 days after receiving such
     notice, the respondent shall also appoint an arbitrator and notify the
     claimant thereof by certified mail. Before instituting a hearing, the two
     arbitrators so appointed shall choose an umpire. If, within 20 days after
     the appointment of the arbitrator chosen by the respondent, the two
     arbitrators fail to agree upon the appointment of an umpire, each of them
     shall nominate three individuals to serve as umpire, of whom the other
     shall decline two and the umpire shall be chosen from the remaining two by
     drawing lots. The name of the individual first drawn shall be the umpire.

D.   Failure of Party to Appoint an Arbitrator - If the respondent fails to
     appoint an arbitrator within 30 days after receiving a notice of intention
     to arbitrate, the claimant's arbitrator shall appoint an arbitrator on
     behalf of the respondent, such arbitrator shall then, together with the
     claimant's arbitrator, choose an umpire as provided in Paragraph C. of Part
     III of this Article.

E.   Submission of Dispute to Panel - Unless otherwise extended by the
     arbitration panel or agreed to by the parties, each party shall submit its
     case to the panel within 30 days after the selection of the umpire.

F.   Procedure Governing Arbitration - All proceedings before the panel shall be
     informal and the panel shall not be bound by the formal rules of evidence.
     The panel shall have the power to fix all


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     procedural rules relating to the arbitration proceeding. In reaching any
     decision, the panel shall give due consideration to the customs and usages
     of the insurance and reinsurance business.

G.   Arbitration Award - The arbitration panel shall render its decision within
     60 days after termination of the proceeding, which decision shall be in
     writing, stating the reasons therefor. The decision of the majority of the
     panel shall be final and binding on the parties to the proceeding.

H.   Cost of Arbitration - Unless otherwise allocated by the panel, each party
     shall bear the expense of its own arbitrator and shall jointly and equally
     bear with the other parties the expense of the umpire and the arbitration.

ARTICLE XXIV- INSOLVENCY

A.   In the event of insolvency of the Company, the reinsurance provided by this
     Agreement shall be payable by the Reinsurer on the basis of the liability
     of the Company as respects Policies covered hereunder, without diminution
     because of such insolvency, directly to the Company or its liquidator,
     receiver, conservator or statutory successor except as provided in Sections
     4118(a)(1)(A) and 1114(c) of the New York Insurance Law.

B.   The Reinsurer shall be given written notice of the pendency of each claim
     or loss which may involve the reinsurance provided by this Agreement within
     a reasonable time after such claim or loss is filed in the insolvency
     proceedings. The Reinsurer shall have the right to investigate each such
     claim or loss and interpose, at its own expense, in the proceedings where
     the claim or loss is to be adjudicated, any defense which it may deem
     available to the Company, its liquidator, receiver, conservator or
     statutory successor. The expense thus incurred by the Reinsurer shall be
     chargeable, subject to court approval, against the insolvent Company as
     part of the expense of liquidation to the extent of a proportionate share
     of the benefit which may accrue to the Company solely as a result of the
     defense undertaken by the Reinsurer.

C.   In addition to the offset provisions set forth in Article XXI- Offset, any
     debts or credits, liquidated or unliquidated, in favor of or against either
     party on the date of the receivership or liquidation order (except where
     the obligation was purchased by or transferred to be used as an offset) are
     deemed mutual debts or credits and shall be set off with the balance only
     to be allowed or paid. Although such claim on the part of either party
     against the other may be unliquidated or undetermined in amount on the date
     of the entry of the receivership or liquidation order, such claim will be
     regarded as being in existence as of such date and any claims


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                                                                    (SWISS LOGO)

     then in existence and held by the other party may be offset against it.

D.   Nothing contained in this Article is intended to change the relationship or
     status of the parties to this Agreement or to enlarge upon the rights or
     obligations of either party hereunder except as provided herein.

ARTICLE XXV - SPECIAL TERMINATION

A.   Notwithstanding the termination provisions set forth in Article
     II-Effective Date and Termination, this Agreement shall be:

     1.   Terminated automatically and simultaneously upon the happening of any
          of the following events:

          a.   Entry of an order of liquidation, rehabilitation, receivership or
               conservatorship with respect to the Company or the Reinsurer by
               any court or regulatory authority;

          b.   Assignment of this Agreement by either party;

          c.   General reinsurance of any portion of the Company's business it
               retains net for its own account, as determined under the
               provisions of this Agreement without prior consent of the
               Reinsurer.

     2.   Terminated by either party giving not less than 30 days prior written
          notice to the other party upon the happening of the following event:

               Any transfer of control of either party by change in ownership or
               otherwise.

     3.   Terminated by the Reinsurer by giving not less than 30 days prior
          written notice to the Company upon the happening of the following
          event:

               Failure of the Company to remit premiums in accordance with the
               provisions set forth in this Agreement.

     4.   Terminated in accordance with the provisions set forth in this
          Paragraph, upon the discovery of the following event:

               A reduction of 50% or more of the Company's policyholders surplus
               during any calendar year. Such reduction shall be determined by
               calculating the difference between the Company's prior year
               annual statement and each subsequent quarterly statutory
               statement within such current calendar year.


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          As respects the event set forth in this Paragraph A.4., the Company
          shall be obligated to notify the Reinsurer in writing within 30 days
          after the filing of its quarterly statement. Upon receipt of such
          notification the Reinsurer shall have the right to terminate this
          Agreement, by giving not less than 30 days notice of its intention to
          do so.

B.   Any notice of termination pursuant to the provisions set forth in
     Paragraphs A.2., A.3. and A.4. above shall be sent by certified mail,
     return receipt requested. Such notice period shall commence upon the other
     party's receipt of the notice of termination.

C.   In the event of termination, as provided under the provisions of this
     Article, the Reinsurer shall not be liable for losses occurring subsequent
     to the date of termination.

ARTICLE XXVI - AMENDMENTS

This Agreement may be amended by mutual consent of the parties expressed in an
addendum; and such addendum, when executed by both parties, shall be deemed to
be an integral part of this Agreement and binding on the parties hereto.


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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:

In Bala Cynwyd,Pennsylvania, this 25th day of September, 2006.

ATTEST:                                 PHILADELPHIA CONSOLIDATED HOLDING
                                        CORPORATION'S
                                        following member Companies:
                                        PHILADELPHIA INDEMNITY INSURANCE
                                        COMPANY
                                        PHILADELPHIA INSURANCE COMPANY


/s/ William A McKenna                   /s/ Christopher J. Maguire
- -------------------------------------   ----------------------------------------
Name William A McKenna                  Name Christopher J. Maguire
Title Assistant Vice President          Title Executive President &
                                              Chief Underwriting Officer

And in Armonk, New York, this 15th day of September, 2006.


ATTEST:                                 SWISS REINSURANCE AMERICA CORPORATION


/s/ Peter Thompson                      /s/ Michael Taxter
- -------------------------------------   ----------------------------------------
Name Peter Thompson                     Name Michael Taxter
Title Vice President Member of          Title Senior Vice President Member of
      Management                              Senior Management


                                       25



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                          SUPPLEMENT TO THE ATTACHMENTS

         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.


                                       1.



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               POLLUTION LIABILITY EXCLUSION CLAUSE - REINSURANCE

     This Reinsurance excludes:

     (1)  Any loss occurrence arising out of the actual, alleged or threatened
          discharge, dispersal, release or escape of pollutants:

          a)   At or from premises owned, rented or occupied by an original
               assured; or

          b)   At or from any site or location used for the handling, storage,
               disposal, processing or treatment of waste; or

          c)   Which are at any time transported, handled, stored, treated,
               disposed of, or processed as waste; or

          d)   At or from any site or location on which any original assured is
               performing operations:

               (i)  If the pollutants are brought on or to the site or location
                    in connection with such operations; or

               (ii) If the operations are to test for, monitor, clean up,
                    remove, contain, treat, detoxify or neutralize the
                    pollutants.

     (2)  Any liability, loss, cost or expense arising out of any governmental
          direction or request to test for, monitor, clean up, remove, contain,
          treat, detoxify or neutralize pollutants.

"Pollutants" means any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
waste. Waste includes materials to be recycled, reconditioned or reclaimed.

Subparagraphs a) and d)(i) of paragraph (1) of this exclusion do not apply to
loss occurrences caused by heat, smoke or fumes from a hostile fire. As used
herein, "hostile fire" means one which becomes uncontrollable or breaks out from
where it was intended to be.

"Original assured" as used herein means all insureds as defined in the policy
issued by the Company.


                                       1.



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                        INSOLVENCY FUNDS EXCLUSION CLAUSE

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.



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      NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - U.S.A.

     N.M.A. 1590

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. in 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):

     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 Liabilities 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


                                       1.



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               (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)

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

     BROAD EXCLUSION PROVISION*

     It is agreed that the policy does not apply:

     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 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


                                       2.



                                                                    (SWISS LOGO)

          (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 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, 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 thereat.


                                       3.



                                                                    (SWISS LOGO)

     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 other than
          the tailings or wastes produced by the extraction or concentration of
          uranium or thorium from any ore processed for its source material
          content 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" INCLUDES ALL FORMS OF RADIOACTIVE CONTAMINATION OF
          PROPERTY; "property damage" includes all forms of radioactive
          contamination of property.


                                       4.



                                                                    (SWISS LOGO)

     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 operations 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 or the Independent Insurance Conference of
     Canada.

*NOTE: The words printed in BOLD TYPE 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.


                                       5.



                                                                    (SWISS LOGO)

      NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - CANADA

     N.M.A. 1979a

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

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

          Personal Liability
          Farmers' Liability
          Storekeepers' Liability

     which become effective on or after 31st December 1992, 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 1992, shall be
     deemed to include, from their inception dates and thereafter, the following
     provision:


                                       1.



                                                                    (SWISS LOGO)

     Broad Exclusion Provision -

     It is agreed that this Policy does not apply:

     (a)  to liability imposed by or arising from any nuclear liability act, law
          or statute or any law amendatory thereof; 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.

     As used in this Policy:

     (1)  The term "nuclear energy hazard" means the radioactive, toxic,
          explosive, or other hazardous properties of radioactive material;

     (2)  The term "radioactive material" means uranium, thorium, plutonium,
          neptunium, their respective derivatives and compounds, radioactive
          isotopes of other elements and any other substances which may be
          designated by or pursuant to any law, act or statute, or law
          amendatory thereof as being prescribed substances capable of releasing
          atomic energy, or as being requisite for the production, use or
          application of atomic energy;


                                       2.



                                                                    (SWISS LOGO)

     (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.

April 1, 1996


                                       3.



                                                                    (SWISS LOGO)

             NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE - NO. 4

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 operations of Nuclear Incident Exclusion
     Clauses, - Liability, - Physical Damage, - Boiler and Machinery and
     paragraph 1. of this Clause, it is understood and agreed that for all
     purposes of the reinsurance assumed by the Reinsurer from the Reinsured,
     all original insurance policies or contracts of the Reinsured (new, renewal
     and replacement) shall be deemed to include the applicable existing Nuclear
     Clause and/or Nuclear Exclusion Clause(s) in effect at the time and any
     subsequent revisions thereto as agreed upon and approved by the Insurance
     Industry and/or a qualified Advisory or Rating Bureau.


                                       4.



                                                                    (SWISS LOGO)

               PHARMACEUTICAL / MEDICAL COMPANY EXCLUSION LISTING

ABBOTT LABORATORIES
AKZO NOBEL
ALLERGAN
ALPHARMA
ALTANA AG
AMGEN
ASTRAZENECA
AVENTIS
BARR LABORATORIES
BAXTER INTERNATIONAL
BAYER
BEAUFOUR IPSEN
BECTON, DICKINSON AND COMPANY
BIOGEN
BOEHRINGER INGELHEIM KG
BOSTON SCIENTIFIC CORPORATION
BRISTOL-MYERS SQUIBB
CELLTECH (former MEDEVA)
CHIRON
CHUGAI PHARMACEUTICAL
CSL (including ZLB Behring [former ZLB and Aventis
Behring]
DAIICHI PHARMACEUTICAL
DAINIPPON PHARMACEUTICAL
EDWARDS LIFESCIENCES
EISAI
ELAN
FOREST LABORATORIES
GENENTECH
GLAXOSMITHKLINE
GUIDANT
HOSPIRA
IVAX
JOHNSON & JOHNSON
KING PHARMACEUTICALS
KYOWA HAKKO KOGYO
LABORATOIRE FOURNIER
LABORATOIRE SERVIER
LILLY (ELI)
MEDTRONIC
MERCK & CO
MERCK KGAA
MINNESOTA MINING & MANUFACTURING
MITSUBISHI PHARMACEUTICAL
MYLAN LABORATORIES
NOVARTIS
NOVO NORDISK
OTSUKA PHARMACEUTICAL
PFIZER
PIERRE FABRE
PROCTER & GAMBLE
PURDUE FREDERICK / PRA HOLDING
ROCHE
SANKYO
SANOFI-SYNTHELABO
SCHERING AG
SCHERING-PLOUGH
SCHWARZ PHARMA
SERONO
SHIONOGI
SHIRE PHARMACEUTICALS
SMITH & NEPHEW
SOLVAY
ST. JUDE MEDICAL
STRYKER
SUMITOMO PHARMACEUTICALS / SUMITOMO CHEMICAL
SYNTHES-STRATEC
TAKEDA CHEMICAL INDUSTRIES
TANABE
TAP PHARMACEUTICAL PRODUCTS
TEVA PHARMACEUTICAL
UCB
WATSON PHARMACEUTICAL
WYETH
YAMANOUCHI PHARMACEUTICAL / FUJISAWA PHARMACEUTICAL
ZIMMER

GROUP PM CASUALTY/2004 APRIL 30



                                                                    (SWISS LOGO)

                         PHILADELPHIA INDEMNITY COMPANY

                  CASUALTY EXCESS OF LOSS REINSURANCE AGREEMENT
                          NO. POR376426-/376428-/376430
                            Effective January 1, 2006

                               SUMMARY OF CHANGES

1.   Paragraph A. Of Article V - Warranty, is amended to read as follows

     A.   It is warranted, or so deemed, that Casualty reinsurance is in effect
          for all policies issued by or on behalf of the Company with limits
          greater than $1,000,000 per occurrence or per claim made. It is also
          warranted, or so deemed, that the Company has in effect an Insurance
          Company Errors and Omissions policy with a limit of $10,000,000 and a
          retention /deductible of $1,000,000. This insurance, or reinsurance,
          whether collectible or not, and retention/deductible, shall be
          maintained until all losses reinsured under this Agreement are fully
          discharged and shall inure to the benefit of the reinsurer.

2.   Article IX - Extra Contractual Obligations is amended to include a
     "Saving/Severability" provision as follows:

     E.   If any provision of this Article shall be rendered illegal or
          unenforceable by the laws, regulations or public policy of the of any
          state, such provision shall be considered void in such state, but this
          shall not affect the validity or enforceability of any other provision
          of this Article or the enforceability of such provision in any other
          jurisdiction.

3.   The header of Article X - Exclusions, as well as subparagraph F.1. of the
     Article have been amended by deleting previous reference to "Automobile
     Collision" as this coverage is not applicable.

4.   Article XII - Loss Occurrence is amended to reflect agreed renewal
     language.

5.   Article XIII - Reinsurance Premium, is amended to reflect renewal rates and
     premiums.

EX-10.2

                                                                    Exhibit 10.2

                                                                    (SWISS LOGO)

                                 ADDENDUM NO. 3

                                     to the

                             PROPERTY EXCESS OF LOSS
                            AGREEMENT OF REINSURANCE
                                 NO. TP1600E,F
                  (hereinafter referred to as the "Agreement")

                                     between

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

                                       and

                      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, 2006, and new and renewal policies becoming
effective on and after said date, this Agreement is amended as follows:

1.   Agreement No. TP1600E,F shall be renumbered as Agreement No.
     POR-376354/376357.

2.   Paragraph C is added to Article III - Commencement And Termination:

     C.   If this Agreement expires while a Loss Occurrence covered hereunder is
          in progress, the Reinsurer's liability hereunder shall, subject to the
          other terms and conditions of this Agreement, be determined as if the
          entire Loss Occurrence had occurred prior to the expiration of this
          Agreement, provided that no part of such Loss Occurrence is claimed
          against any renewal or replacement of this Agreement.

3.   Paragraph C. of Article V - Definitions is revised to read:

     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


                                1. No. TP1600E,F
                                 Addendum No. 3



                                                                    (SWISS LOGO)

          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
          Declaratory Judgment Expenses incurred by the Company in connection
          with a declaratory judgment action brought to determine the Company's
          defense and/or indemnification obligations that are allocable 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.

4.   Paragraph D. of Article V - Definitions is revised to read:

     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.


                                2. No. TP1600E,F
                                 Addendum No. 3



                                                                    (SWISS LOGO)

          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.

          If any provision of this Paragraph D. shall be rendered illegal or
          unenforceable by the laws, regulations or public policy of any
          jurisdiction, such provision shall be considered void in such
          jurisdiction, but this shall not affect the validity or enforceability
          of any other provision of this Paragraph D. or the enforceability of
          such provision in any other jurisdiction.

5.   Exclusions Y and Z, as amended by Addendum No. 1, are deleted in their
     entirety.

6.   Paragraph A. of Article VIII - Reinsurance Premium is revised to read:

     A.   The Company shall pay to the Reinsurer a premium for the reinsurance
          provided under the First and Second Excess of Loss Layers at a rate
          set forth below. Such rates shall be applied to the Company's Subject
          Earned Premium for the calendar year under calculation.



                                                Rate
                                                ----
                                             
First Excess (Accounting Code No. POR376354)    .60%
Second Excess (Accounting code No. POR376357)   .67%



                                3. No. TP1600E,F
                                 Addendum No. 3



                                                                    (SWISS LOGO)

7.   Article XX - Participation is added to and made a part of the Agreement:

     ARTICLE XX - PARTICIPATION

     A.   This Agreement obligates the Reinsurer for the following shares in the
          of the interests and liabilities set forth under this Agreement.

                                             
First Excess (Accounting Code No. POR376354)    50%
Second Excess (Accounting Code No. POR376357)   50%



     B.   The participation of the Reinsurer in the interests and liabilities of
          this Agreement shall be separate and apart from the participations of
          other reinsurers and shall not be joint with those other reinsurers,
          and the Reinsurer shall in no event participate in the interests and
          liabilities of other reinsurers.

ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.


                                4. No. TP1600E,F
                                 Addendum No. 3



                                                                    (SWISS LOGO)

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

In Bala Cynwyd, Pennsylvania, this 25th day of September, 2006.

ATTEST:                                 PHILADELPHIA INDEMNITY COMPANY
                                        PHILADELPHIA INSURANCE COMPANY


/s/ William A. Mckenna                  /s/ Christopher J. Maguire
- -------------------------------------   ----------------------------------------
Name William A. Mckenna                 Name Christopher J. Maguire
Title Assistant Vice President          Title Executive Vice President &
                                              Chief Reinsurance Underwriting
                                              Officer

And in Armonk, New York, this 15th day of September, 2006.


ATTEST:                                 SWISS REINSURANCE AMERICA CORPORATION


/s/ Peter Thomson                       /s/ Gregory Schiffer
- -------------------------------------   ----------------------------------------
Name Peter Thomson                      Name Gregory Schiffer
Title Vice President                    Title Vice President
      Member of Management              Member of Senior Management

bh
PHILPOR376354-A3


                                5. No. TP1600E,F
                                 Addendum No. 3

EX-10.3

                                                                    Exhibit 10.3

P06-0091

                       INTERESTS AND LIABILITIES AGREEMENT

                                     between

                         PHILADELPHIA INSURANCE COMPANY
                    PHILADELPHIA INDEMNITY INSURANCE COMPANY
                                       of
                            Bala Cynwyd, Pennsylvania
                       (hereinafter called the "COMPANY")

                                       and

                        EMPLOYERS REINSURANCE CORPORATION
                                       of
                              Overland Park, Kansas
                  (hereinafter called "SUBSCRIBING REINSURER")

It is hereby agreed that the SUBSCRIBING REINSURER shall have a 20%
participation in the interests and liabilities of the Reinsurer as set forth in
the Casualty Excess of Loss Reinsurance Contract of January 1, 2006 (hereinafter
"Reinsurance Contract"), a copy of which is attached hereto.

Such participation shall be several and not joint with the participation of
other subscribing reinsurers and the SUBSCRIBING REINSURER shall under no
circumstances participate in the interests and liabilities, if any, of the other
reinsurers in said instrument.

The COMPANY shall pay to the SUBSCRIBING REINSURER 20% of the reinsurance
premiums due or which may become due the Reinsurer under the Reinsurance
Contract.

This agreement shall become effective January 1, 2006 and shall terminate
January 1, 2007, unless otherwise terminated by mutual consent. Termination
shall be in accordance with the termination provisions of the Reinsurance
Contract.

In all other respects not inconsistent herewith, said agreement shall remain
unchanged.

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


P06-0091                            Page 1 of 2 Pages
Effective: 1/1/2006
DLR: 5/25/2006 3:49 PM



P06-0091

in duplicate.

PHILADELPHIA INSURANCE COMPANY          EMPLOYERS REINSURANCE CORPORATION
PHILADELPHIA INDEMNITY INSURANCE
COMPANY


/s/ Christopher J. Maguire              /s/ William J. O'Donnell III
- -------------------------------------   ----------------------------------------
Christopher J. Maguire                  William J. O'Donnell III
Title: Executive Vice President &       Title: Senior Vice President Officer
       Chief Underwriting Officer


/s/ William McKenna
- -------------------------------------   ----------------------------------------
Title: Assistant. Vice President -      Title:
       Reinsurance Officer                     ---------------------------------

Date: June 15, 2006                     Date: June 9, 2006


P06-0091                            Page 2 of 2 Pages
Effective: 1/1/2006
DLR: 5/25/2006 3:49 PM



P06-0108

                         PHILADELPHIA INSURANCE COMPANY
                            BALA CYNWYD, PENNSYLVANIA
                    PHILADELPHIA INDEMNITY INSURANCE COMPANY
                            BALA CYNWYD, PENNSYLVANIA
        AND ANY ADDITIONAL COMPANY ESTABLISHED OR ACQUIRED BY THE COMPANY

                             CASUALTY EXCESS OF LOSS
                              REINSURANCE CONTRACT



P06-0108

                        CASUALTY EXCESS OF LOSS AGREEMENT

                                 JANUARY 1, 2006

                                TABLE OF CONTENTS



ARTICLE                                                                     PAGE
- -------                                                                     ----
                                                                      
I              Business Covered. ........................................     1
II             Term. ....................................................     2
III            Special Termination.......................................     2
IV             Definitions...............................................     3
                  Ultimate Net Loss......................................     3
                  Policy or Policies.....................................     4
                  Gross Net Earned Premium Income........................     4
                  Extended Reporting Period Coverage.....................     4
V              Loss In Excess of Policy Limits...........................     5
VI             Extra Contractual Obligations.............................     5
VII            Territory.................................................     6
VIII           Exclusion.................................................     6
IX             Additional Provisions.....................................     8
X              Amount of Coverage and Retention..........................     8
XI             Premium...................................................     9
XII            Notice of Loss and Settlements............................     9
XIII           Agency Agreement (Wage1)..................................     9
XIV            Errors and Omissions......................................    10
XV             Offset....................................................    10
XVI            Currency (BRMA12A)........................................    10
XVII           Taxes (BRMA 50C)..........................................    10
XVIII          Federal Excise Tax (BRMA 17A).............................    11
XIX            Unauthorized Reinsurance (BRMA 55A).......................    11
XX             Net Retained Lines........................................    13
XXI            Third Party Rights (BRMA 52C).............................    13
XXII           Severability..............................................    13
XXIII          Governing Law (BRMA 71A)..................................    13
XXIV           Access to Records.........................................    14
XXV            Insolvency................................................    14
XXVI           Arbitration...............................................    15
XXVII          Confidentiality...........................................    16
XXVIII         Service of Suit (WSOS4)...................................    16
XXIX           Terrorism Risk Insurance Act of 2002......................    17


RP



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XXX            Mode of Execution (WMOE1).................................    18
XXXI           Excluded Risks Inadvertently Bound........................    18
Attachments:
               Schedule A................................................    20
               Nuclear Incident Exclusion Clause - Liability -
                  Reinsurance - U.S.A....................................    21
               Nuclear Incident Exclusion Clause - Liability -
                  Reinsurance - Canada...................................    23
               Terrorism Exclusion Endorsement (Reinsurance).............    25
               War Exclusion (Wexc212)...................................    27



RP



P06-0108

                             CASUALTY EXCESS OF LOSS
                              REINSURANCE CONTRACT
                                (the "Contract")

                                     between

                         PHILADELPHIA INSURANCE COMPANY
                            BALA CYNWYD, PENNSYLVANIA
                    PHILADELPHIA INDEMNITY INSURANCE COMPANY
                            BALA CYNWYD, PENNSYLVANIA
        AND ANY ADDITIONAL COMPANY ESTABLISHED OR ACQUIRED BY THE COMPANY
                                 (the "Company")

                                       and

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

                                    ARTICLE I

BUSINESS COVERED

A.   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 Coverage provided thereunder shall be
     reinsured hereunder, provided the date of loss is during the term of this
     Contract.

B.   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


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          Dentists Professional Liability
          Insurance Agents Professional Liability
          Miscellaneous Medical Professional Liability
          Employment Practices Liability
          Educators Legal Liability
          Crime/Fidelity

C.   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.

                                   ARTICLE II

TERM

A.   The term of this Contract shall be from 12:01 a.m., Eastern Standard Time,
     January 1, 2006, to 12:01 a.m., Eastern Standard Time, January 1, 2007.

B.   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.

C.   The Company shall have the option to elect run-off coverage for Policies in
     force at the expiration of this Contract. If the Company chooses to run off
     liability, the Company will notify the Reinsurer prior to January 31, 2007.
     If run-off of liability is chosen, the Reinsurer shall continue to be
     liable for Ultimate Net Loss incurred by the Company under all Policies in
     force at the time and date of expiration until each Policy's next
     anniversary, renewal or expiration, but in no event shall the Reinsurer's
     liability continue for more than 12 months after the expiration date plus
     odd time, not to exceed a total of 18 months. The premium for the run-off
     coverage shall be 10% applied to the unearned subject premium for the
     Policies in force as of December 31, 2006.

                                   ARTICLE III

SPECIAL TERMINATION

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

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

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


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     3.   The Reinsurer's policyholders' surplus has been reduced by whichever
          is greater, either 25% of the amount of surplus at the inception of
          this Contract or 25% of the amount at the latest anniversary, or has
          lost any part of, or has reduced its paid in capital; or

     4.   The Reinsurer has become merged with, acquired or controlled by any
          company, corporation or individual(s) not controlling the party's
          operations at the inception of this Contract; or

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

     6.   The Reinsurer ceases writing new or renewal business; or

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

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

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

                                   ARTICLE IV

DEFINITIONS

A.   Ultimate Net Loss

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


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     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

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

C.   Gross Net Earned Premium Income

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

D.   Extended Reporting Period Coverage

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


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     under the Policy or whether a specific endorsement is issued, will be the
     termination or expiration date of the Policy.

                                    ARTICLE V

LOSS IN EXCESS OF POLICY LIMITS

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

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

                                   ARTICLE VI

EXTRA CONTRACTUAL OBLIGATIONS

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

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

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


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                                   ARTICLE VII

TERRITORY

This Contract shall cover wherever the Company's original Policies cover.

                                  ARTICLE VIII

EXCLUSIONS

This Contract does not cover and specifically excludes:

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

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

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

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

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

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

F.   Financial Guarantee or Insolvency, when written as such.

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

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

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


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

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

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

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

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

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

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

O.   Business classified by the Company as Public Directors and Officers
     Liability (portfolio currently in run-off)

P.   Business classified by the Company as Unsupported Umbrella or Program
     Umbrella Liability with effective dates of 1/1/2006 or later


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Should any judicial or regulatory entity having jurisdiction invalidate any
exclusion in the Company's Policy that is also the subject of one or more of the
exclusions herein(with exception to exclusions A, B, C, D, E, F, I, J and K as
set forth above), then a loss for which the Company is liable because of such
invalidation shall not be excluded hereunder.

                                   ARTICLE IX

ADDITIONAL PROVISIONS

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.   Business classified by the Company as Specialty Lines Excess shall be
     limited to a maximum of 1.0% of the total Gross Net Earned Premium Income
     subject to this Contract.

C.   Business classified by the Company as First Party Cyber-Liability, when
     written as such and in conjunction with Miscellaneous Professional
     Liability Policies, shall be subject to a sub-limit in the Company's
     original Policies of $1,000,000 or so deemed.

D.   The Company shall provide the Reinsurer quarterly price monitoring reports
     on all lines of business ceded to the treaty.

                                    ARTICLE X

AMOUNT OF COVERAGE AND RETENTION

A.   With respect to all business covered other than as in paragraph B below,
     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.

B.   When the Company writes an umbrella Policy, other than umbrella business
     written through McGowan and Associates, Rocky River, Ohio, the Reinsurer
     will be liable for $9,000,000 of Ultimate Net Loss in respect of each Loss
     Occurrence, each Insured, in excess of the Company's retention of
     $2,000,000 Ultimate Net Loss, each Loss Occurrence, each Insured, where the
     Ultimate Net Loss is inclusive of any primary Policy written by the
     Company.

C.   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.


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                                   ARTICLE XI

PREMIUM

A.   The premium to be paid by the Company to the Reinsurer for reinsurance
     provided by this Contract shall be calculated by applying the appropriate
     rate from the attached Schedule A to the Gross Net Earned Premium Income
     for the term of this Contract on all business the subject matter hereof,
     subject to a minimum premium of $53,240,000

B.   The Company shall pay to the Reinsurer an annual deposit premium of
     $66,550,000 payable in quarterly installments of $16,637,500 due April 1;
     July 1; and October 1, 2006; and January 1, 2007.

C.   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.

                                   ARTICLE XII

NOTICE OF LOSS AND LOSS SETTLEMENTS

A.   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 amount
     incurred is 50% or more of the Company's retention.

B.   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.

C.   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.

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

                                  ARTICLE XIII

AGENCY AGREEMENT (WAGE1)

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.


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                                   ARTICLE XIV

ERRORS AND OMISSIONS

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.

                                   ARTICLE XV

OFFSET

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.

                                   ARTICLE XVI

CURRENCY (BRMA 12A)

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

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

                                  ARTICLE XVII

TAXES (BRMA 50C)

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.

                                  ARTICLE XVIII

FEDERAL EXCISE TAX (BRMA 17A)

(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.)

A.   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.


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B.   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.

                                   ARTICLE XIX

UNAUTHORIZED REINSURANCE (BRMA 55A)

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

A.   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.

B.   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.

C.   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:

     1.   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;

     2.   to make refund of any sum which is in excess of the actual amount
          required to pay the Reinsurer's Obligations under this Contract;


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     3.   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;

     4.   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 1 or 3 or, in the case of 4, 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.

D.   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.

E.   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:

     1.   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.

     2.   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.

                                   ARTICLE XX

NET RETAINED LINES

A.   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.

B.   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.


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C.   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.

                                   ARTICLE XXI

THIRD PARTY RIGHTS (BRMA 52C)

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.

                                  ARTICLE XXII

SEVERABILITY

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.

                                  ARTICLE XXIII

GOVERNING LAW (BRMA 71A)

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.

                                  ARTICLE XXIV

ACCESS TO RECORDS

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.

                                   ARTICLE XXV

INSOLVENCY

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


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     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.

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 this Contract as though such
     expense had been incurred by the insolvent Company.

C.   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.

D.   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.

E.   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.

                                  ARTICLE XXVI

ARBITRATION

A.   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.

B.   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.

C.   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


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     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.

D.   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.

E.   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.

F.   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

G.   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.

H.   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.

                                  ARTICLE XXVII

CONFIDENTIALITY

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.

                                 ARTICLE XXVIII

SERVICE OF SUIT (WSOS4)

(This Article is applicable if the subscribing reinsurer is not domiciled in the
United States of America and/or is not authorized in any State, Territory or
District of the United States where


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authorization is required by insurance regulatory authorities. This Article is
not intended to conflict with or override the obligation of the parties to
arbitrate their disputes in accordance with the ARBITRATION ARTICLE.)

A.   In the event of the failure of the subscribing reinsurer to pay any amount
     claimed to be due hereunder, the subscribing reinsurer, at the request of
     the Company, shall submit to the jurisdiction of a court of competent
     jurisdiction within the United States. Nothing in this Article constitutes
     or should be understood to constitute a waiver of the subscribing
     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. The subscribing reinsurer, once the appropriate court is selected,
     whether such court is the one originally chosen by the Company and accepted
     by subscribing reinsurer or is determined by removal, transfer, or
     otherwise, as provided for above, shall comply with all requirements
     necessary to give said court jurisdiction and, in any suit instituted
     against it upon this Contract, shall abide by the final decision of such
     court or of any appellate court in the event of an appeal.

B.   Service of process in such suit may be made upon the agent for the service
     of process ("agent") named below, depending on the jurisdiction where the
     Company chooses to bring suit:

     1.   If the suit is brought in the State of California, the law firm of
          Mendes and Mount, 725 South Figueroa, 19th Floor, Los Angeles,
          California 90017 shall be authorized and directed to accept service of
          process on behalf of the subscribing reinsurer in any such suit;

     2.   If the suit is brought in the State of New York, the law firm of
          Mendes and Mount, 750 Seventh Avenue, New York, New York 10019 shall
          be authorized and directed to accept service of process on behalf of
          the subscribing reinsurer in any such suit;

     3.   If the suit is brought in any state other than California or New York,
          either of the agents described in subparagraphs 1 or 2 above shall be
          authorized and directed to accept service of process on behalf of the
          subscribing reinsurer in any such suit; or

     4.   If the subscribing reinsurer has designated an agent in the
          subscribing reinsurer's Interests and Liabilities Agreement attached
          hereto, then that agent shall be authorized and directed to accept
          service of process on behalf of the subscribing reinsurer in any suit.
          However, if an agent is designated in the subscribing reinsurer's
          Interests and Liabilities Agreement and the agent is not located in
          California as respects a suit brought in California or New York as
          respects a suit brought in New York, in keeping with the laws of the
          states of California and New York which require that service be made
          on an agent located in the respective state if a suit is brought in
          that state, the applicable office of Mendes and Mount stipulated in
          subparagraphs 1 and 2 above must be used for service of suit unless
          the provisions of paragraph C of this Article apply.

C.   Further, pursuant to any statute of any state, territory or district of the
     United States that makes provision therefor, the subscribing reinsurer
     hereby designates the Superintendent,


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     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 proceedings instituted by or on behalf of the Company or
     any beneficiary hereunder arising out of this Contract, and hereby
     designates the above-named as the person to whom the said officer is
     authorized to mail such process or a true copy thereof.

                                  ARTICLE XXIX

TERRORISM RISK INSURANCE ACT OF 2002

A.   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.

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

                                   ARTICLE XXX

MODE OF EXECUTION (WMOE1)

This Contract may be executed either by an original written ink signature of
paper documents, by an exchange of facsimile copies showing the original written
ink signature of paper documents, or by electronic signature by either party
employing appropriate software technology as to satisfy the parties at the time
of execution that the version of the document agreed to by each party shall
always be capable of authentication and satisfy the same rules of evidence as
written signatures. The use of any one or a combination of these methods of
execution shall constitute a legally binding and valid signing of this Contract.
This Contract may be executed in one or more counterparts, each of which, when
duly executed, shall be deemed an original.

                                  ARTICLE XXXI

EXCLUDED RISKS INADVERTENTLY BOUND

If the Company becomes bound on a risk specifically excluded in this Contract,
and if notice of such is given by the Company to the Reinsurer within 30 days of
the discovery by an


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underwriting officer of the Company, such reinsurance as would have been
afforded for the risk by this Contract if the risk had not been excluded shall
nevertheless apply:

     (a)  to such risk with respect to occurrences taking place prior to the
          31st day after the discovery by an Underwriting Officer of such
          underwriting department of the Company of the existence of the hazard
          which makes the exclusion applicable; or

     (b)  until the Company is legally able to eliminate its liability under the
          policy.

In case, within such 30 day period, the Company shall have forwarded to the
Reinsurer complete underwriting information and shall have received from the
Reinsurer written notice of its approval of the risk, the reinsurance shall
apply with respect to such risk for the policy period reported in the same
manner as if such risk were not so excluded, subject, however, to the terms of
such notice of approval.


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

PHILADEPHIA INSURANCE COMPANY           EMPLOYERS REINSURANCE CORPORATION
PHILADELPHIA INDEMNITY INSURANCE
COMPANY


/s/ Christopher J. Maguire              /s/ William J. O'Donnell III
- -------------------------------------   ----------------------------------------
Title: Executive Vice President &       Title: Senior Vice President Officer
       Chief Underwriting Officer

/s/ William McKenna
- -------------------------------------   ----------------------------------------
Title: Assistant Vice President -      Title:
       Reinsurance Officer                     ---------------------------------

Date: June 15, 2006                     Date: June 8, 2006


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                                   SCHEDULE A



                                                 ADJUSTABLE
PRODUCT LINE                                       % RATE
- ------------                                     ----------
                                              
AUTO LIABILITY                                      0.193
GENERAL LIABILITY                                   0.193
UMBRELLA                                           31.962
SPECIALTY LINES
   Agents E & O                                     8.957
   Non-Profit and Flexi Plus 5 D & O Liability     26.305
   Lawyers E & O                                    3.441
   Professional Liability Excess                   14.505
   Non-Profit Professional Liability                8.957
   Consultant's Liability                           8.957
   Private Company Protection Plus                 26.305
   Mental Health Counselors                         8.957
   Corporate D & O                                 26.305
   Health Care Professionals Liability              8.957
   Accountants E & O                                8.957
   New Programs Professional                        8.957



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      NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - U.S.A.

(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):

                          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)

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

                           BROAD EXCLUSION PROVISION.*

It is agreed that the policy does not apply:

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.


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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.

21/9/67
N.M.A. 1590


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      NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - CANADA

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.


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P06-0108

As used in this Policy:

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

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

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.

N.M.A. 1979A
01/04/96


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P06-0108

                  TERRORISM EXCLUSION ENDORSEMENT (REINSURANCE)

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.



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, with exception to Bridges owned or maintained by
   municipalities with less than 75,000 in population.                          CGL/UMB
Buildings in which U.S. Government is Owner or Largest Tenant                   CGL/UMB
Chemical Manufacturing, Wholesale or Storage                                    CGL/UMB
Convention Centers, with exception to Convention Centers
   when written as a non-profit organization, or as part of a municipality
   with less than 75,000 in population.                                         CGL/UMB
Concert Halls equal to or greater than 1,000 person in capacity,
   with exception to: 1) Concert Halls when written as a
   non-profit organization; 2) Concert Halls when written as part of a
   municipality with less than 75,000 in population.                            CGL/UMB
Dams, with exception to Dams less than fifty feet in height and owned
   by municipalities with less than 75,000 in population.                       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



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P06-0108

                                                                             
Ports (Including Any Related Services or Operations)                            CGL/UMB
Security Services                                                               CGL/UMB
Stadiums and Sports Arenas, with exception to Stadiums and Sports
   Arenas with less than 10,000 in seating capacity and written as part of
   Philadelphia Insurance Company's Amateur Sports Facility program,
   or written as part of a municipality with less than 75,000 in population.    CGL/UMB
Telecommunications Services - Telephone, Radio, TV, Internet                    CGL/UMB
Water & Sewage Treatment Plants, with exception to Water & Sewage
   Treatment Plants owned by municipalities with less than 75,000 in
   population, or Water & Sewage Treatment Authorities serving
   populations with less than 250,000 in population.                            CGL/UMB



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


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                             WAR EXCLUSION (WEXC212)

As regards interests which at time of loss or damage are on shore, no liability
shall attach hereto in respect of 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 confiscation by order
of any government or public authority.

This War Exclusion Clause shall not, however, apply to interests which at time
of loss or damage are within the territorial limits of the United States of
America (comprising the fifty States of the Union and the District of Columbia,
its territories and possessions, including the Commonwealth of Puerto Rico and
including Bridges between the United States of America and Mexico provided they
are under United States ownership), Canada, St. Pierre and Miquelon, provided
such interests are insured under original policies, endorsements or binders
containing a standard war or hostilities or warlike operations exclusion clause.

Nevertheless, this clause shall not be construed to apply to loss or damage
occasioned by riots, strikes, civil commotion, vandalism, malicious damaged.

EX-10.4

                                                                    Exhibit 10.4

                                ENDORSEMENT NO. 4

                         Attached to and made a part of
                            AGREEMENT OF REINSURANCE
                                    NO. 9034
                                     between
                         PHILADELPHIA INDEMNITY COMPANY
                         PHILADELPHIA INSURANCE COMPANY
               (herein collectively referred to as the "Company")
                                       and
                         GENERAL REINSURANCE CORPORATION
                     (herein referred to as the "Reinsurer")

IT IS MUTUALLY AGREED that, as respects new and renewal policies of the Company
becoming effective at and after 12:01 A.M., January 1, 2006, and policies of the
Company in force at 12:01 A.M., January 1, 2006, with respect to claims and
losses resulting from Occurrences taking place at and after the aforesaid time
and date, EXHIBIT A to this Agreement is amended as follows:

     I - SECTION 3 is amended to read:

"SECTION 3 - LIABILITY OF THE REINSURER

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.

                             SCHEDULE OF REINSURANCE



                                        Limits of Liability of the Reinsurer
                                        ------------------------------------
                                                 FIRST         SECOND
Class of Business   Company Retention        EXCESS COVER   EXCESS COVER
- -----------------   -----------------        ------------   ------------
                                                   
Property Business       $2,000,000            $3,000,000     $5,000,000


The liability of the Reinsurer shall not exceed:

     (a)  $6,000,000 under the First Excess Cover nor $10,000,000 under the
          Second Excess Cover with respect to all Net Loss on all Risks involved
          in one Occurrence.

     (b)  $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
          this provision, upon a run off termination of this Exhibit the last

                         GENERAL REINSURANCE CORPORATION
                          A BERKSHIRE HATHAWAY COMPANY



          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."

     II - Sub-paragraphs (a) and (b) in SECTION 4 - DEFINITIONS are amended to
          read:

     "(a) COMPANY RETENTION

          This term shall mean the amount the Company and its underlying
          facultative reinsurers 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 underlying facultative
          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 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."

     III - The first two lines of definition (e) RISK in SECTION 4 - DEFINITIONS
          are replaced by the following:

          "The Company shall establish what constitutes one Risk and shall make
          such determination based on the peril of fire at the time of
          acceptance, provided:"


                                       -2-
                         GENERAL REINSURANCE CORPORATION



     IV - Exclusion (v) in SECTION 5 - EXCLUSIONS is amended to read:

     "(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, 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;"

     V - SECTION 7 is amended to read:

"SECTION 7 - REINSURANCE PREMIUM

The Company shall pay to the Reinsurer:

     (a)  For the First Excess Cover, 2.18% of the Company's Subject Earned
          Premium;

     (b)  For the Second Excess Cover, 1.01% of the Company's Subject Earned
          Premium."

     VI - SECTION 6 is amended to read:

"SECTION 6 - OTHER REINSURANCE

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.

The Company may also purchase facultative excess of loss reinsurance within the
Company Retention. In no event, however, shall the amount required with respect
to the net Company Retention after such reinsurance be reduced to less than
$500,000.

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


                                       -3-
                         GENERAL REINSURANCE CORPORATION



IT IS FURTHER AGREED that, as respects Terrorism Occurrences taking place at and
after 12:01 A.M., January 1, 2006, EXHIBIT B to this Agreement is hereby renewed
subject to all its terms, conditions and limitations, except as modified below,
for a period of one year. Accordingly:

     I  -  The first paragraph of SECTION 2 - TERM is amended to read:

"This Exhibit shall apply to new and renewal policies of the Company becoming
effective at and after 12:01 A.M., January 1, 2006, and to policies of the
Company in force at 12:01 A.M., January 1, 2006, 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, 2007."

     II - The penultimate paragraph of SECTION 3 - LIABILITY OF THE REINSURER is
          replaced in its entirety by the following:

"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."

     III - The first two lines of definition (e) RISK in SECTION 4 - DEFINITIONS
          are replaced by the following:

          "The Company shall establish what constitutes one Risk and shall make
          such determination based on the peril of fire at the time of
          acceptance, provided:"

     IV - SECTION 6 is amended to read:

"SECTION 6 - REINSURANCE PREMIUM

The Company shall pay to the Reinsurer a flat reinsurance premium of $640,000
for the term of this Exhibit."

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


                                       -4-
                         GENERAL REINSURANCE CORPORATION



in duplicate,

this 9th day of August, 2006,

                                        PHILADELPHIA INDEMNITY COMPANY
                                        PHILADELPHIA INSURANCE COMPANY

                                        /s/ Christopher J. Maguire
                                        ----------------------------------------
                                        Christopher J. Maguire,
                                        Executive Vice President and Chief
                                        Underwriting Officer


Attest: /s/ William A. McKenna
        ------------------------------
        William A. McKenna
        Assistant Vice President
        Reinsurance

and this 28th day of June, 2006.

                                        GENERAL REINSURANCE CORPORATION


                                        /s/ Joan LaFrance
                                        ----------------------------------------
                                        Joan LaFrance,
                                        Vice President


Attest: /s/ Diane B. Hyland
        -----------------------------
        Diane B. Hyland,
        Assistant Vice President



                                       -5-
                                Endorsement No. 4
                               Agreement No. 9034
                         GENERAL REINSURANCE CORPORATION

EX-10.5

                                                                    Exhibit 10.5

                        COMMUTATION AND RELEASE AGREEMENT

     This Commutation and Release Agreement (the "Agreement") is made by and
among Trenwick America Reinsurance Corporation, an insurance company domiciled
in the State of Connecticut (the "REINSURER") and Philadelphia Consolidated
Holding Corporation, a company domiciled in the State of Pennsylvania, on behalf
of itself and its subsidiaries and affiliates including, but not limited to,
those entities listed on Schedule A attached hereto (hereafter individually and
collectively the "COMPANY"), effective as of the EFFECTIVE DATE (as hereinafter
defined). The REINSURER and the COMPANY are hereinafter referred to collectively
as the "Parties".

                                    RECITALS

     WHEREAS, the Parties have entered into various reinsurance arrangements,
slips, understandings and agreements, excluding those set forth on Schedule B,
pursuant to which the REINSURER reinsured certain liabilities of the COMPANY
(all such arrangements, slips, understandings and agreements, excluding those
set forth on Schedule B, are hereafter referred to as the "Reinsurance
Agreements"); and

     WHEREAS, the Parties now wish to fully and finally terminate, release,
determine and fully and finally settle, commute and extinguish all their
respective obligations and liabilities, known and unknown, fixed and contingent,
under, arising out of, in connection with and/or pursuant to the Reinsurance
Agreements; and

     NOW, THEREFORE, in consideration of the covenants, conditions, promises and
releases contained herein, and for other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows:

     ARTICLE 1. PAYMENT. On the EFFECTIVE DATE, as hereafter defined, the
REINSURER shall pay the sum of Two Million Two Hundred Ninety Thousand Six
Hundred Seventy Dollars ($ 2,290,670) (the "COMMUTATION AMOUNT") and the COMPANY
shall accept said amount in full satisfaction of the REINSURER'S liability under
the Reinsurance Agreements. Payment of the COMMUTATION AMOUNT shall be made by
wire transfer to the COMPANY in accordance with the payment instructions set
forth in Schedule C hereto.

     As additional consideration, the COMPANY agrees to pay REINSURER 25% of all
monies recovered by COMPANY in excess of $672,000 with respect to the claim
entitled M&F Fishing v. Sea Pac (COMPANY file number 140197-U) which was
submitted to REINSURER as part of COMPANY's overall Raleigh, Schwarz & Powell,
Inc. claim (COMPANY's file number 104119-U) (collectively, REINSURER claim
number T029085). Payment shall be made to REINSURER by wire transfer within five
(5) BUSINESS DAYS of receipt of such monies by COMPANY pursuant to the payment
instructions set forth in Schedule C hereto.

     ARTICLE 2. RELEASE.

     (a) Upon REINSURER's payment of the COMMUTATION AMOUNT, the COMPANY hereby
irrevocably and unconditionally releases and forever discharges the REINSURER,
its parents, subsidiaries and affiliates, and their respective predecessors,


                                        1



successors, assigns, officers, directors, agents, employees, shareholders,
representatives, and attorneys from any and all present and future actions,
causes of action, suits, debts, liens, contracts, rights, agreements,
obligations, promises, liabilities, claims, demands, damages, controversies,
losses, costs and expenses (including attorneys' fees and costs actually
incurred) of any nature whatsoever, known or unknown, suspected or unsuspected,
fixed or contingent, which the COMPANY now has, owns or holds or claims to have,
own, or hold, or at any time heretofore had, owned, or held or claimed to have
had, owned, or held, or may hereafter have, own, or hold or claim to have, own,
or hold, arising out of conduct or matters occurring prior to or subsequent to
the EFFECTIVE DATE, against the REINSURER, arising from, based upon, or in any
way related to the Reinsurance Agreements, sounding in tort or contract or
otherwise; provided, however, that the provisions of this Article 2(a) shall not
discharge obligations of the REINSURER, which have been undertaken or imposed by
the terms of this Agreement.

     (b) Contemporaneous with the payment of the COMMUTATION AMOUNT, the
REINSURER hereby irrevocably and unconditionally releases and forever discharges
the COMPANY, its parents, subsidiaries and affiliates, and their respective
predecessors, successors, assigns, officers, directors, agents, employees,
shareholders, representatives, and attorneys from any and all present and future
actions, causes of action, suits, debts, liens, contracts, rights, agreements,
obligations, promises, liabilities, claims, demands, damages, controversies,
losses, costs and expenses (including attorneys' fees and costs actually
incurred) of any nature whatsoever, known or unknown, suspected or unsuspected,
fixed or contingent, which the REINSURER now has, owns, holds or claims to have,
own, or hold, or at any time heretofore had, owned, or held or claimed to have
had, owned, or held, or may hereafter have, own, or hold or claim to have, own,
or hold, arising out of conduct or matters occurring prior to or subsequent to
the EFFECTIVE DATE, against the COMPANY, arising from, based upon, or in any way
related to the Reinsurance Agreements, sounding in tort or contract or
otherwise; provided, however, that the provisions of this Article 2(b) shall not
discharge obligations of the COMPANY, which have been undertaken or imposed by
the terms of this Agreement.

     (c) It is the intention of the Parties that the releases contained in this
Article 2 operate to fully and finally settle and discharge each Party's past,
present and future claims, causes of action, obligations and liabilities to the
other Party hereto, whether known or unknown, reported or unreported, accrued or
yet to accrue, arising directly or indirectly under or in connection with the
Reinsurance Agreements. The Parties acknowledge that full payment of the
COMMUTATION AMOUNT will be in complete accord, satisfaction, settlement and
commutation of any and all past, current and future liabilities and obligations
that each Party owes or may owe to the other arising directly or indirectly
under or in connection with the Reinsurance Agreements.

     (d) To the extent applicable, the Parties fully understand and agree that
they are, by entering into this Agreement, expressly waiving their rights and
benefits under section 1542 of the California Civil Code or any similar
provisions of the law. Section 1542 provides in its material parts that a
general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known to him must have materially affected his settlement with the debtor.


                                        2



provided that such third parties have been advised of the terms and conditions
of the confidentiality provisions of this Article 7 and that the provisions of
this Article 7 are binding upon such third parties. The provisions of this
Article 7 shall survive any termination or rescission of this Agreement.

     ARTICLE 8. FURTHER ASSURANCES. The Parties, without further consideration,
agree to execute and deliver such other documents and take such other action as
may be necessary to effect this Agreement, including without limitation,
providing such information and representations as may be requested by the
Insurance Department of the State of Connecticut in connection with its review
and approval of this Agreement.

     ARTICLE 9. WARRANTIES.

     (a) Each of the Parties warrants and represents to each other that it is a
corporation in good standing in its respective jurisdiction of domicile; that
the execution of this Agreement is fully authorized by such party and that to
the extent that a party is acting in a representative capacity herein, it is
authorized to execute this Agreement on behalf those who it represents,
including but not limited to all predecessors, successors, parents, affiliates
and subsidiaries as may be herein represented and to bind them as agent; that
the persons executing this Agreement have full authority to execute this
Agreement on behalf of such party; that the commutation and release set forth in
this Agreement is valid, effective and binding in all respects; that, upon the
EFFECTIVE DATE, all necessary authorizations, consents and approvals of all
regulatory or government entities with regulatory jurisdiction over such party
shall have been obtained to make this Agreement valid and binding upon it,
including without limitation, in the case of the REINSURER, the approval of the
Insurance Department of the State of Connecticut; that no claim or loss being
paid or settled by this Agreement has been previously assigned, sold or
transferred to any other person or entity.

     (b) Each of the Parties warrants and represents that it has not taken any
action or entered into any agreement, instrument, understanding or document that
entitles any individual, corporation or other entity to assert a claim against
the other Party for any liabilities reinsured pursuant to the Reinsurance
Agreements.

     ARTICLE 10. MISCELLANEOUS.

     (a) Should any provision of this Agreement, except Articles 1 or 2, be
declared or determined by any court to be illegal or invalid pursuant to a final
and unappealable Order of a Court of competent jurisdiction, the validity of the
remaining part, terms or provisions shall not be affected thereby and said
illegal or invalid part, term or provision shall be deemed not to be part of
this Agreement. If either of Article 1 or 2 is determined by a court of
competent jurisdiction to be unenforceable, either Party, at its option, shall
be entitled to rescind this Agreement and any agreement executed in connection
with this Agreement, and REINSURER shall be entitled to repayment of the
COMMUTATION AMOUNT, together with interest, immediately upon such rescission.
Notwithstanding the foregoing, the releases given pursuant to Article 2 shall
remain in full force and effect as to the Parties' officers, directors, agents,
employees, shareholders, representatives, advisors and attorneys.


                                        4



     ARTICLE 3. EXCLUSIVE BENEFIT OF THE PARTIES AND BINDING EFFECT. The rights,
duties and obligations set forth herein shall inure to the benefit of and be
binding upon the COMPANY and the REINSURER as they are identified in this
Agreement and their parents, subsidiaries and affiliates, and their respective
predecessors, successors, assigns, officers, directors, agents, employees,
shareholders, representatives, and attorneys and is not intended to confer any
rights or benefits upon persons or entities other than the foregoing parties.

     ARTICLE 4. FULL AND INDEPENDENT KNOWLEDGE. Each of the Parties represents
to the other as follows: (a) it has had full opportunity to consult with its
respective attorneys in connection with the negotiation and drafting of this
Agreement; (b) it has carefully read and understands the scope and effect of
each provision contained in this Agreement; (c) it has conducted all necessary
due diligence, investigation and analysis of the transactions contemplated by
this Agreement; and, (d) except as may be contained herein, it is not relying
upon any representations made by any other party, its attorneys or other
representatives.

     ARTICLE 5. COMPROMISE. The Parties agree that this Agreement sets forth a
compromise and shall never at any time for any purpose be considered as an
admission of liability or responsibility on the part of any party hereto
regarding any aspect of the Reinsurance Agreements. The Parties further agree
that neither this Agreement nor any of its terms shall be admissible in any
action, arbitration, or proceeding other than one to enforce the terms of this
Agreement, including, but not limited to, the Releases provided in Article 2.

     ARTICLE 6. OTHER ACTIONS. The Parties agree that this Agreement and the
negotiations and proceedings leading to this Agreement shall not form the basis
for any claim by either against the other or against any officer, director,
consultant, professional or shareholder of the other, except with respect to an
action for enforcement of this Agreement.

     ARTICLE 7. CONFIDENTIALITY. The Parties agree to maintain in strict
confidence the negotiations and proceedings leading up to this Agreement,
including any related documents, and shall not make any disclosure of the terms
or the negotiations and proceedings leading up to this Agreement, including any
related documents, unless such disclosure is required as a result of court
order, subpoena, law, regulation, accounting procedure or lawful discovery
procedures and, in the event of any such court order, subpoena, law, regulation,
accounting procedure or lawful discovery procedures seeking disclosure, no
disclosure shall be made unless and until the disclosing party has given the
other party reasonable prior written notice, of not less than five (5) BUSINESS
DAYS, where practicable, of the requirement of making such disclosure and an
opportunity to obtain a protective order. Notwithstanding the foregoing, the
Parties may disclose the existence and terms of this Agreement to (a) their
respective auditors and shareholders, (b) to their respective reinsurers,
retrocessionaires, brokers and reinsurance intermediaries and any other persons
with any direct or indirect reimbursement obligation related to or in connection
with this Agreement or the Reinsurance Agreements, (c) in connection with a
proceeding to enforce the terms of this Agreement or in court proceedings and
arbitrations in connection with any bankruptcy, insolvency or similar proceeding
in which a Party or an affiliate of a Party is a debtor, and (d) to any
governmental authority having regulatory authority over such party to the extent
that such authority shall have requested such information or such disclosure is
required by law. Disclosure of the existence and terms of this Agreement may be
made to the persons and entities described in items (a), (b) and (c) above only
on a strict "need to know basis" and


                                        3



     (b) This Agreement sets forth the entire Agreement between the Parties with
respect to the subject matter hereof and supersedes all prior agreements or
understanding between them pertaining to the subject matter hereof. A facsimile
copy of a signature shall have the same force and effect as an original
signature.

     (c) This Agreement may not be amended, altered, supplemented or modified,
except by written agreement signed by the Parties.

     (d) This Agreement may be executed and delivered in multiple counterparts,
each of which, when so executed and delivered, shall be an original, but such
counterparts shall together constitute but one and the same instrument and
agreement.

     (e) This Agreement shall be effective (such day being the "EFFECTIVE DATE")
two (2) BUSINESS DAYS after the Insurance Department of the State of Connecticut
shall have provided its approval for the REINSURER to enter into this Agreement.
For purposes of this Agreement, a "BUSINESS DAY" is any day other than a
Saturday, Sunday or day on which banking institutions in the City of New York
and Stamford, Connecticut are authorized by law or other governmental actions to
close.

     (f) This Agreement shall be governed by and construed in accordance with
the laws of the State of Connecticut without regard to principles of conflicts
of law or choice of law.

     (g) The Parties hereby consent to the jurisdiction of the state and federal
courts within the State of Connecticut exclusively in connection with any legal
action arising out of this Agreement.

     (h) In the event of any breach of the terms or conditions of this
Agreement, the party prevailing at trial shall be entitled to recover from the
breaching party, all costs and expenses, including, without limitation,
reasonable attorneys fees and disbursements.

     (i) All notices under this Agreement shall be in writing and shall be
deemed to be duly given and received (i) upon delivery if delivered by certified
mail; or (ii) on the next BUSINESS DAY if sent by overnight courier, if sent to
a Party to its Address for Notices on Schedule D hereto or to such other address
as any party may have furnished to the other in writing.

     (j) The Parties agree that for all purposes this Agreement shall be deemed
to have been drafted jointly by both Parties.

IN WITNESS WHEREOF, the Parties have executed this Agreement by their respective
authorized officers as of the day and year first written below.

TRENWICK AMERICA REINSURANCE CORPORATION


By: /s/ Christopher W. Tilley              Dated: 3-10-06
    ------------------------------------
Name: Christopher W. Tilley
Title: EVP


                                        5



PHILADELPHIA CONSOLIDATED HOLDING
CORPORATION


By: /s/ Christopher J. Maguire          Dated: 3/1/06
    ---------------------------------
Name: Christopher J. Maguire
Title: EVP & CUO


                                        6



                                   SCHEDULE A

Philadelphia Insurance Company
Philadelphia Indemnity Insurance Company


                                        7



                                   SCHEDULE B

                               EXCLUDED AGREEMENTS

The following reinsurance arrangements, slips, understandings and agreements are
excluded from the definition of "Reinsurance Agreements":

All reinsurance arrangements, understandings and agreements pertaining to
assumed or ceded business written, produced or issued through LDG Reinsurance
Corporation, Duncanson & Holt and ECRA and any and all of their predecessors and
successors.


                                        8



                                   SCHEDULE C

                              PAYMENT INSTRUCTIONS

Wire Transfer instructions to the COMPANY:

     Fed Wire

     Bank:           Wachovia Bank
     ABA#:           031 201 467
     Account #:      21-0000-3192-062
     Credit Account: Philadelphia Indemnity Insurance Company

     ACH Funds Transfer

     Bank:           Wachovia Bank
     ABA#:           031 000 503
     Account #:      21-0000-3192-062
     Credit Account: Philadelphia Indemnity Insurance Company

Wire Transfer instructions to the REINSURER:

     JP Morgan Chase
     ABA #021-000-021
     Account #910-273-8581
     Trenwick America Reinsurance Corp


                                        9



                                   SCHEDULE D

                               Address for Notice

To the REINSURER:

     Trenwick America Reinsurance Corporation
     One Canterbury Green
     Stamford, CT 06901
     Attn: General Counsel

To the COMPANY:

     Philadelphia Consolidated Holding Corporation
     One Bala Plaza, Suite 100
     Bala Cynwyd, PA 19004
     Attn: Christopher J. Maguire


                                       10

EX-10.6

                                                                    Exhibit 10.6

                    $6,150,000 EXCESS $10,000,000 CATASTROPHE
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                                    issued to

                         Philadelphia Insurance Company
                            Bala Cynwyd, Pennsylvania
                    Philadelphia Indemnity Insurance Company
                            Bala Cynwyd, Pennsylvania
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                        Philadelphia Insurance Companies

06\P2Z1057                                                       (BENFIELD LOGO)



                                TABLE OF CONTENTS



ARTICLE                                                                     PAGE
- -------                                                                     ----
                                                                         
     I Classes of Business Reinsured                                          1
    II Commencement and Termination                                           1
   III Territory                                                              2
    IV Exclusions                                                             3
     V Retention and Limit                                                    5
    VI Reinstatement                                                          5
   VII Premium                                                                6
  VIII Definitions                                                            7
    IX Other Reinsurance                                                      8
     X Loss Occurrence                                                        9
    XI Loss Notices and Settlements                                          10
   XII Salvage and Subrogation                                               10
  XIII Florida Hurricane Catastrophe Fund                                    11
   XIV Offset (BRMA 36D)                                                     12
    XV Access to Records (BRMA 1D)                                           12
   XVI Liability of the Reinsurer                                            12
  XVII Net Retained Lines (BRMA 32E)                                         12
 XVIII Errors and Omissions (BRMA 14F)                                       12
   XIX Currency (BRMA 12A)                                                   13
    XX Taxes (BRMA 50B)                                                      13
   XXI Federal Excise Tax                                                    13
  XXII Funding Requirements                                                  13
 XXIII Insolvency                                                            15
  XXIV Arbitration                                                           15
   XXV Service of Suit                                                       16
  XXVI Agency Agreement                                                      17
 XXVII Governing Law                                                         17
XXVIII Confidentiality                                                       17
  XXIX Severability                                                          17
   XXX Intermediary (BRMA 23A)                                               18


06\P2Z1057                                                       (BENFIELD LOGO)



                    $6,150,000 EXCESS $10,000,000 CATASTROPHE
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                                    issued to

                         Philadelphia Insurance Company
                            Bala Cynwyd, Pennsylvania
                    Philadelphia Indemnity Insurance Company
                            Bala Cynwyd, Pennsylvania
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                        Philadelphia Insurance Companies
             (hereinafter referred to collectively as the "Company")

                                       by

                   The Subscribing Reinsurer(s) Executing the
                     Interests and Liabilities Agreement(s)
                                 Attached Hereto
                  (hereinafter referred to as the "Reinsurer")

ARTICLE I - CLASSES OF BUSINESS REINSURED

By this Contract the Reinsurer agrees to reinsure the excess liability which may
accrue to the Company under its policies, contracts and binders of insurance
(hereinafter called "policies") in force at the effective date hereof or issued
or renewed on or after that date, and classified by the Company as Property
business, subject to the terms, conditions and limitations set forth herein.

ARTICLE II - COMMENCEMENT AND TERMINATION

A.   This Contract shall become effective at 12:01 a.m., Local Standard Time,
     June 1, 2006, with respect to losses arising out of loss occurrences
     commencing at or after that time and date, and shall remain in force until
     12:01 a.m., Local Standard Time, June 1, 2007.

B.   Notwithstanding the provisions of paragraph A above, the Company may
     terminate a Subscribing Reinsurer's percentage share in this Contract by
     giving written notice to the Subscribing Reinsurer in the event any of the
     following circumstances occur as clarified by public announcement for
     subparagraphs 1 through 6 below and upon discovery for subparagraphs 7 and
     8 below:

     1.   The Subscribing Reinsurer's policyholders' surplus or foreign
          equivalent thereto after the date lines are bound for this Contract
          has been reduced by more than 25.0% of the amount of surplus or
          foreign equivalent 12 months prior to that date; or

06\P2Z1057                                                       (BENFIELD LOGO)


Page 1



     2.   The Subscribing Reinsurer's policyholders' surplus or foreign
          equivalent thereto at any time after the date that lines are bound or
          at any time during the term of this Contract has been reduced by more
          than 25.0% of the amount of surplus or foreign equivalent at the date
          of the Subscribing Reinsurer's most recent financial statement filed
          with regulatory authorities and available to the public as of the date
          lines are bound for this Contract; or

     3.   The Subscribing Reinsurer's A.M. Best's Financial Strength rating has
          been assigned as any rating below "A-" (inclusive of "Not Rated"
          ratings) and/or the Subscribing Reinsurer's Standard & Poor's Insurer
          Financial Strength rating has been assigned as any rating below "BBB+"
          (inclusive of "Not Rated" ratings); or

     4.   The Subscribing Reinsurer has become merged with, acquired by or
          controlled by any other company, corporation or individual(s) not
          controlling the Subscribing Reinsurer's operations previously; or

     5.   A State Insurance Department or other legal authority has ordered the
          Subscribing Reinsurer to cease writing business; or

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

     7.   The Subscribing Reinsurer has reinsured its entire liability under
          this Contract to a non-affiliated entity without the Company's prior
          written consent; or

     8.   The Subscribing Reinsurer has ceased assuming new or renewal property
          or casualty treaty reinsurance business.

C.   If this Contract is terminated or expires while a loss occurrence covered
     hereunder is in progress, the Reinsurer's liability hereunder shall,
     subject to the other terms and conditions of this Contract, be determined
     as if the entire loss occurrence had occurred prior to the termination or
     expiration of this Contract, provided that no part of such loss occurrence
     is claimed against any renewal or replacement of this Contract.

ARTICLE III - TERRITORY

The liability of the Reinsurer shall be limited to losses under policies
covering property located within the territorial limits of the United States of
America, its territories or possessions, Puerto Rico and the District of
Columbia; but this limitation shall not apply to moveable property if the
Company's policies provide coverage when said moveable property is outside the
aforesaid territorial limits.

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Page 2



ARTICLE IV - EXCLUSIONS

This Contract does not apply to and specifically excludes the following:

     1.   Financial guarantee and insolvency.

     2.   Assumed reinsurance.

     3.   Mortgage Impairment insurances and similar kinds of insurances,
          however styled.

     4.   Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
          Physical Damage - Reinsurance" attached to and forming part of this
          Contract.

     5.   Loss or damage caused by or resulting from war, invasion, hostilities,
          acts of foreign enemies, civil war, rebellion, insurrection, military
          or usurped power, or martial law or confiscation by order of any
          government or public authority.

     6.   Loss or liability excluded under the provisions of the "Pools,
          Associations and Syndicates Exclusion Clause" attached to and forming
          part of this Contract.

     7.   All liability of the Company arising by contract, operation of law, or
          otherwise, from its participation or membership, whether voluntary or
          involuntary, in any insolvency fund. "Insolvency fund" includes any
          guaranty fund, insolvency fund, plan, pool, association, fund or other
          arrangement, however 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.

     8.   Losses in respect of overhead transmission and distribution lines and
          their supporting structures other than those on or within 1,000 feet
          of the insured premises. It is understood and agreed that public
          utilities extension and/or suppliers extension and/or contingent
          business interruption coverages are not subject to this exclusion,
          provided that these are not part of a transmitters' or distributors'
          policy.

     9.   Accident and Health, Casualty, Fidelity and/or Surety business.

     10.  Loss, damage, cost or expense arising from seepage and/or pollution
          and/or contamination, other than contamination from smoke.
          Nevertheless, this exclusion does not preclude payment of the cost of
          removing debris of property damaged by a loss otherwise covered
          hereunder, subject always to a limit of 25.0% of the Company's
          property loss under the applicable original policy.

     11.  Notwithstanding any other provision to the contrary within this
          Contract or any amendment thereto, loss, damage, cost or expense
          directly or indirectly caused by, contributed to by, resulting from,
          or arising out of or in connection with any act of terrorism, as
          defined herein, regardless of any other cause or event contributing
          concurrently or in any other sequence to the loss.

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Page 3



          An "act of terrorism" includes any act, or preparation in respect of
          action, or threat of action, designed to influence the government de
          jure or de facto of any nation or any political division thereof, or
          in pursuit of political, religious, ideological or similar purposes to
          intimidate the public or a section of the public of any nation by any
          person or group(s) of persons whether acting alone or on behalf of or
          in connection with any organization(s) or government(s) de jure or de
          facto, and which:

          a.   Involves violence against one or more persons; or

          b.   Involves damage to property; or

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

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

          e.   Is designed to interfere with or to disrupt an electronic system.

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

          Notwithstanding the above and subject otherwise to the terms,
          conditions and limitations of this Contract, in respect only of
          personal lines this Contract will pay actual loss or damage (but not
          related cost or expense) caused by any act of terrorism provided such
          act is not directly or indirectly caused by, contributed to by,
          resulting from, or arising out of or in connection with biological,
          chemical, radioactive, or nuclear pollution or contamination or
          explosion.

     12.  Loss or liability in any way or to any extent arising out of the
          actual or alleged presence or actual, alleged or threatened presence
          of fungi including, but not limited to, mold, mildew, mycotoxins,
          microbial volatile organic compounds or other "microbial
          contamination," including:

          a.   Any supervision, instruction, recommendations, warnings, or
               advice given or which should have been given in connection with
               the above; and

          b.   Any obligation to share damages with or repay someone who must
               pay damages because of such injury or damage.

          For purposes of this exclusion, "microbial contamination" means any
          contamination, either airborne or surface, which arises out of or is
          related to the presence of fungi, mold, mildew, mycotoxins, microbial
          volatile organic compounds or spores, including, without limitation,
          Penicillium, Aspergillus, Fusarium, Aspergillus Flavus and
          Stachybotrys chartarum.

06\P2Z1057                                                       (BENFIELD LOGO)


Page 4



          Losses resulting from the above causes do not in and of themselves
          constitute an event unless arising out of one or more of the following
          perils, in which case this exclusion does not apply:

               Fire, lightning, explosion, aircraft or vehicle impact, falling
               objects, windstorm, hail, tornado, cyclone, hurricane,
               earthquake, volcano, tsunami, flood, freeze or weight of snow.

          Notice of any claims for mold-related losses must be given by the
          Company to the Reinsurer, in writing, within 24 months after the
          commencement date of the loss occurrence to which such claims relate.

     13.  Loss or liability excluded under the provisions of the "Electronic
          Data Endorsement B (NMA 2915)" attached to and forming part of this
          Contract.

     14.  Assessments made against the Company by the Florida Hurricane
          Catastrophe Fund (FHCF).

     15.  Assessments made against the Company by the Citizens Property
          Insurance Corporation (CPIC).

     16.  Workers Compensation, Directors and Officers Liability, and Employers
          Liability business.

     17.  Product integrity and/or product tampering losses.

     18.  Space and space related risks such as satellites, spacecraft, launch
          vehicles and major components thereof from the beginning of transit to
          launch site.

     19.  Offshore risks.

ARTICLE V - RETENTION AND LIMIT

A.   The Company shall retain and be liable for the first $10,000,000 of
     ultimate net loss arising out of each loss occurrence. The Reinsurer shall
     then be liable for the amount by which such ultimate net loss exceeds the
     Company's retention, but the liability of the Reinsurer shall not exceed
     $6,150,000 as respects any one loss occurrence.

B.   No claim shall be made under this Contract as respects any one loss
     occurrence unless at least two risks insured by the Company are involved in
     such loss occurrence. For purposes of this Contract, the Company shall be
     the sole judge of what constitutes one risk.

ARTICLE VI - REINSTATEMENT

A.   In the event all or any portion of the reinsurance hereunder is exhausted
     by loss, the amount so exhausted shall be reinstated immediately from the
     time the loss occurrence commences hereon.

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Page 5



B.   Notwithstanding anything stated herein, the liability of the Reinsurer
     hereunder shall not exceed $6,150,000 as respects loss or losses arising
     out of any one loss occurrence, nor shall it exceed $12,300,000 in all
     during the term of this Contract.

ARTICLE VII - PREMIUM

A.   As premium for the reinsurance provided by this Contract, the Company shall
     pay the Reinsurer 1.1% of its gross earned premium for the term of this
     Contract, subject to a minimum premium of $3,154,500.

B.   The Company shall pay the Reinsurer a deposit premium of $3,505,000 in four
     equal installments of $876,250 on June 1, September 1 and December 1 of
     2006 and March 1, 2007.

C.   Within 45 days after the expiration of this Contract, the Company shall
     provide a report to the Reinsurer setting forth the premium due hereunder,
     computed in accordance with paragraph A above, and any additional premium
     due the Reinsurer or return premium due the Company shall be remitted
     promptly.

D.   For each amount of limit reinstated in accordance with the Reinstatement
     Article, the Company agrees to pay additional premium equal to the product
     of the following:

     1.   The percentage of the occurrence limit reinstated (based on the loss
          paid by the Reinsurer); times

     2.   The final adjusted reinsurance premium, as calculated in accordance
          with paragraph A above, for the term of this Contract (exclusive of
          reinstatement premium).

E.   Whenever the Company requests payment by the Reinsurer of any loss
     hereunder, the Company shall submit a statement to the Reinsurer of
     reinstatement premium due the Reinsurer. If the final adjusted reinsurance
     premium for the term of this Contract has not been determined as of the
     date of any such statement, the calculation of reinstatement premium due
     shall be based on the annual deposit premium and shall be readjusted when
     the final adjusted reinsurance premium for the term of this Contract has
     been determined. Any reinstatement premium shown to be due the Reinsurer as
     reflected by any such statement (less prior payments, if any) shall be
     payable by the Company concurrently with payment by the Reinsurer of the
     requested loss. Any return reinstatement premium shown to be due the
     Company shall be remitted by the Reinsurer as promptly as possible after
     receipt and verification of the Company's statement.

F.   In the event a Subscribing Reinsurer's participation in this Contract is
     terminated under the provisions of paragraph B of the Commencement and
     Termination Article, no deposit premium shall be due after the effective
     date of termination, the minimum premium shall be waived, and the
     reinsurance premium and reinstatement premium will be calculated in
     accordance with the following formulas:

     1.   Reinsurance premium shall be the number of days the Subscribing
          Reinsurer participates on this Contract divided by the number of days
          of the original term of this

06\P2Z1057                                                       (BENFIELD LOGO)


Page 6



          Contract and the quotient thereof shall be multiplied by the
          Subscribing Reinsurer's percentage share of the final adjusted premium
          reported in accordance with paragraph C above.

     2.   Reinstatement premium shall be calculated in accordance with paragraph
          D above and shall be considered fully earned.

     3.   In the event the incurred loss is greater than the sum of the amounts
          from subparagraphs 1 and 2 of this paragraph F, in lieu of the
          provisions of subparagraphs 1 and 2 of this paragraph F, the
          Subscribing Reinsurer will receive premium equal to the lesser of:

          a.   An amount equal to the Subscribing Reinsurer's percentage share
               of the full reinsurance premium calculated in accordance with
               paragraph A (without regard to the termination of the Subscribing
               Reinsurer's share in accordance with the provisions of paragraph
               B of the Commencement and Termination Article) plus any
               reinstatement premium calculated in accordance with paragraph D;
               or

          b.   The Subscribing Reinsurer's percentage share of the incurred
               loss.

G.   "Gross earned premium" as used herein is defined as earned premium of the
     Company for the classes of business reinsured hereunder, before the
     deduction of any premiums ceded by the Company for reinsurance which inures
     to the benefit of this Contract.

ARTICLE VIII - DEFINITIONS

A.   "Ultimate net loss" as used herein is defined as the sum or sums (including
     loss in excess of policy limits, extra contractual obligations and loss
     adjustment expense, as hereinafter defined) paid or payable by the Company
     in settlement of claims and in satisfaction of judgments rendered on
     account of such claims, after deduction of all salvage, all recoveries and
     all claims on inuring insurance or reinsurance, whether collectible or not.
     Nothing herein shall be construed to mean that losses under this Contract
     are not recoverable until the Company's ultimate net loss has been
     ascertained.

B.   "Loss in excess of policy limits" and "extra contractual obligations" as
     used herein shall be defined as follows:

     1.   "Loss in excess of policy limits" shall mean 90.0% of any amount paid
          or payable by the Company in excess of its policy limits, but
          otherwise within the terms of its policy, such loss in excess of the
          Company's policy limits having been incurred because of, but not
          limited to, failure by the Company to settle within the policy limits
          or by reason of the Company's 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 an
          action.

     2.   "Extra contractual obligations" shall mean 90.0% of any punitive,
          exemplary, compensatory or consequential damages paid or payable by
          the Company, not covered by any other provision of this Contract and
          which arise from the handling of

06\P2Z1057                                                       (BENFIELD LOGO)


Page 7



          any claim on business subject to this Contract, such liabilities
          arising because of, but not limited to, failure by the Company to
          settle within the policy limits or by reason of the Company's 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 an action. An extra contractual obligation
          shall be deemed, in all circumstances, to have occurred on the same
          date as the loss covered or alleged to be covered under the policy.

     Notwithstanding anything stated herein, the amount included in the ultimate
     net loss for any one loss occurrence as respects loss in excess of policy
     limits and extra contractual obligations shall not exceed 25.0% of the
     Company's indemnity loss hereunder arising out of that loss occurrence.

     Notwithstanding anything stated herein, this Contract shall not apply to
     any loss in excess of policy limits or any extra contractual obligation
     incurred by the Company as a result of any fraudulent and/or criminal act
     by any officer or director 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.

C.   "Loss adjustment expense" as used herein shall mean expenses assignable to
     the investigation, appraisal, adjustment, settlement, litigation, defense
     and/or appeal of specific claims, regardless of how such expenses are
     classified for statutory reporting purposes. Loss adjustment expense shall
     include, but not be limited to, declaratory judgments, interest on
     judgments, expenses of outside adjusters, and a pro rata share of the
     salaries and expenses of the Company's field employees according to the
     time occupied adjusting such losses and expenses of the Company's officials
     incurred in connection with the losses, but shall not include office
     expenses or salaries of the Company's regular employees.

ARTICLE IX - OTHER REINSURANCE

A.   The Company shall be permitted to carry excess per risk reinsurance,
     recoveries under which shall inure to the benefit of this Contract.

B.   The Company shall maintain or be deemed to maintain in force excess
     catastrophe reinsurance, recoveries under which shall inure to the benefit
     of this Contract, as follows:

     1.   70.5% of $10,000,000 in excess of $10,000,000 of ultimate net loss, as
          respects any one loss occurrence;

     2.   84.0% of $20,000,000 in excess of $20,000,000 of ultimate net loss, as
          respects any one loss occurrence.

C.   Notwithstanding the provisions of paragraph B above, in the event ultimate
     net loss subject to an excess layer in subparagraphs 1 or 2 of paragraph B
     above exceeds the following amounts for the respective excess layer(s), the
     Company shall be deemed to maintain 100% of such excess layer for any
     subsequent loss occurrence:

06\P2Z1057                                                       (BENFIELD LOGO)


Page 8



     1.   70.5% of $20,000,000 of ultimate net loss arising out of two or more
          loss occurrences during the term of this Contract, as respects
          subparagraph 1 of paragraph B above.

     2.   84.0% of $40,000,000 of ultimate net loss arising out of two of more
          loss occurrences during the term of this Contract, as respects
          subparagraph 2 of paragraph B above.

ARTICLE X - 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:

     1.   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, vandalism
          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 insured's premises by
          strikers, provided such occupation commenced during the aforesaid
          period.

     3.   As regards earthquake (the epicenter of which need not necessarily be
          within the territorial confines referred to in the introductory
          portion of this paragraph) 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
          frozen pipes and tanks) may be included in the Company's "loss
          occurrence."

     5.   As regards firestorms, brush fires, and any other fires or series of
          fires, irrespective of origin (except as provided in subparagraphs 2
          and 3 above), which spread through trees, grassland or other
          vegetation, all individual losses sustained by the Company which occur
          during any period of 168 consecutive hours within a 50-mile radius of
          any fixed point selected by the Company may be included in the
          Company's "loss occurrence." However, an individual loss subject to
          this subparagraph cannot be included in more than one "loss
          occurrence."

06\P2Z1057                                                       (BENFIELD LOGO)


Page 9



B.   For all those "loss occurrences," other than those referred to in
     subparagraph 2 of paragraph A above, 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 any
     "loss occurrence" referred to in subparagraph 1 of paragraph A 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.   As respects those "loss occurrences" referred to in subparagraph 2 of
     paragraph A above, if the disaster, accident or loss occasioned by the
     event is of greater duration than 72 consecutive hours, then the Company
     may divide that disaster, accident or loss into two or more "loss
     occurrences," provided no two periods overlap and no individual loss is
     included in more than one such period and provided that no period commences
     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.

D.   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.

ARTICLE XI - LOSS NOTICES AND SETTLEMENTS

A.   Whenever losses sustained by the Company appear likely to result in a claim
     hereunder, the Company shall notify the Reinsurer, and the Reinsurer shall
     have the right to participate in the adjustment of such losses at its own
     expense.

B.   All loss settlements made by the Company, provided they are within the
     terms of this Contract and the terms of the Company's policies (except as
     respects loss in excess of policy limits and extra contractual
     obligations), shall be binding upon the Reinsurer, and the Reinsurer agrees
     to pay all amounts for which it may be liable upon receipt of reasonable
     evidence of the amount paid (or scheduled to be paid within 14 days) by the
     Company.

ARTICLE XII - SALVAGE AND SUBROGATION

The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the Company, less the actual cost, excluding salaries of
officials and employees of the Company and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder. Salvage thereon shall always be
used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
Company for its primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss was sustained
by the Reinsurer, and to prosecute all claims arising out of such rights.

06\P2Z1057                                                       (BENFIELD LOGO)


Page 10



ARTICLE XIII - FLORIDA HURRICANE CATASTROPHE FUND

A.   The Company shall provisionally purchase from the FHCF the following limit
     and retention:

          90.0% of $1,598,988 excess of $443,735.

     The provisional limit and retention detailed above may increase or decrease
     depending on the Company's actual written premium subject to the FHCF
     reimbursement coverage during the term of this Contract. The Company and
     the Reinsurer agree to accept and be bound by the final determination of
     the FHCF.

B.   Any loss reimbursement paid or payable to the Company under the FHCF as a
     result of loss occurrences commencing during the term of this Contract
     shall inure to the benefit of this Contract. Further, any FHCF loss
     reimbursement shall be deemed to be paid to the Company in accordance with
     the reimbursement contract between the Company and the State Board of
     Administration of the State of Florida at the full payout level set forth
     therein and will be deemed not to be reduced by any reduction or exhaustion
     of the FHCF's claims paying capacity.

C.   Prior to the determination of the Company's FHCF retention and payout, if
     any, under the reimbursement contract between the Company and the State
     Board of Administration of the State of Florida, the Reinsurer's liability
     hereunder will be determined provisionally based on the projected payout,
     determined in accordance with the provisions of the reimbursement contract.
     Following the FHCF's final determination of the payout under the
     reimbursement contract, the ultimate net loss under this Contract will be
     recalculated. If, as a result of such calculation, the loss to the
     Reinsurer under this Contract in any one loss occurrence is less than the
     amount previously paid by the Reinsurer, the Company shall promptly remit
     the difference to the Reinsurer. If the loss to the Reinsurer in any one
     loss occurrence is greater than the amount previously paid by the
     Reinsurer, the Reinsurer shall promptly remit the difference to the
     Company.

D.   If an FHCF reimbursement amount is based on the Company's losses in more
     than one loss occurrence commencing during the term of this Contract, the
     total FHCF reimbursement received by the Company shall be allocated to
     individual loss occurrences in chronological order of the dates such loss
     occurrences commence, beginning with the first such loss occurrence
     commencing during the term of this Contract, provided that:

     1.   The portion of the total FHCF reimbursement amount to be allocated by
          the Company to any individual loss occurrence shall be equal to the
          lesser of: (a) the amount of FHCF reimbursement to which the Company
          would be entitled for that loss occurrence alone, or (b) the remaining
          FHCF reimbursement which has not been allocated by the Company to
          prior loss occurrences; and

     2.   The total amount allocated by the Company to all such loss occurrences
          shall be equal to the total FHCF reimbursement received by the Company
          for such loss occurrences.

06\P2Z1057                                                       (BENFIELD LOGO)


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ARTICLE XIV - OFFSET (BRMA 36D)

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.

ARTICLE XV - ACCESS TO RECORDS (BRMA 1D)

The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.

ARTICLE XVI - LIABILITY OF THE REINSURER

A.   The liability of the Reinsurer shall follow that of the Company in every
     case and be subject in all respects to all the general and specific
     stipulations, clauses, waivers and modifications of the Company's policies
     and any endorsements thereon. However, in no event shall this be construed
     in any way to provide coverage outside the terms and conditions set forth
     in this Contract.

B.   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.

ARTICLE XVII - NET RETAINED LINES (BRMA 32E)

A.   This Contract applies only to that portion of any policy which the Company
     retains net for its own account (prior to deduction of any underlying
     reinsurance specifically permitted in this Contract), and in calculating
     the amount of any loss hereunder and also in computing the amount or
     amounts in excess of which this Contract attaches, only loss or losses in
     respect of that portion of any policy which the Company retains net for its
     own account shall be included.

B.   The amount of the 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 reinsurer(s), whether specific or general, any
     amounts which may have become due from such reinsurer(s), whether such
     inability arises from the insolvency of such other reinsurer(s) or
     otherwise.

ARTICLE XVIII - ERRORS AND OMISSIONS (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission is rectified as soon as possible
after discovery.

06\P2Z1057                                                       (BENFIELD LOGO)


Page 12



ARTICLE XIX - CURRENCY (BRMA 12A)

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

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

ARTICLE XX - TAXES (BRMA 50B)

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 or the District of Columbia.

ARTICLE XXI - FEDERAL EXCISE TAX

A.   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.

B.   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.

ARTICLE XXII - FUNDING REQUIREMENTS

A.   The Reinsurer agrees to fund, within 30 days of the Company's request,
     subject to receipt of satisfactory information from the Company, its share
     of the Company's ceded outstanding loss and loss adjustment expense
     reserves (including incurred but not reported loss reserves for known loss
     occurrences established by the Company) by:

     1.   Clean, irrevocable and unconditional letters of credit issued and
          confirmed, if confirmation is required by the insurance regulatory
          authorities involved, by a bank or banks meeting the NAIC Securities
          Valuation Office credit standards for issuers of letters of credit and
          acceptable to said insurance regulatory authorities; and/or

     2.   Escrow accounts for the benefit of the Company; and/or

     3.   Cash advances;

06\P2Z1057                                                       (BENFIELD LOGO)


Page 13



     if the Reinsurer is unauthorized in any state of the United States of
     America or the District of Columbia having jurisdiction over the Company
     and if, without such funding, a penalty would accrue to the Company on any
     financial statement, including but not limited to quarterly filings, it is
     required to file with the insurance regulatory authorities involved.

     The Reinsurer, at its sole option, may fund in other than cash if its
     method of funding is acceptable to the Company and to the insurance
     regulatory authorities involved.

     For the purpose of this Contract, the Lloyd's U.S. Credit for Reinsurance
     Trust Fund shall be considered an acceptable funding instrument.

B.   With regard to funding in whole or in part by letters of credit, it is
     agreed that each letter of credit will be in a form acceptable to insurance
     regulatory authorities involved, will be issued for a term of at least one
     year and will include an "evergreen clause," which automatically extends
     the term for at least one additional year at each expiration date unless
     written notice of non-renewal is given to the Company not less than 30 days
     prior to said expiration date or longer where required by insurance
     regulatory authorities. The Company and the Reinsurer further agree,
     notwithstanding anything to the contrary in this Contract, that said
     letters of credit may be drawn upon by the Company or its successors in
     interest at any time, without diminution because of the insolvency of the
     Company or the Reinsurer, but only for one or more of the following
     purposes:

     1.   To reimburse itself for the Reinsurer's share of losses and/or loss
          adjustment expense paid under the terms of policies reinsured
          hereunder, unless paid in cash by the Reinsurer;

     2.   To reimburse itself for the Reinsurer's share of any other amounts
          claimed to be due hereunder, unless paid in cash by the Reinsurer;

     3.   To fund a cash account in an amount equal to the Reinsurer's share of
          ceded outstanding loss and loss adjustment expense reserves (including
          incurred but not reported loss reserves for known loss occurrences
          established by the Company) funded by means of a letter of credit
          which is under non-renewal notice, if said letter of credit has not
          been renewed or replaced by the Reinsurer 10 days prior to its
          expiration date;

     4.   To refund to the Reinsurer any sum in excess of the actual amount
          required to fund the Reinsurer's share of the Company's ceded
          outstanding loss and loss adjustment expense reserves (including
          incurred but not reported loss reserves for known loss occurrences
          established by the Company), if so requested by the Reinsurer.

     In the event the amount drawn by the Company on any letter of credit is in
     excess of the actual amount required for B(1) or B(3), or in the case of
     B(2), the actual amount determined to be due, the Company shall promptly
     return to the Reinsurer the excess amount so drawn.

06\P2Z1057                                                       (BENFIELD LOGO)


Page 14



ARTICLE XXIII - INSOLVENCY

A.   In the event of the insolvency of one or more of the reinsured companies,
     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.

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 this Contract as though such
     expense had been incurred by the company.

C.   It is further understood and agreed that, in the event of the insolvency of
     one or more of the reinsured companies, the reinsurance under this Contract
     shall be payable directly by the Reinsurer to the company or to its
     liquidator, receiver or statutory successor, except as provided by Section
     4118(a) of the New York Insurance Law or except (1) where this Contract
     specifically provides another payee of such reinsurance in the event of the
     insolvency of the company or (2) 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.

ARTICLE XXIV - ARBITRATION

A.   As a condition precedent to any right of action hereunder, any dispute or
     difference between the Company and any Reinsurer relating to the
     interpretation or performance of this Contract, including its formation or
     validity, or any transaction under this Contract, whether arising before or
     after termination, shall be submitted to arbitration.

B.   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
     Article provided that communication shall be made by the Company to each of
     the reinsurers constituting the one party, and 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 Reinsurer under the terms of this Contract
     from several to joint.

06\P2Z1057                                                       (BENFIELD LOGO)


Page 15



C.   Upon written request of any party, each party shall choose an arbitrator
     and the two chosen shall select a third arbitrator. If either party refuses
     or neglects to appoint an arbitrator within 30 days after receipt of the
     written request for arbitration, the requesting party may appoint a second
     arbitrator. If the two arbitrators fail to agree on the selection of a
     third arbitrator within 30 days of their appointment, the Company shall
     petition the American Arbitration Association to appoint the third
     arbitrator. If the American Arbitration Association fails to appoint the
     third arbitrator within 30 days after it has been requested to do so,
     either party may request a justice of a court of general jurisdiction of
     the state in which the arbitration is to be held to appoint the third
     arbitrator. All arbitrators shall be active or retired officers of
     insurance or reinsurance companies, or Lloyd's London Underwriters, and
     disinterested in the outcome of the arbitration. Each party shall submit
     its case to the arbitrators within 30 days of the appointment of the third
     arbitrator.

D.   The parties hereby waive all objections to the method of selection of the
     arbitrators, it being the intention of both sides that all the arbitrators
     be chosen from those submitted by the parties.

E.   The arbitrators shall have the power to determine all procedural rules for
     the holding of the arbitration including but not limited to inspection of
     documents, examination of witnesses and any other matter relating to the
     conduct of the arbitration. The arbitrators shall interpret this Contract
     as an honorable engagement and not as merely a legal obligation; they are
     relieved of all judicial formalities and may abstain from following the
     strict rules of law. The arbitrators may award interest and costs. Each
     party shall bear the expense of its own arbitrator and shall share equally
     with the other party the expenses of the third arbitrator and of the
     arbitration.

F.   The decision in writing of the majority of the arbitrators shall be final
     and binding upon both parties. Judgment may be entered upon the final
     decision of the arbitrators in any court having jurisdiction. The
     arbitration shall take place in Bala Cynwyd, Pennsylvania, unless otherwise
     mutually agreed between the Company and the Reinsurer.

G.   This Article shall remain in full force and effect in the event any other
     provision of this Contract shall be found invalid or non-binding.

H.   All time limitations stated in this Article may be amended by mutual
     consent of the parties, and will be amended automatically to the extent
     made necessary by any circumstances beyond the control of the parties.

ARTICLE XXV - SERVICE OF SUIT

(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities. This
Article is not intended to conflict with or override the parties obligations to
arbitrate their disputes in accordance with the Arbitration Article.)

A.   It is agreed that in the event the Reinsurer fails to pay any amount
     claimed to be due hereunder, the Reinsurer, 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

06\P2Z1057                                                       (BENFIELD LOGO)


Page 16



     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.

B.   Further, pursuant to any statute of any state, territory or district of the
     United States which makes provision therefor, the Reinsurer hereby
     designates the party named in its Interests and Liabilities Agreement, or
     if no party is named therein, 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.

ARTICLE XXVI - AGENCY AGREEMENT

If more than one reinsured company is named as a party to this Contract, the
first named company shall 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.

ARTICLE XXVII - GOVERNING LAW

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 the states shall apply.

ARTICLE XXVIII - CONFIDENTIALITY

The Reinsurer, except with the express prior written consent of the Company,
shall not directly or indirectly communicate, disclose or divulge to any
unaffiliated 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, 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.

ARTICLE XXIX - SEVERABILITY

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.

06\P2Z1057                                                       (BENFIELD LOGO)


Page 17



ARTICLE XXX - INTERMEDIARY (BRMA 23A)

Benfield Inc. is hereby recognized as the Intermediary negotiating this Contract
for all business hereunder. All communications (including but not limited to
notices, statements, premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating thereto shall be
transmitted to the Company or the Reinsurer through Benfield Inc. Payments by
the Company to the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to
constitute payment to the Company only to the extent that such payments are
actually received by the Company.

IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:

Bala Cynwyd, Pennsylvania, this 10th day of July in the year 2006.


                                        /s/ Christopher J. Maguire
                                        ----------------------------------------
                                        Philadelphia Insurance Companies
                                        (for and on behalf of the "Company")

                                        Christopher J. Maguire, Executive Vice
                                        President and Chief Underwriting Officer
                                        (Print name and title)

06\P2Z1057                                                       (BENFIELD LOGO)


Page 18



   NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE (U.S.A.)

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.

3.   Without in any way restricting the operations of paragraphs (1) and (2)
     hereof, 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 Reassured does not have knowledge of such nuclear reactor power
          plant or nuclear installation, or

     (b)  where 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 operations of paragraphs (1), (2) and
     (3) hereof, 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 that 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 it in the
     Atomic Energy Act of 1954 or by any law amendatory thereof.

7.   Reassured to be sole judge of what constitutes:

     (a)  substantial quantities, and

     (b)  the extent of installation, plant or site.

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.

12/12/57
N.M.A. 1119
BRMA 35B

06\P2Z1057



               POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE

SECTION A:

Excluding:

     (a)  All business derived directly or indirectly from any Pool, Association
          or Syndicate which maintains its own reinsurance facilities.

     (b)  Any Pool or Scheme (whether voluntary or mandatory) formed after March
          1, 1968 for the purpose of insuring property whether on a country-wide
          basis or in respect of designated areas. This exclusion shall not
          apply to so-called Automobile Insurance Plans or other Pools formed to
          provide coverage for Automobile Physical Damage.

SECTION B:

It is agreed that business written by the Company for the same perils, which is
known at the time to be insured by, or in excess of underlying amounts placed in
the following Pools, Associations or Syndicates, whether by way of insurance or
reinsurance, is excluded hereunder:

     Industrial Risk Insurers,
     Associated Factory Mutuals,
     Improved Risk Mutuals,
     Any Pool, Association or Syndicate formed for the purpose of writing
        Oil, Gas or Petro-Chemical Plants and/or Oil or Gas Drilling Rigs,
     United States Aircraft Insurance Group,
     Canadian Aircraft Insurance Group,
     Associated Aviation Underwriters,
     American Aviation Underwriters.

Section B does not apply:

     (a)  Where The Total Insured Value over all interests of the risk in
          question is less than $250,000,000.

     (b)  To interests traditionally underwritten as Inland Marine or stock
          and/or contents written on a blanket basis.

     (c)  To Contingent Business Interruption, except when the Company is aware
          that the key location is known at the time to be insured in any Pool,
          Association or Syndicate named above, other than as provided for under
          Section B(a).

     (d)  To risks as follows:

          Offices, Hotels, Apartments, Hospitals, Educational Establishments,
          Public Utilities (other than railroad schedules) and builder's risks
          on the classes of risks specified in this subsection (d) only.

Where this clause attaches to Catastrophe Excesses, the following Section C is
added:

SECTION C:

Nevertheless the Reinsurer specifically agrees that liability accruing to the
Company from its participation in residual market mechanisms including but not
limited to:

     (1)  The following so-called "Coastal Pools":

          Alabama Insurance Underwriting Association
          Louisiana Citizens Property Insurance Corporation
          Mississippi Windstorm Underwriting Association
          North Carolina Insurance Underwriting Association
          South Carolina Windstorm and Hail Underwriting Association
          Texas Windstorm Insurance Association

AND

     (2)  All "Fair Plan" and "Rural Risk Plan" business

06\P2Z1057


Page 1 of 2



AND

     (3)  The California Earthquake Authority ("CEA")

for all perils otherwise protected hereunder shall not be excluded, except,
however, that this reinsurance does not include any increase in such liability
resulting from:

     (i)  The inability of any other participant in such "Coastal Pool" and/or
          "Fair Plan" and/or "Rural Risk Plan" and/or Residual Market Mechanisms
          to meet its liability.

     (ii) Any claim against such "Coastal Pool" and/or "Fair Plan" and/or "Rural
          Risk Plan" and/or Residual Market Mechanisms, or any participant
          therein, including the Company, whether by way of subrogation or
          otherwise, brought by or on behalf of any insolvency fund (as defined
          in the Insolvency Fund Exclusion Clause incorporated in this
          Contract).

SECTION D:

Notwithstanding Section C above, in respect of the CEA, where an assessment is
made against the Company by the CEA, the Company may include in its Ultimate Net
Loss only that assessment directly attributable to each separate loss occurrence
covered hereunder. The Company's initial capital contribution to the CEA shall
not be included in the Ultimate Net Loss.

NOTES: Wherever used herein the terms:

    "Company"    shall be understood to mean "Company," "Reinsured," "Reassured"
                 or whatever other term is used in the attached reinsurance
                 document to designate the reinsured company or companies.

    "Agreement"  shall be understood to mean "Agreement," "Contract," "Policy"
                 or whatever other term is used to designate the attached
                 reinsurance document.

    "Reinsurers" shall be understood to mean "Reinsurers," "Underwriters" or
                 whatever other term is used in the attached reinsurance
                 document to designate the reinsurer or reinsurers.

06\P2Z1057


Page 2 of 2



                          ELECTRONIC DATA ENDORSEMENT B

1.   ELECTRONIC DATA EXCLUSION

     Notwithstanding any provision to the contrary within the Contract or any
     endorsement thereto, it is understood and agreed as follows:-

     a)   This Contract does not insure loss, damage, destruction, distortion,
          erasure, corruption or alteration of ELECTRONIC DATA from any cause
          whatsoever (including but not limited to COMPUTER VIRUS) or loss of
          use, reduction in functionality, cost, expense of whatsoever nature
          resulting therefrom, regardless of any other cause or event
          contributing concurrently or in any other sequence to the loss.

          ELECTRONIC DATA means facts, concepts and information converted to a
          form useable for communications, interpretation or processing by
          electronic and electromechanical data processing or electronically
          controlled equipment and includes programs, software and other coded
          instructions for the processing and manipulation of data or the
          direction and manipulation of such equipment.

          COMPUTER VIRUS means a set of corrupting, harmful or otherwise
          unauthorized instructions or code including a set of maliciously
          introduced unauthorized instructions or code, programmatic or
          otherwise, that propagate themselves through a computer system or
          network of whatsoever nature. COMPUTER VIRUS includes but is not
          limited to "Trojan Horses," "worms" and "time or logic bombs."

     b)   However, in the event that a peril listed below results from any of
          the matters described in paragraph a) above, this Contract, subject to
          all its terms, conditions and exclusions, will cover physical damage
          occurring during the Contract period to property insured by this
          Contract directly caused by such listed peril.

          Listed Perils

          Fire
          Explosion

2.   ELECTRONIC DATA PROCESSING MEDIA VALUATION

     Notwithstanding any provision to the contrary within the Contract or any
     endorsement thereto, it is understood and agreed as follows:-

     Should electronic data processing media insured by this Contract suffer
     physical loss or damage insured by this Contract, then the basis of
     valuation shall be the cost of the blank media plus the costs of copying
     the ELECTRONIC DATA from back-up or from originals of a previous
     generation. These costs will not include research and engineering nor any
     costs of recreating, gathering or assembling such ELECTRONIC DATA. If the
     media is not repaired, replaced or restored the basis of valuation shall be
     the cost of the blank media. However this Contract does not insure any
     amount pertaining to the value of such ELECTRONIC DATA to the Assured or
     any other party, even if such ELECTRONIC DATA cannot be recreated, gathered
     or assembled.

06\P2Z1057                                                       (BENFIELD LOGO)



NMA 2915 (25.1.01)

                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                             Aspen Insurance Limited
                                Hamilton, Bermuda
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

                    $6,150,000 EXCESS $10,000,000 CATASTROPHE
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                         issued to and duly executed by

                         Philadelphia Insurance Company
                            Bala Cynwyd, Pennsylvania
                    Philadelphia Indemnity Insurance Company
                            Bala Cynwyd, Pennsylvania
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                        Philadelphia Insurance Companies

The Subscribing 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., Local Standard Time, June
1, 2006, and shall continue in force until 12:01 a.m., Local Standard Time, June
1, 2007, unless earlier 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:

Hamilton, Bermuda, this 25th day of July in the year 2006.

                                        /s/ Thomas Linford, Underwriter
                                        ----------------------------------------
                                        Aspen Insurance Limited

                                        Thomas Linford, Underwriter
                                        (Print name and title)

                                  (ASPEN SEAL)

06IL\P2Z1057                                                     (BENFIELD LOGO)



                    $6,150,000 EXCESS $10,000,000 CATASTROPHE
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                                    issued to

                         Philadelphia Insurance Company
                            Bala Cynwyd, Pennsylvania
                    Philadelphia Indemnity Insurance Company
                            Bala Cynwyd, Pennsylvania
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                        Philadelphia Insurance Companies



       REINSURER                                                   PARTICIPATION
       ---------                                                   -------------
                                                                
Aspen Insurance Limited                                                100.0%
TOTAL                                                                  100.0%


06\P2Z1057

EX-10.7

                                                                    Exhibit 10.7

                  FIRST EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                                    issued to

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.

06\M2U1137                                                       (BENFIELD LOGO)



                                TABLE OF CONTENTS



ARTICLE                                                                     PAGE
- -------                                                                     ----
                                                                         
     I Coverage                                                               1
    II Commencement and Termination                                           1
   III Concurrency of Conditions                                              2
    IV Reinsurance Premium                                                    3
     V Loss Notices and Settlements                                           3
    VI Late Payments                                                          3
   VII Offset (BRMA 36D)                                                      5
  VIII Access to Records (BRMA 1D)                                            5
    IX Errors and Omissions (BRMA 14F)                                        5
     X Currency (BRMA 12A)                                                    5
    XI Taxes (BRMA 50B)                                                       5
   XII Federal Excise Tax                                                     5
  XIII Funding Requirements                                                   6
   XIV Insolvency                                                             7
    XV Arbitration                                                            8
   XVI Service of Suit                                                        9
  XVII Agency Agreement                                                       9
 XVIII Governing Law                                                          9
   XIX Confidentiality                                                        9
    XX Severability                                                          10
   XXI Intermediary (BRMA 23A)                                               10
       Schedule A


06\M2U1137                                                       (BENFIELD LOGO)



                  FIRST EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                                    issued to

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.
             (hereinafter referred to collectively as the "Company")

                                       by

                   The Subscribing Reinsurer(s) Executing the
                     Interests and Liabilities Agreement(s)
                                 Attached Hereto
                  (hereinafter referred to as the "Reinsurer")

ARTICLE I - COVERAGE

By this Contract the Reinsurer agrees to indemnify the Company for 100% of any
reinstatement premium which the Company pays or becomes liable to pay as a
result of loss occurrences commencing during the term of this Contract under the
provisions of the First Excess layer of the Company's Florida Only Excess
Catastrophe Reinsurance Contract, effective June 1, 2006 (hereinafter referred
to as the "Underlying Contract" and described in Schedule A attached to and
forming part of this Contract), subject to the terms and conditions set forth
herein.

ARTICLE II - COMMENCEMENT AND TERMINATION

A.   This Contract shall become effective at 12:01 a.m., Local Standard Time,
     June 1, 2006, with respect to reinstatement premium payable by the Company
     under the provisions of the Underlying Contract as a result of losses
     arising out of loss occurrences commencing at or after that time and date,
     and shall remain in force until 12:01 a.m., Local Standard Time, June 1,
     2007.

B.   Notwithstanding the provisions of paragraph A above, the Company may
     terminate a Subscribing Reinsurer's percentage share in this Contract by
     giving written notice to the Subscribing Reinsurer in the event any of the
     following circumstances occur as clarified by public announcement for
     subparagraphs 1 through 6 below and upon discovery for subparagraphs 7 and
     8 below:

06\M2U1137                                                       (BENFIELD LOGO)


Page 1



     1.   The Subscribing Reinsurer's policyholders' surplus or foreign
          equivalent thereto after the date lines are bound for this Contract
          has been reduced by more than 25.0% of the amount of surplus or
          foreign equivalent 12 months prior to that date; or

     2.   The Subscribing Reinsurer's policyholders' surplus or the foreign
          equivalent thereto at any time after the date that lines are bound or
          at any time during the term of this Contract has been reduced by more
          than 25.0% of the amount of surplus or foreign equivalent at the date
          of the Subscribing Reinsurer's most recent financial statement filed
          with regulatory authorities and available to the public as of the date
          lines are bound for this Contract; or

     3.   The Subscribing Reinsurer's A.M. Best's Financial Strength rating has
          been assigned as any rating below "A -" (inclusive of "Not Rated"
          ratings) and/or the Subscribing Reinsurer's Standard & Poor's Insurer
          Financial Strength rating has been assigned as any rating below "BBB
          +" (inclusive of "Not Rated" ratings); or

     4.   The Subscribing Reinsurer has become merged with, acquired by or
          controlled by any other company, corporation or individual(s) not
          controlling the Subscribing Reinsurer's operations previously; or

     5.   A State Insurance Department or other legal authority has ordered the
          Subscribing Reinsurer to cease writing business; or

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

     7.   The Subscribing Reinsurer has reinsured its entire liability under
          this Contract to a non-affiliated entity without the Company's prior
          written consent; or

     8.   The Subscribing Reinsurer has ceased assuming new or renewal property
          or casualty treaty reinsurance business.

C.   If this Contract is terminated or expires while a loss occurrence covered
     hereunder is in progress, the Reinsurer's liability hereunder shall,
     subject to the other terms and conditions of this Contract, be determined
     as if the entire loss occurrence had occurred prior to the termination or
     expiration of this Contract, provided that no part of such loss occurrence
     is claimed against any renewal or replacement of this Contract.

ARTICLE III - CONCURRENCY OF CONDITIONS

A.   It is agreed that this Contract will follow the terms, conditions,
     exclusions, definitions, warranties and settlements of the Company under
     the Underlying Contract which are not inconsistent with the provisions of
     this Contract.

B.   The Company shall advise the Reinsurer of any material changes in the
     Underlying Contract which may affect the liability of the Reinsurer under
     this Contract.

06\M2U1137                                                       (BENFIELD LOGO)


Page 2



ARTICLE IV - REINSURANCE PREMIUM

A.   As premium for the reinsurance provided hereunder, the Company shall pay
     the Reinsurer $6,125,000 in four equal installments of $1,531,250 on June
     1, September 1 and December 1 of 2006 and March 1 of 2007.

B.   In the event a Subscribing Reinsurer's participation in this Contract is
     terminated under the provisions of paragraph B of the Commencement and
     Termination Article, no further installments shall be due after the
     effective date of termination and the final premium shall be calculated as
     the number of days the Subscribing Reinsurer participated on this Contract
     divided by the number of days of the original term of this Contract and the
     quotient thereof shall be multiplied by the premium as set forth in
     paragraph A above. Any premium paid to the Subscribing Reinsurer in excess
     of the final premium shall be returned to the Company as promptly as
     possible.

ARTICLE V - LOSS NOTICES AND SETTLEMENTS

A.   Whenever reinstatement premium settlements made by the Company under the
     Underlying Contract appear likely to result in a claim hereunder, the
     Company shall notify the Reinsurer. The Company will advise the Reinsurer
     of all subsequent developments relating to such claims that, in the opinion
     of the Company, may materially affect the position of the Reinsurer.

B.   All reinstatement premium settlements made by the Company under the
     Underlying Contract, provided they are within the terms of the Underlying
     Contract and within the terms of this Contract, shall be binding upon the
     Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be
     liable upon receipt of reasonable evidence of the amount paid (or scheduled
     to be paid within 14 days) by the Company.

ARTICLE VI - LATE PAYMENTS

A.   The provisions of this Article shall not be implemented unless specifically
     invoked, in writing, by one of the parties to this Contract.

B.   In the event any premium, loss or other payment due either party is not
     received by the intermediary named in the Intermediary Article (BRMA 23A)
     (hereinafter referred to as the "Intermediary") by the payment due date,
     the party to whom payment is due may, by notifying the Intermediary in
     writing, require the debtor party to pay, and the debtor party agrees to
     pay, an interest penalty on the amount past due calculated for each such
     payment on the last business day of each month as follows:

     1.   The number of full days which have expired since the due date or the
          last monthly calculation, whichever the lesser, times

     2.   1/365ths of the six-month United States Treasury Bill Rate as quoted
          in The Wall Street Journal on the first business day of the month for
          which the calculation is made; times

06\M2U1137                                                       (BENFIELD LOGO)


Page 3



     3.   The amount past due, including accrued interest.

     It is agreed that interest shall accumulate until payment of the original
     amount due plus interest penalties have been received by the Intermediary.

C.   The establishment of the due date shall, for purposes of this Article, be
     determined as follows:

     1.   As respects the payment of routine deposits and premiums due the
          Reinsurer, the due date shall be as provided for in the applicable
          section of this Contract. In the event a due date is not specifically
          stated for a given payment, it shall be deemed due 30 days after the
          date of transmittal by the Intermediary of the initial billing for
          each such payment.

     2.   Any claim or loss payment due the Company hereunder shall be deemed
          due 10 business days after the proof of loss or demand for payment is
          transmitted to the Reinsurer. If such loss or claim payment is not
          received within the 10 days, interest will accrue on the payment or
          amount overdue in accordance with paragraph B above, from the date the
          proof of loss or demand for payment was transmitted to the Reinsurer.

     3.   As respects any payment, adjustment or return due either party not
          otherwise provided for in subparagraphs 1 and 2 of this paragraph C,
          the due date shall be as provided for in the applicable section of
          this Contract. In the event a due date is not specifically stated for
          a given payment, it shall be deemed due 10 business days following
          transmittal of written notification that the provisions of this
          Article have been invoked.

     For purposes of interest calculations only, amounts due hereunder shall be
     deemed paid upon receipt by the Intermediary.

D.   Nothing herein shall be construed as limiting or prohibiting a Subscribing
     Reinsurer from contesting the validity of any claim, or from participating
     in the defense of any claim or suit, or prohibiting either party from
     contesting the validity of any payment or from initiating any arbitration
     or other proceeding in accordance with the provisions of this Contract. If
     the debtor party prevails in an arbitration or other proceeding, then any
     interest penalties due hereunder on the amount in dispute shall be null and
     void. If the debtor party loses in such proceeding, then the interest
     penalty on the amount determined to be due hereunder shall be calculated in
     accordance with the provisions set forth above unless otherwise determined
     by such proceedings. If a debtor party advances payment of any amount it is
     contesting, and proves to be correct in its contestation, either in whole
     or in part, the other party shall reimburse the debtor party for any such
     excess payment made plus interest on the excess amount calculated in
     accordance with this Article.

E.   Interest penalties arising out of the application of this Article that are
     $100 or less from any party shall be waived unless there is a pattern of
     late payments consisting of three or more items over the course of any
     12-month period.

06\M2U1137                                                       (BENFIELD LOGO)


Page 4



ARTICLE VII - OFFSET (BRMA 36D)

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.

ARTICLE VIII - ACCESS TO RECORDS (BRMA 1D)

The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.

ARTICLE IX - ERRORS AND OMISSIONS (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission is rectified as soon as possible
after discovery.

ARTICLE X - CURRENCY (BRMA 12A)

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

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

ARTICLE XI - TAXES (BRMA 50B)

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 or the District of Columbia.

ARTICLE XII - FEDERAL EXCISE TAX

A.   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.

06\M2U1137                                                       (BENFIELD LOGO)


Page 5



B.   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.

ARTICLE XIII - FUNDING REQUIREMENTS

A.   The Reinsurer agrees to fund, within 30 days of the Company's request,
     subject to receipt of satisfactory information from the Company, its share
     of the Company's ceded unearned premium and outstanding loss reserves
     (being the sum of all reinstatement premiums paid by the Company under the
     Underlying Contract but not yet recovered from the Reinsurer, plus the
     Company's reserves for reinstatement premiums due under the Underlying
     Contract, if any) by:

     1.   Clean, irrevocable and unconditional letters of credit issued and
          confirmed, if confirmation is required by the insurance regulatory
          authorities involved, by a bank or banks meeting the NAIC Securities
          Valuation Office credit standards for issuers of letters of credit and
          acceptable to said insurance regulatory authorities; and/or

     2.   Escrow accounts for the benefit of the Company; and/or

     3.   Cash advances;

     if the Reinsurer is unauthorized in any state of the United States of
     America or the District of Columbia having jurisdiction over the Company
     and if, without such funding a penalty would accrue to the Company on any
     financial statement, including but not limited to quarterly filings, it is
     required to file with the insurance regulatory authorities involved.

     The Reinsurer, at its sole option, may fund in other than cash if its
     method of funding is acceptable to the Company and to the insurance
     regulatory authorities involved.

     For the purpose of this Contract, the Lloyd's U.S. Credit for Reinsurance
     Trust Fund shall be considered an acceptable funding instrument.

B.   With regard to funding in whole or in part by letters of credit, it is
     agreed that each letter of credit will be in a form acceptable to insurance
     regulatory authorities involved, will be issued for a term of at least one
     year and will include an "evergreen clause," which automatically extends
     the term for at least one additional year at each expiration date unless
     written notice of non-renewal is given to the Company not less than 30 days
     prior to said expiration date or longer where required by insurance
     regulatory authorities. The Company and the Reinsurer further agree,
     notwithstanding anything to the contrary in this Contract, that said
     letters of credit may be drawn upon by the Company or its successors in
     interest at any time, without diminution because of the insolvency of the
     Company or the Reinsurer, but only for one or more of the following
     purposes:

     1.   To reimburse itself for the Reinsurer's share of reinstatement
          premiums paid by the Company under the terms of the Underlying
          Contract, unless paid in cash by the Reinsurer;

     2.   To reimburse itself for the Reinsurer's share of any other amounts
          claimed to be due hereunder, unless paid in cash by the Reinsurer;

06\M2U1137                                                       (BENFIELD LOGO)


Page 6



     3.   To fund a cash account in an amount equal to the Reinsurer's share of
          any ceded unearned premium and/or outstanding loss reserves funded by
          means of a letter of credit which is under non-renewal notice, if said
          letter of credit has not been renewed or replaced by the Reinsurer 10
          days prior to its expiration date;

     4.   To refund to the Reinsurer any sum in excess of the actual amount
          required to fund the Reinsurer's share of the Company's ceded unearned
          premium and/or outstanding loss reserves, if so requested by the
          Reinsurer.

     In the event the amount drawn by the Company on any letter of credit is in
     excess of the actual amount required for B(1) or B(3), or in the case of
     B(2), the actual amount determined to be due, the Company shall promptly
     return to the Reinsurer the excess amount so drawn.

ARTICLE XIV - INSOLVENCY

A.   In the event of the insolvency of one or more of the reinsured companies,
     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.

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 this Contract as though such
     expense had been incurred by the company.

C.   It is further understood and agreed that, in the event of the insolvency of
     one or more of the reinsured companies, the reinsurance under this Contract
     shall be payable directly by the Reinsurer to the company or to its
     liquidator, receiver or statutory successor, except as provided by Section
     4118(a) of the New York Insurance Law or except (1) where this Contract
     specifically provides another payee of such reinsurance in the event of the
     insolvency of the company or (2) 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.

06\M2U1137                                                       (BENFIELD LOGO)


Page 7



ARTICLE XV - ARBITRATION

A.   As a condition precedent to any right of action hereunder, any dispute or
     difference between the Company and any Reinsurer relating to the
     interpretation or performance of this Contract, including its formation or
     validity, or any transaction under this Contract, whether arising before or
     after termination, shall be submitted to arbitration.

B.   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
     Article provided that communication shall be made by the Company to each of
     the reinsurers constituting the one party, and 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 Reinsurer under the terms of this Contract
     from several to joint.

C.   Upon written request of any party, each party shall choose an arbitrator
     and the two chosen shall select a third arbitrator. If either party refuses
     or neglects to appoint an arbitrator within 30 days after receipt of the
     written request for arbitration, the requesting party may appoint a second
     arbitrator. If the two arbitrators fail to agree on the selection of a
     third arbitrator within 30 days of their appointment, the Company shall
     petition the American Arbitration Association to appoint the third
     arbitrator. If the American Arbitration Association fails to appoint the
     third arbitrator within 30 days after it has been requested to do so,
     either party may request a justice of a court of general jurisdiction of
     the state in which the arbitration is to be held to appoint the third
     arbitrator. All arbitrators shall be active or retired officers of
     insurance or reinsurance companies, or Lloyd's London Underwriters, and
     disinterested in the outcome of the arbitration. Each party shall submit
     its case to the arbitrators within 30 days of the appointment of the third
     arbitrator.

D.   The parties hereby waive all objections to the method of selection of the
     arbitrators, it being the intention of both sides that all the arbitrators
     be chosen from those submitted by the parties.

E.   The arbitrators shall have the power to determine all procedural rules for
     the holding of the arbitration including but not limited to inspection of
     documents, examination of witnesses and any other matter relating to the
     conduct of the arbitration. The arbitrators shall interpret this Contract
     as an honorable engagement and not as merely a legal obligation; they are
     relieved of all judicial formalities and may abstain from following the
     strict rules of law. The arbitrators may award interest and costs. Each
     party shall bear the expense of its own arbitrator and shall share equally
     with the other party the expenses of the third arbitrator and of the
     arbitration.

F.   The decision in writing of the majority of the arbitrators shall be final
     and binding upon both parties. Judgment may be entered upon the final
     decision of the arbitrators in any court having jurisdiction. The
     arbitration shall take place in Pinellas Park, Florida, unless otherwise
     mutually agreed between the Company and the Reinsurer.

G.   This Article shall remain in full force and effect in the event any other
     provision of this Contract shall be found invalid or non-binding.

H.   All time limitations stated in this Article may be amended by mutual
     consent of the parties, and will be amended automatically to the extent
     made necessary by any circumstances beyond the control of the parties.

06\M2U1137                                                       (BENFIELD LOGO)


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ARTICLE XVI - SERVICE OF SUIT

(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities. This
Article is not intended to conflict with or override the parties' obligations to
arbitrate their disputes in accordance with the Arbitration Article.)

A.   It is agreed that in the event the Reinsurer fails to pay any amount
     claimed to be due hereunder, the Reinsurer, at the request of the Company,
     will submit to the jurisdiction of any 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.

B.   Further, pursuant to any statute of any state, territory or district of the
     United States which makes provision therefore, the Reinsurer hereby
     designates the party named in its Interests and Liabilities Agreement, or
     if no party is named therein, 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.

ARTICLE XVII - AGENCY AGREEMENT

If more than one reinsured company is named as a party to this Contract, the
first named company shall 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.

ARTICLE XVIII - GOVERNING LAW

This Contract shall be governed as to performance, administration and
interpretation by the laws of the State of Florida 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.

ARTICLE XIX - CONFIDENTIALITY

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, retrocessionaires, legal counsel, arbitrators involved in
any arbitration procedures under this

06\M2U1137                                                       (BENFIELD LOGO)


Page 9



Contract or disclosures required upon subpoena or other duly-issued order of a
court or other governmental agency or regulatory authority.

ARTICLE XX - SEVERABILITY

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.

ARTICLE XXI - INTERMEDIARY (BRMA 23A)

Benfield, Inc. is hereby recognized as the Intermediary negotiating this
Contract for all business hereunder. All communications (including but not
limited to notices, statements, premium, return premium, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through Benfield, Inc.
Payments by the Company to the Intermediary shall be deemed to constitute
payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent that such
payments are actually received by the Company.

IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:

Pinellas Park, Florida, this 21st day of July in the year 2006.


                                        /s/ T. Bruce Meyer
                                        ----------------------------------------
                                        Liberty American Insurance Group, Inc.
                                        (for and on behalf of the "Company")

                                        T. Bruce Meyer, Corporate President
                                        and CEO
                                        (Print name and title)

06\M2U1137                                                       (BENFIELD LOGO)


Page 10



                                   SCHEDULE A

                  FIRST EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                                    issued to

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.



                                       FIRST
                                      EXCESS
                                   ------------
                                
Company's Retention                $17,500,000
Reinsurer's Per Occurrence Limit   $17,500,000
Reinsurer's Term Limit             $35,000,000
Minimum Premium                    $ 7,875,000
Adjustment Rate                        0.05154%
Deposit Premium                    $ 8,750,000
Quarterly Deposit Premium          $ 2,187,500


The figures listed above for each excess layer shall apply to each Subscribing
Reinsurer in the percentage share for that excess layer as expressed in its
Interests and Liabilities Agreement attached hereto.

06IL\M2U1137                                                     (BENFIELD LOGO)



                  FIRST EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                                    issued to

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.



          REINSURERS            PARTICIPATIONS
          ----------            --------------
                             
DaVinci Reinsurance Ltd.             40.0%
Renaissance Reinsurance, Ltd.        60.0
TOTAL                               100.0%


06IL\M2U1137                                                     (BENFIELD LOGO)



                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                            DaVinci Reinsurance Ltd.
                                Hamilton, Bermuda
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

                  FIRST EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                         issued to and duly executed by

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.

The Subscribing Reinsurer hereby accepts a 40.0% 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., Local Standard Time, June
1, 2006, and shall continue in force until 12:01 a.m., Local Standard Time, June
1, 2007, unless earlier 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:

Hamilton, Bermuda, this 1st day of August in the year 2006.


                                        /s/ Justin D. O'Keefe
                                        ----------------------------------------
                                        DaVinci Reinsurance Ltd.

                                        Justin D. O'Keefe, Vice President
                                        (Print name and title)

06IL\M2U1137                                                     (BENFIELD LOGO)




                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                          Renaissance Reinsurance, Ltd.
                                Hamilton, Bermuda
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

                  FIRST EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                         issued to and duly executed by

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.

The Subscribing Reinsurer hereby accepts a 60.0% 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., Local Standard Time, June
1, 2006, and shall continue in force until 12:01 a.m., Local Standard Time, June
1, 2007, unless earlier 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:

Hamilton, Bermuda, this 1st day of August in the year 2006.


                                        /s/ Justin O. Keefe
                                        ----------------------------------------
                                        Renaissance Reinsurance, Ltd.

                                        Justin O. Keefe, Vice President
                                        (Print name and title)

06\M2U1137                                                       (BENFIELD LOGO)
Schedule A

EX-10.8

                                                                    Exhibit 10.8

            SECOND AND THIRD EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                                    issued to

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.

06\M2U1132                                                       (BENFIELD LOGO)



                                TABLE OF CONTENTS



ARTICLE                                                                     PAGE
- -------                                                                     ----
                                                                         
     I    Coverage                                                            1
    II    Commencement and Termination                                        1
   III    Concurrency of Conditions                                           2
    IV    Reinsurance Premium                                                 3
     V    Loss Notices and Settlements                                        3
    VI    Late Payments                                                       4
   VII    Offset (BRMA 36D)                                                   5
  VIII    Access to Records (BRMA 1D)                                         5
    IX    Errors and Omissions (BRMA 14F)                                     5
     X    Currency (BRMA 12A)                                                 6
    XI    Taxes (BRMA 50B)                                                    6
   XII    Federal Excise Tax                                                  6
  XIII    Funding Requirements                                                6
   XIV    Insolvency                                                          7
    XV    Arbitration                                                         8
   XVI    Service of Suit                                                     9
  XVII    Agency Agreement                                                   10
 XVIII    Governing Law                                                      10
   XIX    Confidentiality                                                    10
    XX    Severability                                                       10
   XXI    Intermediary (BRMA 23A)                                            10
          Schedule A


06\M2U1132                                                       (BENFIELD LOGO)



            SECOND AND THIRD EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                                    issued to

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.
             (hereinafter referred to collectively as the "Company")

                                       by

                   The Subscribing Reinsurer(s) Executing the
                     Interests and Liabilities Agreement(s)
                                 Attached Hereto
                  (hereinafter referred to as the "Reinsurer")

ARTICLE I - COVERAGE

By this Contract the Reinsurer agrees to indemnify the Company for 100% of any
reinstatement premium which the Company pays or becomes liable to pay as a
result of loss occurrences commencing during the term of this Contract under the
provisions of the Second and Third Excess layers of the Company's Florida Only
Excess Catastrophe Reinsurance Contract, effective June 1, 2006 (hereinafter
referred to as the "Underlying Contract" and described in Schedule A attached to
and forming part of this Contract), subject to the terms and conditions set
forth herein. However, the liability of the Reinsurer shall not exceed
$25,000,000 during the term of this Contract.

ARTICLE II - COMMENCEMENT AND TERMINATION

A.   This Contract shall become effective at 12:01 a.m., Local Standard Time,
     June 1, 2006, with respect to reinstatement premium payable by the Company
     under the provisions of the Underlying Contract as a result of losses
     arising out of loss occurrences commencing at or after that time and date,
     and shall remain in force until 12:01 a.m., Local Standard Time, June 1,
     2007.

B.   Notwithstanding the provisions of paragraph A above, the Company may
     terminate a Subscribing Reinsurer's percentage share in this Contract by
     giving written notice to the Subscribing Reinsurer in the event any of the
     following circumstances occur as clarified by

06\M2U1132                                                       (BENFIELD LOGO)


Page 1



     public announcement for subparagraphs 1 through 6 below and upon discovery
     for subparagraphs 7 and 8 below:

     1.   The Subscribing Reinsurer's policyholders' surplus or foreign
          equivalent thereto after the date lines are bound for this Contract
          has been reduced by more than 25.0% of the amount of surplus or
          foreign equivalent 12 months prior to that date; or

     2.   The Subscribing Reinsurer's policyholders' surplus or the foreign
          equivalent thereto at any time after the date that lines are bound or
          at any time during the term of this Contract has been reduced by more
          than 25.0% of the amount of surplus or foreign equivalent at the date
          of the Subscribing Reinsurer's most recent financial statement filed
          with regulatory authorities and available to the public as of the date
          lines are bound for this Contract; or

     3.   The Subscribing Reinsurer's A.M. Best's Financial Strength rating has
          been assigned as any rating below "A -" (inclusive of "Not Rated"
          ratings) and/or the Subscribing Reinsurer's Standard & Poor's Insurer
          Financial Strength rating has been assigned as any rating below "BBB
          +" (inclusive of "Not Rated" ratings); or

     4.   The Subscribing Reinsurer has become merged with, acquired by or
          controlled by any other company, corporation or individual(s) not
          controlling the Subscribing Reinsurer's operations previously; or

     5.   A State Insurance Department or other legal authority has ordered the
          Subscribing Reinsurer to cease writing business; or

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

     7.   The Subscribing Reinsurer has reinsured its entire liability under
          this Contract to a non-affiliated entity without the Company's prior
          written consent; or

     8.   The Subscribing Reinsurer has ceased assuming new or renewal property
          or casualty treaty reinsurance business.

C.   If this Contract is terminated or expires while a loss occurrence covered
     hereunder is in progress, the Reinsurer's liability hereunder shall,
     subject to the other terms and conditions of this Contract, be determined
     as if the entire loss occurrence had occurred prior to the termination or
     expiration of this Contract, provided that no part of such loss occurrence
     is claimed against any renewal or replacement of this Contract.

ARTICLE III - CONCURRENCY OF CONDITIONS

A.   It is agreed that this Contract will follow the terms, conditions,
     exclusions, definitions, warranties and settlements of the Company under
     the Underlying Contract which are not inconsistent with the provisions of
     this Contract.

06\M2U1132                                                       (BENFIELD LOGO)


Page 2



B.   The Company shall advise the Reinsurer of any material changes in the
     Underlying Contract which may affect the liability of the Reinsurer under
     this Contract.

ARTICLE IV - REINSURANCE PREMIUM

A.   As premium for the reinsurance provided hereunder, the Company shall pay
     the Reinsurer the greater of the following:

     1.   A minimum and deposit premium of $10,600,000 ($4,600,000 as respects
          the Second Excess layer of the Underlying Contract and $6,000,000 as
          respects the Third Excess layer of the Underlying Contract); or

     2.   0.06243% (0.02709% as respects the Second Excess layer of the
          Underlying Contract and 0.03534% as respects the Third Excess layer of
          the Underlying Contract) of the Company's total insured value for
          policies that included wind coverage in force on September 30, 2006.

B.   The Company shall pay the Reinsurer the minimum and deposit premium for
     each excess layer set forth in subparagraph 1 of paragraph A above in four
     equal installments on June 1, September 1 and December 1 of 2006 and March
     1 of 2007.

C.   Within 45 days after the expiration of this Contract, the Company shall
     provide a report to the Reinsurer setting forth the premium due hereunder
     for each excess layer, computed in accordance with paragraph A above, and
     any additional premium due the Reinsurer for each such excess layer shall
     be remitted promptly.

D.   In the event a Subscribing Reinsurer's participation in this Contract is
     terminated under the provisions of paragraph B of the Commencement and
     Termination Article, no further installments shall be due after the
     effective date of termination and the final premium shall be calculated as
     the number of days the Subscribing Reinsurer participated on this Contract
     divided by the number of days of the original term of this Contract and the
     quotient thereof shall be multiplied by the premium as set forth in
     paragraph A above. Any premium paid to the Subscribing Reinsurer in excess
     of the final premium shall be returned to the Company as promptly as
     possible.

ARTICLE V - LOSS NOTICES AND SETTLEMENTS

A.   Whenever reinstatement premium settlements made by the Company under the
     Underlying Contract appear likely to result in a claim hereunder, the
     Company shall notify the Reinsurer. The Company will advise the Reinsurer
     of all subsequent developments relating to such claims that, in the opinion
     of the Company, may materially affect the position of the Reinsurer.

B.   All reinstatement premium settlements made by the Company under the
     Underlying Contract, provided they are within the terms of the Underlying
     Contract and within the terms of this Contract, shall be binding upon the
     Reinsurer, and the Reinsurer agrees to pay all

06\M2U1132                                                       (BENFIELD LOGO)


Page 3



     amounts for which it may be liable upon receipt of reasonable evidence of
     the amount paid (or scheduled to be paid within 14 days) by the Company.

ARTICLE VI - LATE PAYMENTS

A.   The provisions of this Article shall not be implemented unless specifically
     invoked, in writing, by one of the parties to this Contract.

B.   In the event any premium, loss or other payment due either party is not
     received by the intermediary named in the Intermediary Article (BRMA 23A)
     (hereinafter referred to as the "Intermediary") by the payment due date,
     the party to whom payment is due may, by notifying the Intermediary in
     writing, require the debtor party to pay, and the debtor party agrees to
     pay, an interest penalty on the amount past due calculated for each such
     payment on the last business day of each month as follows:

     1.   The number of full days which have expired since the due date or the
          last monthly calculation, whichever the lesser, times

     2.   1/365ths of the six-month United States Treasury Bill Rate as quoted
          in The Wall Street Journal on the first business day of the month for
          which the calculation is made; times

     3.   The amount past due, including accrued interest.

     It is agreed that interest shall accumulate until payment of the original
     amount due plus interest penalties have been received by the Intermediary.

C.   The establishment of the due date shall, for purposes of this Article, be
     determined as follows:

     1.   As respects the payment of routine deposits and premiums due the
          Reinsurer, the due date shall be as provided for in the applicable
          section of this Contract. In the event a due date is not specifically
          stated for a given payment, it shall be deemed due 30 days after the
          date of transmittal by the Intermediary of the initial billing for
          each such payment.

     2.   Any claim or loss payment due the Company hereunder shall be deemed
          due 10 business days after the proof of loss or demand for payment is
          transmitted to the Reinsurer. If such loss or claim payment is not
          received within the 10 days, interest will accrue on the payment or
          amount overdue in accordance with paragraph B above, from the date the
          proof of loss or demand for payment was transmitted to the Reinsurer.

     3.   As respects any payment, adjustment or return due either party not
          otherwise provided for in subparagraphs 1 and 2 of this paragraph C,
          the due date shall be as provided for in the applicable section of
          this Contract. In the event a due date is not specifically stated for
          a given payment, it shall be deemed due 10 business days following
          transmittal of written notification that the provisions of this
          Article have been invoked.

06\M2U1132                                                       (BENFIELD LOGO)


Page 4



     For purposes of interest calculations only, amounts due hereunder shall be
     deemed paid upon receipt by the Intermediary.

D.   Nothing herein shall be construed as limiting or prohibiting a Subscribing
     Reinsurer from contesting the validity of any claim, or from participating
     in the defense of any claim or suit, or prohibiting either party from
     contesting the validity of any payment or from initiating any arbitration
     or other proceeding in accordance with the provisions of this Contract. If
     the debtor party prevails in an arbitration or other proceeding, then any
     interest penalties due hereunder on the amount in dispute shall be null and
     void. If the debtor party loses in such proceeding, then the interest
     penalty on the amount determined to be due hereunder shall be calculated in
     accordance with the provisions set forth above unless otherwise determined
     by such proceedings. If a debtor party advances payment of any amount it is
     contesting, and proves to be correct in its contestation, either in whole
     or in part, the other party shall reimburse the debtor party for any such
     excess payment made plus interest on the excess amount calculated in
     accordance with this Article.

E.   Interest penalties arising out of the application of this Article that are
     $100 or less from any party shall be waived unless there is a pattern of
     late payments consisting of three or more items over the course of any
     12-month period.

ARTICLE VII - OFFSET (BRMA 36D)

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.

ARTICLE VIII - ACCESS TO RECORDS (BRMA 1D)

The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.

ARTICLE IX - ERRORS AND OMISSIONS (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission is rectified as soon as possible
after discovery.

06\M2U1132                                                       (BENFIELD LOGO)


Page 5



ARTICLE X - CURRENCY (BRMA 12A)

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

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

ARTICLE XI - TAXES (BRMA 50B)

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 or the District of Columbia.

ARTICLE XII - FEDERAL EXCISE TAX

A.   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.

B.   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.

ARTICLE XIII - FUNDING REQUIREMENTS

A.   The Reinsurer agrees to fund, within 30 days of the Company's request,
     subject to receipt of satisfactory information from the Company, its share
     of the Company's ceded unearned premium and outstanding loss reserves
     (being the sum of all reinstatement premiums paid by the Company under the
     Underlying Contract but not yet recovered from the Reinsurer, plus the
     Company's reserves for reinstatement premiums due under the Underlying
     Contract, if any) by:

     1.   Clean, irrevocable and unconditional letters of credit issued and
          confirmed, if confirmation is required by the insurance regulatory
          authorities involved, by a bank or banks meeting the NAIC Securities
          Valuation Office credit standards for issuers of letters of credit and
          acceptable to said insurance regulatory authorities; and/or

     2.   Escrow accounts for the benefit of the Company; and/or

     3.   Cash advances;

06\M2U1132                                                       (BENFIELD LOGO)


Page 6



     if the Reinsurer is unauthorized in any state of the United States of
     America or the District of Columbia having jurisdiction over the Company
     and if, without such funding a penalty would accrue to the Company on any
     financial statement, including but not limited to quarterly filings, it is
     required to file with the insurance regulatory authorities involved.

     The Reinsurer, at its sole option, may fund in other than cash if its
     method of funding is acceptable to the Company and to the insurance
     regulatory authorities involved.

     For the purpose of this Contract, the Lloyd's U.S. Credit for Reinsurance
     Trust Fund shall be considered an acceptable funding instrument.

B.   With regard to funding in whole or in part by letters of credit, it is
     agreed that each letter of credit will be in a form acceptable to insurance
     regulatory authorities involved, will be issued for a term of at least one
     year and will include an "evergreen clause," which automatically extends
     the term for at least one additional year at each expiration date unless
     written notice of non-renewal is given to the Company not less than 30 days
     prior to said expiration date or longer where required by insurance
     regulatory authorities. The Company and the Reinsurer further agree,
     notwithstanding anything to the contrary in this Contract, that said
     letters of credit may be drawn upon by the Company or its successors in
     interest at any time, without diminution because of the insolvency of the
     Company or the Reinsurer, but only for one or more of the following
     purposes:

     1.   To reimburse itself for the Reinsurer's share of reinstatement
          premiums paid by the Company under the terms of the Underlying
          Contract, unless paid in cash by the Reinsurer;

     2.   To reimburse itself for the Reinsurer's share of any other amounts
          claimed to be due hereunder, unless paid in cash by the Reinsurer;

     3.   To fund a cash account in an amount equal to the Reinsurer's share of
          any ceded unearned premium and/or outstanding loss reserves funded by
          means of a letter of credit which is under non-renewal notice, if said
          letter of credit has not been renewed or replaced by the Reinsurer 10
          days prior to its expiration date;

     4.   To refund to the Reinsurer any sum in excess of the actual amount
          required to fund the Reinsurer's share of the Company's ceded unearned
          premium and/or outstanding loss reserves, if so requested by the
          Reinsurer.

     In the event the amount drawn by the Company on any letter of credit is in
     excess of the actual amount required for B(1) or B(3), or in the case of
     B(2), the actual amount determined to be due, the Company shall promptly
     return to the Reinsurer the excess amount so drawn.

ARTICLE XIV - INSOLVENCY

A.   In the event of the insolvency of one or more of the reinsured companies,
     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

06\M2U1132                                                       (BENFIELD LOGO)


Page 7



     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.

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 this Contract as though such
     expense had been incurred by the company.

C.   It is further understood and agreed that, in the event of the insolvency of
     one or more of the reinsured companies, the reinsurance under this Contract
     shall be payable directly by the Reinsurer to the company or to its
     liquidator, receiver or statutory successor, except as provided by Section
     4118(a) of the New York Insurance Law or except (1) where this Contract
     specifically provides another payee of such reinsurance in the event of the
     insolvency of the company or (2) 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.

ARTICLE XV - ARBITRATION

A.   As a condition precedent to any right of action hereunder, any dispute or
     difference between the Company and any Reinsurer relating to the
     interpretation or performance of this Contract, including its formation or
     validity, or any transaction under this Contract, whether arising before or
     after termination, shall be submitted to arbitration.

B.   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
     Article provided that communication shall be made by the Company to each of
     the reinsurers constituting the one party, and 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 Reinsurer under the terms of this Contract
     from several to joint.

C.   Upon written request of any party, each party shall choose an arbitrator
     and the two chosen shall select a third arbitrator. If either party refuses
     or neglects to appoint an arbitrator within 30 days after receipt of the
     written request for arbitration, the requesting party may appoint a second
     arbitrator. If the two arbitrators fail to agree on the selection of a
     third arbitrator within 30 days of their appointment, the Company shall
     petition the American Arbitration Association to appoint the third
     arbitrator. If the American Arbitration Association fails to appoint the
     third arbitrator within 30 days after it has been requested to do so,
     either

06\M2U1132                                                       (BENFIELD LOGO)


Page 8



     party may request a justice of a court of general jurisdiction of the state
     in which the arbitration is to be held to appoint the third arbitrator. All
     arbitrators shall be active or retired officers of insurance or reinsurance
     companies, or Lloyd's London Underwriters, and disinterested in the outcome
     of the arbitration. Each party shall submit its case to the arbitrators
     within 30 days of the appointment of the third arbitrator.

D.   The parties hereby waive all objections to the method of selection of the
     arbitrators, it being the intention of both sides that all the arbitrators
     be chosen from those submitted by the parties.

E.   The arbitrators shall have the power to determine all procedural rules for
     the holding of the arbitration including but not limited to inspection of
     documents, examination of witnesses and any other matter relating to the
     conduct of the arbitration. The arbitrators shall interpret this Contract
     as an honorable engagement and not as merely a legal obligation; they are
     relieved of all judicial formalities and may abstain from following the
     strict rules of law. The arbitrators may award interest and costs. Each
     party shall bear the expense of its own arbitrator and shall share equally
     with the other party the expenses of the third arbitrator and of the
     arbitration.

F.   The decision in writing of the majority of the arbitrators shall be final
     and binding upon both parties. Judgment may be entered upon the final
     decision of the arbitrators in any court having jurisdiction. The
     arbitration shall take place in Pinellas Park, Florida, unless otherwise
     mutually agreed between the Company and the Reinsurer.

G.   This Article shall remain in full force and effect in the event any other
     provision of this Contract shall be found invalid or non-binding.

H.   All time limitations stated in this Article may be amended by mutual
     consent of the parties, and will be amended automatically to the extent
     made necessary by any circumstances beyond the control of the parties.

ARTICLE XVI - SERVICE OF SUIT

(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities. This
Article is not intended to conflict with or override the parties' obligations to
arbitrate their disputes in accordance with the Arbitration Article.)

A.   It is agreed that in the event the Reinsurer fails to pay any amount
     claimed to be due hereunder, the Reinsurer, at the request of the Company,
     will submit to the jurisdiction of any 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.

B.   Further, pursuant to any statute of any state, territory or district of the
     United States which makes provision therefore, the Reinsurer hereby
     designates the party named in its Interests and Liabilities Agreement, or
     if no party is named therein, the Superintendent,

06\M2U1132                                                       (BENFIELD LOGO)


Page 9



     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.

ARTICLE XVII - AGENCY AGREEMENT

If more than one reinsured company is named as a party to this Contract, the
first named company shall 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.

ARTICLE XVIII - GOVERNING LAW

This Contract shall be governed as to performance, administration and
interpretation by the laws of the State of Florida 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.

ARTICLE XIX - CONFIDENTIALITY

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, 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.

ARTICLE XX - SEVERABILITY

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.

ARTICLE XXI - INTERMEDIARY (BRMA 23A)

Benfield, Inc. is hereby recognized as the Intermediary negotiating this
Contract for all business hereunder. All communications (including but not
limited to notices, statements, premium, return premium, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through Benfield, Inc.
Payments by the Company to the Intermediary shall be deemed to constitute
payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to

06\M2U1132                                                       (BENFIELD LOGO)


Page 10



constitute payment to the Company only to the extent that such payments are
actually received by the Company.

IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:

Pinellas Park, Florida, this 21st day of July in the year 2006.


                                 /s/ T. Bruce Meyer
                                 -----------------------------------------------
                                 T. Bruce Meyer, Corporate President and CEO
                                 Liberty American Insurance Group, Inc.
                                 (for and on behalf of the "Company")

                                 T. Bruce Meyer
                                 (Print name and title)

06\M2U1132                                                       (BENFIELD LOGO)


Page 11



                                   SCHEDULE A

            SECOND AND THIRD EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                                    issued to

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.



                                      SECOND         THIRD
                                      EXCESS        EXCESS
                                   -----------   ------------
                                           
Company's Retention                $35,000,000   $ 60,000,000
Reinsurer's Per Occurrence Limit   $25,000,000   $ 60,000,000
Reinsurer's Term Limit             $50,000,000   $120,000,000
Minimum Premium                    $ 7,875,000   $ 14,040,000
Adjustment Rate                        0.05154%       0.09188%
Deposit Premium                    $ 8,750,000   $ 15,600,000
Quarterly Deposit Premium          $ 2,187,500   $  3,900,000


The figures listed above for each excess layer shall apply to each Subscribing
Reinsurer in the percentage share for that excess layer as expressed in its
Interests and Liabilities Agreement attached hereto.

06IL\M2U1132                                                     (BENFIELD LOGO)



            SECOND AND THIRD EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                                    issued to

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.

           Second Excess Reinstatement Premium Protection Reinsurance



                REINSURERS                  PARTICIPATIONS
                ----------                  --------------
                                         
DaVinci Reinsurance Ltd.                          9.2%
Harbor Point Services Inc.
   (for Federal Insurance Company)               10.0
Renaissance Reinsurance, Ltd.                    13.8

THROUGH BENFIELD LIMITED
Amlin Bermuda Limited                            15.0
Lloyd's Underwriters Per Signing Schedule        52.0
TOTAL                                           100.0%


            Third Excess Reinstatement Premium Protection Reinsurance



                REINSURERS                  PARTICIPATIONS
                ----------                  --------------
                                         
DaVinci Reinsurance Ltd.                          9.2%
Harbor Point Services Inc.
   (for Federal Insurance Company)               10.0
Renaissance Reinsurance, Ltd.                    13.8

THROUGH BENFIELD LIMITED
Amlin Bermuda Limited                            15.0
Lloyd's Underwriters Per Signing Schedule        52.0
TOTAL                                           100.0%


06IL\M2U1132                                                     (BENFIELD LOGO)



                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                            DaVinci Reinsurance Ltd.
                                Hamilton, Bermuda
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

            SECOND AND THIRD EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                         issued to and duly executed by

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.

The Subscribing Reinsurer hereby accepts the following percentage shares in the
interests and liabilities of the "Reinsurer" as set forth in the attached
Contract captioned above:

      9.2% of the Second Excess Reinstatement Premium Protection Reinsurance
      9.2% of the Third Excess Reinstatement Premium Protection Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time, June
1, 2006, and shall continue in force until 12:01 a.m., Local Standard Time, June
1, 2007, unless earlier 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:

Hamilton, Bermuda, this 1st day of August in the year 2006.


                                        /s/ Justin D O'Keefe, Vice President
                                        DaVinci Reinsurance Ltd.

                                        Justin D O'Keefe
                                        (Print name and title)

06IL\M2U1132                                                     (BENFIELD LOGO)



                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                            Federal Insurance Company
                              Indianapolis, Indiana
                                     through
                      Harbor Point Insurance Services Inc.
                            Bernardsville, New Jersey
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

            SECOND AND THIRD EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                         issued to and duly executed by

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.

The Subscribing Reinsurer hereby accepts the following percentage shares in the
interests and liabilities of the "Reinsurer" as set forth in the attached
Contract captioned above:

     10.0% of the Second Excess Reinstatement Premium Protection Reinsurance
     10.0% of the Third Excess Reinstatement Premium Protection Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time, June
1, 2006, and shall continue in force until 12:01 a.m., Local Standard Time, June
1, 2007, unless earlier 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:

Bernardsville, New Jersey, this 14th day of August in the year 2006.


                                     /s/ Josselin Burrer, Vice President
                                     -------------------------------------------
                                     Harbor Point Insurance Services Inc. (for
                                     and on behalf of Federal Insurance Company)

                                     Josselin Burrer
                                     (Print name and title)

06IL\M2U1132                                                     (BENFIELD LOGO)



                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                          Renaissance Reinsurance, Ltd.
                                Hamilton, Bermuda
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

            SECOND AND THIRD EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                         issued to and duly executed by

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.

The Subscribing Reinsurer hereby accepts the following percentage shares in the
interests and liabilities of the "Reinsurer" as set forth in the attached
Contract captioned above:

     13.8% of the Second Excess Reinstatement Premium Protection Reinsurance
     13.8% of the Third Excess Reinstatement Premium Protection Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time, June
1, 2006, and shall continue in force until 12:01 a.m., Local Standard Time, June
1, 2007, unless earlier 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:

Hamilton, Bermuda, this 1st day of August in the year 2006.


                                        /s/ Justin O'Keefe, Vice President
                                        ----------------------------------------
                                        Renaissance Reinsurance, Ltd.

                                        Justin O'Keefe
                                        (Print name and title)

06IL\M2U1132                                                     (BENFIELD LOGO)



                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                              Amlin Bermuda Limited
                                Hamilton, Bermuda
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

            SECOND AND THIRD EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                         issued to and duly executed by

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.

The Subscribing Reinsurer hereby accepts the following percentage shares in the
interests and liabilities of the "Reinsurer" as set forth in the attached
Contract captioned above:

     15.0% of the Second Excess Reinstatement Premium Protection Reinsurance
     15.0% of the Third Excess Reinstatement Premium Protection Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time, June
1, 2006, and shall continue in force until 12:01 a.m., Local Standard Time, June
1, 2007, unless earlier 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:

Hamilton, Bermuda, this 23rd day of August in the year 2006.


                                      /s/ B. Savill, Property Treaty Underwriter
                                      ------------------------------------------
                                      Amlin Bermuda Limited

                                      B. Savill
                                      (Print name and title)

06IL\M2U1132                                                     (BENFIELD LOGO)



                       INTERESTS AND LIABILITIES AGREEMENT

                                       of

                     Certain Underwriting Members of Lloyd's
                 shown in the Signing Schedules attached hereto
            (hereinafter referred to as the "Subscribing Reinsurer")

                               with respect to the

            SECOND AND THIRD EXCESS REINSTATEMENT PREMIUM PROTECTION
                              REINSURANCE CONTRACT
                             EFFECTIVE: JUNE 1, 2006

                         issued to and duly executed by

                       Liberty American Insurance Company
                             Pinellas Park, Florida
                    Liberty American Select Insurance Company
                             Pinellas Park, Florida
                                       and
                    any and all other companies which are now
                   or may hereafter become member companies of
                     Liberty American Insurance Group, Inc.

The Subscribing Reinsurer hereby accepts the following percentage shares in the
interests and liabilities of the "Reinsurer" as set forth in the attached
Contract captioned above:

     52.0% of the Second Excess Reinstatement Premium Protection Reinsurance
     52.0% of the Third Excess Reinstatement Premium Protection Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time, June
1, 2006, and shall continue in force until 12:01 a.m., Local Standard Time, June
1, 2007, unless earlier 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 any action, suit or proceeding to enforce the Subscribing Reinsurer's
obligations under the attached Contract, service of process may be made upon
Mendes & Mount, 750 Seventh Avenue, New York, New York 10019.

Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedules
attached hereto. On behalf of the General Manager of Lloyds of London.

06\M2U1132                                                       (BENFIELD LOGO)
Schedule A

EX-10.9

                                                                        Exh 10.9

                             REIMBURSEMENT CONTRACT

                             EFFECTIVE: JUNE 1, 2006
                                   (CONTRACT)

                                     between

                       LIBERTY AMERICAN INSURANCE COMPANY
                                PINELLAS PARK, FL

                                    (Company)

                                  NAIC # 10955

                                       and

         THE STATE BOARD OF ADMINISTRATION OF THE STATE OF FLORIDA (SBA)
         WHICH ADMINISTERS THE FLORIDA HURRICANE CATASTROPHE FUND (FHCF)

PREAMBLE

The Legislature of the State of Florida has enacted Section 215.555, Florida
Statutes "Statute", which directs the SBA to administer the FHCF. This Contract
is subject to the Statute and to any administrative rule adopted pursuant
thereto, and is not intended to be in conflict therewith.

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

ARTICLE I - SCOPE OF AGREEMENT

As a condition precedent to the SBA's obligations under this Contract, the
Company, an Authorized Insurer or an entity writing Covered Policies under
Section 627.351, Florida Statutes, in the State of Florida, shall report to the
SBA in a specified format the business it writes which is described in this
Contract as Covered Policies.

The terms of this Contract shall determine the rights and obligations of the
parties. This Contract provides reimbursement to the Company under certain
circumstances, as described herein, and does not provide or extend insurance or
reinsurance coverage to any person, firm, corporation or other entity. The SBA
shall reimburse the Company for its Ultimate Net Loss on Covered Policies in
excess of the Company's Retention as a result of each Loss Occurrence commencing
during the Contract Year, to the extent funds are available, all as hereinafter
defined.

                                                                      FHCF-2006K
                                                            Rule 19-8.010 F.A.C.


                                       1



ARTICLE II - PARTIES TO THE CONTRACT

This Contract is solely between the Company and the SBA which administers the
FHCF. In no instance shall any insured of the Company or any claimant against an
insured of the Company, or any other third party, have any rights under this
Contract, except as provided in Article XIV. The SBA will only disburse funds to
the Company, except as provided for in Article XIV of this Contract.

ARTICLE III - TERM

This Contract shall apply to Loss Occurrences which commence during the period
from 12:01 a.m., Eastern Time, June 1, 2006, to 12:01 a.m., Eastern Time, June
1, 2007 (Contract Year).

The Company must designate a coverage level, make the required selections, and
return this fully executed Contract (two originals) to the FHCF Administrator so
that the Contract is received by the FHCF Administrator no later than 5 p.m.,
Central Time, June 1, 2006. Failure to do so may result in a referral to the
Office of Insurance Regulation within the Department of Financial Services for
administrative action. Furthermore, the Company's coverage level under this
Contract will be deemed as follows:

(1)  For Companies that are a member of a National Association of Insurance
     Commissioners (NAIC) group, the same coverage level selected by the other
     Companies of the same NAIC group shall be deemed. If executed Contracts for
     none of the members of an NAIC group have been received by the FHCF
     Administrator, the coverage level from the prior Contract Year shall be
     deemed.

(2)  For Companies that are not a member of an NAIC group under which other
     Companies are active participants in the FHCF, the coverage level from the
     prior Contract Year shall be deemed.

(3)  For New Participants, as that term is defined in Article V(21), that are a
     member of an NAIC group, the same coverage level selected by the other
     Companies of the same NAIC group shall be deemed.

(4)  For New Participants that are not a member of an NAIC group under which
     other Companies are active participants in the FHCF, the 45%, 75% or 90%
     coverage levels may be selected providing that the FHCF Administrator
     receives executed Contracts within 30 calendar days of the effective date
     of the first Covered Policy, otherwise, the 45% coverage level shall be
     deemed.

Pursuant to the terms of this Contract, the SBA shall not be liable for Loss
Occurrences which commence after the effective time and date of expiration or
termination. Should this Contract expire or terminate while a Loss Occurrence
covered hereunder is in progress, the SBA shall be responsible for such Loss
Occurrence in progress in the same manner and to the same extent it would have
been responsible had the Contract expired the day following the conclusion of
the Loss Occurrence in progress.

ARTICLE IV - LIABILITY OF THE FHCF

(1)  The SBA shall reimburse the Company, with respect to each Loss Occurrence
     commencing during the Contract Year for the "Reimbursement Percentage"
     elected, this percentage times the amount of Ultimate Net Loss paid by the
     Company in excess of the Company's Retention, as adjusted pursuant to
     Article V(28), plus 5% of the reimbursed losses for Loss Adjustment Expense
     Reimbursement.

(2)  The Reimbursement Percentage will be 45% or 75% or 90%, at the Company's
     option as elected under Article XVIII.

(3)  The aggregate liability of the FHCF with respect to all Reimbursement
     Contracts covering this contract year shall not exceed the limit set forth
     under Section 215.555(4)(c)1., Florida Statutes. For specifics regarding
     loss reimbursement calculations, see section (3)(c) of Article X herein.

(4)  Reimbursement amounts shall not be reduced by reinsurance paid or payable
     to the Company from other sources.

                                                                      FHCF-2006K
                                                            Rule 19-8.010 F.A.C.


                                       2



(5)  After the end of the calendar year, the SBA shall notify insurers of the
     estimated Borrowing Capacity and the Balance of the Fund as of December 31.
     In May and October of each year, the SBA shall publish in the Florida
     Administrative Weekly a statement of the FHCF's estimated Borrowing
     Capacity and the projected Balance of the Fund as of December 31.

(6)  The obligation of the SBA with respect to all Contracts covering a
     particular Contract Year shall not exceed the Balance of the Fund as of
     December 31 of that Contract Year, together with the maximum amount the SBA
     is able to raise through the issuance of revenue bonds or other means
     available to the SBA under Section 215.555, Florida Statutes, up to the
     limit in accordance with Section 215.555(4)(c)1., Florida Statutes. The
     obligations and the liability of the SBA are more fully described in Rule
     19-8.013, Florida Administrative Code (F.A.C.). If Reimbursement Premiums,
     earnings thereon, or amounts collected as part of the premium that are
     attributable to the rapid cash buildup factor are used for debt service in
     the event of a temporary shortfall in the collection of emergency
     assessments, then the amount of the Premiums, earnings thereon, or amounts
     collected as part of the premium that are attributable to the rapid cash
     buildup factor so used will be reimbursed to the SBA without interest when
     sufficient emergency assessments are received.

ARTICLE V - DEFINITIONS

(1)  ACTUAL CLAIMS-PAYING CAPACITY OF THE FHCF

     This term means the sum of the Balance of the Fund as of December 31 of a
     Contract Year, plus any reinsurance purchased by the FHCF, plus the amount
     the SBA is able to raise through the issuance of revenue bonds up to the
     limit in accordance with Section 215.555(4)(c)1. and (6), Florida Statutes.

(2)  ACTUARIALLY INDICATED

     This term means, with respect to Premiums paid by Companies for
     reimbursement provided by the FHCF, an amount determined in accordance with
     the definition provided in Section 215.555(2)(a), Florida Statutes.

(3)  ADDITIONAL LIVING EXPENSE (ALE)

     ALE losses covered by the FHCF are not to exceed 40 percent of the insured
     value of a Residential Structure or its contents based on the coverage
     provided in the policy. Fair rental value, loss of use, loss of rents, or
     business interruption losses are not covered by the FHCF.

(4)  ADMINISTRATOR

     This term means the entity with which the SBA contracts to perform
     administrative tasks associated with the operations of the FHCF. The
     Administrator is Paragon Strategic Solutions Inc., 3600 American Boulevard
     West, Suite 700, Minneapolis, Minnesota 55431. The telephone number is
     (800) 689-3863, and the facsimile number is (800) 264-0492.

(5)  AUTHORIZED INSURER

     This term is defined in Section 624.09(1), Florida Statutes.

(6)  BORROWING CAPACITY

     This term means the amount of funds which are able to be raised by the
     issuance of revenue bonds or through other financing mechanisms, less bond
     issuance expenses and reserves.

(7)  CITIZENS PROPERTY INSURANCE CORPORATION (CITIZENS)

     This term means the entity formed under Section 627.351(6), Florida
     Statutes and refers to both Citizens Property Insurance Corporation High
     Risk Account and Citizens Property Insurance Corporation Personal Lines and
     Commercial Lines Accounts.

(8)  CONTRACT

     This term means this Reimbursement Contract for the current Contract Year.

(9)  COVERED EVENT

     This term means any one storm declared to be a hurricane by the National
     Hurricane Center, which causes insured losses in Florida, both while it is
     still a hurricane and throughout any subsequent

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     downgrades in storm status by the National Hurricane Center. Any storm,
     including a tropical storm, which does not become a hurricane is not a
     Covered Event.

(10) COVERED POLICY OR COVERED POLICIES

     (a)  Covered Policy, as defined in Section 215.555(2)(c), Florida Statutes,
          is further clarified to mean only that portion of a binder, policy or
          contract of insurance that insures real or personal property located
          in the State of Florida to the extent such policy insures a
          Residential Structure, as defined in definition (27) herein, or the
          contents of a Residential Structure, located in the State of Florida.

     (b)  Due to the specialized nature of the definition of Covered Policies,
          Covered Policies are not limited to only one line of business in the
          Company's annual statement required to be filed by Section 624.424,
          Florida Statutes. Instead, Covered Policies are found in several lines
          of business on the Company's annual statement. Covered Policies will
          at a minimum be reported in the Company's statutory annual statement
          as:

               -    Fire

               -    Allied Lines

               -    Farmowners Multiple Peril

               -    Homeowners Multiple Peril

               -    Commercial Multiple Peril (non liability portion, covering
                    condominiums and apartments)

               -    Inland Marine

          Note that where particular insurance exposures, e.g. mobile homes, are
          reported on an annual statement is not dispositive of whether or not
          the exposure is a Covered Policy.

     (c)  This definition applies only to the first-party property section of a
          policy pertaining strictly to the structure, its contents, appurtenant
          structures, or ALE coverage.

     (d)  Covered Policy also includes any collateral protection insurance
          policy covering personal residences which protects both the borrower's
          and the lender's financial interest, in an amount at least equal to
          the coverage for the dwelling in place under the lapsed homeowner's
          policy, if such policy can be accurately reported as required in
          Section 215.555(5), Florida Statutes. A Company will be deemed to be
          able to accurately report data if the required data, as specified in
          the Premium Formula adopted in Section 215.555(5), Florida Statutes,
          is available.

     (e)  See Article VI of this Contract for specific exclusions.

(11) DEDUCTIBLE BUY-BACK POLICIES

     This term means a specific policy that provides coverage to a policyholder
     for some portion of the policyholder's deductible under a policy issued by
     another insurer.

(12) ESTIMATED CLAIMS-PAYING CAPACITY OF THE FHCF

     This term means the sum of the projected Balance of the Fund as of December
     31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the
     most recent estimate of the Borrowing Capacity of the FHCF, determined
     pursuant to Section 215.555(4)(c), Florida Statutes.

(13) EXCESS POLICIES

     This term, for the purposes of this Contract, means a policy that provides
     insurance protection for large commercial property risks that provides a
     layer of coverage above a primary layer (which is insured by a different
     insurer) that acts much the same as a very large deductible.

(14) FLORIDA DEPARTMENT OF FINANCIAL SERVICES (DEPARTMENT)

     This term means the Florida regulatory agency, created pursuant to Section
     20.121, Florida Statutes, which is charged with regulating the Florida
     insurance market and administering the Florida Insurance Code.

(15) FLORIDA INSURANCE CODE

     This term means those chapters identified in Section 624.01, Florida
     Statutes, which are designated as the Florida Insurance Code.

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                                       4



(16) FORMULA OR THE PREMIUM FORMULA

     This term means the Formula approved by the SBA for the purpose of
     determining the Actuarially Indicated Premium to be paid to the FHCF. The
     Premium Formula is defined as an approach or methodology which leads to the
     creation of premium rates. The resulting rates are therefore incorporated
     as part of the Premium Formula.

(17) FUND BALANCE OR BALANCE OF THE FUND AS OF DECEMBER 31

     These terms mean the "Net assets: Unrestricted" as indicated on the
     unconsolidated FHCF Statement of Net Assets for the then current Contract
     Year, to which is added: reported FHCF losses (including Loss Adjustment
     Expense) for the then current Contract Year, whether paid or unpaid by
     FHCF, as of December 31, and from which is subtracted: any reinsurance
     recovered prior to, or recoverable as of, December 31; any obligations paid
     or expected to be paid with bonding proceeds or receipts from emergency
     assessments; amounts needed for administration for the then current State
     of Florida fiscal year which have not been spent and which are not
     reflected on the FHCF Statement of Net Assets; and the amount of
     undispersed mitigation funds appropriated for the then current State of
     Florida fiscal year.

(18) INSURER GROUP

     For purposes of the coverage option election in Section 215.555(4)(b),
     Florida Statutes, Insurer Group means the group designation assigned by the
     National Association of Insurance Commissioners (NAIC) for purposes of
     filing consolidated financial statements. A Company is a member of a group
     as designated by the NAIC until such Company is assigned another group
     designation or is no longer a member of a group recognized by the NAIC.

(19) LOSS OCCURRENCE

     This term means the sum of individual insured losses incurred under Covered
     Policies resulting from the same Covered Event. "Losses" means direct
     incurred losses under Covered Policies and excludes Loss Adjustment
     Expenses.

(20) LOSS ADJUSTMENT EXPENSE REIMBURSEMENT

     (a)  Loss Adjustment Expense Reimbursement shall be 5% of the reimbursed
          losses under this Contract as provided in Article IV, pursuant to
          Section 215.555(4)(b)1., Florida Statutes.

     (b)  To the extent that loss reimbursements are limited to the Payout
          Multiple applied to each Company, the 5% Loss Adjustment Expense is
          included in the total Payout Multiple applied to each Company.

(21) NEW PARTICIPANT(S)

     This term means all Companies which begin writing Covered Policies on or
     after the beginning of the Contract Year. A Company that removes exposure
     from either Citizens entity, as that term is defined in (7) above, pursuant
     to an assumption agreement effective on or after June 1 and had written no
     other Covered Policies before June 1 is also considered a New Participant.

(22) OFFICE OF INSURANCE REGULATION

     This term means that office within the Department of Financial Services and
     which was created in Section 20.121(3), Florida Statutes.

(23) PAYOUT MULTIPLE

     This term means the multiple as calculated in accordance with Section
     215.555(4)(c), Florida Statutes, which is derived by dividing the single
     season Claims-Paying Capacity of the FHCF by the total aggregate industry
     Reimbursement Premium for the FHCF for the Contract Year billed as of
     December 31 of the Contract Year. The final Payout Multiple is determined
     once Reimbursement Premiums have been billed as of December 31 and the
     amount of bond proceeds has been determined.

(24) PREMIUM

     This term means the same as Reimbursement Premium.

(25) PROJECTED PAYOUT MULTIPLE

     The Projected Payout Multiple is used to calculate a Company's projected
     payout pursuant to Section 215.555(4)(d)2.b., Florida Statutes. The
     Projected Payout Multiple is derived by dividing

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     the estimated single season Claims-Paying Capacity of the FHCF by the
     estimated total aggregate industry Reimbursement Premium for the FHCF for
     the Contract Year. The Company's Reimbursement Premium as paid to the SBA
     for the Contract Year is multiplied by the Projected Payout Multiple to
     estimate the Company's coverage from the FHCF for the Contract Year.

(26) REIMBURSEMENT PREMIUM

     This term means the Premium determined by multiplying each $1,000 of
     insured value reported by the Company in accordance with Section
     215.555(5)(b), Florida Statutes, by the rate as derived from the Premium
     Formula, as described in Rule 19-8.028, F.A.C.

(27) RESIDENTIAL STRUCTURES

     This term means dwelling units used as a home or residence for other than
     transient occupancy, as that term is defined in Section 83.43(10), Florida
     Statutes. These include the primary structure and appurtenant structures
     insured under the same policy and any other structures covered under
     endorsements associated with a policy covering a residential structure, the
     principal function of which at the time of loss was as a primary or
     secondary residence. COVERED RESIDENTIAL STRUCTURES DO NOT INCLUDE any
     structures listed under Article VI herein.

(28) RETENTION

     The Company's Retention means the amount of hurricane losses under Covered
     Policies which must be incurred by the Company before it is eligible for
     reimbursement from the FHCF.

     (a)  When the Company experiences covered losses from one or two Covered
          Events during the Contract Year, the Company's full Retention shall be
          applied to each of the Covered Events.

     (b)  When the Company experiences covered losses from more than two Covered
          Events during the Contract Year, the Company's full Retention shall be
          applied to each of the two Covered Events causing the largest covered
          losses for the Company. For each other Covered Event resulting in
          covered losses, the Company's Retention shall be reduced to one-third
          of its full Retention and applied to all other Covered Events.

          1.   All reimbursement of covered losses for each Covered Event shall
               be based on the Company's full Retention until January 1 of the
               Contract Year. Adjustments to reflect a reduction to one-third of
               the full Retention shall be made as soon as practicable after
               January 1 of the Contract Year provided the Company reports its
               losses as specified in this Contract.

          2.   Adjustments to the Company's Retention shall be based upon its
               paid and outstanding losses as reported on the Company's Proof of
               Loss Reports but shall not include incurred but not reported
               losses. The Company's Proof of Loss Reports shall be used to
               determine which Covered Events constitute the Company's two
               largest Covered Events, and the reduction to one-third of the
               full Retention shall be applied to all other Covered Events for
               the Contract Year. After this initial determination, any
               subsequent adjustments shall be made by the SBA only if the
               quarterly loss reports reveal that loss development patterns have
               resulted in a change in the order of Covered Events entitled to
               the reduction to one-third of the full Retention.

     (c)  The Company's full Retention is established in accordance with the
          provisions of Section 215.555(2)(e), Florida Statutes, and shall be
          determined by multiplying the Retention Multiple by the Company's
          Reimbursement Premium for the Contract Year.

     (d)  Once the Company's limit of coverage has been exhausted, the Company
          will not be entitled to further reimbursements. The only exception is
          with regard to an entity created pursuant to 627.351(6), F.S. which is
          addressed in Article X(3)(c)2.c.

(29) RETENTION MULTIPLE

     (a)  The Retention Multiple is applied to the Company's Reimbursement
          Premium to determine the Company's Retention. The Retention Multiple
          for the 2006/2007 Contract Year shall be equal to $4.5 billion,
          adjusted based upon the reported exposure for the 2005/2006 Contract
          Year to reflect the percentage growth in exposure to the FHCF since
          2004, divided by the

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                                                            Rule 19-8.010 F.A.C.


                                        6



          estimated total industry Reimbursement Premium at the 90%
          reimbursement percentage level for the Contract Year as determined by
          the SBA.

     (b)  The Retention Multiple as determined under (29)(a) above shall be
          adjusted to reflect the reimbursement percentage elected by the
          Company under this Contract as follows:

          1.   If the Company elects a 90% reimbursement percentage, the
               adjusted Retention Multiple is 100% of the amount determined
               under (29)(a) above;

          2.   If the Company elects a 75% reimbursement percentage, the
               adjusted Retention Multiple is 120% of the amount determined
               under (29)(a) above; or

          3.   If the Company elects a 45% reimbursement percentage, the
               adjusted Retention Multiple is 200% of the amount determined
               under (29)(a) above.

(30) ULTIMATE NET LOSS

     (a)  This term means all losses of the Company under Covered Policies,
          prior to the application of the Company's FHCF Retention, as defined
          under (28) above, and reimbursement percentage, and excluding loss
          adjustment expense, arising from each Loss Occurrence during the
          Contract Year, provided, however, that the Company's loss shall be
          determined in accordance with the deductible level written under the
          policy sustaining the loss.

     (b)  Salvages and all other recoveries, excluding reinsurance recoveries,
          shall be first deducted from such loss to arrive at the amount of
          liability attaching hereunder.

     (c)  All salvages, recoveries or payments recovered or received subsequent
          to a loss settlement under this Contract shall be applied as if
          recovered or received prior to the aforesaid settlement and all
          necessary adjustments shall be made by the parties hereto.

     (d)  Nothing in this clause shall be construed to mean that losses under
          this Contract are not recoverable until the Company's Ultimate Net
          Loss has been ascertained.

     (e)  The SBA shall be subrogated to the rights of the Company to the extent
          of its reimbursement of the Company. The Company agrees to assist and
          cooperate with the SBA in all respects as regards such subrogation.
          The Company further agrees to undertake such actions as may be
          necessary to enforce its rights of salvage and subrogation, and its
          rights, if any, against other insurers as respects any claim, loss, or
          payment arising out of a Covered Event.

ARTICLE VI - EXCLUSIONS

This Contract does not provide reimbursement for:

(1)  Any losses not defined as being within the scope of a Covered Policy.

(2)  Any policy which excludes wind or hurricane coverage.

(3)  Any Excess Policy or Deductible Buy-Back Policy that requires individual
     ratemaking.

(4)  Any liability of the Company attributable to losses for fair rental value,
     loss of use, loss of rents, or business interruption.

(5)  Any collateral protection policy that does not meet the definition of
     Covered Policy as defined in Article V(10)(d) herein.

(6)  Any reinsurance assumed by the Company.

(7)  Any exposure for: hotels, motels, timeshares, or other similar structures
     that are rented out daily, weekly, or monthly; homeowner associations, if
     no habitational structures are insured under the policy; and shelters,
     camps or retreats.

(8)  Commercial healthcare facilities and nursing homes; however, a nursing home
     which is an integral part of a retirement community consisting primarily of
     habitational structures that are not nursing homes will not be subject to
     this exclusion.

(9)  Any exposure under commercial policies covering only appurtenant structures
     or structures that do not function as a habitational structure (e.g. a
     policy covering only the pool of an apartment complex).

(10) Personal contents in a commercial storage facility covered under a policy
     that covers only those personal contents.

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                                        7



(11) Policies covering only Additional Living Expense.

(12) Any exposure for barns or barns with apartments.

(13) Any exposure for builders risk coverage or new residential structures still
     under construction.

(14) Any exposure described as a vacant property under a commercial policy.

(15) Any exposure for recreational vehicles or boats (including boat related
     equipment) requiring licensing and written on a separate policy or
     endorsement.

(16) Any liability of the Company for extra contractual obligations and excess
     of original policy limits liabilities.

(17) Losses in excess of the sum of the Balance of the Fund as of December 31 of
     the Contract Year and the amount the SBA is able to raise through the
     issuance of revenue bonds or by the use of other financing mechanisms, up
     to the limit pursuant to Section 215.555(4)(c), Florida Statutes.

(18) Any liability assumed by the Company from Pools, Associations, and
     Syndicates. Exception: Covered Policies assumed from Citizens under the
     terms and conditions of an executed assumption agreement between the
     Authorized Insurer and Citizens are covered by this Contract.

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

(20) Any liability of the Company for loss or damage caused by or resulting from
     nuclear reaction, nuclear radiation, or radioactive contamination from any
     cause, whether direct or indirect, proximate or remote, and regardless of
     any other cause or event contributing concurrently or in any other sequence
     to the loss.

(21) The FHCF does not provide coverage for water damage which is generally
     excluded under property insurance contracts and has been defined to mean
     flood, surface water, waves, tidal water, overflow of a body of water,
     storm surge, or spray from any of these, whether or not driven by wind.

(22) Specialized Fine Arts Risks as defined in Rule 19-8.028(4)(d), F.A.C.

ARTICLE VII - MANAGEMENT OF CLAIMS AND LOSSES

The Company shall investigate and settle or defend all claims and losses. All
payments of claims or losses by the Company within the terms and limits of the
appropriate coverage parts of Covered Policies shall be binding on the SBA,
subject to the terms of this Contract, including the provisions in Article XIII
relating to inspection of records and examinations.

ARTICLE VIII - LOSS REIMBURSEMENT ADJUSTMENTS

(1)  OFFSETS

     The SBA reserves the right to offset amounts payable to the SBA from the
     Company, including amounts payable under previous Contract Years, against
     any reimbursement or advance amounts due and payable to the Company from
     the SBA as a result of the liability of the SBA.

(2)  REIMBURSEMENT ADJUSTMENTS

     Section 215.555(4)(d) and (e), Florida Statutes, provides the SBA with the
     right to seek the return of excess loss reimbursements which have been paid
     to the Company along with interest thereon. Excess loss reimbursements are
     those payments made to the Company by the SBA that are in excess of the
     Company's coverage under the Contract Year. Excess loss reimbursements may
     result from adjustments to the Projected Payout Multiple or the Payout
     Multiple, incorrect exposure (Data Call) submissions or resubmissions,
     incorrect calculations of Reimbursement Premiums or Retentions,

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                                                            Rule 19-8.010 F.A.C.


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     incorrect Proof of Loss Reports, incorrect calculation of reinsurance
     recoveries, or subsequent readjustment of policyholder claims, including
     subrogation and salvage, or any combination of the foregoing. The Company
     will be sent an invoice showing the due date for adjustments along with the
     interest due thereon through the due date. The applicable interest rate for
     interest credits, and for interest charges for adjustments beyond the
     Company's control, will be the average rate earned by the SBA for the FHCF
     for the first five months of the Contract Year. The applicable interest
     rate for interest charges due to adjustments resulting from incorrect
     exposure submissions or Proof of Loss Reports will accrue at this rate plus
     5%. Interest will continue to accrue if not paid by the due date.

ARTICLE IX - REIMBURSEMENT PREMIUM

(1)  The Company shall, in a timely manner, pay the SBA its Reimbursement
     Premium for the Contract Year. The Reimbursement Premium for the Contract
     Year shall be calculated in accordance with Section 215.555, Florida
     Statutes, with any rules promulgated thereunder, and with Article X(2).

(2)  Since the calculation of the Actuarially Indicated Premium assumes that the
     Companies will pay their Reimbursement Premiums timely, interest charges
     will accrue under the following circumstances. A Company may choose to
     estimate its own Premium installments. However, if the Company's estimation
     is less than the provisional Premium billed, an interest charge will accrue
     on the difference between the estimated Premium and the final Premium. If a
     Company estimates its first installment, the Administrator shall bill that
     estimated Premium as the second installment as well, which will be
     considered as an estimate by the Company. No interest will accrue regarding
     any provisional Premium if paid as billed by the FHCF's Administrator,
     except in the case of an estimated second installment as set forth in this
     Article. Also, if a Company makes an estimation that is higher than the
     provisional Premium billed but is less than the final Premium, interest
     will not accrue. If the Premium payment is not received from a Company when
     it is due, an interest charge will accrue on a daily basis until the
     payment is received. Interest will also accrue on Premiums resulting from
     submissions or resubmissions finalized after December 1 of the Contract
     Year. An interest credit will be applied for any Premium which is overpaid
     as either an estimate or as a provisional Premium. Interest shall not be
     credited past December 1 of the Contract Year. The applicable interest rate
     for interest credits will be the average rate earned by the SBA for the
     FHCF for the first five months of the Contract Year. The applicable
     interest rate for interest charges will accrue at this rate plus 5%.

ARTICLE X - REPORTS AND REMITTANCES

(1)  EXPOSURES

     (a)  If the Company writes Covered Policies before June 1 of the Contract
          Year, the Company shall report to the SBA, unless otherwise provided
          in Rule 19-8.029, F.A.C., no later than the statutorily required date
          of September 1 of the Contract Year, by ZIP Code or other limited
          geographical area as specified by the SBA, its insured values under
          Covered Policies as of June 30 of the Contract Year as outlined in the
          annual reporting of insured values form, FHCF-D1A (Data Call) adopted
          for the Contract Year under Rule 19-8.029, F.A.C., and other data or
          information in the format specified by the SBA.

     (b)  If the Company first begins writing Covered Policies on or after June
          1 but prior to December 1 of the Contract Year, the Company shall
          report to the SBA, no later than March 1 of the Contract Year, by ZIP
          Code or other limited geographical area as specified by the SBA, its
          insured values under Covered Policies as of December 31 of the
          Contract Year as outlined in the Supplemental Instructions for New
          Participants section of the Data Call adopted for the Contract Year
          under Rule 19-8.029, F.A.C., and other data or information in the
          format specified by the SBA.

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                                                            Rule 19-8.010 F.A.C.


                                        9



     (c)  If the Company first begins writing Covered Policies on or after
          December 1 but through and including May 31 of the Contract Year, the
          Company shall not report its exposure data for the Contract Year to
          the SBA.

     (d)  The requirement that a report is due on a certain date means that the
          report shall be in the physical possession of the FHCF's Administrator
          in Minneapolis no later than 5 p.m. on the due date. If the applicable
          due date is a Saturday, Sunday or legal holiday, then the actual due
          date will be the day immediately following the applicable due date
          which is not a Saturday, Sunday or legal holiday. For purposes of the
          timeliness of the submission, neither the United States Postal Service
          postmark nor a postage meter date is in any way determinative. Reports
          sent to the SBA in Tallahassee, Florida, will be returned to the
          sender. Reports not in the physical possession of the FHCF's
          Administrator by 5 p.m., Central Time, on the applicable due date are
          late.

     (e)  Pursuant to the provisions of Section 215.557, Florida Statutes, the
          reports of insured values under Covered Policies by ZIP Code submitted
          to the SBA pursuant to Section 215.555, Florida Statutes, are
          confidential and exempt from the provisions of Section 119.07(1),
          Florida Statutes, and Section 24(a), Art. I of the State Constitution.

(2)  REIMBURSEMENT PREMIUM

     (a)  If the Company writes Covered Policies before June 1 of the Contract
          Year, the Company shall pay the FHCF its Reimbursement Premium in
          installments due on or before August 1, October 1, and December 1 of
          the Contract Year in amounts to be determined by the FHCF. However, if
          the Company's Reimbursement Premium for the prior Contract Year was
          less than $5,000, the Company's full provisional Reimbursement
          Premium, in an amount equal to the Reimbursement Premium paid in the
          prior year, shall be due in full on or before August 1 of the Contract
          Year. The Company will be invoiced for amounts due, if any, beyond the
          provisional Reimbursement Premium payment, on or before December 1 of
          the Contract Year. In addition, if a company has been placed under
          regulatory supervision by a State or control of the Company has been
          transferred through any legal or regulatory proceeding to a state
          regulator or court appointed receiver or rehabilitator (referred to in
          the aggregate as "State action"), the full annual provisional
          Reimbursement Premium as billed and any outstanding balances will be
          due on August 1, or the date that such State action occurs after
          August 1 of the Contract Year.

     (b)  A New Participant that first begins writing Covered Policies on or
          after June 1 but prior to December 1 of the Contract Year shall pay
          the FHCF a provisional Reimbursement Premium of $1,000 upon execution
          of this Contract. The Administrator shall calculate the Company's
          actual Reimbursement Premium for the period based on its actual
          exposure as of December 31 of the Contract Year, as reported on or
          before March 1. To recognize that New Participants have limited
          exposure during this period, the actual Premium as determined by
          processing the Company's exposure data shall then be divided in half,
          the provisional Premium shall be credited, and the resulting amount
          shall be the total Premium due for the Company for the remainder of
          the Contract Year. However, if that amount is less than $1,000, then
          the Company shall pay $1,000. The Premium payment is due no later than
          May 1 of the Contract Year. The Company's Retention and coverage will
          be determined based on the total Premium due as calculated above.

     (c)  A New Participant that first begins writing Covered Policies on or
          after December 1 but through and including May 31 of the Contract Year
          shall pay the FHCF a Reimbursement Premium of $1,000 upon execution of
          this Contract.

     (d)  The requirement that the Reimbursement Premium is due on a certain
          date means that the Premium shall be in the physical possession of the
          FHCF no later than 5 p.m., Eastern Time, on the due date applicable to
          the particular installment. If remitted by check to the FHCF's Post
          Office Box, the check shall be physically in the Post Office Box
          550261, Tampa, FL 33655-0261, as set out on the invoice sent to the
          Company. If remitted by check by hand delivery, the check shall be
          physically on the premises of the FHCF's bank in Tampa, Florida, as
          set out on the invoice sent to the Company. If remitted
          electronically, the wire transfer shall have been completed to the
          FHCF's account at its bank in Tampa, Florida, as set out on

                                                                      FHCF-2006K
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                                       10



          the invoice sent to the Company. If the applicable due date is a
          Saturday, Sunday or legal holiday, then the actual due date will be
          the day immediately following the applicable due date which is not a
          Saturday, Sunday or legal holiday. For purposes of the timeliness of
          the remittance, neither the United States Postal Service postmark nor
          a postage meter date is in any way determinative. Premium checks sent
          to the SBA in Tallahassee, Florida, or to the FHCF's Administrator in
          Minneapolis, Minnesota, will be returned to the sender. Reimbursement
          Premiums not in the physical possession of the FHCF by 5 p.m., Eastern
          Time, on the applicable due date are late.

     (e)  Except as required by Section 215.555(7)(c), Florida Statutes, or as
          described in the following sentence, Reimbursement Premiums, together
          with earnings thereon, received in a given Contract Year will be used
          only to pay for losses attributable to Covered Events occurring in
          that Contract Year or for losses attributable to Covered Events in
          subsequent Contract Years and will not be used to pay for losses in
          prior years or for debt service on revenue bonds. Amounts collected as
          part of the premium that are attributable to the rapid cash buildup
          factor, as permitted by Section 215.555(5)(b), Florida Statutes may be
          used to pay for losses attributable to prior years. Pursuant to
          Section 215.555(6)(a)1., Florida Statutes, Premiums, earnings thereon,
          and amounts collected as part of the premium that are attributable to
          rapid cash buildup may be used for payments relating to revenue bonds
          in the event Emergency Assessments are insufficient. If Premiums,
          earnings thereon, or amounts collected as part of the premium that are
          attributable to rapid cash buildup are used for debt service, then the
          amount of the Premiums, earnings thereon, or amounts collected as part
          of the premium that are attributable to rapid cash buildup so used
          shall be returned, without interest, to the Fund when Emergency
          Assessments remain available after making payment relating to the
          revenue bonds and any other purposes for which Emergency Assessments
          were levied.

(3)  CLAIMS AND LOSSES

     (a)  IN GENERAL

          1.   Claims and losses resulting from Loss Occurrences commencing
               during the Contract Year shall be reported by the Company and
               reimbursed by the FHCF as provided herein and in accordance with
               the Statute, this Contract, and any rules adopted pursuant to the
               Statute. For a Company participating in a quota share primary
               insurance agreement(s) with Citizens Property Insurance
               Corporation High Risk Account, Citizens and the Company shall
               report only their respective portion of losses under the quota
               share primary insurance agreement(s). Pursuant to Section
               215.555(4)(c), Florida Statutes, the SBA is obligated to pay for
               losses not to exceed the Actual Claims-Paying Capacity of the
               FHCF, up to the limit in accordance with Section 215.555(4)(c)1.,
               Florida Statutes, for any one Contract Year.

          2.   If the Company is in non-compliance with Section 215.555, Florida
               Statutes for any Contract Year, including deadlines for sending
               in Contracts, addendums or attachments to Contracts, Data Call
               submissions or resubmissions, loss reports, or in responding to
               SBA exam requirements, the SBA reserves the right to withhold
               reimbursements or advances until such time the Company becomes
               compliant.

     (b)  LOSS REPORTS

          1.   At the direction of the SBA, the Company shall report its
               projected Ultimate Net Loss from each Loss Occurrence to provide
               information to the SBA in determining any potential liability for
               possible reimbursable losses under the Contract on the Interim
               Loss Report, Form FHCF-L1A, as adopted in Rule 19-8.029, F.A.C.
               Interim Loss Reports (including subsequent Interim Loss Reports
               if required by the SBA) will be due in no less than fourteen days
               from the date of the notice from the SBA that such a report is
               required.

          2.   FHCF loss reimbursements will be issued based on Ultimate Net
               Loss information reported by the Company on the Proof of Loss
               Report, Form FHCF-L1B, as adopted in Rule 19-8.029, F.A.C. To
               qualify for reimbursement, the Proof of Loss Report must have the

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               original signatures of two executive officers authorized by the
               Company to sign the report. While a Company may submit a Proof of
               Loss Report requesting reimbursement at any time following a Loss
               Occurrence, all Companies shall submit a mandatory Proof of Loss
               Report for each Loss Occurrence no earlier than December 1 and no
               later than December 31 of the Contract Year during which the
               Covered Event(s) occurs using the most current data available,
               regardless of the amount of Ultimate Net Loss or the amount of
               loss reimbursements or advances already received. Reports may be
               faxed only if the Company does not qualify for a reimbursement.

          3.   Quarterly thereafter until all claims and losses resulting from a
               Loss Occurrence are fully discharged or the Company has received
               its full coverage under the Contract Year in which the Loss
               Occurrence(s) occurred, the Company shall submit updated Proof of
               Loss Reports for each Loss Occurrence, as applicable. If the
               Company's Retention must be recalculated as the result of an
               exposure resubmission, and if the recalculated Retention changes
               the FHCF's reimbursement obligations, then the Company shall
               submit additional Proof of Loss Reports for recalculation of the
               FHCF's obligations.

          4.   Annually thereafter, all Companies shall submit a mandatory
               year-end Proof of Loss Report for each Loss Occurrence, as
               applicable, using the most current data available. This Proof of
               Loss Report shall be filed no earlier than December 1 and no
               later than December 31 of each year and shall continue until the
               earlier of the expiration of the commutation period described in
               (3)(d) below or until all claims and losses resulting from the
               Loss Occurrence are fully discharged including any adjustments to
               such losses due to salvage or other recoveries.

          5.   The SBA, except as noted below, will determine and pay, within 30
               days or as soon as practicable after receiving Proof of Loss
               Reports, the reimbursement amount due based on losses paid by the
               Company to date and adjustments to this amount based on
               subsequent quarterly information. The adjustments to
               reimbursement amounts shall require the SBA to pay, or the
               Company to return, amounts reflecting the most recent
               determination of losses. The FHCF shall have the right to conduct
               a claims examination prior to the issuance of any advances or
               reimbursements submitted by Companies that have been placed under
               regulatory supervision by a State or where control has been
               transferred through any legal or regulatory proceeding to a state
               regulator or court appointed receiver or rehabilitator.

          6.   If a Covered Event occurs during the Contract Year, but after
               December 31, at the direction of the SBA, Companies shall file an
               Interim Loss Report within 30 days after the Covered Event and
               Proof of Loss Reports quarterly thereafter. Subparagraphs 2-5
               above regarding Proof of Loss Reports shall apply.

          7.   All Proof of Loss Reports received will be compared with the
               FHCF's exposure data to establish the facial reasonableness of
               the reports. The SBA may also review the results of current and
               prior Contract Year exposure and loss examinations to determine
               the reasonableness of the reported losses. Except as noted in
               paragraph 4. above, Companies meeting these tests for
               reasonableness will be scheduled for reimbursement. Companies not
               meeting these tests for reasonableness will be handled on a
               case-by-case basis and will be contacted to provide specific
               information regarding their individual book of business. The
               discovery of errors in a Company's reported exposure under the
               Data Call may require a resubmission of the current Contract Year
               Data Call which, as the Data Call impacts the Company's premium,
               retention, and coverage for the Contract Year, will be required
               before the Company's request for reimbursement or an advance will
               be fully processed by the Administrator.

     (c)  LOSS REIMBURSEMENT CALCULATIONS

          1.   In general, the Company's paid Ultimate Net Losses must exceed
               its full FHCF Retention for a specific Covered Event before any
               reimbursement is payable from the FHCF for that Covered Event. As
               described in Article V(28), Retention adjustments will be made
               after

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               January 1 of the Contract Year. No interest is payable on
               additional payments to the Company due to this type of Retention
               adjustment. Each Company sustaining reimbursable losses will
               receive the amount of reimbursement due under the Contract up to
               the amount of the Company's payout. If more than one Covered
               Event occurs in any one Contract Year, any reimbursements due
               from the FHCF shall take into account the Company's Retention for
               each Covered Event. However, the Company's reimbursements from
               the FHCF for all Covered Events occurring during the Contract
               Year shall not exceed, in aggregate, the Projected Payout
               Multiple or Payout Multiple, as applicable, times the individual
               Company's Reimbursement Premium for the Contract Year.

          2.   In determining reimbursements under this Contract, the SBA shall:

               a.   First, reimburse Companies qualified as limited
                    apportionment companies under Section 627.351(2)(b)3.,
                    Florida Statutes, for the amount (if any) of reimbursement
                    due under the individual Company's Contract, but not to
                    exceed the lesser of $10 million or an amount equal to 10
                    times the individual Company's Reimbursement Premium for the
                    Contract Year. This provision does not apply if the
                    projected Balance of the Fund as of December 31 of the
                    Contract Year, exclusive of any bonding capacity of the
                    FHCF, exceeds $2 billion. Further, if the Company is a
                    member of an NAIC group, the Company may not receive
                    reimbursement under this provision if any other member of
                    the NAIC group has received reimbursement under this
                    provision.

               b.   Next, reimburse each of the Companies for the amount (if
                    any) of reimbursement due under the individual Company's
                    Contract, but not to exceed for all Loss Occurrences, an
                    amount equal to the Projected Payout Multiple or the Payout
                    Multiple, as applicable, times the individual Company's
                    Reimbursement Premium for the Contract Year. For a limited
                    apportionment company, any amount payable under this
                    provision shall be reduced by the amount (if any) payable
                    under (a) above.

               c.   Thereafter, pursuant to Section 215.555(4)(d)2.c., Florida
                    Statutes, establish the prorated reimbursement level at the
                    highest level for which any remaining fund balance or bond
                    proceeds (as limited by Section 215.555(4)(c), Florida
                    Statutes) are sufficient to reimburse entities created
                    pursuant to Section 627.351(6), Florida Statutes, for
                    reimbursable losses exceeding the amounts payable pursuant
                    to (b) above for the Contract Year. The proration shall be
                    determined based on each entity's share of their aggregate
                    reimbursable losses exceeding the amounts payable pursuant
                    to (b) above. Any additional reimbursements pursuant to this
                    paragraph shall not include losses under an entity's FHCF
                    Retention and will be at the 90% Reimbursement Percentage.
                    In order to determine the amount available for additional
                    reimbursements, the SBA will review reported loss
                    information from all Companies and determine that all
                    Companies which received payments for reimbursable losses
                    but which did not exceed their projected payout have settled
                    all, or substantially all, of their claims eligible for
                    reimbursement. The SBA will then determine the remaining
                    amount of Claims-Paying Capacity available for such
                    additional reimbursements.

          3.   Reserve established. When a Covered Event occurs in a subsequent
               Contract Year when reimbursable losses are still being paid for a
               Covered Event in a previous Contract Year, the SBA will establish
               a reserve for the outstanding reimbursable losses for the
               previous Contract Year, based on the length of time the losses
               have been outstanding, the amount of losses already paid, the
               percentage of incurred losses still unpaid, and any other factors
               specific to the loss development of the Covered Events involved.

     (d)  COMMUTATION

          1.   Not less than 36 months or more than 60 months after the end of
               the Contract Year, the Company shall report to the FHCF all
               claims and losses, both reported and unreported, for the Contract
               Year which are not finally settled and which may be reimbursable
               losses under this Contract. The Company and the SBA or their
               respective representatives may, by

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               mutual agreement, determine the capitalized value of all claims
               and losses, both reported and unreported, resulting from Loss
               Occurrences commencing during the Contract Year, and the Company
               shall provide the SBA with a copy of a written opinion on such
               capitalized value by the Company's certifying actuary. Payment by
               the SBA of its portion of any amount or amounts so mutually
               agreed and certified by the Company's certifying actuary shall
               constitute a complete and final release of the SBA in respect of
               all claims and losses, both reported and unreported, under this
               Contract.

          2.   If agreement on capitalized value cannot be reached within 60
               days after the Company reports its claims and losses to the FHCF,
               the Company and the SBA may mutually appoint an actuary or
               appraiser to investigate, determine and capitalize such claims or
               losses. If both parties then agree, the SBA shall pay its portion
               of the amount so determined to be the capitalized value of such
               claims or losses.

          3.   If the parties fail to agree, then any difference shall be
               settled by a panel of three actuaries, one to be chosen by each
               party and the third by the two so chosen. If either party does
               not appoint an actuary within 30 days, the other party may
               appoint two actuaries. If the two actuaries fail to agree on the
               selection of a third actuary within 30 days of their appointment,
               each of them shall name two, of whom the other shall decline one
               and the decision shall be made by drawing lots. All the actuaries
               shall be regularly engaged in the valuation of property claims
               and losses and shall be members of the Casualty Actuarial Society
               and of the American Academy of Actuaries. None of the actuaries
               shall be under the control of either party to this Contract. Each
               party shall submit its case to its actuary within 30 days of the
               appointment of the third actuary. The decision in writing of any
               two actuaries, when filed with the parties hereto, shall be final
               and binding on both parties.

          4.   The reasonable and customary expense of the actuaries and of the
               commutation (as a result of 2. and 3. above) shall be equally
               divided between the two parties. Said commutation shall take
               place in Tallahassee, Florida, unless some other place is
               mutually agreed upon by the Company and the SBA.

(4)  ADVANCES

     (a)  In accordance with Section 215.555(4)(e), Florida Statutes, the SBA
          may make advances for loss reimbursements as defined herein, at market
          interest rates, to the Company in accordance with Section
          215.555(4)(e), Florida Statutes. An advance is an early reimbursement
          which allows the Company to continue to pay claims in a timely manner.
          Advances will be made based on the Company's Ultimate Net Loss, on an
          incurred basis, as reported on a Proof of Loss Report, and shall
          include Loss Adjustment Expense Reimbursement as calculated by the
          FHCF. In order to be eligible for an advance, the Company must submit
          its exposure data for the Contract Year as required under paragraph
          (1) of this Article. Except as noted below, advances, if approved,
          will be made as soon as practicable after the SBA receives a written
          request, signed by two officers of the Company, for an advance of a
          specific amount and any other information required for the specific
          type of advance under subparagraphs (c) and (e) below. All
          reimbursements due to a Company shall be offset against any amount of
          outstanding advances plus the interest due thereon.

     (b)  For advances or excess advances, which are advances that are in excess
          of the amount to which the Company is entitled, the market interest
          rate shall be the prime rate as published in the Wall Street Journal
          on the first business day of the Contract Year. This rate will be
          adjusted annually on the first business day of each subsequent
          Contract Year, regardless of whether the Company executes subsequent
          Contracts. All interest charged will commence on the date the SBA
          issues a check for an advance and will cease on the date upon which
          the FHCF has received the Company's Proof of Loss Report(s) for the
          Covered Event(s) for which the Company qualifies for reimbursement(s).
          If such reimbursement(s) are less than the amount of outstanding
          advance(s) issued to the Company, interest will continue to accrue on
          the outstanding balance of the advance(s) until subsequent Proof of
          Loss Reports qualify the Company for

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          reimbursement under any Covered Event equal to or exceeding the amount
          of any outstanding advance(s). Interest shall be billed on a periodic
          basis. If it is determined that the Company received funds in excess
          of those to which it was entitled, the interest as to those sums will
          not cease on the date of the receipt of the Proof of Loss Report but
          will continue until the Company reimburses the FHCF for the
          overpayment.

     (c)  If the Company has an outstanding advance balance as of December 31 of
          this or any other Contract Year, the Company is required to have an
          actuary certify outstanding and incurred but not reported losses as
          reported on the applicable December Proof of Loss Report.

     (d)  The specific type of advances enumerated in the Section 215.555,
          Florida Statutes, follow.

          1.   Advances to Companies to prevent insolvency, as defined under
               Article XIV of this Contract.

               a.   Section 215.555(4)(e)1., Florida Statutes, provides that the
                    SBA shall advance to the Company amounts necessary to
                    maintain the solvency of the Company, up to 50 percent of
                    the SBA's estimate of the reimbursement due to the Company.

               b.   In addition to the requirements outlined in subparagraph
                    (4)(a) above, the requirements for an advance to a Company
                    to prevent insolvency are that the Company demonstrates it
                    is likely to qualify for reimbursement and that the
                    immediate receipt of moneys from the SBA is likely to
                    prevent the Company from becoming insolvent, and the Company
                    provides the following information:

                    i.   Current assets;

                    ii.  Current liabilities other than liabilities due to the
                         Covered Event;

                    iii. Current surplus as to policyholders;

                    iv.  Estimate of other expected liabilities not due to the
                         Covered Event; and

                    v.   Amount of reinsurance available to pay claims for the
                         Covered Event under other reinsurance treaties.

               c.   The SBA's final decision regarding an application for an
                    advance to prevent insolvency shall be based on whether or
                    not, considering the totality of the circumstances,
                    including the SBA's obligations to provide reimbursement for
                    all Covered Events occurring during the Contract Year,
                    granting an advance is essential to allowing the entity to
                    continue to pay additional claims for a Covered Event in a
                    timely manner.

          2.   Advances to entities created pursuant to Section 627.351(6),
               Florida Statutes.

               a.   Section 215.555(4)(e)2., Florida Statutes, provides that the
                    SBA may advance to an entity created pursuant to Section
                    627.351(6), Florida Statutes, up to 90% of the lesser of the
                    SBA's estimate of the reimbursement due or the entity's
                    share of the actual aggregate Reimbursement Premium for that
                    Contract Year, multiplied by the current available liquid
                    assets of the FHCF.

               b.   In addition to the requirements outlined in subparagraph
                    (4)(a) above, the requirements for an advance to entities
                    created pursuant to Section 627.351(6), Florida Statutes are
                    that the entity must demonstrate to the SBA that the advance
                    is essential to allow the entity to pay claims for a Covered
                    Event.

          3.   Advances to limited apportionment companies. Section
               215.555(4)(e)3., Florida Statutes, provides that the SBA may
               advance the amount of estimated reimbursement payable to limited
               apportionment companies.

     (e)  In determining whether or not to grant an advance and the amount of an
          advance, the SBA:

          1.   Shall determine whether its assets available for the payment of
               obligations are sufficient and sufficiently liquid to fulfill its
               obligations to other Companies prior to granting an advance;

          2.   Shall review and consider all the information submitted by such
               Companies;

          3.   Shall review such Companies' compliance with all requirements of
               Section 215.555, Florida Statutes;

          4.   Shall consult with all relevant regulatory agencies to seek all
               relevant information;

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          5.   Shall review the damage caused by the Covered Event and when that
               Covered Event occurred; and

          6.   Shall consider any other factors deemed relevant.

     (f)  In situations where a Company has been placed under regulatory
          supervision by a State, or where control has been transferred through
          any legal or regulatory proceeding to a state regulator, court
          appointed receiver or rehabilitator, or a state insurance guarantee
          association, all requirements of the Company outlined herein shall
          remain applicable and must be met prior to the issuance of any advance
          of reimbursements for which the Company may be eligible to receive
          under the Contract.

     (g)  Any amount advanced by the SBA shall be used by the Company only to
          pay claims of its policyholders for the Covered Event or Covered
          Events which have precipitated the immediate need to continue to pay
          additional claims as they become due.

(5)  DELINQUENT PREMIUM PAYMENTS

     Failure to submit a Premium or Premium installment when due is a violation
     of the terms of this Contract and Section 215.555, Florida Statutes.
     Interest on late payments shall be due as set forth in Article IX(2) of
     this Contract.

(6)  INADEQUATE DATA SUBMISSIONS

     If exposure data or other information required to be reported by the
     Company under the terms of this Contract is not received by the FHCF in the
     format specified by the FHCF and is inadequate to the extent that the FHCF
     requires resubmission of data, the Company will be required to pay the FHCF
     a resubmission fee of $1,000. The $1,000 fee is also applicable to exposure
     resubmissions made as a result of examinations of the Company's exposure
     and claims data. A resubmission of exposure data may delay the processing
     of the Company's request for reimbursement or an advance.

(7)  DELINQUENT SUBMISSIONS

     Failure to submit an exposure submission or resubmission, or loss reports,
     when due is a violation of the terms of this Contract and Section 215.555,
     Florida Statutes.

ARTICLE XI - TAXES

In consideration of the terms under which this Contract is issued, the Company
agrees to make no deduction in respect of the Premium herein when making premium
tax returns to the appropriate authorities. Should any taxes be levied on the
Company in respect of the Premium herein, the Company agrees to make no claim
upon the SBA for reimbursement in respect of such taxes.

ARTICLE XII - ERRORS AND OMISSIONS

Any inadvertent delay, omission, or error on the part of the SBA shall not be
held to relieve the Company from any liability which would attach to it
hereunder if such delay, omission, or error had not been made.

ARTICLE XIII - INSPECTION OF RECORDS

The Company shall allow the SBA to inspect, examine, and verify, at reasonable
times, all records of the Company relating to the Covered Policies under this
Contract, including Company files concerning claims, losses, or legal
proceedings regarding subrogation or claims recoveries which involve this
Contract, including premium, loss records and reports involving exposure data on
Covered Policies. This right by the SBA to inspect, examine, and verify shall
survive the completion and closure of an exposure examination or loss
examination file and the termination of the Contract. The Company shall have no
right to re-open an exposure or loss reimbursement examination once closed and
the findings have been accepted by the Company; any re-opening shall be at the
sole discretion of the SBA. All discovered errors, inadvertent omissions, and
typographical errors associated with the data reporting of insured values,
discovered prior to the closing of the file and acceptance of the examination
findings by the

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Company, shall be corrected to reflect the proper values. The Company shall
retain its records in accordance with the requirements for records retention
regarding exposure reports and claims reports outlined herein, and in any
administrative rules adopted pursuant to Section 215.555, Florida Statutes.
Companies writing covered collateral protection policies, as defined in
definition (10)(d) of Article V herein, must be able to provide documentation
that the policy covers personal residences, protects both the borrower's and
lender's interest, and that the coverage is in an amount at least equal to the
coverage for the dwelling in place under the lapsed homeowner's policy.

(1)  EXAMINATION REQUIREMENTS FOR EXPOSURE VERIFICATION

     The Company shall retain complete and accurate records, in policy level
     detail, of all exposure data submitted to the SBA in any Contract Year
     until the SBA has completed its examination of the Company's exposure
     submissions. The Company shall also retain complete and accurate records of
     any completed exposure examination for any Contract Year in which the
     Company incurred losses until the completion of the loss reimbursement
     examination for that Contract Year. The records to be retained shall
     include the exam file which supports the exposure reported to the SBA and
     any other information which would allow for a complete examination of the
     Company's reported exposure data. The exam file shall be prepared according
     to the SBA Exam File Specifications outlined in the Data Call. The Company
     must also have available, at the time of the examination, a copy of its
     underwriting manual, a copy of its rating manual, and staff to respond to
     the questions of the SBA or its agents. The Company is also required to
     retain declarations pages and policy applications to support reported
     exposure. To meet the requirement that the application must be retained,
     the Company may retain either the actual application or may retain the
     actual application in an electronic format. A complete list of records to
     be retained are set forth in Form FHCF-EAP1, adopted in Rule 19-8.030,
     F.A.C.

(2)  EXAMINATION REQUIREMENTS FOR LOSS REPORTS

     The Company shall retain complete and accurate records of all reported
     losses and/or advances submitted to the SBA until the SBA has completed its
     examination of the Company's reimbursable losses. The records to be
     retained are set forth as part of the Proof of Loss Report, Form FHCF-L1B,
     adopted in Rule 19-8.029, F.A.C., and Form FHCF-LAP1, adopted in Rule
     19-8.030, F.A.C. The Company must also retain the required exposure exam
     file for the Contract Year in which the loss occurred, and must have
     available any other information which would allow for a complete
     examination of the Company's losses.

(3)  EXAMINATION PROCEDURES

     (a)  The FHCF will send an examination notice to the Company providing the
          commencement date of the examination, the site of the examination, any
          accommodation requirements of the examiner, and the reports and data
          which must be assembled by the Company and forwarded to the FHCF upon
          request. The Company shall be prepared to choose one location in which
          to be examined, unless otherwise specified by the SBA.

     (b)  The reports and data are required to be forwarded to the FHCF as set
          forth in an examination notice letter. The information is then
          forwarded to the examiner. If the FHCF receives accurate and complete
          records as requested, the examiner will contact the Company to inform
          the Company as to what policies or other documentation will be
          required once the examiner is on site. Any records not required to be
          provided to the examiner in advance shall be made available at the
          time the examiner arrives on site.

     (c)  At the conclusion of the examiner's work and the management review of
          the examiner's report, findings, recommendations, and work papers, the
          FHCF will forward a preliminary draft of the examination report to the
          Company and require a response from the Company by a date certain as
          to the examination findings and recommendations.

     (d)  If the Company accepts the examination findings and recommendations,
          and there is no recommendation for resubmission of the Company's
          exposure data, the examination report will be finalized and the exam
          file closed.

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     (e)  If the Company disputes the examiner's findings, the areas in dispute
          will be resolved by a meeting or a conference call between the Company
          and FHCF management.

     (f)  1.   The recommendation of a loss reimbursement examination could
               require the Company to resubmit or update its loss reports or
               exposure data.

          2.   If the recommendation of the examiner is to resubmit the
               Company's exposure data for the Contract Year in question, then
               the FHCF will send the Company a letter outlining the process for
               resubmission and including a deadline to resubmit. The
               resubmission will include a data file to be submitted to the
               FHCF's Administrator and an exam file to be submitted to the
               offices of the SBA. The resubmission is also required to be
               accompanied by a detailed written description of the specific
               changes made to the resubmitted data. Once the resubmission is
               received by the FHCF's Administrator, the FHCF's Administrator
               calculates a revised Reimbursement Premium for the Contract Year
               which has been examined. The SBA shall then review the
               resubmission with respect to the examiner's findings, and accept
               the resubmission or contact the Company with any questions
               regarding the resubmission. Once the SBA has accepted the
               resubmission as a sufficient response to the examiner's findings,
               the FHCF's Administrator will send the Company an invoice for any
               Reimbursement Premium and interest due or to refund Reimbursement
               Premium, as the case may be. Once the resubmission has been
               approved, the exam file is closed.

          3.   If the recommendation of the examiner is either to resubmit the
               Company's exposure data for the Contract Year in question or
               giving the option to pay the estimated Premium difference, then
               the FHCF will send the Company a letter outlining the process for
               resubmission or for paying the estimated Premium difference and
               including a deadline for the resubmission or the payment to be
               received by the FHCF's Administrator. If the Company chooses to
               resubmit, the same procedures outlined in Article XIII(3)(f)2.
               apply.

          4.   If the recommendation of the examiner is to update the Company's
               Proof of Loss Report(s) for the Contract Year under review, the
               FHCF will send the Company a letter outlining the process for
               submitting the Proof of Loss Report(s) and including a deadline
               to file. The updated Proof of Loss Report(s) will be submitted to
               the FHCF's Administrator with a copy of the Proof of Loss
               Report(s) and a supporting detailed claims listing to be
               submitted to the offices of the SBA. The report is required to be
               accompanied by a detailed written description of the specific
               changes made. Once the Proof of Loss Report(s) is received by the
               FHCF Administrator, the FHCF's Administrator will calculate a
               revised reimbursement. The SBA shall then review the submitted
               Proof of Loss Report(s) with respect to the examiner's findings,
               and accept the Proof of Loss Report(s) as filed or contact the
               Company with any questions. Once the SBA has accepted the
               corrected Proof of Loss Report(s) as a sufficient response to the
               examiner's findings, the FHCF's Administrator will send the
               Company an invoice for any overpayments and interest due or the
               additional reimbursement owed the Company, as the case may be.
               Once the Proof of Loss Report(s) is approved, the exam file is
               closed.

     (g)  If the Company continues to dispute the examiner's findings and/or
          recommendations and no resolution of the disputed matters is obtained
          through discussions between the Company and FHCF management, then the
          process within the SBA is at an end and further administrative
          remedies may be pursued under Chapter 120, Florida Statutes.

     (h)  The examiner's list of errors is made available in the examination
          report sent to the Company. Given that the examination was based on a
          sample of the Company's policies or claims rather than the whole
          universe of the Company's Covered Policies or reported claims, the
          error list is not intended to provide a complete list of errors but is
          intended to indicate what information needs to be reviewed and
          corrected throughout the Company's book of Covered Policy business or
          claims information to ensure more complete and accurate reporting to
          the FHCF.


                                       18



(4)  COSTS OF THE EXAMINATIONS

     The costs of the examinations shall be borne by the SBA. However, in order
     to remove any incentive for a Company to delay preparations for an
     examination, the SBA shall be reimbursed by the Company for any examination
     expenses incurred in addition to the usual and customary costs, which
     additional expenses were incurred as a result of the Company's failure,
     despite proper notice, to be prepared for the examination or as a result of
     a Company's failure to provide requested information. All requested
     information must be complete and accurate. The Company shall be notified of
     any administrative remedies which may be obtained under Chapter 120,
     Florida Statutes.

ARTICLE XIV - INSOLVENCY OF THE COMPANY

Company shall notify the FHCF immediately upon becoming insolvent. Pursuant to
Section 215.555(4)(g), Florida Statutes, the FHCF is required to pay the "net
amount of all reimbursement moneys" due an insolvent insurer to the Florida
Insurance Guaranty Association (FIGA) for the benefit of Florida policyholders.
For the purpose of this Contract, a Company is insolvent when an order of
liquidation with a finding of insolvency has been entered by a court of
competent jurisdiction. In light of the need for an immediate infusion of funds
to enable policyholders of insolvent companies to be paid for their claims, the
SBA may enter into agreements with FIGA allowing exposure and loss examinations
to take place immediately without the usual notice and response time limitations
and allowing the FHCF to make loss reimbursements (net of any amounts payable to
the SBA from the Company or FIGA) to FIGA before the examinations are completed
and before the response time expires for claims filing by reinsurers and
financial institutions, which have a priority interest in those funds pursuant
to Section 215.555(4)(g), Florida Statutes. Such agreements must ensure the
availability of the necessary records and adequate security must be provided so
that if the FHCF determines that it overpaid FIGA on behalf of the Company, or
if claims are filed by reinsurers or financial institutions having a priority
interest in these funds, that the funds will be repaid to the FHCF by FIGA with
in a reasonable time.

ARTICLE XV - TERMINATION

The FHCF and the obligations of both parties under this Contract can be
terminated only as may be provided by law or applicable rules.

ARTICLE XVI - VIOLATIONS

Pursuant to the provisions of Section 215.555(10), Florida Statutes, any
violation of the terms of this Contract by the Company constitutes a violation
of the Insurance Code of the State of the Florida. Pursuant to the provisions of
Section 215.555(11), Florida Statutes, the SBA is authorized to take any action
necessary to enforce any administrative rules adopted pursuant to Section
215.555, Florida Statutes, and the provisions and requirements of this Contract.

ARTICLE XVII - APPLICABLE LAW

(1)  APPLICABLE LAW: This Contract shall be governed by and construed according
     to the laws of the State of Florida in respect of any matter relating to or
     arising out of this Contract.

(2)  NOTICE OF RIGHTS: Pursuant to Chapter 120, Florida Statutes, and the
     Uniform Rules of Procedure, codified as Chapters 28-101 through 28-111,
     F.A.C., a person whose substantial interests are affected by a decision of
     the SBA regarding the FHCF may request a hearing within 21 days shall have
     waived his or her right to a hearing. The hearing may be a formal hearing
     or an informal hearing pursuant to the provisions of Sections 120.569 and
     120.57, Florida Statutes. The petition must be filed (received) in the
     office of the Agency Clerk, General Counsel's Office, State Board of
     Administration of Florida, P.O. Box 13300, Tallahassee, FL 32317-3300,
     within the 21 day period.

                                                                      FHCF-2006K
                                                            Rule 19-8.010 F.A.C.


                                       19



ARTICLE XVIII - REIMBURSEMENT CONTRACT ELECTIONS

REIMBURSEMENT PERCENTAGE

For purposes of determining reimbursement (if any) due the Company under this
Contract and in accordance with the Statute, the Company has the option to elect
a 45% or 75% or 90% reimbursement percentage under this Contract. If the Company
is a member of an NAIC group, all members must elect the same reimbursement
percentage, and the individual executing this Contract on behalf of the Company,
by placing his or her initials in the box under (a) below, affirms that the
Company has elected the same reimbursement percentage as all members of its NAIC
group. If the Company is an entity created pursuant to Section 627.351, Florida
Statutes, the Company must elect the 90% reimbursement percentage. The Company
shall not be permitted to change its reimbursement percentage during the
Contract Year. The Company shall be permitted to change its reimbursement
percentage at the beginning of a new Contract Year, but may not reduce its
reimbursement percentage if a Covered Event required the issuance of revenue
bonds, until the bonds have been fully repaid.

The Reimbursement Percentage elected by the Company for the prior Contract Year
effective June 1, 2005 was as follows: (Legal_Name) - (M_2005_Coverage_Option)

(a)  NAIC GROUP AFFIRMATION: Initial the following box if the Company is part of
     an NAIC Group:

                                      (TBM)

(b)  REIMBURSEMENT PERCENTAGE ELECTION: The Company hereby elects the following
     Reimbursement Percentage for the Contract Year from 12:01 a.m., Eastern
     Time, June 1, 2006, to 12:01 a.m., Eastern Time, June 1, 2007, (the
     individual executing this Contract on behalf of the Company shall place his
     or her initials in the box to the left of the percentage elected for the
     Company):

                     (Box) 45%   OR   (Box) 75%   OR   (TBM) 90%

REPORTING EXPOSURE FOR A SINGLE STRUCTURE, WITH A MIX OF COMMERCIAL HABITATIONAL
AND COMMERCIAL NON-HABITATIONAL EXPOSURE, WRITTEN ON A COMMERCIAL POLICY

This section is applicable to all Companies which either have exposure for
single structures with a mix of commercial habitational and commercial
non-habitational exposure written under a Commercial Policy, or have the
authority to write such policies. If the Company does not have the authority to
write this type of exposure, this section DOES NOT apply; initial the N/A box on
the next page, which completes this ARTICLE. If the Company DOES write, or has
the authority to write, this type of exposure, please read and complete the
remainder of this ARTICLE.

COMMERCIAL-RESIDENTIAL CLASS CODE

If a single structure is used for both habitational and non-habitational
purposes and the structure has a commercial-residential class code (based on a
classification plan on file with and reviewed by the Administrator), the entire
exposure for the structure should be reported to the FHCF under the Data Call,
and the FHCF will reimburse losses for the entire structure as well.

                                                                      FHCF-2006K
                                                            Rule 19-8.010 F.A.C.


                                       20



COMMERCIAL NON-RESIDENTIAL/BUSINESS CLASS CODE

If a single structure is used for both habitational and non-habitational
purposes and the structure has a commercial non-residential or business class
code (based on a classification plan on file with and reviewed by the
Administrator), the habitational portion of that structure should be identified
and reported to the FHCF under the Data Call.

However, in recognition of the unusual nature of commercial structures with
incidental habitational exposure and the hardship some companies may face in
having to carve out such incidental habitational exposure, as well as the losses
to such structures, the FHCF will accommodate these companies by allowing them
to exclude the entire exposure for the single structure from their Data Call
submission, providing the following two conditions are met:

(1)  The decision to not carve out and report the incidental habitational
     exposure shall apply to all such structures insured by the Company; and

(2)  If the incidental habitational exposure is not reported to the FHCF, the
     Company agrees it shall not report losses to the structure and the FHCF
     shall not reimburse any losses to the structure.

Initial the CARVING box below if the Company is able to carve out and report its
incidental habitational exposure, OR, if this requirement presents a hardship,
the Company must communicate its decision to not carve out and to not report the
incidental exposure by having the individual executing this Contract on behalf
of the Company placing his or her initials in the NOT CARVING box below. If the
Company does not currently write such policies, but has the authority to write
such policies after the start date of this Contract, the decision to carve or
not carve out the incidental habitational exposure must be indicated below.

                          (Box)  OR    (TBM)    OR (Box)
                         CARVING    NOT CARVING     NA

By initialing the CARVING OR NOT CARVING box above, the Company is making an
irrevocable decision for the corresponding Contract Year Data Call submission
and any subsequent resubmissions.

IMPORTANT NOTE: SINCE THIS ELECTION WILL IMPACT YOUR DATA CALL SUBMISSION,
     PLEASE SHARE THIS DECISION WITH THE INDIVIDUAL(S) RESPONSIBLE FOR COMPILING
     YOUR DATA CALL SUBMISSION.


                                       21



ARTICLE XIX - SIGNATURES

APPROVED BY:

Florida Hurricane Catastrophe Fund

By: State Board of Administration of
    the State of Florida


By: /s/ Linda Lettera, General Counsel for          08/07/2006
    ---------------------------------------------   Date
    Coleman Stipanovich
    Executive Director

Approved as to legality:


By: /s/ Thomas A. Bink, General Counsel for         08/03/2006
    ---------------------------------------------   Date
    Linda Lettera
    General Counsel
    FL Bar ID#311911

Liberty American Insurance Company
Company


By: /s/ T. Bruce Meyer, Corporate President & CEO   05/22/2006
    ---------------------------------------------   Date
    Name/Title


                                       22



                                 ADDENDUM NO. 1
                                       TO
                             REIMBURSEMENT CONTRACT
                             EFFECTIVE: JUNE 1, 2006
                                   (CONTRACT)

                                     between

                       LIBERTY AMERICAN INSURANCE COMPANY
                                PINELLAS PARK, FL
                                    (Company)

                                  NAIC # 10955

                                       and

         THE STATE BOARD OF ADMINISTRATION OF THE STATE OF FLORIDA (SBA)
         WHICH ADMINISTERS THE FLORIDA HURRICANE CATASTROPHE FUND (FHCF)

IT IS HEREBY AGREED, effective at 12:01 a.m., Eastern Time, June 1, 2006, that
this Contract shall be amended as follows:

ARTICLE V - DEFINITIONS

(16) FORMULA OR THE PREMIUM FORMULA

     This term means the Formula approved by the SBA for the purpose of
     determining the Actuarially Indicated Premium to be paid to the FHCF. The
     Premium Formula is defined as an approach or methodology which leads to the
     creation of premium rates. The formula shall, pursuant to Section
     215.555(5)(b), Florida Statutes, include a factor of 25 percent of the
     fund's actuarially indicated premium in order to provide for more rapid
     cash buildup in the FHCF. The resulting rates are therefore incorporated as
     part of the Premium Formula.

Article VI(4) shall be amended as follows:

ARTICLE VI - EXCLUSIONS

(4)  Any liability of the Company attributable to losses for fair rental value,
     loss of rent or rental income, or business interruption.

                                                         FHCF-2006K-1, rev. 6/06
                                                                19-8.010, F.A.C.


                                        1



Article (X)(3)(c)2. is amended as follows:

ARTICLE X - REPORTS AND REMITTANCES

     2.   In determining reimbursements under this Contract, the SBA shall:

          a.   Reimburse each of the Companies for the amount (if any) of
               reimbursement due under the individual Company's Contract, but
               not to exceed for all Loss Occurrences, an amount equal to the
               Projected Payout Multiple or the Payout Multiple, as applicable,
               times the individual Company's Reimbursement Premium for the
               Contract Year.

          b.   Thereafter, pursuant to Section 215.555(4)(d)2.b., Florida
               Statutes, establish the prorated reimbursement level at the
               highest level for which any remaining fund balance or bond
               proceeds (as limited by Section 215.555(4)(c), Florida Statutes)
               are sufficient to reimburse entities created pursuant to Section
               627.351(6), Florida Statutes, for reimbursable losses exceeding
               the amounts payable pursuant to (a) above for the Contract Year.
               The proration shall be determined based on each entity's share of
               their aggregate reimbursable losses exceeding the amounts payable
               pursuant to (a) above. Any additional reimbursements pursuant to
               this paragraph shall not include losses under an entity's FHCF
               Retention and will be at the 90% Reimbursement Percentage. In
               order to determine the amount available for additional
               reimbursements, the SBA will review reported loss information
               from all Companies and determine that all Companies which
               received payments for reimbursable losses but which did not
               exceed their projected payout have settled all, or substantially
               all, of their claims eligible for reimbursement. The SBA will
               then determine the remaining amount of Claims-Paying Capacity
               available for such additional reimbursements.

APPROVED BY:

Florida Hurricane Catastrophe Fund
By: State Board of Administration


By: /s/ Linda Lettera, General Counsel for   08/07/2006
    --------------------------------------   Date
     Coleman Stipanovich
     Executive Director

Approved as to legality:


/s/ Thomas A. Bink, General Counsel for      08/03/2006
- ------------------------------------------   Date
Linda Lettera
General Counsel
FL Bar ID#311911

Liberty American Insurance Company
COMPANY


By: /s/ T. Bruce Meyer, Corporate President & CEO   05/27/2006
    ---------------------------------------------   Date
    Name/Title

                                                         FHCF-2006K-1, rev. 6/06
                                                                19-8.010, F.A.C.


                                        2

EX-10.10

                                                                       Exh 10.10

                             REIMBURSEMENT CONTRACT

                             EFFECTIVE: JUNE 1, 2006
                                   (CONTRACT)

                                     between

                    LIBERTY AMERICAN SELECT INSURANCE COMPANY
                                PINELLAS PARK, FL
                                    (Company)

                                  NAIC # 32760

                                       and

         THE STATE BOARD OF ADMINISTRATION OF THE STATE OF FLORIDA (SBA)
         WHICH ADMINISTERS THE FLORIDA HURRICANE CATASTROPHE FUND (FHCF)

PREAMBLE

The Legislature of the State of Florida has enacted Section 215.555, Florida
Statutes "Statute", which directs the SBA to administer the FHCF. This Contract
is subject to the Statute and to any administrative rule adopted pursuant
thereto, and is not intended to be in conflict therewith.

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

ARTICLE I - SCOPE OF AGREEMENT

As a condition precedent to the SBA's obligations under this Contract, the
Company, an Authorized Insurer or an entity writing Covered Policies under
Section 627.351, Florida Statutes, in the State of Florida, shall report to the
SBA in a specified format the business it writes which is described in this
Contract as Covered Policies.

The terms of this Contract shall determine the rights and obligations of the
parties. This Contract provides reimbursement to the Company under certain
circumstances, as described herein, and does not provide or extend insurance or
reinsurance coverage to any person, firm, corporation or other entity. The SBA
shall reimburse the Company for its Ultimate Net Loss on Covered Policies in
excess of the Company's Retention as a result of each Loss Occurrence commencing
during the Contract Year, to the extent funds are available, all as hereinafter
defined.

                                                                      FHCF-2006K
                                                            Rule 19-8.010 F.A.C.


                                        1



ARTICLE II - PARTIES TO THE CONTRACT

This Contract is solely between the Company and the SBA which administers the
FHCF. In no instance shall any insured of the Company or any claimant against an
insured of the Company, or any other third party, have any rights under this
Contract, except as provided in Article XIV. The SBA will only disburse funds to
the Company, except as provided for in Article XIV of this Contract.

ARTICLE III - TERM

This Contract shall apply to Loss Occurrences which commence during the period
from 12:01 a.m., Eastern Time, June 1, 2006, to 12:01 a.m., Eastern Time, June
1, 2007 (Contract Year).

The Company must designate a coverage level, make the required selections, and
return this fully executed Contract (two originals) to the FHCF Administrator so
that the Contract is received by the FHCF Administrator no later than 5 p.m.,
Central Time, June 1, 2006. Failure to do so may result in a referral to the
Office of Insurance Regulation within the Department of Financial Services for
administrative action. Furthermore, the Company's coverage level under this
Contract will be deemed as follows:

(1)  For Companies that are a member of a National Association of Insurance
     Commissioners (NAIC) group, the same coverage level selected by the other
     Companies of the same NAIC group shall be deemed. If executed Contracts for
     none of the members of an NAIC group have been received by the FHCF
     Administrator, the coverage level from the prior Contract Year shall be
     deemed.

(2)  For Companies that are not a member of an NAIC group under which other
     Companies are active participants in the FHCF, the coverage level from the
     prior Contract Year shall be deemed.

(3)  For New Participants, as that term is defined in Article V(21), that are a
     member of an NAIC group, the same coverage level selected by the other
     Companies of the same NAIC group shall be deemed.

(4)  For New Participants that are not a member of an NAIC group under which
     other Companies are active participants in the FHCF, the 45%, 75% or 90%
     coverage levels may be selected providing that the FHCF Administrator
     receives executed Contracts within 30 calendar days of the effective date
     of the first Covered Policy, otherwise, the 45% coverage level shall be
     deemed.

Pursuant to the terms of this Contract, the SBA shall not be liable for Loss
Occurrences which commence after the effective time and date of expiration or
termination. Should this Contract expire or terminate while a Loss Occurrence
covered hereunder is in progress, the SBA shall be responsible for such Loss
Occurrence in progress in the same manner and to the same extent it would have
been responsible had the Contract expired the day following the conclusion of
the Loss Occurrence in progress.

ARTICLE IV - LIABILITY OF THE FHCF

(1)  The SBA shall reimburse the Company, with respect to each Loss Occurrence
     commencing during the Contract Year for the "Reimbursement Percentage"
     elected, this percentage times the amount of Ultimate Net Loss paid by the
     Company in excess of the Company's Retention, as adjusted pursuant to
     Article V(28), plus 5% of the reimbursed losses for Loss Adjustment Expense
     Reimbursement.

(2)  The Reimbursement Percentage will be 45% or 75% or 90%, at the Company's
     option as elected under Article XVIII.

(3)  The aggregate liability of the FHCF with respect to all Reimbursement
     Contracts covering this contract year shall not exceed the limit set forth
     under Section 215.555(4)(c)1., Florida Statutes. For specifics regarding
     loss reimbursement calculations, see section (3)(c) of Article X herein.

(4)  Reimbursement amounts shall not be reduced by reinsurance paid or payable
     to the Company from other sources.

                                                                      FHCF-2006K
                                                            Rule 19-8.010 F.A.C.


                                        2



(5)  After the end of the calendar year, the SBA shall notify insurers of the
     estimated Borrowing Capacity and the Balance of the Fund as of December 31.
     In May and October of each year, the SBA shall publish in the Florida
     Administrative Weekly a statement of the FHCF's estimated Borrowing
     Capacity and the projected Balance of the Fund as of December 31.

(6)  The obligation of the SBA with respect to all Contracts covering a
     particular Contract Year shall not exceed the Balance of the Fund as of
     December 31 of that Contract Year, together with the maximum amount the SBA
     is able to raise through the issuance of revenue bonds or other means
     available to the SBA under Section 215.555, Florida Statutes, up to the
     limit in accordance with Section 215.555(4)(c)1., Florida Statutes. The
     obligations and the liability of the SBA are more fully described in Rule
     19-8.013, Florida Administrative Code (F.A.C.). If Reimbursement Premiums,
     earnings thereon, or amounts collected as part of the premium that are
     attributable to the rapid cash buildup factor are used for debt service in
     the event of a temporary shortfall in the collection of emergency
     assessments, then the amount of the Premiums, earnings thereon, or amounts
     collected as part of the premium that are attributable to the rapid cash
     buildup factor so used will be reimbursed to the SBA without interest when
     sufficient emergency assessments are received.

ARTICLE V - DEFINITIONS

(1)  ACTUAL CLAIMS-PAYING CAPACITY OF THE FHCF

     This term means the sum of the Balance of the Fund as of December 31 of a
     Contract Year, plus any reinsurance purchased by the FHCF, plus the amount
     the SBA is able to raise through the issuance of revenue bonds up to the
     limit in accordance with Section 215.555(4)(c)1. and (6), Florida Statutes.

(2)  ACTUARIALLY INDICATED

     This term means, with respect to Premiums paid by Companies for
     reimbursement provided by the FHCF, an amount determined in accordance with
     the definition provided in Section 215.555(2)(a), Florida Statutes.

(3)  ADDITIONAL LIVING EXPENSE (ALE)

     ALE losses covered by the FHCF are not to exceed 40 percent of the insured
     value of a Residential Structure or its contents based on the coverage
     provided in the policy. Fair rental value, loss of use, loss of rents, or
     business interruption losses are not covered by the FHCF.

(4)  ADMINISTRATOR

     This term means the entity with which the SBA contracts to perform
     administrative tasks associated with the operations of the FHCF. The
     Administrator is Paragon Strategic Solutions Inc., 3600 American Boulevard
     West, Suite 700, Minneapolis, Minnesota 55431. The telephone number is
     (800) 689-3863, and the facsimile number is (800) 264-0492.

(5)  AUTHORIZED INSURER

     This term is defined in Section 624.09(1), Florida Statutes.

(6)  BORROWING CAPACITY

     This term means the amount of funds which are able to be raised by the
     issuance of revenue bonds or through other financing mechanisms, less bond
     issuance expenses and reserves.

(7)  CITIZENS PROPERTY INSURANCE CORPORATION (CITIZENS)

     This term means the entity formed under Section 627.351(6), Florida
     Statutes and refers to both Citizens Property Insurance Corporation High
     Risk Account and Citizens Property Insurance Corporation Personal Lines and
     Commercial Lines Accounts.

(8)  CONTRACT

     This term means this Reimbursement Contract for the current Contract Year.

(9)  COVERED EVENT

     This term means any one storm declared to be a hurricane by the National
     Hurricane Center, which causes insured losses in Florida, both while it is
     still a hurricane and throughout any subsequent

                                                                      FHCF-2006K
                                                            Rule 19-8.010 F.A.C.


                                        3



     downgrades in storm status by the National Hurricane Center. Any storm,
     including a tropical storm, which does not become a hurricane is not a
     Covered Event.

(10) COVERED POLICY OR COVERED POLICIES

     (a)  Covered Policy, as defined in Section 215.555(2)(c), Florida Statutes,
          is further clarified to mean only that portion of a binder, policy or
          contract of insurance that insures real or personal property located
          in the State of Florida to the extent such policy insures a
          Residential Structure, as defined in definition (27) herein, or the
          contents of a Residential Structure, located in the State of Florida.

     (b)  Due to the specialized nature of the definition of Covered Policies,
          Covered Policies are not limited to only one line of business in the
          Company's annual statement required to be filed by Section 624.424,
          Florida Statutes. Instead, Covered Policies are found in several lines
          of business on the Company's annual statement. Covered Policies will
          at a minimum be reported in the Company's statutory annual statement
          as:

          -    Fire

          -    Allied Lines

          -    Farmowners Multiple Peril

          -    Homeowners Multiple Peril

          -    Commercial Multiple Peril (non liability portion, covering
               condominiums and apartments)

          -    Inland Marine

          Note that where particular insurance exposures, e.g. mobile homes, are
          reported on an annual statement is not dispositive of whether or not
          the exposure is a Covered Policy.

     (c)  This definition applies only to the first-party property section of a
          policy pertaining strictly to the structure, its contents, appurtenant
          structures, or ALE coverage.

     (d)  Covered Policy also includes any collateral protection insurance
          policy covering personal residences which protects both the borrower's
          and the lender's financial interest, in an amount at least equal to
          the coverage for the dwelling in place under the lapsed homeowner's
          policy, if such policy can be accurately reported as required in
          Section 215.555(5), Florida Statutes. A Company will be deemed to be
          able to accurately report data if the required data, as specified in
          the Premium Formula adopted in Section 215.555(5), Florida Statutes,
          is available.

     (e)  See Article VI of this Contract for specific exclusions.

(11) DEDUCTIBLE BUY-BACK POLICIES

     This term means a specific policy that provides coverage to a policyholder
     for some portion of the policyholder's deductible under a policy issued by
     another insurer.

(12) ESTIMATED CLAIMS-PAYING CAPACITY OF THE FHCF

     This term means the sum of the projected Balance of the Fund as of December
     31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the
     most recent estimate of the Borrowing Capacity of the FHCF, determined
     pursuant to Section 215.555(4)(c), Florida Statutes.

(13) EXCESS POLICIES

     This term, for the purposes of this Contract, means a policy that provides
     insurance protection for large commercial property risks that provides a
     layer of coverage above a primary layer (which is insured by a different
     insurer) that acts much the same as a very large deductible.

(14) FLORIDA DEPARTMENT OF FINANCIAL SERVICES (DEPARTMENT)

     This term means the Florida regulatory agency, created pursuant to Section
     20.121, Florida Statutes, which is charged with regulating the Florida
     insurance market and administering the Florida Insurance Code.

(15) FLORIDA INSURANCE CODE

     This term means those chapters identified in Section 624.01, Florida
     Statutes, which are designated as the Florida Insurance Code.

                                                                      FHCF-2006K
                                                            Rule 19-8.010 F.A.C.


                                        4



(16) FORMULA OR THE PREMIUM FORMULA

     This term means the Formula approved by the SBA for the purpose of
     determining the Actuarially Indicated Premium to be paid to the FHCF. The
     Premium Formula is defined as an approach or methodology which leads to the
     creation of premium rates. The resulting rates are therefore incorporated
     as part of the Premium Formula.

(17) FUND BALANCE OR BALANCE OF THE FUND AS OF DECEMBER 31

     These terms mean the "Net assets: Unrestricted" as indicated on the
     unconsolidated FHCF Statement of Net Assets for the then current Contract
     Year, to which is added: reported FHCF losses (including Loss Adjustment
     Expense) for the then current Contract Year, whether paid or unpaid by
     FHCF, as of December 31, and from which is subtracted: any reinsurance
     recovered prior to, or recoverable as of, December 31; any obligations paid
     or expected to be paid with bonding proceeds or receipts from emergency
     assessments; amounts needed for administration for the then current State
     of Florida fiscal year which have not been spent and which are not
     reflected on the FHCF Statement of Net Assets; and the amount of
     undispersed mitigation funds appropriated for the then current State of
     Florida fiscal year.

(18) INSURER GROUP

     For purposes of the coverage option election in Section 215.555(4)(b),
     Florida Statutes, Insurer Group means the group designation assigned by the
     National Association of Insurance Commissioners (NAIC) for purposes of
     filing consolidated financial statements. A Company is a member of a group
     as designated by the NAIC until such Company is assigned another group
     designation or is no longer a member of a group recognized by the NAIC.

(19) LOSS OCCURRENCE

     This term means the sum of individual insured losses incurred under Covered
     Policies resulting from the same Covered Event. "Losses" means direct
     incurred losses under Covered Policies and excludes Loss Adjustment
     Expenses.

(20) LOSS ADJUSTMENT EXPENSE REIMBURSEMENT

     (a)  Loss Adjustment Expense Reimbursement shall be 5% of the reimbursed
          losses under this Contract as provided in Article IV, pursuant to
          Section 215.555(4)(b)1., Florida Statutes.

     (b)  To the extent that loss reimbursements are limited to the Payout
          Multiple applied to each Company, the 5% Loss Adjustment Expense is
          included in the total Payout Multiple applied to each Company.

(21) NEW PARTICIPANT(S)

     This term means all Companies which begin writing Covered Policies on or
     after the beginning of the Contract Year. A Company that removes exposure
     from either Citizens entity, as that term is defined in (7) above, pursuant
     to an assumption agreement effective on or after June 1 and had written no
     other Covered Policies before June 1 is also considered a New Participant.

(22) OFFICE OF INSURANCE REGULATION

     This term means that office within the Department of Financial Services and
     which was created in Section 20.121(3), Florida Statutes.

(23) PAYOUT MULTIPLE

     This term means the multiple as calculated in accordance with Section
     215.555(4)(c), Florida Statutes, which is derived by dividing the single
     season Claims-Paying Capacity of the FHCF by the total aggregate industry
     Reimbursement Premium for the FHCF for the Contract Year billed as of
     December 31 of the Contract Year. The final Payout Multiple is determined
     once Reimbursement Premiums have been billed as of December 31 and the
     amount of bond proceeds has been determined.

(24) PREMIUM

     This term means the same as Reimbursement Premium.

(25) PROJECTED PAYOUT MULTIPLE

     The Projected Payout Multiple is used to calculate a Company's projected
     payout pursuant to Section 215.555(4)(d)2.b., Florida Statutes. The
     Projected Payout Multiple is derived by dividing

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     the estimated single season Claims-Paying Capacity of the FHCF by the
     estimated total aggregate industry Reimbursement Premium for the FHCF for
     the Contract Year. The Company's Reimbursement Premium as paid to the SBA
     for the Contract Year is multiplied by the Projected Payout Multiple to
     estimate the Company's coverage from the FHCF for the Contract Year.

(26) REIMBURSEMENT PREMIUM

     This term means the Premium determined by multiplying each $1,000 of
     insured value reported by the Company in accordance with Section
     215.555(5)(b), Florida Statutes, by the rate as derived from the Premium
     Formula, as described in Rule 19-8.028, F.A.C.

(27) RESIDENTIAL STRUCTURES

     This term means dwelling units used as a home or residence for other than
     transient occupancy, as that term is defined in Section 83.43(10), Florida
     Statutes. These include the primary structure and appurtenant structures
     insured under the same policy and any other structures covered under
     endorsements associated with a policy covering a residential structure, the
     principal function of which at the time of loss was as a primary or
     secondary residence. COVERED RESIDENTIAL STRUCTURES DO NOT INCLUDE any
     structures listed under Article VI herein.

(28) RETENTION

     The Company's Retention means the amount of hurricane losses under Covered
     Policies which must be incurred by the Company before it is eligible for
     reimbursement from the FHCF.

     (a)  When the Company experiences covered losses from one or two Covered
          Events during the Contract Year, the Company's full Retention shall be
          applied to each of the Covered Events.

     (b)  When the Company experiences covered losses from more than two Covered
          Events during the Contract Year, the Company's full Retention shall be
          applied to each of the two Covered Events causing the largest covered
          losses for the Company. For each other Covered Event resulting in
          covered losses, the Company's Retention shall be reduced to one-third
          of its full Retention and applied to all other Covered Events.

          1.   All reimbursement of covered losses for each Covered Event shall
               be based on the Company's full Retention until January 1 of the
               Contract Year. Adjustments to reflect a reduction to one-third of
               the full Retention shall be made as soon as practicable after
               January 1 of the Contract Year provided the Company reports its
               losses as specified in this Contract.

          2.   Adjustments to the Company's Retention shall be based upon its
               paid and outstanding losses as reported on the Company's Proof of
               Loss Reports but shall not include incurred but not reported
               losses. The Company's Proof of Loss Reports shall be used to
               determine which Covered Events constitute the Company's two
               largest Covered Events, and the reduction to one-third of the
               full Retention shall be applied to all other Covered Events for
               the Contract Year. After this initial determination, any
               subsequent adjustments shall be made by the SBA only if the
               quarterly loss reports reveal that loss development patterns have
               resulted in a change in the order of Covered Events entitled to
               the reduction to one-third of the full Retention.

     (c)  The Company's full Retention is established in accordance with the
          provisions of Section 215.555(2)(e), Florida Statutes, and shall be
          determined by multiplying the Retention Multiple by the Company's
          Reimbursement Premium for the Contract Year.

     (d)  Once the Company's limit of coverage has been exhausted, the Company
          will not be entitled to further reimbursements. The only exception is
          with regard to an entity created pursuant to 627.351(6), F.S. which is
          addressed in Article X(3)(c)2.c.

(29) RETENTION MULTIPLE

     (a)  The Retention Multiple is applied to the Company's Reimbursement
          Premium to determine the Company's Retention. The Retention Multiple
          for the 2006/2007 Contract Year shall be equal to $4.5 billion,
          adjusted based upon the reported exposure for the 2005/2006 Contract
          Year to reflect the percentage growth in exposure to the FHCF since
          2004, divided by the

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          estimated total industry Reimbursement Premium at the 90%
          reimbursement percentage level for the Contract Year as determined by
          the SBA.

     (b)  The Retention Multiple as determined under (29)(a) above shall be
          adjusted to reflect the reimbursement percentage elected by the
          Company under this Contract as follows:

          1.   If the Company elects a 90% reimbursement percentage, the
               adjusted Retention Multiple is 100% of the amount determined
               under (29)(a) above;

          2.   If the Company elects a 75% reimbursement percentage, the
               adjusted Retention Multiple is 120% of the amount determined
               under (29)(a) above; or

          3.   If the Company elects a 45% reimbursement percentage, the
               adjusted Retention Multiple is 200% of the amount determined
               under (29)(a) above.

(30) ULTIMATE NET LOSS

     (a)  This term means all losses of the Company under Covered Policies,
          prior to the application of the Company's FHCF Retention, as defined
          under (28) above, and reimbursement percentage, and excluding loss
          adjustment expense, arising from each Loss Occurrence during the
          Contract Year, provided, however, that the Company's loss shall be
          determined in accordance with the deductible level written under the
          policy sustaining the loss.

     (b)  Salvages and all other recoveries, excluding reinsurance recoveries,
          shall be first deducted from such loss to arrive at the amount of
          liability attaching hereunder.

     (c)  All salvages, recoveries or payments recovered or received subsequent
          to a loss settlement under this Contract shall be applied as if
          recovered or received prior to the aforesaid settlement and all
          necessary adjustments shall be made by the parties hereto.

     (d)  Nothing in this clause shall be construed to mean that losses under
          this Contract are not recoverable until the Company's Ultimate Net
          Loss has been ascertained.

     (e)  The SBA shall be subrogated to the rights of the Company to the extent
          of its reimbursement of the Company. The Company agrees to assist and
          cooperate with the SBA in all respects as regards such subrogation.
          The Company further agrees to undertake such actions as may be
          necessary to enforce its rights of salvage and subrogation, and its
          rights, if any, against other insurers as respects any claim, loss, or
          payment arising out of a Covered Event.

ARTICLE VI - EXCLUSIONS

This Contract does not provide reimbursement for:

(1)  Any losses not defined as being within the scope of a Covered Policy.

(2)  Any policy which excludes wind or hurricane coverage.

(3)  Any Excess Policy or Deductible Buy-Back Policy that requires individual
     ratemaking.

(4)  Any liability of the Company attributable to losses for fair rental value,
     loss of use, loss of rents, or business interruption.

(5)  Any collateral protection policy that does not meet the definition of
     Covered Policy as defined in Article V(10)(d) herein.

(6)  Any reinsurance assumed by the Company.

(7)  Any exposure for: hotels, motels, timeshares, or other similar structures
     that are rented out daily, weekly, or monthly; homeowner associations, if
     no habitational structures are insured under the policy; and shelters,
     camps or retreats.

(8)  Commercial healthcare facilities and nursing homes; however, a nursing home
     which is an integral part of a retirement community consisting primarily of
     habitational structures that are not nursing homes will not be subject to
     this exclusion.

(9)  Any exposure under commercial policies covering only appurtenant structures
     or structures that do not function as a habitational structure (e.g. a
     policy covering only the pool of an apartment complex).

(10) Personal contents in a commercial storage facility covered under a policy
     that covers only those personal contents.

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(11) Policies covering only Additional Living Expense.

(12) Any exposure for barns or barns with apartments.

(13) Any exposure for builders risk coverage or new residential structures still
     under construction.

(14) Any exposure described as a vacant property under a commercial policy.

(15) Any exposure for recreational vehicles or boats (including boat related
     equipment) requiring licensing and written on a separate policy or
     endorsement.

(16) Any liability of the Company for extra contractual obligations and excess
     of original policy limits liabilities.

(17) Losses in excess of the sum of the Balance of the Fund as of December 31 of
     the Contract Year and the amount the SBA is able to raise through the
     issuance of revenue bonds or by the use of other financing mechanisms, up
     to the limit pursuant to Section 215.555(4)(c), Florida Statutes.

(18) Any liability assumed by the Company from Pools, Associations, and
     Syndicates. Exception: Covered Policies assumed from Citizens under the
     terms and conditions of an executed assumption agreement between the
     Authorized Insurer and Citizens are covered by this Contract.

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

(20) Any liability of the Company for loss or damage caused by or resulting from
     nuclear reaction, nuclear radiation, or radioactive contamination from any
     cause, whether direct or indirect, proximate or remote, and regardless of
     any other cause or event contributing concurrently or in any other sequence
     to the loss.

(21) The FHCF does not provide coverage for water damage which is generally
     excluded under property insurance contracts and has been defined to mean
     flood, surface water, waves, tidal water, overflow of a body of water,
     storm surge, or spray from any of these, whether or not driven by wind.

(22) Specialized Fine Arts Risks as defined in Rule 19-8.028(4)(d), F.A.C.

ARTICLE VII - MANAGEMENT OF CLAIMS AND LOSSES

The Company shall investigate and settle or defend all claims and losses. All
payments of claims or losses by the Company within the terms and limits of the
appropriate coverage parts of Covered Policies shall be binding on the SBA,
subject to the terms of this Contract, including the provisions in Article XIII
relating to inspection of records and examinations.

ARTICLE VIII - LOSS REIMBURSEMENT ADJUSTMENTS

(1)  OFFSETS

     The SBA reserves the right to offset amounts payable to the SBA from the
     Company, including amounts payable under previous Contract Years, against
     any reimbursement or advance amounts due and payable to the Company from
     the SBA as a result of the liability of the SBA.

(2)  REIMBURSEMENT ADJUSTMENTS

     Section 215.555(4)(d) and (e), Florida Statutes, provides the SBA with the
     right to seek the return of excess loss reimbursements which have been paid
     to the Company along with interest thereon. Excess loss reimbursements are
     those payments made to the Company by the SBA that are in excess of the
     Company's coverage under the Contract Year. Excess loss reimbursements may
     result from adjustments to the Projected Payout Multiple or the Payout
     Multiple, incorrect exposure (Data Call) submissions or resubmissions,
     incorrect calculations of Reimbursement Premiums or Retentions,

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     incorrect Proof of Loss Reports, incorrect calculation of reinsurance
     recoveries, or subsequent readjustment of policyholder claims, including
     subrogation and salvage, or any combination of the foregoing. The Company
     will be sent an invoice showing the due date for adjustments along with the
     interest due thereon through the due date. The applicable interest rate for
     interest credits, and for interest charges for adjustments beyond the
     Company's control, will be the average rate earned by the SBA for the FHCF
     for the first five months of the Contract Year. The applicable interest
     rate for interest charges due to adjustments resulting from incorrect
     exposure submissions or Proof of Loss Reports will accrue at this rate plus
     5%. Interest will continue to accrue if not paid by the due date.

ARTICLE IX - REIMBURSEMENT PREMIUM

(1)  The Company shall, in a timely manner, pay the SBA its Reimbursement
     Premium for the Contract Year. The Reimbursement Premium for the Contract
     Year shall be calculated in accordance with Section 215.555, Florida
     Statutes, with any rules promulgated thereunder, and with Article X(2).

(2)  Since the calculation of the Actuarially Indicated Premium assumes that the
     Companies will pay their Reimbursement Premiums timely, interest charges
     will accrue under the following circumstances. A Company may choose to
     estimate its own Premium installments. However, if the Company's estimation
     is less than the provisional Premium billed, an interest charge will accrue
     on the difference between the estimated Premium and the final Premium. If a
     Company estimates its first installment, the Administrator shall bill that
     estimated Premium as the second installment as well, which will be
     considered as an estimate by the Company. No interest will accrue regarding
     any provisional Premium if paid as billed by the FHCF's Administrator,
     except in the case of an estimated second installment as set forth in this
     Article. Also, if a Company makes an estimation that is higher than the
     provisional Premium billed but is less than the final Premium, interest
     will not accrue. If the Premium payment is not received from a Company when
     it is due, an interest charge will accrue on a daily basis until the
     payment is received. Interest will also accrue on Premiums resulting from
     submissions or resubmissions finalized after December 1 of the Contract
     Year. An interest credit will be applied for any Premium which is overpaid
     as either an estimate or as a provisional Premium. Interest shall not be
     credited past December 1 of the Contract Year. The applicable interest rate
     for interest credits will be the average rate earned by the SBA for the
     FHCF for the first five months of the Contract Year. The applicable
     interest rate for interest charges will accrue at this rate plus 5%.

ARTICLE X - REPORTS AND REMITTANCES

(1)  EXPOSURES

     (a)  If the Company writes Covered Policies before June 1 of the Contract
          Year, the Company shall report to the SBA, unless otherwise provided
          in Rule 19-8.029, F.A.C., no later than the statutorily required date
          of September 1 of the Contract Year, by ZIP Code or other limited
          geographical area as specified by the SBA, its insured values under
          Covered Policies as of June 30 of the Contract Year as outlined in the
          annual reporting of insured values form, FHCF-D1A (Data Call) adopted
          for the Contract Year under Rule 19-8.029, F.A.C., and other data or
          information in the format specified by the SBA.

     (b)  If the Company first begins writing Covered Policies on or after June
          1 but prior to December 1 of the Contract Year, the Company shall
          report to the SBA, no later than March 1 of the Contract Year, by ZIP
          Code or other limited geographical area as specified by the SBA, its
          insured values under Covered Policies as of December 31 of the
          Contract Year as outlined in the Supplemental Instructions for New
          Participants section of the Data Call adopted for the Contract Year
          under Rule 19-8.029, F.A.C., and other data or information in the
          format specified by the SBA.

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     (c)  If the Company first begins writing Covered Policies on or after
          December 1 but through and including May 31 of the Contract Year, the
          Company shall not report its exposure data for the Contract Year to
          the SBA.

     (d)  The requirement that a report is due on a certain date means that the
          report shall be in the physical possession of the FHCF's Administrator
          in Minneapolis no later than 5 p.m. on the due date. If the applicable
          due date is a Saturday, Sunday or legal holiday, then the actual due
          date will be the day immediately following the applicable due date
          which is not a Saturday, Sunday or legal holiday. For purposes of the
          timeliness of the submission, neither the United States Postal Service
          postmark nor a postage meter date is in any way determinative. Reports
          sent to the SBA in Tallahassee, Florida, will be returned to the
          sender. Reports not in the physical possession of the FHCF's
          Administrator by 5 p.m., Central Time, on the applicable due date are
          late.

     (e)  Pursuant to the provisions of Section 215.557, Florida Statutes, the
          reports of insured values under Covered Policies by ZIP Code submitted
          to the SBA pursuant to Section 215.555, Florida Statutes, are
          confidential and exempt from the provisions of Section 119.07(1),
          Florida Statutes, and Section 24(a), Art. I of the State Constitution.

(2)  REIMBURSEMENT PREMIUM

     (a)  If the Company writes Covered Policies before June 1 of the Contract
          Year, the Company shall pay the FHCF its Reimbursement Premium in
          installments due on or before August 1, October 1, and December 1 of
          the Contract Year in amounts to be determined by the FHCF. However, if
          the Company's Reimbursement Premium for the prior Contract Year was
          less than $5,000, the Company's full provisional Reimbursement
          Premium, in an amount equal to the Reimbursement Premium paid in the
          prior year, shall be due in full on or before August 1 of the Contract
          Year. The Company will be invoiced for amounts due, if any, beyond the
          provisional Reimbursement Premium payment, on or before December 1 of
          the Contract Year. In addition, if a company has been placed under
          regulatory supervision by a State or control of the Company has been
          transferred through any legal or regulatory proceeding to a state
          regulator or court appointed receiver or rehabilitator (referred to in
          the aggregate as "State action"), the full annual provisional
          Reimbursement Premium as billed and any outstanding balances will be
          due on August 1, or the date that such State action occurs after
          August 1 of the Contract Year.

     (b)  A New Participant that first begins writing Covered Policies on or
          after June 1 but prior to December 1 of the Contract Year shall pay
          the FHCF a provisional Reimbursement Premium of $1,000 upon execution
          of this Contract. The Administrator shall calculate the Company's
          actual Reimbursement Premium for the period based on its actual
          exposure as of December 31 of the Contract Year, as reported on or
          before March 1. To recognize that New Participants have limited
          exposure during this period, the actual Premium as determined by
          processing the Company's exposure data shall then be divided in half,
          the provisional Premium shall be credited, and the resulting amount
          shall be the total Premium due for the Company for the remainder of
          the Contract Year. However, if that amount is less than $1,000, then
          the Company shall pay $1,000. The Premium payment is due no later than
          May 1 of the Contract Year. The Company's Retention and coverage will
          be determined based on the total Premium due as calculated above.

     (c)  A New Participant that first begins writing Covered Policies on or
          after December 1 but through and including May 31 of the Contract Year
          shall pay the FHCF a Reimbursement Premium of $1,000 upon execution of
          this Contract.

     (d)  The requirement that the Reimbursement Premium is due on a certain
          date means that the Premium shall be in the physical possession of the
          FHCF no later than 5 p.m., Eastern Time, on the due date applicable to
          the particular installment. If remitted by check to the FHCF's Post
          Office Box, the check shall be physically in the Post Office Box
          550261, Tampa, FL 33655-0261, as set out on the invoice sent to the
          Company. If remitted by check by hand delivery, the check shall be
          physically on the premises of the FHCF's bank in Tampa, Florida, as
          set out on

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          the invoice sent to the Company. If remitted electronically, the wire
          transfer shall have been completed to the FHCF's account at its bank
          in Tampa, Florida, as set out on the invoice sent to the Company. If
          the applicable due date is a Saturday, Sunday or legal holiday, then
          the actual due date will be the day immediately following the
          applicable due date which is not a Saturday, Sunday or legal holiday.
          For purposes of the timeliness of the remittance, neither the United
          States Postal Service postmark nor a postage meter date is in any way
          determinative. Premium checks sent to the SBA in Tallahassee, Florida,
          or to the FHCF's Administrator in Minneapolis, Minnesota, will be
          returned to the sender. Reimbursement Premiums not in the physical
          possession of the FHCF by 5 p.m., Eastern Time, on the applicable due
          date are late.

     (e)  Except as required by Section 215.555(7)(c), Florida Statutes, or as
          described in the following sentence, Reimbursement Premiums, together
          with earnings thereon, received in a given Contract Year will be used
          only to pay for losses attributable to Covered Events occurring in
          that Contract Year or for losses attributable to Covered Events in
          subsequent Contract Years and will not be used to pay for losses in
          prior years or for debt service on revenue bonds. Amounts collected as
          part of the premium that are attributable to the rapid cash buildup
          factor, as permitted by Section 215.555(5)(b), Florida Statutes may be
          used to pay for losses attributable to prior years. Pursuant to
          Section 215.555(6)(a)1., Florida Statutes, Premiums, earnings thereon,
          and amounts collected as part of the premium that are attributable to
          rapid cash buildup may be used for payments relating to revenue bonds
          in the event Emergency Assessments are insufficient. If Premiums,
          earnings thereon, or amounts collected as part of the premium that are
          attributable to rapid cash buildup are used for debt service, then the
          amount of the Premiums, earnings thereon, or amounts collected as part
          of the premium that are attributable to rapid cash buildup so used
          shall be returned, without interest, to the Fund when Emergency
          Assessments remain available after making payment relating to the
          revenue bonds and any other purposes for which Emergency Assessments
          were levied.

(3)  CLAIMS AND LOSSES

     (a)  IN GENERAL

          1.   Claims and losses resulting from Loss Occurrences commencing
               during the Contract Year shall be reported by the Company and
               reimbursed by the FHCF as provided herein and in accordance with
               the Statute, this Contract, and any rules adopted pursuant to the
               Statute. For a Company participating in a quota share primary
               insurance agreement(s) with Citizens Property Insurance
               Corporation High Risk Account, Citizens and the Company shall
               report only their respective portion of losses under the quota
               share primary insurance agreement(s). Pursuant to Section
               215.555(4)(c), Florida Statutes, the SBA is obligated to pay for
               losses not to exceed the Actual Claims-Paying Capacity of the
               FHCF, up to the limit in accordance with Section 215.555(4)(c)1.,
               Florida Statutes, for any one Contract Year.

          2.   If the Company is in non-compliance with Section 215.555, Florida
               Statutes for any Contract Year, including deadlines for sending
               in Contracts, addendums or attachments to Contracts, Data Call
               submissions or resubmissions, loss reports, or in responding to
               SBA exam requirements, the SBA reserves the right to withhold
               reimbursements or advances until such time the Company becomes
               compliant.

     (b)  LOSS REPORTS

          1.   At the direction of the SBA, the Company shall report its
               projected Ultimate Net Loss from each Loss Occurrence to provide
               information to the SBA in determining any potential liability for
               possible reimbursable losses under the Contract on the Interim
               Loss Report, Form FHCF-L1A, as adopted in Rule 19-8.029, F.A.C.
               Interim Loss Reports (including subsequent Interim Loss Reports
               if required by the SBA) will be due in no less than fourteen days
               from the date of the notice from the SBA that such a report is
               required.

          2.   FHCF loss reimbursements will be issued based on Ultimate Net
               Loss information reported by the Company on the Proof of Loss
               Report, Form FHCF-L1B, as adopted in Rule 19-8.029, F.A.C. To
               qualify for reimbursement, the Proof of Loss Report must have the

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               original signatures of two executive officers authorized
               by the Company to sign the report. While a Company may submit a
               Proof of Loss Report requesting reimbursement at any time
               following a Loss Occurrence, all Companies shall submit a
               mandatory Proof of Loss Report for each Loss Occurrence no
               earlier than December 1 and no later than December 31 of the
               Contract Year during which the Covered Event(s) occurs using the
               most current data available, regardless of the amount of Ultimate
               Net Loss or the amount of loss reimbursements or advances already
               received. Reports may be faxed only if the Company does not
               qualify for a reimbursement.

          3.   Quarterly thereafter until all claims and losses resulting from a
               Loss Occurrence are fully discharged or the Company has received
               its full coverage under the Contract Year in which the Loss
               Occurrence(s) occurred, the Company shall submit updated Proof of
               Loss Reports for each Loss Occurrence, as applicable. If the
               Company's Retention must be recalculated as the result of an
               exposure resubmission, and if the recalculated Retention changes
               the FHCF's reimbursement obligations, then the Company shall
               submit additional Proof of Loss Reports for recalculation of the
               FHCF's obligations.

          4.   Annually thereafter, all Companies shall submit a mandatory
               year-end Proof of Loss Report for each Loss Occurrence, as
               applicable, using the most current data available. This Proof of
               Loss Report shall be filed no earlier than December 1 and no
               later than December 31 of each year and shall continue until the
               earlier of the expiration of the commutation period described in
               (3)(d) below or until all claims and losses resulting from the
               Loss Occurrence are fully discharged including any adjustments to
               such losses due to salvage or other recoveries.

          5.   The SBA, except as noted below, will determine and pay, within 30
               days or as soon as practicable after receiving Proof of Loss
               Reports, the reimbursement amount due based on losses paid by the
               Company to date and adjustments to this amount based on
               subsequent quarterly information. The adjustments to
               reimbursement amounts shall require the SBA to pay, or the
               Company to return, amounts reflecting the most recent
               determination of losses. The FHCF shall have the right to conduct
               a claims examination prior to the issuance of any advances or
               reimbursements submitted by Companies that have been placed under
               regulatory supervision by a State or where control has been
               transferred through any legal or regulatory proceeding to a state
               regulator or court appointed receiver or rehabilitator.

          6.   If a Covered Event occurs during the Contract Year, but after
               December 31, at the direction of the SBA, Companies shall file an
               Interim Loss Report within 30 days after the Covered Event and
               Proof of Loss Reports quarterly thereafter. Subparagraphs 2-5
               above regarding Proof of Loss Reports shall apply.

          7.   All Proof of Loss Reports received will be compared with the
               FHCF's exposure data to establish the facial reasonableness of
               the reports. The SBA may also review the results of current and
               prior Contract Year exposure and loss examinations to determine
               the reasonableness of the reported losses. Except as noted in
               paragraph 4. above, Companies meeting these tests for
               reasonableness will be scheduled for reimbursement. Companies not
               meeting these tests for reasonableness will be handled on a
               case-by-case basis and will be contacted to provide specific
               information regarding their individual book of business. The
               discovery of errors in a Company's reported exposure under the
               Data Call may require a resubmission of the current Contract Year
               Data Call which, as the Data Call impacts the Company's premium,
               retention, and coverage for the Contract Year, will be required
               before the Company's request for reimbursement or an advance will
               be fully processed by the Administrator.

     (c)  LOSS REIMBURSEMENT CALCULATIONS

          1.   In general, the Company's paid Ultimate Net Losses must exceed
               its full FHCF Retention for a specific Covered Event before any
               reimbursement is payable from the FHCF for that Covered Event. As
               described in Article V(28), Retention adjustments will be made
               after

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               January 1 of the Contract Year. No interest is payable on
               additional payments to the Company due to this type of Retention
               adjustment. Each Company sustaining reimbursable losses will
               receive the amount of reimbursement due under the Contract up to
               the amount of the Company's payout. If more than one Covered
               Event occurs in any one Contract Year, any reimbursements due
               from the FHCF shall take into account the Company's Retention for
               each Covered Event. However, the Company's reimbursements from
               the FHCF for all Covered Events occurring during the Contract
               Year shall not exceed, in aggregate, the Projected Payout
               Multiple or Payout Multiple, as applicable, times the individual
               Company's Reimbursement Premium for the Contract Year.

          2.   In determining reimbursements under this Contract, the SBA shall:

               a.   First, reimburse Companies qualified as limited
                    apportionment companies under Section 627.351(2)(b)3.,
                    Florida Statutes, for the amount (if any) of reimbursement
                    due under the individual Company's Contract, but not to
                    exceed the lesser of $10 million or an amount equal to 10
                    times the individual Company's Reimbursement Premium for the
                    Contract Year. This provision does not apply if the
                    projected Balance of the Fund as of December 31 of the
                    Contract Year, exclusive of any bonding capacity of the
                    FHCF, exceeds $2 billion. Further, if the Company is a
                    member of an NAIC group, the Company may not receive
                    reimbursement under this provision if any other member of
                    the NAIC group has received reimbursement under this
                    provision.

               b.   Next, reimburse each of the Companies for the amount (if
                    any) of reimbursement due under the individual Company's
                    Contract, but not to exceed for all Loss Occurrences, an
                    amount equal to the Projected Payout Multiple or the Payout
                    Multiple, as applicable, times the individual Company's
                    Reimbursement Premium for the Contract Year. For a limited
                    apportionment company, any amount payable under this
                    provision shall be reduced by the amount (if any) payable
                    under (a) above.

               c.   Thereafter, pursuant to Section 215.555(4)(d)2.c., Florida
                    Statutes, establish the prorated reimbursement level at the
                    highest level for which any remaining fund balance or bond
                    proceeds (as limited by Section 215.555(4)(c), Florida
                    Statutes) are sufficient to reimburse entities created
                    pursuant to Section 627.351(6), Florida Statutes, for
                    reimbursable losses exceeding the amounts payable pursuant
                    to (b) above for the Contract Year. The proration shall be
                    determined based on each entity's share of their aggregate
                    reimbursable losses exceeding the amounts payable pursuant
                    to (b) above. Any additional reimbursements pursuant to this
                    paragraph shall not include losses under an entity's FHCF
                    Retention and will be at the 90% Reimbursement Percentage.
                    In order to determine the amount available for additional
                    reimbursements, the SBA will review reported loss
                    information from all Companies and determine that all
                    Companies which received payments for reimbursable losses
                    but which did not exceed their projected payout have settled
                    all, or substantially all, of their claims eligible for
                    reimbursement. The SBA will then determine the remaining
                    amount of Claims-Paying Capacity available for such
                    additional reimbursements.

          3.   Reserve established. When a Covered Event occurs in a subsequent
               Contract Year when reimbursable losses are still being paid for a
               Covered Event in a previous Contract Year, the SBA will establish
               a reserve for the outstanding reimbursable losses for the
               previous Contract Year, based on the length of time the losses
               have been outstanding, the amount of losses already paid, the
               percentage of incurred losses still unpaid, and any other factors
               specific to the loss development of the Covered Events involved.

     (d)  COMMUTATION

          1.   Not less than 36 months or more than 60 months after the end of
               the Contract Year, the Company shall report to the FHCF all
               claims and losses, both reported and unreported, for the Contract
               Year which are not finally settled and which may be reimbursable
               losses under this Contract. The Company and the SBA or their
               respective representatives may, by

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               mutual agreement, determine the capitalized value of all claims
               and losses, both reported and unreported, resulting from Loss
               Occurrences commencing during the Contract Year, and the Company
               shall provide the SBA with a copy of a written opinion on such
               capitalized value by the Company's certifying actuary. Payment by
               the SBA of its portion of any amount or amounts so mutually
               agreed and certified by the Company's certifying actuary shall
               constitute a complete and final release of the SBA in respect of
               all claims and losses, both reported and unreported, under this
               Contract.

          2.   If agreement on capitalized value cannot be reached within 60
               days after the Company reports its claims and losses to the FHCF,
               the Company and the SBA may mutually appoint an actuary or
               appraiser to investigate, determine and capitalize such claims or
               losses. If both parties then agree, the SBA shall pay its portion
               of the amount so determined to be the capitalized value of such
               claims or losses.

          3.   If the parties fail to agree, then any difference shall be
               settled by a panel of three actuaries, one to be chosen by each
               party and the third by the two so chosen. If either party does
               not appoint an actuary within 30 days, the other party may
               appoint two actuaries. If the two actuaries fail to agree on the
               selection of a third actuary within 30 days of their appointment,
               each of them shall name two, of whom the other shall decline one
               and the decision shall be made by drawing lots. All the actuaries
               shall be regularly engaged in the valuation of property claims
               and losses and shall be members of the Casualty Actuarial Society
               and of the American Academy of Actuaries. None of the actuaries
               shall be under the control of either party to this Contract. Each
               party shall submit its case to its actuary within 30 days of the
               appointment of the third actuary. The decision in writing of any
               two actuaries, when filed with the parties hereto, shall be final
               and binding on both parties.

          4.   The reasonable and customary expense of the actuaries and of the
               commutation (as a result of 2. and 3. above) shall be equally
               divided between the two parties. Said commutation shall take
               place in Tallahassee, Florida, unless some other place is
               mutually agreed upon by the Company and the SBA.

(4)  ADVANCES

     (a)  In accordance with Section 215.555(4)(e), Florida Statutes, the SBA
          may make advances for loss reimbursements as defined herein, at market
          interest rates, to the Company in accordance with Section
          215.555(4)(e), Florida Statutes. An advance is an early reimbursement
          which allows the Company to continue to pay claims in a timely manner.
          Advances will be made based on the Company's Ultimate Net Loss, on an
          incurred basis, as reported on a Proof of Loss Report, and shall
          include Loss Adjustment Expense Reimbursement as calculated by the
          FHCF. In order to be eligible for an advance, the Company must submit
          its exposure data for the Contract Year as required under paragraph
          (1) of this Article. Except as noted below, advances, if approved,
          will be made as soon as practicable after the SBA receives a written
          request, signed by two officers of the Company, for an advance of a
          specific amount and any other information required for the specific
          type of advance under subparagraphs (c) and (e) below. All
          reimbursements due to a Company shall be offset against any amount of
          outstanding advances plus the interest due thereon.

     (b)  For advances or excess advances, which are advances that are in excess
          of the amount to which the Company is entitled, the market interest
          rate shall be the prime rate as published in the Wall Street Journal
          on the first business day of the Contract Year. This rate will be
          adjusted annually on the first business day of each subsequent
          Contract Year, regardless of whether the Company executes subsequent
          Contracts. All interest charged will commence on the date the SBA
          issues a check for an advance and will cease on the date upon which
          the FHCF has received the Company's Proof of Loss Report(s) for the
          Covered Event(s) for which the Company qualifies for reimbursement(s).
          If such reimbursement(s) are less than the amount of outstanding
          advance(s) issued to the Company, interest will continue to accrue on
          the outstanding balance of the advance(s) until subsequent Proof of
          Loss Reports qualify the Company for

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          reimbursement under any Covered Event equal to or exceeding the amount
          of any outstanding advance(s). Interest shall be billed on a periodic
          basis. If it is determined that the Company received funds in excess
          of those to which it was entitled, the interest as to those sums will
          not cease on the date of the receipt of the Proof of Loss Report but
          will continue until the Company reimburses the FHCF for the
          overpayment.

     (c)  If the Company has an outstanding advance balance as of December 31 of
          this or any other Contract Year, the Company is required to have an
          actuary certify outstanding and incurred but not reported losses as
          reported on the applicable December Proof of Loss Report.

     (d)  The specific type of advances enumerated in the Section 215.555,
          Florida Statutes, follow.

          1.   Advances to Companies to prevent insolvency, as defined under
               Article XIV of this Contract.

               a.   Section 215.555(4)(e)1., Florida Statutes, provides that the
                    SBA shall advance to the Company amounts necessary to
                    maintain the solvency of the Company, up to 50 percent of
                    the SBA's estimate of the reimbursement due to the Company.

               b.   In addition to the requirements outlined in subparagraph
                    (4)(a) above, the requirements for an advance to a Company
                    to prevent insolvency are that the Company demonstrates it
                    is likely to qualify for reimbursement and that the
                    immediate receipt of moneys from the SBA is likely to
                    prevent the Company from becoming insolvent, and the Company
                    provides the following information:

                    i.   Current assets;

                    ii.  Current liabilities other than liabilities due to the
                         Covered Event;

                    iii. Current surplus as to policyholders;

                    iv.  Estimate of other expected liabilities not due to the
                         Covered Event; and

                    v.   Amount of reinsurance available to pay claims for the
                         Covered Event under other reinsurance treaties.

               c.   The SBA's final decision regarding an application for an
                    advance to prevent insolvency shall be based on whether or
                    not, considering the totality of the circumstances,
                    including the SBA's obligations to provide reimbursement for
                    all Covered Events occurring during the Contract Year,
                    granting an advance is essential to allowing the entity to
                    continue to pay additional claims for a Covered Event in a
                    timely manner.

          2.   Advances to entities created pursuant to Section 627.351(6),
               Florida Statutes.

               a.   Section 215.555(4)(e)2., Florida Statutes, provides that the
                    SBA may advance to an entity created pursuant to Section
                    627.351(6), Florida Statutes, up to 90% of the lesser of the
                    SBA's estimate of the reimbursement due or the entity's
                    share of the actual aggregate Reimbursement Premium for that
                    Contract Year, multiplied by the current available liquid
                    assets of the FHCF.

               b.   In addition to the requirements outlined in subparagraph
                    (4)(a) above, the requirements for an advance to entities
                    created pursuant to Section 627.351(6), Florida Statutes are
                    that the entity must demonstrate to the SBA that the advance
                    is essential to allow the entity to pay claims for a Covered
                    Event.

          3.   Advances to limited apportionment companies.

               Section 215.555(4)(e)3., Florida Statutes, provides that the SBA
               may advance the amount of estimated reimbursement payable to
               limited apportionment companies.

     (e)  In determining whether or not to grant an advance and the amount of an
          advance, the SBA:

          1.   Shall determine whether its assets available for the payment of
               obligations are sufficient and sufficiently liquid to fulfill its
               obligations to other Companies prior to granting an advance;

          2.   Shall review and consider all the information submitted by such
               Companies;

          3.   Shall review such Companies' compliance with all requirements of
               Section 215.555, Florida Statutes;

          4.   Shall consult with all relevant regulatory agencies to seek all
               relevant information;

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          5.   Shall review the damage caused by the Covered Event and when that
               Covered Event occurred; and

          6.   Shall consider any other factors deemed relevant.

     (f)  In situations where a Company has been placed under regulatory
          supervision by a State, or where control has been transferred through
          any legal or regulatory proceeding to a state regulator, court
          appointed receiver or rehabilitator, or a state insurance guarantee
          association, all requirements of the Company outlined herein shall
          remain applicable and must be met prior to the issuance of any advance
          of reimbursements for which the Company may be eligible to receive
          under the Contract.

     (g)  Any amount advanced by the SBA shall be used by the Company only to
          pay claims of its policyholders for the Covered Event or Covered
          Events which have precipitated the immediate need to continue to pay
          additional claims as they become due.

(5)  DELINQUENT PREMIUM PAYMENTS

     Failure to submit a Premium or Premium installment when due is a violation
     of the terms of this Contract and Section 215.555, Florida Statutes.
     Interest on late payments shall be due as set forth in Article IX(2) of
     this Contract.

(6)  INADEQUATE DATA SUBMISSIONS

     If exposure data or other information required to be reported by the
     Company under the terms of this Contract is not received by the FHCF in the
     format specified by the FHCF and is inadequate to the extent that the FHCF
     requires resubmission of data, the Company will be required to pay the FHCF
     a resubmission fee of $1,000. The $1,000 fee is also applicable to exposure
     resubmissions made as a result of examinations of the Company's exposure
     and claims data. A resubmission of exposure data may delay the processing
     of the Company's request for reimbursement or an advance.

(7)  DELINQUENT SUBMISSIONS

     Failure to submit an exposure submission or resubmission, or loss reports,
     when due is a violation of the terms of this Contract and Section 215.555,
     Florida Statutes.

ARTICLE XI - TAXES

In consideration of the terms under which this Contract is issued, the Company
agrees to make no deduction in respect of the Premium herein when making premium
tax returns to the appropriate authorities. Should any taxes be levied on the
Company in respect of the Premium herein, the Company agrees to make no claim
upon the SBA for reimbursement in respect of such taxes.

ARTICLE XII - ERRORS AND OMISSIONS

Any inadvertent delay, omission, or error on the part of the SBA shall not be
held to relieve the Company from any liability which would attach to it
hereunder if such delay, omission, or error had not been made.

ARTICLE XIII - INSPECTION OF RECORDS

The Company shall allow the SBA to inspect, examine, and verify, at reasonable
times, all records of the Company relating to the Covered Policies under this
Contract, including Company files concerning claims, losses, or legal
proceedings regarding subrogation or claims recoveries which involve this
Contract, including premium, loss records and reports involving exposure data on
Covered Policies. This right by the SBA to inspect, examine, and verify shall
survive the completion and closure of an exposure examination or loss
examination file and the termination of the Contract. The Company shall have no
right to re-open an exposure or loss reimbursement examination once closed and
the findings have been accepted by the Company; any re-opening shall be at the
sole discretion of the SBA. All discovered errors, inadvertent omissions, and
typographical errors associated with the data reporting of insured values,
discovered prior to the closing of the file and acceptance of the examination
findings by the

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Company, shall be corrected to reflect the proper values. The Company shall
retain its records in accordance with the requirements for records retention
regarding exposure reports and claims reports outlined herein, and in any
administrative rules adopted pursuant to Section 215.555, Florida Statutes.
Companies writing covered collateral protection policies, as defined in
definition (10)(d) of Article V herein, must be able to provide documentation
that the policy covers personal residences, protects both the borrower's and
lender's interest, and that the coverage is in an amount at least equal to the
coverage for the dwelling in place under the lapsed homeowner's policy.

(1)  EXAMINATION REQUIREMENTS FOR EXPOSURE VERIFICATION

     The Company shall retain complete and accurate records, in policy level
     detail, of all exposure data submitted to the SBA in any Contract Year
     until the SBA has completed its examination of the Company's exposure
     submissions. The Company shall also retain complete and accurate records of
     any completed exposure examination for any Contract Year in which the
     Company incurred losses until the completion of the loss reimbursement
     examination for that Contract Year. The records to be retained shall
     include the exam file which supports the exposure reported to the SBA and
     any other information which would allow for a complete examination of the
     Company's reported exposure data. The exam file shall be prepared according
     to the SBA Exam File Specifications outlined in the Data Call. The Company
     must also have available, at the time of the examination, a copy of its
     underwriting manual, a copy of its rating manual, and staff to respond to
     the questions of the SBA or its agents. The Company is also required to
     retain declarations pages and policy applications to support reported
     exposure. To meet the requirement that the application must be retained,
     the Company may retain either the actual application or may retain the
     actual application in an electronic format. A complete list of records to
     be retained are set forth in Form FHCF-EAP1, adopted in Rule 19-8.030,
     F.A.C.

(2)  EXAMINATION REQUIREMENTS FOR LOSS REPORTS

     The Company shall retain complete and accurate records of all reported
     losses and/or advances submitted to the SBA until the SBA has completed its
     examination of the Company's reimbursable losses. The records to be
     retained are set forth as part of the Proof of Loss Report, Form FHCF-L1B,
     adopted in Rule 19-8.029, F.A.C., and Form FHCF-LAP1, adopted in Rule
     19-8.030, F.A.C. The Company must also retain the required exposure exam
     file for the Contract Year in which the loss occurred, and must have
     available any other information which would allow for a complete
     examination of the Company's losses.

(3)  EXAMINATION PROCEDURES

     (a)  The FHCF will send an examination notice to the Company providing the
          commencement date of the examination, the site of the examination, any
          accommodation requirements of the examiner, and the reports and data
          which must be assembled by the Company and forwarded to the FHCF upon
          request. The Company shall be prepared to choose one location in which
          to be examined, unless otherwise specified by the SBA.

     (b)  The reports and data are required to be forwarded to the FHCF as set
          forth in an examination notice letter. The information is then
          forwarded to the examiner. If the FHCF receives accurate and complete
          records as requested, the examiner will contact the Company to inform
          the Company as to what policies or other documentation will be
          required once the examiner is on site. Any records not required to be
          provided to the examiner in advance shall be made available at the
          time the examiner arrives on site.

     (c)  At the conclusion of the examiner's work and the management review of
          the examiner's report, findings, recommendations, and work papers, the
          FHCF will forward a preliminary draft of the examination report to the
          Company and require a response from the Company by a date certain as
          to the examination findings and recommendations.

     (d)  If the Company accepts the examination findings and recommendations,
          and there is no recommendation for resubmission of the Company's
          exposure data, the examination report will be finalized and the exam
          file closed.

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     (e)  If the Company disputes the examiner's findings, the areas in dispute
          will be resolved by a meeting or a conference call between the Company
          and FHCF management.

     (f)1. The recommendation of a loss reimbursement examination could require
          the Company to resubmit or update its loss reports or exposure data.

     2.   If the recommendation of the examiner is to resubmit the Company's
          exposure data for the Contract Year in question, then the FHCF will
          send the Company a letter outlining the process for resubmission and
          including a deadline to resubmit. The resubmission will include a data
          file to be submitted to the FHCF's Administrator and an exam file to
          be submitted to the offices of the SBA. The resubmission is also
          required to be accompanied by a detailed written description of the
          specific changes made to the resubmitted data. Once the resubmission
          is received by the FHCF's Administrator, the FHCF's Administrator
          calculates a revised Reimbursement Premium for the Contract Year which
          has been examined. The SBA shall then review the resubmission with
          respect to the examiner's findings, and accept the resubmission or
          contact the Company with any questions regarding the resubmission.
          Once the SBA has accepted the resubmission as a sufficient response to
          the examiner's findings, the FHCF's Administrator will send the
          Company an invoice for any Reimbursement Premium and interest due or
          to refund Reimbursement Premium, as the case may be. Once the
          resubmission has been approved, the exam file is closed.

     3.   If the recommendation of the examiner is either to resubmit the
          Company's exposure data for the Contract Year in question or giving
          the option to pay the estimated Premium difference, then the FHCF will
          send the Company a letter outlining the process for resubmission or
          for paying the estimated Premium difference and including a deadline
          for the resubmission or the payment to be received by the FHCF's
          Administrator. If the Company chooses to resubmit, the same procedures
          outlined in Article XIII(3)(f)2. apply.

     4.   If the recommendation of the examiner is to update the Company's Proof
          of Loss Report(s) for the Contract Year under review, the FHCF will
          send the Company a letter outlining the process for submitting the
          Proof of Loss Report(s) and including a deadline to file. The updated
          Proof of Loss Report(s) will be submitted to the FHCF's Administrator
          with a copy of the Proof of Loss Report(s) and a supporting detailed
          claims listing to be submitted to the offices of the SBA. The report
          is required to be accompanied by a detailed written description of the
          specific changes made. Once the Proof of Loss Report(s) is received by
          the FHCF Administrator, the FHCF's Administrator will calculate a
          revised reimbursement. The SBA shall then review the submitted Proof
          of Loss Report(s) with respect to the examiner's findings, and accept
          the Proof of Loss Report(s) as filed or contact the Company with any
          questions. Once the SBA has accepted the corrected Proof of Loss
          Report(s) as a sufficient response to the examiner's findings, the
          FHCF's Administrator will send the Company an invoice for any
          overpayments and interest due or the additional reimbursement owed the
          Company, as the case may be. Once the Proof of Loss Report(s) is
          approved, the exam file is closed.

     (g)  If the Company continues to dispute the examiner's findings and/or
          recommendations and no resolution of the disputed matters is obtained
          through discussions between the Company and FHCF management, then the
          process within the SBA is at an end and further administrative
          remedies may be pursued under Chapter 120, Florida Statutes.

     (h)  The examiner's list of errors is made available in the examination
          report sent to the Company. Given that the examination was based on a
          sample of the Company's policies or claims rather than the whole
          universe of the Company's Covered Policies or reported claims, the
          error list is not intended to provide a complete list of errors but is
          intended to indicate what information needs to be reviewed and
          corrected throughout the Company's book of Covered Policy business or
          claims information to ensure more complete and accurate reporting to
          the FHCF.

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(4)  COSTS OF THE EXAMINATIONS

     The costs of the examinations shall be borne by the SBA. However, in order
     to remove any incentive for a Company to delay preparations for an
     examination, the SBA shall be reimbursed by the Company for any examination
     expenses incurred in addition to the usual and customary costs, which
     additional expenses were incurred as a result of the Company's failure,
     despite proper notice, to be prepared for the examination or as a result of
     a Company's failure to provide requested information. All requested
     information must be complete and accurate. The Company shall be notified of
     any administrative remedies which may be obtained under Chapter 120,
     Florida Statutes.

ARTICLE XIV - INSOLVENCY OF THE COMPANY

Company shall notify the FHCF immediately upon becoming insolvent. Pursuant to
Section 215.555(4)(g), Florida Statutes, the FHCF is required to pay the "net
amount of all reimbursement moneys" due an insolvent insurer to the Florida
Insurance Guaranty Association (FIGA) for the benefit of Florida policyholders.
For the purpose of this Contract, a Company is insolvent when an order of
liquidation with a finding of insolvency has been entered by a court of
competent jurisdiction. In light of the need for an immediate infusion of funds
to enable policyholders of insolvent companies to be paid for their claims, the
SBA may enter into agreements with FIGA allowing exposure and loss examinations
to take place immediately without the usual notice and response time limitations
and allowing the FHCF to make loss reimbursements (net of any amounts payable to
the SBA from the Company or FIGA) to FIGA before the examinations are completed
and before the response time expires for claims filing by reinsurers and
financial institutions, which have a priority interest in those funds pursuant
to Section 215.555(4)(g), Florida Statutes. Such agreements must ensure the
availability of the necessary records and adequate security must be provided so
that if the FHCF determines that it overpaid FIGA on behalf of the Company, or
if claims are filed by reinsurers or financial institutions having a priority
interest in these funds, that the funds will be repaid to the FHCF by FIGA with
in a reasonable time.

ARTICLE XV - TERMINATION

The FHCF and the obligations of both parties under this Contract can be
terminated only as may be provided by law or applicable rules.

ARTICLE XVI - VIOLATIONS

Pursuant to the provisions of Section 215.555(10), Florida Statutes, any
violation of the terms of this Contract by the Company constitutes a violation
of the Insurance Code of the State of the Florida. Pursuant to the provisions of
Section 215.555(11), Florida Statutes, the SBA is authorized to take any action
necessary to enforce any administrative rules adopted pursuant to Section
215.555, Florida Statutes, and the provisions and requirements of this Contract.

ARTICLE XVII - APPLICABLE LAW

(1)  APPLICABLE LAW: This Contract shall be governed by and construed according
     to the laws of the State of Florida in respect of any matter relating to or
     arising out of this Contract.

(2)  NOTICE OF RIGHTS: Pursuant to Chapter 120, Florida Statutes, and the
     Uniform Rules of Procedure, codified as Chapters 28-101 through 28-111,
     F.A.C., a person whose substantial interests are affected by a decision of
     the SBA regarding the FHCF may request a hearing within 21 days shall have
     waived his or her right to a hearing. The hearing may be a formal hearing
     or an informal hearing pursuant to the provisions of Sections 120.569 and
     120.57, Florida Statutes. The petition must be filed (received) in the
     office of the Agency Clerk, General Counsel's Office, State Board of
     Administration of Florida, P.O. Box 13300, Tallahassee, FL 32317-3300,
     within the 21 day period.

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ARTICLE XVIII - REIMBURSEMENT CONTRACT ELECTIONS

REIMBURSEMENT PERCENTAGE

For purposes of determining reimbursement (if any) due the Company under this
Contract and in accordance with the Statute, the Company has the option to elect
a 45% or 75% or 90% reimbursement percentage under this Contract. If the Company
is a member of an NAIC group, all members must elect the same reimbursement
percentage, and the individual executing this Contract on behalf of the Company,
by placing his or her initials in the box under (a) below, affirms that the
Company has elected the same reimbursement percentage as all members of its NAIC
group. If the Company is an entity created pursuant to Section 627.351, Florida
Statutes, the Company must elect the 90% reimbursement percentage. The Company
shall not be permitted to change its reimbursement percentage during the
Contract Year. The Company shall be permitted to change its reimbursement
percentage at the beginning of a new Contract Year, but may not reduce its
reimbursement percentage if a Covered Event required the issuance of revenue
bonds, until the bonds have been fully repaid.

The Reimbursement Percentage elected by the Company for the prior Contract Year
effective June 1, 2005 was as follows: (Legal_Name) - (M_2005_Coverage_Option)

(a)  NAIC GROUP AFFIRMATION: Initial the following box if the Company is part of
     an NAIC Group:

                                      (TBM)

(b)  REIMBURSEMENT PERCENTAGE ELECTION: The Company hereby elects the following
     Reimbursement Percentage for the Contract Year from 12:01 a.m., Eastern
     Time, June 1, 2006, to 12:01 a.m., Eastern Time, June 1, 2007, (the
     individual executing this Contract on behalf of the Company shall place his
     or her initials in the box to the left of the percentage elected for the
     Company):

                       (BOX) 45% OR (BOX) 75% OR (TBM) 90%

REPORTING EXPOSURE FOR A SINGLE STRUCTURE, WITH A MIX OF COMMERCIAL HABITATIONAL
AND COMMERCIAL NON-HABITATIONAL EXPOSURE, WRITTEN ON A COMMERCIAL POLICY

This section is applicable to all Companies which either have exposure for
single structures with a mix of commercial habitational and commercial
non-habitational exposure written under a Commercial Policy, or have the
authority to write such policies. If the Company does not have the authority to
write this type of exposure, this section DOES NOT apply; initial the N/A box on
the next page, which completes this ARTICLE. If the Company DOES write, or has
the authority to write, this type of exposure, please read and complete the
remainder of this ARTICLE.

COMMERCIAL-RESIDENTIAL CLASS CODE

If a single structure is used for both habitational and non-habitational
purposes and the structure has a commercial-residential class code (based on a
classification plan on file with and reviewed by the Administrator), the entire
exposure for the structure should be reported to the FHCF under the Data Call,
and the FHCF will reimburse losses for the entire structure as well.

                                                                      FHCF-2006K
                                                            Rule 19-8.010 F.A.C.


                                       20



COMMERCIAL NON-RESIDENTIAL/BUSINESS CLASS CODE

If a single structure is used for both habitational and non-habitational
purposes and the structure has a commercial non-residential or business class
code (based on a classification plan on file with and reviewed by the
Administrator), the habitational portion of that structure should be identified
and reported to the FHCF under the Data Call.

However, in recognition of the unusual nature of commercial structures with
incidental habitational exposure and the hardship some companies may face in
having to carve out such incidental habitational exposure, as well as the losses
to such structures, the FHCF will accommodate these companies by allowing them
to exclude the entire exposure for the single structure from their Data Call
submission, providing the following two conditions are met:

(1)  The decision to not carve out and report the incidental habitational
     exposure shall apply to all such structures insured by the Company; and

(2)  If the incidental habitational exposure is not reported to the FHCF, the
     Company agrees it shall not report losses to the structure and the FHCF
     shall not reimburse any losses to the structure.

Initial the CARVING box below if the Company is able to carve out and report its
incidental habitational exposure, OR, if this requirement presents a hardship,
the Company must communicate its decision to not carve out and to not report the
incidental exposure by having the individual executing this Contract on behalf
of the Company placing his or her initials in the NOT CARVING box below. If the
Company does not currently write such policies, but has the authority to write
such policies after the start date of this Contract, the decision to carve or
not carve out the incidental habitational exposure must be indicated below.

                     (BOX)    OR      (TBM)      OR   (BOX)
                    CARVING        NOT CARVING          NA

By initialing the CARVING OR NOT CARVING box above, the Company is making an
irrevocable decision for the corresponding Contract Year Data Call submission
and any subsequent resubmissions.

IMPORTANT NOTE: SINCE THIS ELECTION WILL IMPACT YOUR DATA CALL SUBMISSION,
                PLEASE SHARE THIS DECISION WITH THE INDIVIDUAL(S) RESPONSIBLE
                FOR COMPILING YOUR DATA CALL SUBMISSION.

                                                                      FHCF-2006K
                                                            Rule 19-8.010 F.A.C.


                                       21



ARTICLE XIX - SIGNATURES

APPROVED BY:

Florida Hurricane Catastrophe Fund

By: State Board of Administration of the State of Florida

By: /s/ Linda Lettera, General Counsel for   08/07/2006
    --------------------------------------   Date
    Coleman Stipanovich
    Executive Director


Approved as to legality:


By: /s/ Thomas A. Bink, General Counsel for   08/03/2006
    ---------------------------------------   Date
    Linda Lettera
    General Counsel
    FL Bar ID#311911

Liberty American Select Insurance Company f/k/a Mobile USA Insurance Company
Company


By: /s/ T. Bruce Meyer, Corporate President & CEO   05/22/2006
    ---------------------------------------------   Date
Name/Title

                                                                      FHCF-2006K
                                                            Rule 19-8.010 F.A.C.


                                       22


                                 ADDENDUM NO. 1
                                       TO
                             REIMBURSEMENT CONTRACT
                             EFFECTIVE: JUNE 1, 2006
                                   (CONTRACT)

                                     between

                    LIBERTY AMERICAN SELECT INSURANCE COMPANY
                                PINELLAS PARK, FL
                                    (Company)

                                  NAIC # 32760

                                       and

      THE STATE BOARD OF ADMINISTRATION OF THE STATE OF FLORIDA (SBA) WHICH
            ADMINISTERS THE FLORIDA HURRICANE CATASTROPHE FUND (FHCF)

IT IS HEREBY AGREED, effective at 12:01 a.m., Eastern Time, June 1, 2006, that
this Contract shall be amended as follows:

ARTICLE V - DEFINITIONS

(16) FORMULA OR THE PREMIUM FORMULA

     This term means the Formula approved by the SBA for the purpose of
     determining the Actuarially Indicated Premium to be paid to the FHCF. The
     Premium Formula is defined as an approach or methodology which leads to the
     creation of premium rates. The formula shall, pursuant to Section
     215.555(5)(b), Florida Statutes, include a factor of 25 percent of the
     fund's actuarially indicated premium in order to provide for more rapid
     cash buildup in the FHCF. The resulting rates are therefore incorporated as
     part of the Premium Formula.

Article VI(4) shall be amended as follows:

ARTICLE VI - EXCLUSIONS

(4)  Any liability of the Company attributable to losses for fair rental value,
     loss of rent or rental income, or business interruption.

                                                         FHCF-2006K-1, rev. 6/06
                                                                19-8.010, F.A.C.


                                        1



Article (X)(3)(c)2. is amended as follows:

ARTICLE X - REPORTS AND REMITTANCES

     2.   In determining reimbursements under this Contract, the SBA shall:

          a.   Reimburse each of the Companies for the amount (if any) of
               reimbursement due under the individual Company's Contract, but
               not to exceed for all Loss Occurrences, an amount equal to the
               Projected Payout Multiple or the Payout Multiple, as applicable,
               times the individual Company's Reimbursement Premium for the
               Contract Year.

          b.   Thereafter, pursuant to Section 215.555(4)(d)2.b., Florida
               Statutes, establish the prorated reimbursement level at the
               highest level for which any remaining fund balance or bond
               proceeds (as limited by Section 215.555(4)(c), Florida Statutes)
               are sufficient to reimburse entities created pursuant to Section
               627.351(6), Florida Statutes, for reimbursable losses exceeding
               the amounts payable pursuant to (a) above for the Contract Year.
               The proration shall be determined based on each entity's share of
               their aggregate reimbursable losses exceeding the amounts payable
               pursuant to (a) above. Any additional reimbursements pursuant to
               this paragraph shall not include losses under an entity's FHCF
               Retention and will be at the 90% Reimbursement Percentage. In
               order to determine the amount available for additional
               reimbursements, the SBA will review reported loss information
               from all Companies and determine that all Companies which
               received payments for reimbursable losses but which did not
               exceed their projected payout have settled all, or substantially
               all, of their claims eligible for reimbursement. The SBA will
               then determine the remaining amount of Claims-Paying Capacity
               available for such additional reimbursements.

APPROVED BY:

Florida Hurricane Catastrophe Fund

By: State Board of Administration


By: /s/ Linda Lettera, General Counsel for   08/07/2006
    --------------------------------------   Date
    Coleman Stipanovich
    Executive Director


Approved as to legality:


/s/ Thomas A. Bink, General Counsel for      08/03/2006
- ---------------------------------------      Date
Linda Lettera
General Counsel
FL Bar ID#311911

Liberty American Select Insurance Company f/k/a Mobile USA Insurance Company
COMPANY


By: /s/ T. Bruce Meyer, Corporate President & CEO
    ---------------------------------------------
Name/Title                                                       Date 05/22/2006

                                                         FHCF-2006K-1, rev. 6/06
                                                                19-8.010, F.A.C.


                                        2



                                 ADDENDUM NO. 2
                                       TO
                             REIMBURSEMENT CONTRACT
                             EFFECTIVE: JUNE 1, 2006
                                   (CONTRACT)

                                     between

                    LIBERTY AMERICAN SELECT INSURANCE COMPANY
                                PINELLAS PARK, FL
                                    (Company)

                                  NAIC # 32760

                                       and

         THE STATE BOARD OF ADMINISTRATION OF THE STATE OF FLORIDA (SBA)
         WHICH ADMINISTERS THE FLORIDA HURRICANE CATASTROPHE FUND (FHCF)

IT IS HEREBY AGREED, effective at 12:01 a.m., Eastern Time, June 1, 2006, that
this Contract shall be amended as follows:

ADDITIONAL COVERAGE OPTION FOR LIMITED APPORTIONMENT COMPANIES PURSUANT TO
SECTION 215.555(4)(B), FLORIDA STATUTES.

Insurers which qualify as Limited Apportionment Companies under s.
627.351(6)(c), Florida Statutes may select additional FHCF reimbursement
coverage of up to $10 million dollars. The additional premium to be charged for
this additional reimbursement coverage shall be 50 percent of the additional
reimbursement coverage provided, which shall include one prepaid full
reinstatement. The additional premium shall be due and payable in three equal
installments on August 1, 2006, on October 1, 2006, and on December 1, 2006. The
minimum retention level that must be retained associated with this additional
coverage layer is 30 percent of the insurer's surplus as of March 31, 2006. The
reimbursement percentage applicable to this additional coverage shall be 100
percent, which includes reimbursement for loss adjustment expense as provided
under the Reimbursement Contract.

This additional reimbursement coverage shall be in addition to all other
coverage provided by the SBA under the Company's Reimbursement Contract and
shall be in addition to the claims-paying capacity of the FHCF as defined in
Section 215.555(4)(c)1., Florida Statutes, but only with respect to those
insurers that select the additional coverage option. This additional coverage
shall not overlap or duplicate coverage otherwise provided for in the
Reimbursement Contract or offset any co-payments. The claims-paying capacity
with respect to all other participating insurers,

                                                         FHCF-2006K-2, rev. 6/06
                                                                19-8.010, F.A.C.


                                        1



including Limited Apportionment Companies that do not select the additional
coverage option, shall be limited to their reimbursement premium's proportionate
share of the actual claims-paying capacity as defined in Section
215.555(4)(c)1., Florida Statutes and as provided for under the terms of the
Reimbursement Contract. Coverage provided in the Reimbursement Contract for
participating insurers will not be affected by the additional premiums paid by
Limited Apportionment Companies exercising this additional coverage option.

Coverage provided in this additional coverage option shall otherwise be
consistent with terms and conditions as relates to the Reimbursement Contract
including, but not limited to, definitions, coverage for Covered Policies as
defined, exclusions, loss reporting, and examination procedures.

The optional coverage provided in this Addendum expires on May 31, 2007 and is
not renewable.

ALL LIMITED APPORTIONMENT COMPANIES MUST INDICATE BELOW THE LEVEL OF OPTIONAL
ADDITIONAL COVERAGE SELECTED FROM ZERO UP TO THE STATUTORY MAXIMUM OF $10
MILLION DOLLARS. IF NO ADDITIONAL COVERAGE IS SELECTED, THE COMPANY SHALL
INDICATE BY PLACING $0 IN THE BLANK SPACE PROVIDED BELOW.

Amount of Additional FHCF Coverage selected: (Indicate an amount from $0 for no
additional coverage up to $10 million; there is no additional coverage available
in excess of $10 million) $10 Million.

IF THIS ADDENDUM NO. 2 IS RETURNED WITHOUT THE ABOVE BLANK SPACE FILLED IN WITH
A DOLLAR AMOUNT, IT SHALL BE DEEMED BY THE STATE BOARD OF ADMINISTRATION TO BE A
CHOICE NOT TO SELECT THE ADDITIONAL COVERAGE.

Liberty American Select Insurance Company f/k/a Mobile USA Insurance Company
COMPANY


By: /s/ T. Bruce Meyer, Corporate President & CEO
    ---------------------------------------------
Name/Title                                                       Date 05/22/2006

APPROVED BY:

Florida Hurricane Catastrophe Fund

By: State Board of Administration of
    the State of Florida


By: /s/ Linda Lettera, General Counsel for  08/21/2006
    --------------------------------------  Date
    Coleman Stipanovich
    Executive Director


Approved as to legality:


By: /s/ Thomas A. Bink, General Counsel for   08/03/2006
    ---------------------------------------   Date
    Linda Lettera
    General Counsel
    FL                                 Bar                             ID#311911

                                                         FHCF-2006K-2, rev. 6/06
                                                         19-8.010, F.A.C.


                                        2

EX-31.1

Exhibit 31.1

CERTIFICATION

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

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

2. 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;

3. 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;

4. 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)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	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
(d)	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

5. 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.

	Signed:	James J. Maguire, Jr.
		Name: James J. Maguire, Jr.
November 9, 2006		Title: Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

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

1.	I have reviewed this quarterly report on Form 10-Q of Philadelphia Consolidated Holding Corp.
2.	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;
3.	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;
4.	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)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	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
(d)	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

5. 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.

	Signed:	Craig P. Keller
		Name: Craig P. Keller
November 9, 2006		Title: Chief Financial Officer

EX-32.1

Exhibit 32.1

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, 2006 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.

James J. Maguire, Jr.

James J. Maguire, Jr.

President and Chief Executive Officer

November 9, 2006

EX-32.2

Exhibit 32.2

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, 2006 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.

Craig P. Keller

Craig P. Keller

Chief Financial Officer

November 9, 2006