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 June 30, 2008

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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 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 July 31, 2008.

Common Stock, no par value, 71,512,810 shares outstanding

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
INDEX

For the Quarterly Period Ended June 30, 2008

Part I — Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets –June 30, 2008 and December 31, 2007	3
Consolidated Statements of Operations and Comprehensive Income — For the three and six months ended June 30, 2008 and 2007	4
Consolidated Statements of Changes in Shareholders’ Equity — For the six months ended June 30, 2008 and the year ended December 31, 2007	5
Consolidated Statements of Cash Flows — For the six months ended June 30, 2008 and 2007	6
Notes to Consolidated Financial Statements	7 - 25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26 - 46
Item 3. Quantitative and Qualitative Disclosures About Market Risk	47
Item 4. Controls and Procedures	48
Part II — Other Information
Item 1. Legal Proceedings	49
Item 1A. Risk Factors	49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3. Defaults Upon Senior Securities	50
Item 4. Submission of Matters to a Vote of Security Holders	50 - 51
Item 5. Other Information	51
Item 6. Exhibits	52
Signatures	53
Casualty Excess of Loss Reinsurance Contract effective January 1, 2008
Casualty (Clash) Excess of Loss Contract effective January 1, 2008
Property Per Risk Excess of Loss Agreement of Reinsurance with General Reinsurance Corporation effective January 1, 2008
Property Fourth Per Risk Excess of Loss Reinsurance Agreement effective January 1, 2008 - 25% Placement via Willis Re Inc
Property Fifth Per Risk Excess of Loss Reinsurance Agreement effective January 1, 2008 - 50% Share with Arch Reinsurance Company
Terrorism Catastrophe Excess of Loss Reinsurance Contract - 20% Share with Validus Reinsurance, LTD. effective March 1, 2008
Certification of the Company's chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Company's chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
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

2

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

	As of
	June 30, 2008			December 31,
	(Unaudited)			2007
ASSETS
INVESTMENTS:
FIXED MATURITIES AVAILABLE FOR SALE AT MARKET (AMORTIZED COST $2,864,732 AND $2,639,471)	$	2,844,209		$	2,659,197
EQUITY SECURITIES AT MARKET (COST $339,169 AND $322,877)		348,374			356,026
TOTAL INVESTMENTS		3,192,583			3,015,223
CASH AND CASH EQUIVALENTS		89,657			106,342
ACCRUED INVESTMENT INCOME		28,300			24,964
PREMIUMS RECEIVABLE		399,896			378,217
PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES		301,012			280,110
DEFERRED INCOME TAXES		81,717			42,855
DEFERRED ACQUISITION COSTS		187,389			184,446
PROPERTY AND EQUIPMENT, NET		21,992			26,330
OTHER ASSETS		100,964			41,451
TOTAL ASSETS	$	4,403,510		$	4,099,938
LIABILITIES AND SHAREHOLDERS’ EQUITY
POLICY LIABILITIES AND ACCRUALS:
UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES	$	1,613,322		$	1,431,933
UNEARNED PREMIUMS		866,596			847,485
TOTAL POLICY LIABILITIES AND ACCRUALS		2,479,918			2,279,418
PREMIUMS PAYABLE		77,770			97,674
OTHER LIABILITIES		251,135			175,373
TOTAL LIABILITIES		2,808,823			2,552,465
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
PREFERRED STOCK, $.01 PAR VALUE,
10,000,000 SHARES AUTHORIZED, NONE ISSUED AND OUTSTANDING		—			—
COMMON STOCK, NO PAR VALUE,
125,000,000 SHARES AUTHORIZED, 71,503,346 AND 72,087,287 SHARES ISSUED AND OUTSTANDING		399,704			423,379
NOTES RECEIVABLE FROM SHAREHOLDERS		(22,565	)		(19,595	)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)		(7,356	)		34,369
RETAINED EARNINGS		1,224,904			1,109,320
TOTAL SHAREHOLDERS’ EQUITY		1,594,687			1,547,473
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4,403,510		$	4,099,938

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

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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 Six Months
	Ended June 30,						Ended June 30,
	2008			2007			2008			2007
REVENUE:
NET EARNED PREMIUMS	$	393,037		$	337,315		$	772,425		$	656,033
NET INVESTMENT INCOME		32,299			28,522			64,304			55,495
NET REALIZED INVESTMENT GAIN (LOSS)		(11,513	)		28,064			(22,907	)		29,821
OTHER INCOME		3,654			850			5,007			1,680
TOTAL REVENUE		417,477			394,751			818,829			743,029
LOSSES AND EXPENSES:
LOSS AND LOSS ADJUSTMENT EXPENSES		266,106			172,234			489,492			332,753
NET REINSURANCE RECOVERIES		(42,836	)		(23,645	)		(72,803	)		(33,659	)
NET LOSS AND LOSS ADJUSTMENT EXPENSES		223,270			148,589			416,689			299,094
ACQUISITION COSTS AND OTHER UNDERWRITING EXPENSES		115,479			101,746			229,635			198,650
OTHER OPERATING EXPENSES		4,376			2,981			7,965			6,136
TOTAL LOSSES AND EXPENSES		343,125			253,316			654,289			503,880
INCOME BEFORE INCOME TAXES		74,352			141,435			164,540			239,149
INCOME TAX EXPENSE (BENEFIT):
CURRENT		30,072			56,511			65,350			93,330
DEFERRED		(8,628	)		(9,477	)		(16,394	)		(14,562	)
TOTAL INCOME TAX EXPENSE		21,444			47,034			48,956			78,768
NET INCOME	$	52,908		$	94,401		$	115,584		$	160,381
OTHER COMPREHENSIVE LOSS, NET OF TAX:
HOLDING LOSS ARISING DURING PERIOD	$	(32,906	)	$	(11,920	)	$	(56,615	)	$	(3,039	)
RECLASSIFICATION ADJUSTMENT		7,484			(18,242	)		14,890			(19,384	)
OTHER COMPREHENSIVE LOSS		(25,422	)		(30,162	)		(41,725	)		(22,423	)
COMPREHENSIVE INCOME	$	27,486		$	64,239		$	73,859		$	137,958
PER AVERAGE SHARE DATA:
NET INCOME – BASIC	$	0.76		$	1.34		$	1.65		$	2.28
NET INCOME – DILUTED	$	0.73		$	1.27		$	1.59		$	2.16
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING		69,809,174			70,361,554			70,128,823			70,255,758
WEIGHTED-AVERAGE SHARE EQUIVALENTS OUTSTANDING		2,608,996			3,835,617			2,597,895			3,966,198
WEIGHTED-AVERAGE SHARES AND SHARE EQUIVALENTS OUTSTANDING		72,418,170			74,197,171			72,726,718			74,221,956

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 Six
	Months Ended
	June 30, 2008			For the Year Ended
	(Unaudited)			December 31, 2007
COMMON SHARES:
BALANCE AT BEGINNING OF YEAR		72,087,287			70,848,482
ISSUANCE OF SHARES PURSUANT TO STOCK PURCHASE PLANS, NET		195,654			491,416
ISSUANCE OF SHARES PURSUANT TO STOCK BASED COMPENSATION PLANS		573,605			747,389
LESS: TREASURY SHARES ACQUIRED		(1,353,200	)		—
BALANCE AT END OF PERIOD		71,503,346			72,087,287
COMMON STOCK:
BALANCE AT BEGINNING OF YEAR	$	423,379		$	376,986
ISSUANCE OF SHARES PURSUANT TO STOCK PURCHASE PLANS		5,060			16,448
EFFECTS OF ISSUANCE OF SHARES PURSUANT TO STOCK BASED COMPENSATION PLANS		14,166			29,155
OTHER		—			790
LESS: COST OF TREASURY SHARES ACQUIRED		(42,901	)		—
BALANCE AT END OF PERIOD		399,704			423,379
NOTES RECEIVABLE FROM SHAREHOLDERS:
BALANCE AT BEGINNING OF YEAR		(19,595	)		(17,074	)
NOTES RECEIVABLE ISSUED PURSUANT TO EMPLOYEE STOCK PURCHASE PLANS		(4,934	)		(8,466	)
COLLECTION OF NOTES RECEIVABLE		1,964			5,945
BALANCE AT END OF PERIOD		(22,565	)		(19,595	)
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF DEFERRED INCOME TAXES:
BALANCE AT BEGINNING OF YEAR		34,369			24,848
OTHER COMPREHENSIVE INCOME (LOSS) INCOME, NET OF TAXES		(41,725	)		9,521
BALANCE AT END OF PERIOD		(7,356	)		34,369
RETAINED EARNINGS:
BALANCE AT BEGINNING OF YEAR		1,109,320			782,507
NET INCOME		115,584			326,813
BALANCE AT END OF PERIOD		1,224,904			1,109,320
TOTAL SHAREHOLDERS’ EQUITY	$	1,594,687		$	1,547,473

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 Six Months Ended June 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME	$	115,584		$	160,381
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
NET REALIZED INVESTMENT (GAIN) LOSS		22,907			(29,821	)
GAIN ON SALE OF FIXED ASSETS		(1,174	)		—
AMORTIZATION OF INVESTMENT PREMIUMS, NET OF DISCOUNT		4,916			3,044
AMORTIZATION OF INTANGIBLE ASSETS		1,946			1,434
DEPRECIATION		4,374			3,821
DEFERRED INCOME TAX BENEFIT		(16,394	)		(14,562	)
CHANGE IN PREMIUMS RECEIVABLE		(21,679	)		9,019
CHANGE IN PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES, NET OF FUNDS HELD PAYABLE TO REINSURER		(20,902	)		(2,866	)
CHANGE IN ACCRUED INVESTMENT INCOME		(3,336	)		(2,172	)
CHANGE IN DEFERRED ACQUISITION COSTS		(2,943	)		(8,547	)
CHANGE IN INCOME TAXES PAYABLE		(11,022	)		11,544
CHANGE IN OTHER ASSETS		(12,006	)		4,542
CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES		181,389			100,213
CHANGE IN UNEARNED PREMIUMS		19,111			19,513
CHANGE IN OTHER LIABILITIES		(13,009	)		1,854
FAIR VALUE OF STOCK BASED COMPENSATION		8,393			7,649
EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO STOCK BASED COMPENSATION PLANS		(1,971	)		(2,902	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		254,184			262,144
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITIES		500			114,212
PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITIES		158,054			119,214
PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES		40,859			199,048
COST OF FIXED MATURITIES ACQUIRED		(388,919	)		(479,195	)
COST OF EQUITY SECURITIES ACQUIRED		(69,926	)		(220,459	)
PROCEEDS FROM SALE OF FIXED ASSETS		3,825			—
PURCHASE OF PROPERTY AND EQUIPMENT, NET		(2,687	)		(2,704	)
PAYMENT FOR ACQUISITION OF GILLINGHAM & ASSOCIATES INC., NET OF CASH ACQUIRED		(32,881	)		—
PURCHASE OF OTHER INTANGIBLES		(1,877	)		(8,564	)
NET CASH USED FOR INVESTING ACTIVITIES		(293,052	)		(278,448	)
CASH FLOWS FROM FINANCING ACTIVITIES:
REPAYMENTS ON LOANS		(45,000	)		—
PROCEEDS FROM LOANS		102,220			—
PROCEEDS FROM EXERCISE OF EMPLOYEE STOCK OPTIONS		3,803			3,835
PROCEEDS FROM COLLECTION OF SHAREHOLDER NOTES RECEIVABLE		1,964			2,791
PROCEEDS FROM SHARES ISSUED PURSUANT TO STOCK PURCHASE PLANS		126			206
EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO STOCK BASED COMPENSATION PLANS		1,971			2,902
COST OF COMMON STOCK REPURCHASED		(42,901	)		—
NET CASH PROVIDED BY FINANCING ACTIVITIES		22,183			9,734
NET INCREASE IN CASH AND CASH EQUIVALENTS		(16,685	)		(6,570	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		106,342			108,671
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	89,657		$	102,101
NON-CASH TRANSACTIONS:
ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLANS IN EXCHANGE FOR NOTES RECEIVABLE	$	4,934		$	3,450

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 June 30, 2008 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 six months ended June 30, 2008 are not necessarily indicative of the operating results to be expected for the full year or any other period.
	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, 2007.
2.	Fair Value Measurements
	On January 1, 2008, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Statement No. 157 “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value and provides a consistent framework for measuring items at fair value as previously permitted by existing accounting pronouncements. SFAS 157 provides a “fair value hierarchy” which prioritizes the quality of inputs used when measuring items at fair value and requires expanded disclosures for fair value measurements.
	On February 12, 2008, SFAS 157 was amended by FASB Staff Position No. FAS 157-2 (“FSP FAS 157-2”). FSP FAS 157-2 delayed the effective date of SFAS 157 for non-financial assets and non-financial liabilities which are measured at fair value on a nonrecurring basis. Non-financial assets and non-financial liabilities which are measured at fair value on a recurring basis (i.e. at least annually) are not subject to this deferral. This deferral is effective until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. At that time, provisions of SFAS 157 will apply to non-financial assets and non-financial liabilities which are measured at fair value on a non-recurring basis.
	As of June 30, 2008, the Company has no non-financial assets or non-financial liabilities that are measured at fair value on a recurring basis. The Company is currently evaluating the impact of measuring non-financial assets and non-financial liabilities on a non-recurring basis.
	The Company’s financial assets consist of its investments in fixed maturity and equity securities, and cash equivalents. The Company accounts for its fixed maturity and equity securities assets at fair value under FASB Statement No. 115 “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”). Historically, the Company’s external fixed maturity investment manager has provided pricing for the Company’s financial assets based upon pricing methodologies approved by the investment manager’s internal pricing committee utilizing pricing information from market vendors on a pre-established provider list. Effective with the Company’s adoption of SFAS 157 and as of June 30, 2008, the Company’s external fixed maturity investment manager has assisted the Company in measuring the fair value of these financial assets accounted for under SFAS 115, in accordance with the provisions of SFAS 157. No cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2008 was required as the result of the adoption of SFAS 157. As of June 30, 2008, the Company has no liabilities required to be measured at fair value in accordance with the provisions of SFAS 157.
	SFAS 157 Valuation Techniques:
	SFAS 157 provides three acceptable valuation techniques that should be used to measure fair value. The following is a brief description of these valuation techniques:

Market Approach – Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities to measure fair value.

7

Income Approach – Uses valuation techniques to convert future amounts (i.e. cash flows or earnings) to a single discounted present value amount to measure fair value.

Cost Approach – Uses the cost that would currently be required to replace the service capacity of an asset (“current replacement cost”) to measure fair value.

As of June 30, 2008, the Company primarily measured the fair value of its financial assets which are measured on a recurring basis utilizing the Market Approach. Certain other financial assets were measured using the Income Approach. The Company has consistently applied these valuation techniques during the six months ended June 30, 2008.

“Fair Value Hierarchy” to SFAS 157 Valuation Techniques:

The SFAS 157 “fair value hierarchy” provides three priority levels to the inputs used in the valuation techniques described above when determining a fair value measurement. The “fair value hierarchy” gives the highest priority to observable inputs represented by quoted prices in active markets for identical assets or liabilities (Level 1 input) and the lowest priority to unobservable inputs primarily based upon a Company’s own internal determinations of the assumptions that a market participant would use in pricing the asset or liability (Level 3 input). In the event that the inputs utilized to measure a financial asset at fair value fall within different levels of the “fair value hierarchy”, the Company uses the lowest level of the most significant input utilized to categorize the measurement within the “fair value hierarchy.” Consequently, a fair value measurement categorized as having Level 3 inputs may also contain Level 1 or Level 2 inputs.

The following is a description of the Company’s categorization of the inputs used in the recurring fair value measurements of its financial assets included in its Consolidated Balance Sheets as of June 30, 2008:

Level 1 – Represents financial assets whose fair value is determined based upon observable unadjusted quoted market prices for identical financial assets in active markets that the Company has the ability to access. The Company determines a market to be active if securities have traded on it within the last 7 business days. An example of a Level 1 input utilized to measure fair value includes the closing price of one share of common stock on an active exchange market.

Level 2 – Represents financial assets whose fair value is determined based upon various inputs including, but not limited to, quoted market prices for similar assets in active markets, quoted market prices for identical assets in inactive markets, inputs other than quoted market prices that are observable for the asset such as interest rates or yield curves, or other inputs derived principally from or corroborated from other observable market information. An example of a Level 2 input utilized to measure fair value, specifically for the Company’s fixed maturity portfolio, is “matrix pricing.” “Matrix pricing” relies on observable inputs from active markets other than quoted market prices including, but not limited to, benchmark securities and yields, latest reported trades, quotes from brokers or dealers, issuer spreads, bids, offers, and other relevant reference data to determine fair value. “Matrix pricing” is used to measure the fair value of fixed maturity securities where obtaining individual quoted market prices is impractical.

Level 3 – Represents financial assets whose fair value is determined based upon inputs that are unobservable, including the Company’s own determinations of the assumptions that a market participant would use in pricing the asset. Examples of a Level 3 input utilized to measure fair value include broker pricing and net asset value calculations. As financial assets measured using Level 3 inputs may represent non-investment grade structured securities, the Company obtains the broker pricing from either the lead manager of the issue or from the broker used at the time the security was purchased. Material assumptions and factors considered by the brokers in pricing these securities may include cash flows, collateral performance including delinquencies, defaults and recoveries, and any market clearing activity or liquidity circumstances in the security or benchmark securities that may have occurred since the prior pricing period. Net asset value calculations are obtained from the lead investment manager of the asset being measured.

8

The Company’s external fixed maturity investment manager assists the Company with the categorization of these inputs within the SFAS 157 “fair value hierarchy” based upon their internal SFAS 157 policies and procedures, approved by their internal pricing committee.

Gains or losses for assets categorized with Level 3 inputs may include changes in fair value that are attributable to both observable Level 1 and Level 2 inputs and unobservable Level 3 inputs.

SFAS 157 Recurring Fair Value Measurements:

The following table represents the Company’s “fair value hierarchy” for all assets measured on a recurring basis as of June 30, 2008:

Fair Value Measurements as of June 30, 2008 Utilizing:
(In Thousands)
	Quoted Prices –
	Active Markets						Significant
	Identical Assets –			Significant Other			Unobservable
	Observable Inputs			Observable Inputs			Inputs
Description	(Level 1)			(Level 2)			(Level 3)			Total
US Treasury Securities and Obligations of US Government Corporations and Agencies	$	9,363		$	4,016		$	—		$	13,379
Obligations of States and Political Subdivisions		—			1,597,298			—			1,597,298
Corporate and Bank Debt Securities		—			154,885			—			154,885
Asset Backed Securities		—			200,677			19,161			219,838
Mortgage Pass-Through Securities		—			570,405			—			570,405
Collateralized Mortgage Obligations		—			288,404			—			288,404
Total Fixed Maturities Available For Sale at Market	$	9,363		$	2,815,685		$	19,161		$	2,844,209
Equity Securities at Market		318,378			7,602			22,394			348,374
Cash Equivalents		101,594			—			—			101,594
Total Fair Value Measurements	$	429,335		$	2,823,287		$	41,555		$	3,294,177
% of Total Fair Value Measurements		13.0	%		85.7	%		1.3	%		100.0	%

On at least a quarterly basis, the Company reviews the “fair value hierarchy” classifications for its financial assets measured at fair value on a recurring basis. Changes in the observability of the inputs used to calculate the fair value of these financial assets may result in a reclassification of these financial assets within the “fair value hierarchy.” Any significant reclassifications impacting Level 3 inputs of the “fair value hierarchy” will be reported as transfers in or out of the Level 3 category as of the beginning of the quarter in which the reclassification occurred.

9

Fair Value Measurements Utilizing Level 3 Inputs:

The $19.2 million of Asset Backed Securities measured utilizing Level 3 inputs included in the table above represents two securities.

The $22.4 million of Equity Securities measured utilizing Level 3 inputs included in the table above primarily consists of $17.9 million of investments in an international equity fund owning international equity securities, and $4.4 million of investments in limited partnerships.

The following tables represent a summary of the changes in the fair value of the Company’s assets measured on a recurring basis using Level 3 inputs as of and for the three and six months ended June 30, 2008:

Fair Value Measurements Utilizing Significant Unobservable (Level 3) Inputs:
(In Thousands)
				Collateralized
	Asset Backed			Mortgage			Equity
	Securities			Obligations			Securities			Total
For The Three Months Ended June 30, 2008:
Beginning Balance as of April 1, 2008:	$	9,682		$	142		$	16,399		$	26,223
Total gains or loss (realized/unrealized)
Included in earnings		—			(7	)		(192	)		(199	)
Included in Other Comprehensive Income		(65	)		13			(614	)		(666	)
Purchases, issuances, settlements		9,882			(8	)		6,801			16,675
Transfers in and/or out of Level 3		(338	)		(140	)		—			(478	)
Ending Balance as of June 30, 2008:	$	19,161		$	—		$	22,394		$	41,555
For The Six Months Ended June 30, 2008:
Beginning Balance as of January 1, 2008:	$	10,511		$	121		$	11,505		$	22,137
Total gains or loss (realized/unrealized)
Included in earnings		1			(12	)		(795	)		(806	)
Included in Other Comprehensive Income		(835	)		47			(1,862	)		(2,650	)
Purchases, issuances, settlements		9,822			(16	)		13,546			23,352
Transfers in and/or out of Level 3		(338	)		(140	)		—			(478	)
Ending Balance as of June 30, 2008:	$	19,161		$	—		$	22,394		$	41,555

Realized gains and losses included in earnings for the three and six months ended June 30, 2008 are reported as net realized investment gain (loss). During the three and six months ended June 30, 2008, the Company recorded $0.2 million and $0.8 million, respectively, of net realized investment losses on its assets measured at fair value on a recurring basis utilizing Level 3 inputs within the net realized investment gain (loss) line of revenues.

For the three and six months ended June 30, 2008, the Company has not included any gains or losses in earnings that are attributable to the change in unrealized gains or losses relating to assets still held as of June 30, 2008. Due to the fact that the Company’s investment portfolio is classified as available for sale under SFAS 115, unrealized gains and losses are recorded as a component of other comprehensive income rather than earnings.

SFAS 159 Fair Value Option for Eligible Financial Assets and Liabilities:

On January 1, 2008, the provisions of Statement No. 159 “The Fair Value Options for Financial Assets and Financial Liabilities” (“SFAS 159”) also became effective. The purpose of SFAS 159 was to expand the use of fair value measurements by providing entities with the option of measuring certain financial assets and liabilities at fair value, which were previously measured on a basis other than fair value under existing accounting pronouncements. The Company did not elect the fair value option under SFAS 159 for any of its eligible financial instruments as of June 30, 2008.

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3.	Investments
	Impairment Reviews as of June 30, 2008:
	The Company regularly performs impairment reviews with respect to its investments. 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. 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 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, for investments other than interests in securitized assets, resulted in non-cash realized investment losses of $11.7 million and $0.1 million, respectively, for the three months ended June 30, 2008 and 2007, and $22.4 million and $2.6 million, respectively, for the six months ended June 30, 2008 and 2007. 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 FASB. As a result of the Company’s impairment evaluation for investments in securitized assets, there were no non-cash realized investment losses recorded for the three or six months ended June 30, 2008 or 2007
	The following table identifies the period of time securities with an unrealized loss as of June 30, 2008 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 2.0% and 22.9%, respectively, of the total estimated fair value, or 4.7% and 11.4%, respectively, of the total gross unrealized loss included in the table below. The industry concentration as a percentage of total estimated fair value represents investments in a geographically diversified pool of investment grade Municipal securities issued by states, political subdivisions, and public authorities under general obligation and/or special district/purpose issuing authority.  The industry concentration as a percentage of the total gross unrealized loss primarily represents investments in equity securities issued by companies in the Diversified Financial Services industry.

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	Less Than 12 Months				12 Months or More				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
June 30, 2008
Fixed Maturities Available for Sale:					(In Thousands)
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies	$	714	$	22	$	—	$	—	$	714	$	22
Obligations of States and Political Subdivisions		871,007		13,875		165,804		6,176		1,036,811		20,051
Corporate and Bank Debt Securities		83,673		1,816		5,458		315		89,131		2,131
Asset Backed Securities		100,906		3,083		13,420		1,079		114,326		4,162
Mortgage Pass-Through Securities		318,167		4,591		25,203		897		343,370		5,488
Collateralized Mortgage Obligations		82,578		2,993		20,468		1,057		103,046		4,050
Total Fixed Maturities Available for Sale	$	1,457,045	$	26,380	$	230,353	$	9,524	$	1,687,398	$	35,904
Equity Securities		155,737		30,255		—		—		155,737		30,255
Total Investments	$	1,612,782	$	56,635	$	230,353	$	9,524	$	1,843,135	$	66,159

The Company’s impairment evaluation as of June 30, 2008 for fixed maturities available for sale excluding interests in securitized assets resulted in the following conclusions:

U.S. Treasury Securities and Obligations of U.S. Government Agencies: The unrealized losses on the Company’s investments in U.S. Treasury Securities and Obligations of U.S. Government Agencies which have ratings of Aaa/AAA are attributable to the general level of interest rates. Of the 29 investment positions held, approximately 10.3% were in an unrealized loss position as of June 30, 2008.

Obligations of States and Political Subdivisions: The unrealized losses on the Company’s investments in long term tax exempt securities which have ratings of Baa3/BBB- to Aaa/AAA are attributable to changes both in market spreads and in the level of Treasury yields. Of the 968 investment positions held, approximately 57.9% 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. Therefore, it is expected that the securities would not be settled at a price less than the amortized cost of the investments.

Corporate and Bank Debt Securities: The unrealized losses on the Company’s long term investments in Corporate bonds which have ratings from Baa3/BBB to Aaa/AAA are attributable primarily to changes in market spreads. Of the 62 investment positions held, approximately 59.7% 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 June 30, 2008 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 Baa2/BBB to Aaa/AAA are attributable primarily to changes in market spreads. Of the 113 investment positions held, approximately 53.1% were in an unrealized loss position. The contractual terms of the

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investments do not permit the issuer to settle the security 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.

Mortgage Pass-Through Securities:

The unrealized losses on the Company’s investments in U.S. government agency issued Mortgage Pass-Through Securities which have ratings of Aaa/AAA are attributable primarily to changes in market spreads. Of the 150 investment positions held, approximately 57.3% 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. Therefore, it is expected that the securities would not be settled 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 A2/Ato Aaa/AAA are attributable primarily to changes in market spreads. Of the 167 investment positions held, approximately 33.5% 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. 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 June 30, 2008 for equity securities resulted in the conclusion that the Company does not consider the equity securities remaining in an unrealized loss position to be other than temporarily impaired. Of the 2,922 investment positions held, approximately 45.8% were in an unrealized loss position.

Structured Securities Investment Portfolio:

The fair value of the Company’s structured securities investment portfolio (Asset Backed, Mortgage Pass-Through and Collateralized Mortgage Obligation securities) amounted to $1,078.0 million as of June 30, 2008. AAA rated securities represented approximately 98.6% of the June 30, 2008 structured securities portfolio. Approximately $864.5 million of the structured securities investment portfolio is backed by residential collateral, consisting of:

• $569.4 million of U.S. government agency backed Mortgage Pass-Through Securities;

• $207.7 million of U.S. government agency backed Collateralized Mortgage Obligations;

• $68.1 million of non-U.S. government agency Collateralized Mortgage Obligations backed by pools of prime loans (generally consists of loans made to the highest credit quality borrowers with Fair Isaac Corporation (“FICO”) scores generally greater than 720);

• $16.2 million of structured securities backed by pools of ALT A loans (loans with less than normal documentation and borrowers with FICO scores in the approximate range of 650 to the low 700’s); and

• $3.1 million of structured securities backed by pools of subprime loans (loans with low documentation, higher combined loan-to-value ratios and borrowers with FICO scores capped at approximately 650).

The Company’s $19.3 million ALT-A and subprime overall AAA rated loan portfolio is comprised of 20 securities with net unrealized losses of $0.9 million as of June 30, 2008. These securities have the following characteristics:

• first to pay or among the first cash flow tranches of their respective transactions;

• weighted average life of 1.9 years;

• spread across multiple vintages (origination year of underlying collateral pool); and

• have not experienced any ratings downgrades as of June 30, 2008.

The Company’s ALT-A and subprime loan portfolio has paid down to $19.3 million as of June 30, 2008 from $27.6 million as of December 31, 2007, and $42.0 million as of June 30, 2007.

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As of June 30, 2008, the Company holds no investments in Collateralized Debt Obligations or Net Interest Margin securities.

The Company expects fixed maturity and equity markets, in general, to continue to experience more volatility than during most prior historical reporting periods over the past few years. This expectation is based on a number of variables including, but not limited to, events in the housing and mortgage finance sectors, issues surrounding the monoline financial guarantors and the impact on municipal and asset backed finance and the effect on capital markets and investors as financial institutions de-leverage and undergo a period of recapitalization. As of June 30, 2008, the Company had no impairments or surveillance issues related to these market conditions. However, the Company expects that ongoing volatility in these sectors, in particular, and in spread related sectors, in general, may impact the prices of securities held in the Company’s average AA+ rated investment portfolio, including its average AAA rated structured securities portfolio.

Amortized Cost of Structured Securities:

For mortgage and asset-backed securities (“structured securities”) of high credit quality, changes in expected cash flows are recognized using the retrospective method. Under the retrospective method, the effective yield on a security is recalculated each period based upon future expected and past actual cash flows. The security’s book value is restated based upon the most recently calculated effective yield, assuming such yield had been in effect from the security’s purchase date. The retrospective method results in an increase or decrease to investment income (amortization of premium or discount) at the time of each recalculation. Future expected cash flows consider various prepayment assumptions, as well as current market conditions. These assumptions include, but are not limited to, prepayment rates, default rates, and loss severities.

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 security. Under the prospective method, revisions to cash flows are reflected in a higher or lower effective yield in future periods and there are no adjustments to the security’s book value. Various assumptions are used to estimate projected cash flows and projected book yields based upon the most recent month end market prices. These assumptions include, but are not limited to, prepayment rates, default rates, and loss severities.

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. Prepayment assumptions for asset/mortgage backed securities consider a number of factors in estimating the prepayment activity, including, but not limited to, seasonality (the time of the year), refinancing incentive (current level of interest rates), economic activity (including housing turnover) and burnout/seasoning (term and age of the underlying collateral).

Municipal Bond Portfolio:

The Company’s $1,606.6 million municipal bond overall AA+ rated portfolio consists of $996.1 million of insured securities, or 62.0% of the Company’s total municipal bond portfolio. The weighted average underlying rating of the insured portion of the Company’s municipal bond portfolio is AA and the weighted average underlying rating of the uninsured portion of the Company’s municipal bond portfolio is AA+. The following table represents the Company’s insured bond portfolio by monoline insurer as of June 30, 2008:

	Market Value of Insured					Weighted Average
	Municipal Bonds		Percentage of Municipal			Underlying Rating of
Monoline Insurer	(In Thousands)		Bond Portfolio			Insured Municipal Bonds
Financial Security Assurance, Inc.	$	327,889		20.4	%	AA
MBIA, Inc.		298,740		18.6		AA
FGIC Corporation.		198,943		12.4		AA-
AMBAC Financial Group, Inc.		166,058		10.3		AA-
XL Capital, LTD.		4,444		0.3		AA-
Total	$	996,074		62.0	%	AA

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At the time of purchase, each municipal bond is evaluated with regard to certain characteristics including, but not limited to, the issuer, the underlying obligation and/or the revenue pledge/collateral. The presence of any “financial guarantee” insurance is not an attribute used in the purchase decision. The Company considers the “financial guarantee” insurance to be “extra” protection. As of June 30, 2008, the Company had no impairments or surveillance issues related to these insured municipal bonds.

Impairment Reviews as of December 31, 2007:

The following table identifies the period of time securities with an unrealized loss as of December 31, 2007 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 3.8% and 19.9%, respectively, of the total estimated fair value, or 9.0% and 20.5%, respectively, of the total gross unrealized loss included in the table below. The industry concentration as a percentage of total estimated fair value represents investments in a geographically diversified pool of investment grade Municipal securities issued by states, political subdivisions, and public authorities under general obligation and/or special district/purpose issuing authority.  The industry concentration as a percentage of the total gross unrealized loss primarily represents investments in equity securities issued by companies in the Diversified Financial Services industry.

	Less Than 12 Months				12 Months or More				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
December 31, 2007
Fixed Maturities Available for Sale:					(In Thousands)
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies	$	—	$	—	$	5,670	$	21	$	5,670	$	21
Obligations of States and Political Subdivisions		294,719		2,377		203,427		1,006		498,146		3,383
Corporate and Bank Debt Securities		7,835		33		58,709		570		66,544		603
Asset Backed Securities		50,574		138		13,989		81		64,563		219
Mortgage Pass-Through Securities		68,691		366		128,382		1,493		197,073		1,859
Collateralized Mortgage Obligations		30,731		236		65,252		725		95,983		961
Total Fixed Maturities Available for Sale		452,550		3,150		475,429		3,896		927,979		7,046
Equity Securities		118,095		22,159		—		—		118,095		22,159
Total Investments	$	570,645	$	25,309	$	475,429	$	3,896	$	1,046,074	$	29,205

The Company’s impairment evaluation as of December 31, 2007 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 fluctuations since the date of purchase. Of the 30 investment positions held, approximately 26.7% 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.

Obligations of States and Political Subdivisions:

The unrealized losses on the Company’s investments in long term tax exempt securities which have ratings of A1/A+ to Aaa/AAA are attributable to the spread widening. Of the 873 investment positions held, approximately 32.8% were in an unrealized loss position. The contractual terms of the investments do not

15

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.

Corporate and Bank Debt Securities:

The unrealized losses on the Company’s long term investments in Corporate bonds which have ratings from Baa3/BBB to Aaa/AAA are attributable to the spread widening. Of the 73 investment positions held, approximately 79.5% 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 December 31, 2007 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 from A2/A to Aaa/AAA are attributable to the spread widening. Of the 116 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. Therefore, it is expected that the securities would not be settled at a price less than the amortized cost of the investments.

Mortgage Pass-Through Securities:

The unrealized losses on the Company’s investments in U.S. Government Agency Issued Mortgage Pass-Through Securities which have ratings of Aaa/AAA are attributable to the spread widening. Of the 150 investment positions held the average rating was Aaa/AAA and approximately 38.7% 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. Therefore, it is expected that the securities would not be settled 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 Aa2/AA+ to Aaa/AAA are attributable to the spread widening. Of the 172 investment positions held the average rating was Aaa/AAA and approximately 41.3% 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. 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 December 31, 2007 for equity securities resulted in the conclusion that the Company does not consider the equity securities to be other than temporarily impaired. Of the 2,674 investment positions held, approximately 38.4% were in an unrealized loss position.

4.	Restricted Assets
	The Insurance Subsidiaries have investments, principally U.S. Treasury securities and Obligations of States and Political Subdivisions, on deposit with the various states in which they are licensed insurers. As of June 30, 2008 and December 31, 2007, the carrying value of the securities on deposit totaled $16.7 million and $15.7 million, respectively.
	Additionally, as of June 30, 2008 the Insurance Subsidiaries had $57.2 million of borrowings outstanding within the Federal Home Loan Bank of Pittsburgh (“FHLB”). These borrowings are collateralized by investments, principally asset backed securities, with a carrying value of $82.1 million as of June 30, 2008. As of December 31, 2007, the Insurance Subsidiaries had no borrowings outstanding or investments pledged as collateral to FHLB.
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

16

establishing the liability for property and casualty unpaid loss and loss adjustment expenses is a complex and imprecise process, requiring the use of informed estimates and judgments. The liability includes an amount determined on the basis of claim adjusters’ evaluations with respect to insured events that have 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 it to the Company.

Estimates for unpaid loss and loss adjustment expenses are based on 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 as of June 30, 2008, the related adjustments could have a material adverse impact on the Company’s financial condition and results of operations.

During the three months ended June 30, 2008, the Company decreased the estimated net unpaid loss and loss adjustment expenses for accident years 2007 and prior by the following amounts:

	Net
(In Millions)	Decrease
Accident Year 2007	$	6.6
Accident Year 2006		4.8
Accident Year 2005		4.1
Accident Years 2004 and prior		3.0
Total	$	18.5

For accident year 2007, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability, commercial property, and management liability coverages due to better than expected case incurred loss development, primarily as a result of claim frequency being less than anticipated for commercial general liability and commercial property coverages, and claim severity being less than anticipated for management liability coverage. These lower loss estimates were partially offset by higher loss estimates for commercial automobile coverages due to higher than expected case incurred loss development, primarily as a result of both claim frequency and severity being greater than anticipated.

For accident year 2006, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial property and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated. These lower loss estimates were partially offset by higher loss estimates for commercial automobile coverages due to higher than expected case incurred loss development, primarily as a result of claim severity being greater than anticipated.

For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for management liability and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated.

For accident years 2004 and prior, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability, management liability, and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated.

During the six months ended June 30, 2008, the Company decreased the estimated net unpaid loss and loss adjustment expenses for accident years 2007 and prior by the following amounts:

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	Net
(In Millions)	Decrease
Accident Year 2007	$	4.7
Accident Year 2006		8.9
Accident Year 2005		5.3
Accident Years 2004 and prior		5.5
Total	$	24.4

For accident year 2007, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability and management liability coverages due to better than expected case incurred loss development, primarily as a result of claim frequency being less than anticipated for commercial general liability coverage and claim severity being less than anticipated for management liability coverage These lower loss estimates were partially offset by higher loss estimates for commercial automobile coverages due to higher than expected case incurred loss development, primarily as a result of both claim frequency and severity being greater than anticipated.

For accident year 2006, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability, commercial property, and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated. These lower loss estimates were partially offset by higher loss estimates for commercial automobile coverages due to higher than expected case incurred loss development, primarily as a result of claim severity being greater than anticipated.

For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability and management liability and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated.

For accident years 2004 and prior, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates across most coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated.

6.	Shareholders’ Equity
	The Philadelphia Consolidated Holding Corp. Amended and Restated Employees’ Stock Incentive and Performance Based Compensation Plan (the “Plan”) provides incentives and awards to those employees and members of the Board (“participants”) largely responsible for the long term success of the Company. Under the Plan, the Company issued 512,760 and 436,607 stock settled appreciation rights (“SARS”) during the six months ended June 30, 2008 and the year ended December 31, 2007, respectively. The Company also issued 259,695 and 146,884 shares of restricted stock awards during the six months ended June 30, 2008 and the year ended December 31, 2007, respectively.
7.	Stock Repurchase
	During the six months ended June 30, 2008, the Company repurchased 1,353,200 shares of stock at a cost of $42.9 million under its stock repurchase authorization. As of June 30, 2008, $52.1 million remains available under previous stock purchase authorizations which aggregated $125.3 million. During the six months ended June 30, 2007, the Company did not repurchase any shares of stock under its stock repurchase authorization.
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. The computation of earnings per share for the three and six months ended June 30, 2008 and 2007, is as follows:

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	As of and For the Three				As of and For the Six
	Months Ended June 30,				Months Ended June 30,
(In Thousands, Except Per Share Amounts)	2008		2007		2008		2007
Weighted-Average Common Shares Outstanding		69,809		70,362		70,129		70,256
Weighted-Average Potential Shares Issuable		2,609		3,835		2,598		3,966
Weighted-Average Shares and Potential Shares Issuable		72,418		74,197		72,727		74,222
Net Income	$	52,908	$	94,401	$	115,584	$	160,381
Basic Earnings per Share	$	0.76	$	1.34	$	1.65	$	2.28
Diluted Earnings per Share	$	0.73	$	1.27	$	1.59	$	2.16

The following tables present stock appreciation rights (“SARS”) that were outstanding during 2008 or 2007, but were not included in the computation of earnings per share as of or for the three or six months ended June 30, 2008 and 2007 because the SARS’ hypothetical option price was greater than the average market prices of the Company’s common shares for the period:

As of and For the Three Months Ended June 30, 2008					As of and For the Three Months Ended June 30, 2007
SARS Outstanding					SARS Outstanding
as of		Hypothetical		Expiration Date	as of		Hypothetical		Expiration Date
June 30, 2008		Option Price		of SAR	June 30, 2007		Option Price		of SAR
	30,000	$	39.95	September 28, 2016		407,446	$	47.52	February 21, 2017
	407,446	$	47.52	February 21, 2017		25,000	$	43.44	March 19, 2017
	25,000	$	43.44	March 19, 2017
	661	$	42.41	May 1, 2017
	3,500	$	36.85	August 1, 2017
	65,620	$	37.12	April 29, 2018
As of and For the Six Months Ended June 30, 2008					As of and For the Six Months Ended June 30, 2007
SARS Outstanding					SARS Outstanding
as of		Hypothetical		Expiration Date	as of		Hypothetical		Expiration Date
June 30, 2008		Option Price		of SAR	June 30, 2007		Option Price		of SAR
	22,500	$	35.35	March 1, 2016		407,446	$	47.52	February 21, 2017
	30,000	$	39.95	September 28, 2016
	407,446	$	47.52	February 21, 2017
	25,000	$	43.44	March 19, 2017
	661	$	42.41	May 1, 2017
	3,500	$	36.85	August 1, 2017
	65,620	$	37.12	April 29, 2018

9.	Income Taxes
	The Company’s liability for its unrecognized tax benefits was $0.2 million as of June 30, 2008 and December 31, 2007. As of June 30, 2008 and December 31, 2007, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $0.2 million. Interest and penalties accrued for the underpayment of taxes are recorded as a component of income tax expense. The liability for interest and penalties amounted to $0.1 million as of June 30, 2008 and December 31, 2007.
	The Company and its subsidiaries file Federal and State income tax returns as required. The Company and its subsidiaries are subject to Federal and State examinations for tax years 2003 through 2007, and 2005 through 2007, respectively.
	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.
10.	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 and diversifying business. Reinsurance contracts do not relieve the Company from its obligations to policyholders. The effect of reinsurance on written and earned premiums is as follows:

	For the Three Months Ended						For the Three Months Ended
	June 30, 2008						June 30, 2007
(In Thousands)	Written			Earned			Written			Earned
Direct Business	$	444,741		$	439,538		$	397,829		$	394,634
Reinsurance Assumed		538			808			684			865
Reinsurance Ceded		(46,833	)		(47,309	)		(59,326	)		(58,184	)
Net Premiums	$	398,446		$	393,037		$	339,187		$	337,315

	For the Six Months Ended						For the Six Months Ended
	June 30, 2008						June 30, 2007
	Written			Earned			Written			Earned
Direct Business	$	887,345		$	867,830		$	791,360		$	771,576
Reinsurance Assumed		1,021			1,425			1,267			1,538
Reinsurance Ceded		(83,952	)		(96,830	)		(116,007	)		(117,081	)
Net Premiums	$	804,414		$	772,425		$	676,620		$	656,033

19

11.	Commitments and Contingencies
	Legal Proceedings:
	On February 26, 2008, the Company received a complaint filed on February 14, 2008 with the U.S. District Court for the Southern District of Florida by seven individuals. These individuals purported to act on behalf of a class of similarly situated persons who had been issued insurance policies by Liberty American Select Insurance Company, formerly known as Mobile USA Insurance Company (“LASIC”). The complaint, which is alleged to be a “class action complaint”, was filed against the Company and its subsidiaries, LASIC, Liberty American Insurance Company and Liberty American Insurance Group, Inc. The complaint requests an unspecified amount of damages “in excess of $5,000,000” and equitable relief to prevent the defendants from committing what are alleged to be unfair business practices. The plaintiffs allege that from the period from at least as early as September 1, 2003 through December 31, 2006 they and other policyholders sustained property damage covered under policies issued by LASIC, and that LASIC improperly denied or paid only a portion of the policyholders’ claims for which they were entitled to be reimbursed.
	The Company believes that it has valid defenses to the claims made in the complaint, and that the claims may not be entitled to be brought as a class action. The Company will vigorously defend against such claims. Although there is no assurance as to the outcome of this litigation or as to its effect on the Company’s financial position, the Company believes, based on the facts currently known to it, that the outcome of this litigation will not have a material adverse effect on its financial position.
	The Company is also subject to routine legal proceedings in connection with its property and casualty insurance business.
	Credit Agreement:
	The Company maintains 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. The Credit Agreement had a maturity date of June 27, 2008, which was extended to July 11, 2008. The Credit Agreement contains an annual commitment fee of 6.0 basis points per annum on the unused commitments under the Credit Agreement. Each loan under the amended Credit Agreement will bear interest at a per annum rate equal to, at the Company’s option, (i) Libor plus 0.35% or (ii) the higher of the administrative agent and lender’s prime rate and the Federal Funds rate plus 0.50%. As of June 30, 2008, no borrowings were outstanding under the Credit Agreement. The Credit Agreement contains various representations, covenants and events of default typical for credit facilities of this type. As of June 30, 2008, the Company was in compliance with all covenants contained in the Credit Agreement.
	On July 11, 2008, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with Bank of America, N.A. and Wachovia Bank, National Association. The Amended Credit Agreement amended and restated the Company’s existing unsecured Credit Agreement among the Company and such Banks. The Amended Credit Agreement changed the terms of the existing Credit Agreement by extending the maturity date to June 26, 2009, including a $10.0 million letter of credit facility as part of the aggregate $50.0 million revolving credit commitments of the Bank lenders, increasing the unused commitment fee from 6.0 basis points to 7.0 basis points per annum and increasing the Company’s Libor option per annum interest rate from Libor plus 0.35% to Libor plus 0.40%.
	State Insurance Guaranty Funds:
	As of June 30, 2008 and December 31, 2007, included in Other Liabilities in the Consolidated Balance Sheets were $17.9 million and $13.2 million, respectively, of liabilities for state insurance guaranty funds. As of June 30, 2008 and December 31, 2007, included in Other Assets in the Consolidated Balance Sheets were $0.2 million 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.

20

	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 originally 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 participating companies for a deficit in any calendar year up to a maximum of the greater of 6% of the deficit or 6% 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.
	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 their policyholders and remit them to the FHCF as they are collected.
12.	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 Losses arising during the three and six months ended June 30, 2008 and 2007 was $17.7 million and $6.4 million, respectively, and $30.5 million and $1.6 million, respectively. The related tax effect of Reclassification Adjustments for the three and six months ended June 30, 2008 and 2007 was $4.0 million and $(9.8) million, respectively, and $8.0 million and $(10.4) million, respectively.
13.	New Accounting Pronouncements
	In March 2008, the FASB issued Statement No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”) to enhance disclosures about an entity’s derivative and hedging activities. SFAS 161 is effective for all financial statements issued in fiscal years and interim periods beginning after November 15, 2008 and early application is encouraged. SFAS 161 also encourages but does not require comparative disclosures for earlier periods at initial adoption. As the Company does not currently engage in derivative transactions or hedging activities, the Company does not anticipate any significant financial statement disclosure impact resulting from its evaluation of SFAS 161.
	In May 2008, the FASB issued Statement No. 162 “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”) to identify the sources of accounting principles and provide a framework for selecting the principles to be used in the preparation of financial statements in accordance with generally accepted accounting principles in the United States. SFAS 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.”

21

	The Company does not anticipate any significant financial statement impact resulting from its evaluation of SFAS 162.
	In May 2008, the FASB issued Statement No. 163 “Accounting for Financial Guarantee Insurance Contracts – an interpretation of FASB Statement No. 60” (“SFAS 163”) to eliminate diversity in practice in accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60 “Accounting and Reporting by Insurance Enterprises.” SFAS 163 is effective for all financial statements issued in fiscal years and interim periods beginning after December 15, 2008, with the exception of disclosures about insurance enterprises’ risk-management activities used to track and monitor deteriorating insured financial obligations, which are effective for the first period, including interim periods, after the issuance of SFAS 163. Except for these risk-management disclosures, early application is not permitted. As the Company does not currently enter into financial guarantee insurance contracts, the Company does not anticipate any significant financial statement or disclosure impact resulting from its evaluation of SFAS 163.
14.	Segment Information
	The Company’s operations are classified into three reportable business segments which are organized around its underwriting divisions:

• The Commercial Lines Underwriting Group, which has underwriting responsibility for the commercial multi-peril package, commercial automobile, specialty property and inland marine, and antique/collector car insurance products;

• The Specialty Lines Underwriting Group, which has underwriting responsibility for the professional and management liability insurance products; and

• The Run-Off (previously the Personal Lines Group) business segment, which pursuant to approval received in February, 2008 from the Florida Office of Insurance Regulation, is currently in the process of non-renewing all personal lines policies, other than policies issued pursuant to the National Flood Insurance Program (“NFIP”), beginning with policies expiring on or about July 23, 2008. The Company currently expects the non-renewal process to be completed by July 23, 2009.

Each business segment’s responsibilities include: pricing, managing the risk selection process, and monitoring the loss ratios by product and insured. The reportable segments operate solely within the United States and have not been aggregated.

The segments follow the same accounting policies used for the Company’s consolidated financial statements as described in the summary of significant accounting policies. Management evaluates a segment’s performance based upon premium production and the associated loss experience which includes paid losses, an amount determined on the basis of claim adjusters’ evaluation with respect to insured events that have occurred and an amount for losses incurred that have not yet been reported. Investments and investment performance including investment income and net realized investment gain; 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 six months ended June 30, 2008 and 2007. Corporate information is included to reconcile segment data to the consolidated financial statements:

22

	As of and For The Three Months Ended June 30,
	Commercial		Specialty
(In Thousands)	Lines		Lines		Run-Off			Corporate			Total
2008:
Gross Written Premiums	$	364,625	$	65,198	$	15,457		$	—		$	445,280
Net Written Premiums	$	335,469	$	60,085	$	2,892		$	—		$	398,446
Revenue:
Net Earned Premiums	$	332,583	$	58,348	$	2,106		$	—		$	393,037
Net Investment Income		—		—		—			32,299			32,299
Net Realized Investment Loss		—		—		—			(11,513	)		(11,513	)
Other Income		—		—		1,381			2,273			3,654
Total Revenue		332,583		58,348		3,487			23,059			417,477
Losses and Expenses:
Net Loss and Loss Adjustment Expenses		205,107		17,231		932			—			223,270
Acquisition Costs and Other Underwriting Expenses		—		—		—			115,479			115,479
Other Operating Expenses		—		—		121			4,255			4,376
Total Losses and Expenses		205,107		17,231		1,053			119,734			343,125
Income Before Income Taxes		127,476		41,117		2,434			(96,675	)		74,352
Total Income Tax Expense		—		—		—			21,444			21,444
Net Income	$	127,476	$	41,117	$	2,434		$	(118,119	)	$	52,908
Total Assets	$	—	$	—	$	88,589		$	4,314,921		$	4,403,510
2007:
Gross Written Premiums	$	321,908	$	59,963	$	16,642		$	—		$	398,513
Net Written Premiums	$	293,543	$	49,337	$	(3,693	)	$	—		$	339,187
Revenue:
Net Earned Premiums	$	286,642	$	47,811	$	2,862		$	—		$	337,315
Net Investment Income		—		—		—			28,522			28,522
Net Realized Investment Gain		—		—		—			28,064			28,064
Other Income		—		—		630			220			850
Total Revenue		286,642		47,811		3,492			56,806			394,751
Losses and Expenses:
Net Loss and Loss Adjustment Expenses		123,238		24,024		1,327			—			148,589
Acquisition Costs and Other Underwriting Expenses		—		—		—			101,746			101,746
Other Operating Expenses		—		—		357			2,624			2,981
Total Losses and Expenses		123,238		24,024		1,684			104,370			253,316
Income Before Income Taxes		163,404		23,787		1,808			(47,564	)		141,435
Total Income Tax Expense		—		—		—			47,034			47,034
Net Income	$	163,404	$	23,787	$	1,808		$	(94,598	)	$	94,901
Total Assets	$	—	$	—	$	107,019		$	3,647,930		$	3,754,949

23

	As of and For The Six Months Ended June 30,
	Commercial		Specialty
(In Thousands)	Lines		Lines		Run-Off			Corporate			Total
2008:
Gross Written Premiums	$	722,978	$	134,330	$	31,058		$	—		$	888,366
Net Written Premiums	$	662,800	$	133,659	$	7,955		$	—		$	804,414
Revenue:
Net Earned Premiums	$	653,816	$	113,987	$	4,622		$	—		$	772,425
Net Investment Income		—		—		—			64,304			64,304
Net Realized Investment Loss		—		—		—			(22,907	)		(22,907	)
Other Income		—		—		1,807			3,200			5,007
Total Revenue		653,816		113,987		6,429			44,597			818,829
Losses and Expenses:
Net Loss and Loss Adjustment Expenses		366,086		47,969		2,634			—			416,689
Acquisition Costs and Other Underwriting Expenses		—		—		—			229,635			229,635
Other Operating Expenses		—		—		586			7,379			7,965
Total Losses and Expenses		366,086		47,969		3,220			237,014			654,289
Income Before Income Taxes		287,730		66,018		3,209			(192,417	)		164,540
Total Income Tax Expense		—		—		—			48,956			48,956
Net Income	$	287,730	$	66,018	$	3,209		$	(241,373	)	$	115,584
Total Assets	$	—	$	—	$	88,589		$	4,314,921		$	4,403,510
2007:
Gross Written Premiums	$	633,277	$	120,705	$	38,645		$	—		$	792,627
Net Written Premiums	$	578,965	$	99,897	$	(2,242	)	$	—		$	676,620
Revenue:
Net Earned Premiums	$	558,547	$	93,293	$	4,193		$	—		$	656,033
Net Investment Income		—		—		—			55,495			55,495
Net Realized Investment Gain		—		—		—			29,821			29,821
Other Income		—		—		1,448			232			1,680
Total Revenue		558,547		93,293		5,641			85,548			743,029
Losses and Expenses:
Net Loss and Loss Adjustment Expenses		238,706		54,800		5,588			—			299,094
Acquisition Costs and Other Underwriting Expenses		—		—		—			198,650			198,650
Other Operating Expenses		—		—		796			5,340			6,136
Total Losses and Expenses		238,706		54,800		6,384			203,990			503,880
Income Before Income Taxes		319,841		38,493		(743	)		(118,442	)		239,149
Total Income Tax Expense		—		—		—			78,768			78,768
Net Income	$	319,841	$	38,493	$	(743	)	$	(197,210	)	$	160,381
Total Assets	$	—	$	—	$	107,019		$	3,647,930		$	3,754,949

24

Summarized revenue information by product grouping for the Company’s three reportable business segments for the three and six months ended June 30, 2008 and 2007 is as follows:

	For The Three Months Ended					For The Six Months Ended
	June 30,					June 30,
(In Thousands)	2008			2007		2008			2007
Commercial Lines Net Earned Premiums
Commercial Package	$	303,282		$	261,611	$	595,084		$	513,053
Specialty Property		14,498			14,508		30,042			27,757
Commercial Auto		6,073			6,104		11,750			11,238
Antique/Collector Auto		7,967			3,566		15,552			5,136
All Other		763			853		1,388			1,363
Total Commercial Lines		332,583			286,642		653,816			558,547
Specialty Lines Net Earned Premiums
Management Liability		35,176			25,940		67,555			49,658
Professional Liability		23,172			21,871		46,432			43,635
Total Specialty Lines		58,348			47,811		113,987			93,293
Run-Off Net Earned Premiums
Homeowners and Manufactured Housing		2,106			2,862		4,622			4,193
National Flood Insurance Program		—			—		—			—
Total Run-Off Net Earned Premiums		2,106			2,862		4,622			4,193
Other Income		1,381			630		1,807			1,448
Total Run-Off		3,487			3,492		6,429			5,641
Corporate
Net Investment Income		32,299			28,522		64,304			55,495
Net Realized Investment Gain (Loss)		(11,513	)		28,064		(22,907	)		29,821
Other Income		2,273			220		3,200			232
Total Corporate		23,059			56,806		44,597			85,548
Total Revenue	$	417,477		$	394,751	$	818,829		$	743,029

15.

Subsequent Event

On July 23, 2008, the Company and Tokio Marine Holdings, Inc. (“TMHD”) entered into an Agreement and Plan of Merger under which, at the closing of the merger, TMHD would acquire all outstanding shares of the Company for $61.50 per share, in cash, through TMHD’s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd. The total value of this transaction is approximately $4,700.0 million, and the transaction is expected to close in the fourth quarter of 2008. The closing of the merger is subject to regulatory and shareholder approval, as well as other customary closing conditions.

25

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

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

Forward-Looking Information

Certain information included in this report and other statements or materials published or to be published by us 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, we provide the following cautionary remarks regarding important factors which, among others, could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. The risks and uncertainties that may affect the operations, performance, development, results of our business, and the other matters referred to below include, but are not limited to those matters set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and in Item 1A of Part II of this Report. We do not intend to publicly update any forward looking statement, except as may be required by law.

General

Although our financial performance is dependent upon our own specific business characteristics, certain risk factors can affect our profitability and/or our financial condition. These include, but are not limited to, the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and in Item 1A of Part II of this Report.

These risk factors should be read in conjunction with the Certain Critical Accounting Estimates and Judgments included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Our operations are classified into three reportable business segments which are organized as follows: the Commercial Lines Underwriting Group, the Specialty Lines Underwriting Group and the Run-Off (previously the Personal Lines Underwriting Group) business segments. The Run-Off business segment, pursuant to an approval received in February, 2008 from the Florida Office of Insurance Regulation, is currently in the process of non-renewing all personal lines policies, other than policies issued pursuant to the National Flood Insurance Program (“NFIP”), beginning with policies expiring on or about July 23, 2008. We currently expect the non-renewal process to be completed by July 23, 2009.

On July 23, 2008, we and Tokio Marine Holdings, Inc. (“TMHD”) entered into an Agreement and Plan of Merger under which TMHD would acquire all of our outstanding shares for $61.50 per share, in cash, through TMHD’s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd. The total value of this transaction is approximately $4,700.0 million. The merger is expected to close in the fourth quarter of 2008. The closing of the merger is subject to regulatory and shareholder approval, as well as other customary closing conditions.

Critical Accounting Estimates

The preparation of our 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 we believe 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:

• Investments — fair value;

• Investments — other than temporary impairments;

• Liability for unpaid loss and loss adjustment expenses;

• Reinsurance receivables;

• Liability for preferred agent profit sharing; and

• Share-based compensation expense.

26

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

On January 1, 2008, we adopted the provisions of SFAS 157. SFAS 157 defines fair value and provides a consistent framework for measuring items at fair value as previously permitted by existing accounting pronouncements. SFAS 157 provides a “fair value hierarchy” which prioritizes the quality of inputs used when measuring the items at fair value and requires expanded disclosures for fair value measurements. As of June 30, 2008, the fair value of our investments has been determined in accordance with the provisions of SFAS 157. A further discussion of this matter is included under the “Investments” section below.

Our accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the Consolidated Financial Statements. Actual results could differ materially from these estimates. For a discussion of how these estimates and other factors may affect our business, see the Risk Factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Results of Operations (Six Months Ended June 30, 2008 compared to June 30, 2007)

     Premiums: Premium information for the six months ended June 30, 2008 compared to June 30, 2007 for each of our business segments is as follows:

(Dollars In Millions)	Commercial Lines			Specialty Lines			Run-off			Total
2008 Gross Written Premiums	$	723.0		$	134.3		$	31.1		$	888.4
2007 Gross Written Premiums	$	633.3		$	120.7		$	38.6		$	792.6
Percentage Increase (Decrease)		14.2	%		11.3	%		(19.4	)%		12.1	%
2008 Gross Earned Premiums	$	716.3		$	124.6		$	28.4		$	869.3
2007 Gross Earned Premiums	$	613.2		$	115.2		$	44.7		$	773.1
Percentage Increase (Decrease)		16.8	%		8.2	%		(36.5	)%		12.4	%

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 our marketing Regional Vice Presidents continue to result in additional prospects and increased premium writings in existing product offerings, most notably for the following:

§	Our condominium and homeowners associations, religious organizations, non-profit, antique/collector vehicle, golf and country clubs, day care centers, and specialty schools products in the commercial package product grouping. These product offerings accounted for approximately $49.2 million of the $89.7 million total commercial lines segment gross written premiums increase.
§	Our consultant liability product in the professional liability product grouping, as well as our private company protection, directors and officers, and business owners products in the management liability product grouping. These product offerings accounted for all of the $13.6 million total specialty lines segment gross written premiums increase.

• The introduction of several new niche product offerings, such as the affordable housing, special events, and museum commercial package products, as well as the difference in conditions inland marine specialty property product. These new product offerings accounted for approximately $26.1 million of the $89.7 million total commercial lines segment gross written premiums increase.

• The acquisition of Gillingham & Associates, Inc. on March 10, 2008, which accounted for approximately $8.9 million of commercial lines segment gross written premium growth for the six months ended June 30, 2008.

27

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

• An increase in our marketing personnel, as well as an increase in the number of our preferred agents.

• Our “Firemark Producer” program, which promotes our product offerings and underwriting philosophy in selected producers’ offices.

• As a result of the factors noted above, the commercial lines and specialty lines segments in-force policy counts increased by 12.6% and 49.3%, respectively, for the six months ended June 30, 2008.

The growth in gross written premiums was offset in part by:

• Realized average rate decreases on renewal business approximating 4.6% and 2.2% for the commercial lines and specialty lines segments, respectively.

• Continued price competition during the six months ended June 30, 2008, particularly with respect to the following:

§	Large commercial property-driven accounts located in the non-coastal areas of the country;
§	Commercial package business with annual premiums in excess of $100,000; and
§	Professional liability accounts at all premium levels.

• A reduction in personal lines (run-off segment) production for our homeowners and rental dwelling policies. This reduction was imposed to reduce our exposure to catastrophe wind losses. On February 29, 2008, we received approval from the Florida Office of Insurance Regulation (“FOIR”) to non-renew all of our Florida personal lines policies, other than policies issued pursuant to the National Flood Insurance Program, beginning with policies expiring on or about July 23, 2008. We currently expect the non-renewal process to be completed by July 23, 2009. As of June 30, 2008, there were approximately 3,677 in-force policies with an aggregate in-force premium of approximately $2.9 million which expire between July 23, 2008 and December 31, 2008, which we will not renew during 2008.

• A decrease in bowling centers commercial package product gross written premium of $3.2 million as a result of non-renewing policies due to unacceptable underwriting results. For the six months ended June 30, 2008, gross written premium for the bowling centers commercial package product was $0.6 million. The Company anticipates that it will continue to non-renew its remaining bowling centers commercial package business throughout 2008, which approximated $0.6 million of gross written premium for the six months ended December 31, 2007.

One of our preferred agents has terminated their preferred agency agreement with us effective August 1, 2008. It has been agreed that we will not compete for a period of one year on a mutually agreed upon list of accounts. The list of accounts is estimated to total approximately $30.0 million in annual gross written premium.

The respective net written premiums and net earned premiums for each of our business segments for the six months ended June 30, 2008 compared to June 30, 2007 were as follows:

(Dollars In Millions)	Commercial Lines			Specialty Lines			Run-off			Total
2008 Net Written Premiums	$	662.8		$	133.7		$	7.9		$	804.4
2007 Net Written Premiums	$	578.9		$	99.9		$	(2.2	)	$	676.6
Percentage Increase		14.5	%		33.8	%		459.1	%		18.9	%
2008 Net Earned Premiums	$	653.8		$	114.0		$	4.6		$	772.4
2007 Net Earned Premiums	$	558.5		$	93.3		$	4.2		$	656.0
Percentage Increase		17.1	%		22.2	%		9.5	%		17.7	%

28

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

The differing percentage changes in net written premiums and/or net earned premiums versus gross written premiums and/or gross earned premiums for our commercial lines, specialty lines and run-off (personal lines) segments results primarily from the following:

• We experienced higher property catastrophe reinsurance rates, maintained the same catastrophe loss retention, and increased catastrophe coverage limits for our annual June 1, 2007 reinsurance renewal compared to the June 1, 2006 renewal. This resulted in increased property catastrophe costs for the six month period ended June 30, 2008, compared to the six month period ended June 30, 2007.

• For our June 1, 2008 commercial lines segment property catastrophe reinsurance renewal, we experienced higher reinsurance rates, purchased increased catastrophe limits due to higher exposures primarily in the northeastern portion of the country, and increased our catastrophe loss retention compared to the June 1, 2007 renewal. Our commercial lines segment property catastrophe reinsurance coverage which is effective June 1, 2008 through May 31, 2009 is as follows:

§

Our open-market catastrophe reinsurance coverage is $480.0 million in excess of a $20.0 million per occurrence retention. The open-market catastrophe program (coverage principally provided by large reinsurers that are rated at least “A-” (Excellent) by A.M. Best Company) includes one mandatory reinstatement.

§

We also purchased a reinstatement premium protection contract for the First and Second Excess Layers of our commercial lines segment open-market catastrophe reinsurance coverage, effective June 1, 2008. This reinstatement premium protection contract provides coverage for reinstatement premiums which we may become liable to pay as a result of a loss occurrence between $20.0 million and $100.0 million (the First and Second Excess Layers of the commercial lines segment open-market catastrophe reinsurance program).

• For our run-off segment, our property catastrophe costs were significantly lower for the six months ended June 30, 2008 compared to June 30, 2007. For our June 1, 2007 run-off segment property catastrophe reinsurance renewal, we experienced reduced reinsurance rates, lower catastrophe loss retention and purchased decreased catastrophe coverage limits due to lower exposures, compared to the June 1, 2006 renewal.

• For our June 1, 2008 run-off segment property catastrophe reinsurance renewal, we experienced lower reinsurance rates, maintained the same catastrophe loss retention, and purchased decreased catastrophe coverage limits due to lower exposures, compared to our June 1, 2007 renewal. Our run-off segment property catastrophe reinsurance coverage, which is effective June 1, 2008 through May 31, 2009 is as follows:

§ Our reinsurance coverage is approximately $43.3 million in excess of a $3.5 million per occurrence retention. Of this total amount, the Florida Hurricane Catastrophe Fund (“FHCF”) provides, on an aggregate basis for Liberty American Select Insurance Company and Liberty American Insurance Company, 90% coverage for approximately $26.8 million in excess of $6.4 million per occurrence. The FHCF coverage inures to the benefit of our open-market catastrophe program. The coverage provided by our 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. Since the FHCF reimbursement coverage cannot be reinstated, our 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 which has been utilized.

• For our commercial and specialty lines segments, we experienced rate reductions on our annual January 1, 2008 renewal of our casualty excess of loss reinsurance coverage compared to the rate on our January 1, 2007 renewal of this coverage.

29

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

• For our commercial lines segment, we experienced a rate increase on our annual January 1, 2008 renewal of our property excess of loss reinsurance coverage compared to the rate on our January 1, 2007 renewal of this coverage.

• For our specialty lines segment, the higher percentage increase in our net written premiums compared to the percentage increase in our gross written premiums for the six months ended June 30, 2008 is primarily due to the January 1, 2008 renewal of our casualty excess of loss reinsurance coverage. We experienced rate reductions on our January 1, 2008 renewal of this coverage compared to our January 1, 2007 renewal of this coverage. This reduced rate was applied to our January 1, 2008 gross unearned premiums, which resulted in a reduction to ceded written premium as of January 1, 2008.

• Certain of our reinsurance contracts have reinstatement or additional premium provisions under which we must pay reinstatement or additional reinsurance premiums to reinstate coverage provisions upon utilization of initial reinsurance coverage. During the six months ended June 30, 2008 and 2007, we accrued $0.9 million ($1.0 million for the commercial lines segment and $(0.1) million for the specialty lines segment) and $1.9 million ($0.8 million for the commercial lines segment and $1.1 million for the specialty lines segment) respectively, of reinstatement or additional reinsurance premium under our excess of loss reinsurance treaties, as a result of changes in our ultimate loss estimates. These reinstatement and additional premiums increase ceded written and earned premiums and decrease net written and earned premiums.

Net Investment Income: Net investment income increased 15.9% to $64.3 million for the six months ended June 30, 2008 from $55.5 million for the same period of 2007. Total investments grew by 17.1% to $3,192.6 million as of June 30, 2008 from $2,725.5 million as of June 30, 2007. The growth in investment income is primarily due to our ability to invest increased net cash flows provided from our operating activities. In addition, despite a general decline in interest rates compared with the previous historical reporting period, the capital market spreads to U.S. Treasuries were generally wider, which also had a favorable impact on our ability to increase investment income through new investments. The taxable equivalent book yield on our fixed income holdings approximated 5.4% as of June 30, 2008, compared to 5.5% as of June 30, 2007.

The average duration of our fixed maturity portfolio was 5.1 years and 4.7 years as of June 30, 2008 and 2007, respectively. Our decision to continue to increase the average duration of our fixed maturity portfolio was based upon enterprise risk management analyses indicating our capacity to further refine the risk/return profile of our investment portfolio.

Effective January 1, 2008, we substituted a customized Merrill Lynch Enterprise Based Investment Benchmark Index (the “Index”) for the Lehman Brothers Intermediate Aggregate Index to evaluate the total return performance of our fixed income portfolio. This change was made in an effort to establish an Index that more closely represents our strategic enterprise -based risk and return profile, as reflected in a strategic optimal fixed maturity portfolio. We also believe that the Index provides a more relevant measure of return than the index used in prior periods.

The total tax equivalent performance of our fixed income portfolio was 1.26% for the six months ended June 30, 2008, compared to the Index tax equivalent performance of 1.49% for the same period. This variance is primarily due to the difference between our underweighted allocation percentage to Municipal securities compared to the Municipal security allocation percentage in the custom Index. During the six months ended June 30, 2008, we continued to add to our Municipal portfolio given the attractive relative returns in this sector. The total pre-tax return, which includes the effects of both income and price returns on securities, of our fixed income portfolio was 0.77% for the six months ended June 30, 2007, compared to the Lehman Brothers Intermediate Aggregate Bond Index total pre-tax return of 1.22% for the same period. We expect some variation in our portfolio’s total return compared to the Index primarily because of the differing sector, security and duration composition of our portfolio as compared to the Index.

30

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

Net Realized Investment Gain (Loss): Net realized investment (losses) gains were $(22.9) million and $29.8 million for the six months ended June 30, 2008 and 2007, respectively.

For the six months ended June 30, 2008, we did not realize net investment gains (losses) from the sale of fixed maturity securities. For the six months ended June 30, 2008, we realized net investment gains of $0.4 million from the sale of equity securities. In addition, for the six months ended June 30, 2008, we did not recognize any non-cash realized fixed maturity security investment losses as a result of our impairment evaluations. For the six months ended June 30, 2008, we recognized $23.3 million in non-cash realized equity security investment losses as a result of our impairment evaluations.

For the six months ended June 30, 2007, we realized net investment gains of $0.1 million and $32.3 million from the sale of fixed maturity and equity securities, respectively. In addition, for the six months ended June 30, 2007, we recognized $0.5 million and $2.1 million in non-cash realized investment losses for fixed maturity and equity securities, respectively, as a result of our impairment evaluations. The $32.3 million net realized gains from the sale of equity securities included approximately $22.2 million of net realized gains as a result of the liquidation of one of our equity portfolios following our decision to change one of our common stock investment managers.

Other Income: Other income approximated $5.0 million and $1.7 million for the six months ended June 30, 2008 and 2007, respectively. Other income consists primarily of commissions and fees earned on servicing and brokering commercial lines business, and to a lesser extent commissions and fees earned on servicing and brokering personal lines business. In addition, other income for the six months ended June 30, 2008 includes our recognition of a $1.2 million gain related to the sale of the headquarters building of our Run-Off segment.

Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment expenses increased $117.6 million (39.3%) to $416.7 million for the six months ended June 30, 2008 from $299.1 million for the same period of 2007, and the loss ratio increased to 53.9% in 2008 from 45.6% in 2007.

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

• The growth in net earned premiums.

• Net reserve actions taken during the six months ended June 30, 2008 which decreased net estimated unpaid loss and loss adjustment expenses for accident years 2007 and prior by $24.4 million, as compared to net reserve actions taken during the six months ended June 30, 2007 which decreased estimated net unpaid loss and loss adjustment expenses for accident years 2006 and prior by $33.7 million. Decreases in the estimated net unpaid loss and loss adjustment expenses for prior accident years during the six months ended June 30, 2008 were as follows:

	Net Basis
(Dollars In Millions)	Decrease
Accident Year 2007	$	4.7
Accident Year 2006		8.9
Accident Year 2005		5.3
Accident Years 2004 and prior		5.5
Total	$	24.4

For accident year 2007, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability and management liability coverages due to better than expected case incurred loss development, primarily as a result of claim frequency being less than anticipated for commercial general liability coverage and claim severity being less than anticipated for management liability coverage These lower loss estimates were partially offset by higher

31

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

loss estimates for commercial automobile coverages due to higher than expected case incurred loss development, primarily as a result of both claim frequency and severity being greater than anticipated.

For accident year 2006, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability, commercial property, and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated. These lower loss estimates were partially offset by higher loss estimates for commercial automobile coverages due to higher than expected case incurred loss development, primarily as a result of claim severity being greater than anticipated.

For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability and management liability and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated.

For accident years 2004 and prior, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates across most coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated.

• An increase in the current accident year net ultimate loss and loss adjustment expense ratio for the six months ended June 30, 2008 compared to 2007. During the six months ended June 30, 2008, a net ultimate loss and loss adjustment expense ratio of 57.1% was estimated for the 2008 accident year. During the six months ended June 30, 2007, a net ultimate loss and loss adjustment expense ratio of 50.7% was estimated for the 2007 accident year. The increase in the 2008 accident year loss and loss adjustment expense ratio is principally attributable to:

§

Realized average rate decreases on renewal business approximating 4.6% and 2.2% for the commercial and specialty lines segments, respectively, for the six months ended June 30, 2008 compared to the same period in 2007.

§

$20.6 million of loss and loss adjustment expenses during the six months ended June 30, 2008 resulting from hail, tornado, and wind losses which occurred in Minnesota, Nebraska, Kansas, and Oklahoma during the period of May 22, 2008 through May 26, 2008, and which occurred in Illinois, Indiana, Kansas, Minnesota, Nebraska, and Oklahoma during the period of May 29, 2008 through June 1, 2008. We did not have similar losses during the six months ended June 30, 2007.

Establishing loss reserve estimates is a complex and imprecise process. Our estimation procedures employ several generally accepted actuarial methods to determine net unpaid loss and loss adjustment expenses. Some of these methods are based on actual loss development, while others are based on expected loss development, and still others use a blend of both. 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.

     Acquisition Costs and Other Underwriting Expenses: Acquisition costs and other underwriting expenses increased $30.9 million (15.6%) to $229.6 million for the six months ended June 30, 2008 from $198.7 million for the same period of 2007, and the expense ratio decreased slightly to 29.7% in 2008 versus 30.3% in 2007. The increase in acquisition costs and other underwriting expenses was due primarily to the growth in net earned premiums.

     Income Tax Expense: Our effective tax rate for the six months ended June 30, 2008 and 2007 was 29.8% and 32.9%, respectively. The effective rates for 2008 and 2007 differed from the 35% statutory rate principally due to investments in tax-exempt securities and the relative proportion of tax exempt income to our income before tax. The decrease in the effective tax rate during 2008 is due principally to increased investments in tax exempt securities.

32

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

Results of Operations (Three Months Ended June 30, 2008 compared to June 30, 2007)

     Premiums: Premium information for the three months ended June 30, 2008 compared to June 30, 2007 for each of our business segments is as follows:

(Dollars In Millions)	Commercial Lines			Specialty Lines			Run-off			Total
2008 Gross Written Premiums	$	364.6		$	65.2		$	15.5		$	445.3
2007 Gross Written Premiums	$	321.9		$	60.0		$	16.6		$	398.5
Percentage Increase (Decrease)		13.3	%		8.7	%		(6.6	)%		11.7	%
2008 Gross Earned Premiums	$	363.4		$	63.3		$	13.6		$	440.3
2007 Gross Earned Premiums	$	315.5		$	58.4		$	21.6		$	395.5
Percentage Increase (Decrease)		15.2	%		8.4	%		(37.0	)%		11.3	%

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 our marketing Regional Vice Presidents continue to result in additional prospects and increased premium writings in existing product offerings, most notably for the following:

§	Our condominium and homeowners associations, religious organizations, non-profit, antique/collector vehicle, specialty schools, and golf and country clubs products in the commercial package product grouping; These product offerings accounted for approximately $21.6 million of the $42.7 million total commercial lines segment gross written premiums increase.
§	Our consultant liability product in the professional liability product grouping, as well as our private company protection, directors and officers, and business owners products in the management liability product grouping. These product offerings accounted for all of the $5.2 million total specialty lines segment gross written premiums increase.

• The introduction of several new niche product offerings, such as the affordable housing, vehicle parks, special events, and museums commercial package products, as well as the difference in conditions inland marine specialty property product. These new product offerings accounted for approximately $14.8 million of the $42.7 million total commercial lines segment gross written premiums increase.

• The acquisition of Gillingham & Associates, Inc. on March 10, 2008, which accounted for approximately $8.9 million of commercial lines segment gross written premium growth for the three months ended June 30, 2008.

• An increase in our marketing personnel, as well as an increase in the number of our preferred agents.

• Our “Firemark Producer” program, which promotes our product offerings and underwriting philosophy in selected producers’ offices.

• As a result of the factors noted above the commercial and specialty lines segments in-force policy counts increased by 5.6% and 17.8%, respectively, for the three months ended June 30, 2008.

The growth in gross written premiums was offset in part by:

• Realized average rate decreases on renewal business approximating 4.4% and 2.4% for the commercial lines and specialty lines segments, respectively.

33

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

• Continued price competition during the three months ended June 30, 2008, particularly with respect to the following:

§	Large commercial property-driven accounts located in the non-coastal areas of the country;
§	Commercial package business with annual premiums in excess of $100,000; and
§	Professional liability accounts at all premium levels.

•	A reduction in personal lines (run-off segment) production for our homeowners and rental dwelling policies. This reduction was imposed to reduce our exposure to catastrophe wind losses.
	On February 29, 2008, we received approval from the Florida Office of Insurance Regulation (“FOIR”) to non-renew all of our Florida personal lines policies, other than policies issued pursuant to the National Flood Insurance Program, beginning with policies expiring on or about July 23, 2008. We currently expect the non-renewal process to be completed by July 23, 2009. As of June 30, 2008, there were approximately 3,677 in-force policies with an aggregate in-force premium of approximately $2.9 million which expire between July 23, 2008 and December 31, 2008, which we will not renew during 2008.
•	A decrease in bowling centers commercial package product gross written premium of $0.8 million as a result of non-renewing policies due to unacceptable underwriting results. For the three months ended June 30, 2008, gross written premium for the bowling centers commercial package product was $0.3 million. The Company anticipates that it will continue to non-renew its remaining bowling centers commercial package business throughout 2008, which approximated $0.6 million of gross written premium for the six months ended December 31, 2007.

One of our preferred agents has terminated their preferred agency agreement with us effective August 1, 2008. It has been agreed that we will not compete for a period of one year on a mutually agreed upon list of accounts. The list of accounts is estimated to total approximately $30.0 million in annual gross written premium.

The respective net written premiums and net earned premiums for each of our business segments for the three months ended June 30, 2008 compared to June 30, 2007 were as follows:

(Dollars In Millions)	Commercial Lines			Specialty Lines			Run-off			Total
2008 Net Written Premiums	$	335.4		$	60.1		$	2.9		$	398.4
2007 Net Written Premiums	$	293.6		$	49.3		$	(3.7	)	$	339.2
Percentage Increase		14.2	%		21.9	%		178.4	%		17.5	%
2008 Net Earned Premiums	$	332.6		$	58.3		$	2.1		$	393.0
2007 Net Earned Premiums	$	286.6		$	47.8		$	2.9		$	337.3
Percentage Increase (Decrease)		16.1	%		22.0	%		(27.6	)%		16.5	%

The differing percentage changes in net written premiums and/or net earned premiums versus gross written premiums and/or gross earned premiums for our commercial lines, specialty lines and run-off (personal lines) segments results primarily from the following:

• We experienced higher property catastrophe reinsurance rates, maintained the same catastrophe loss retention, and increased catastrophe coverage limits for our annual June 1, 2007 reinsurance renewal compared to the June 1, 2006 renewal. This resulted in increased property catastrophe costs for the three month period ended June 30, 2008, compared to the three month period ended June 30, 2007. For the June 1, 2008 commercial lines segment property catastrophe reinsurance renewal, we experienced higher reinsurance rates, purchased increased catastrophe limits due to higher exposures primarily in the northeastern portion of the country, and increased our catastrophe loss retention compared to the June 1, 2007 renewal.

34

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

• For our run-off segment, our property catastrophe costs were significantly lower for the three months ended June 30, 2008 compared to June 30, 2007. For our June 1, 2007 run-off segment property catastrophe reinsurance renewal, we experienced reduced reinsurance rates, lower catastrophe loss retention and purchased decreased catastrophe coverage limits due to lower exposures, compared to the June 1, 2006 renewal. For our June 1, 2008 run-off segment property catastrophe reinsurance renewal, we experienced lower reinsurance rates, maintained the same catastrophe loss retention, and purchased decreased catastrophe coverage limits due to lower exposures, compared to our June 1, 2007 renewal.

• For our commercial and specialty lines segments, we experienced rate reductions on our annual January 1, 2008 renewal of our casualty excess of loss reinsurance coverage compared to the rate on our January 1, 2007 renewal of this coverage.

• For our commercial lines segment, we experienced a rate increase on our annual January 1, 2008 renewal of our property excess of loss reinsurance coverage compared to the rate on our January 1, 2007 renewal of this coverage.

Net Investment Income: Net investment income increased 13.3% to $32.3 million for the three months ended June 30, 2008 from $28.5 million for the same period of 2007. Total investments grew by 17.1% to $3,192.6 million as of June 30, 2008 from $2,725.5 million as of June 30, 2007. The growth in investment income is primarily due to our ability to invest increased net cash flows provided from our operating activities. In addition, despite a general decline in interest rates compared with the previous historical reporting period, the capital market spreads to U.S. Treasuries were generally wider, which also had a favorable impact on our ability to increase investment income through new investments. The taxable equivalent book yield on our fixed income holdings approximated 5.4% as of June 30, 2008, compared to 5.5% as of June 30, 2007.

The average duration of our fixed maturity portfolio was 5.1 years and 4.7 years as of June 30, 2008 and 2007, respectively. Our decision to continue to increase the average duration of our fixed maturity portfolio was based upon enterprise risk management analyses indicating our capacity to further refine the risk/return profile of our investment portfolio.

Effective January 1, 2008, we substituted a customized Merrill Lynch Enterprise Based Investment Benchmark Index (the “Index”) for the Lehman Brothers Intermediate Aggregate Index to evaluate the total return performance of our fixed income portfolio. This change was made in an effort to establish an Index that more closely represents our strategic enterprise -based risk and return profile, as reflected in a strategic optimal fixed maturity portfolio. The Company also believes that the Index provides a more relevant measure of return than the index used in prior periods.

The total tax equivalent performance of our fixed income portfolio was (0.11)% for the three months ended June 30, 2008, compared to the Index tax equivalent performance of 0.18% for the same period. This variance is primarily due to the difference between our underweighted allocation percentage to Municipal securities compared to the Municipal security allocation percentage in the custom Index. During the three months ended June 30, 2008, we continued to add to our Municipal security portfolio given the attractive relative returns in this sector.. The total pre-tax return, which includes the effects of both income and price returns on securities, of our fixed income portfolio was (0.43)% for the three months ended June 30, 2007, compared to the Lehman Brothers Intermediate Aggregate Bond Index total pre-tax return of (0.35)% for the same period. We expect some variation in our portfolio’s total return compared to the Index primarily because of the differing sector, security and duration composition of our portfolio as compared to the Index.

Net Realized Investment Gain (Loss): Net realized investment (losses) gains were $(11.5) million and $28.1 million for the three months ended June 30, 2008 and 2007, respectively.

For the three months ended June 30, 2008, we did not realize net investment gains (losses) from the sale of fixed maturity securities. For the three months ended June 30, 2008, we realized net investment gains of $0.1 million from the sale of equity securities. In addition, for the three months ended June 30, 2008, we did not recognize any

35

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

non-cash realized fixed maturity security investment losses as a result of our impairment evaluations. For the three months ended June 30, 2008, we recognized $11.6 million in non-cash realized equity security investment losses as a result of our impairment evaluations.

For the three months ended June 30, 2007, we realized net investment gains of $0.2 million and $28.0 million from the sale of fixed maturity and equity securities, respectively. In addition, for the three months ended June 30, 2007, we recognized no non-cash realized investment losses for fixed maturity securities and $0.1 million in non-cash realized investment losses for equity securities, respectively, as a result of our impairment evaluations. The $28.0 million net realized gains from the sale of equity securities included approximately $22.2 million of net realized gains as a result of the liquidation of one of our equity portfolios following our decision to change one of our common stock investment managers.

Other Income: Other income approximated $3.7 million and $0.9 million for the three months ended June 30, 2008 and 2007, respectively. Other income consists primarily of commissions and fees earned on servicing and brokering commercial lines business, and to a lesser extent commissions and fees earned on servicing and brokering personal lines business. In addition, other income for the three months ended June 30, 2008 includes our recognition of a $1.2 million gain related to the sale of the headquarters building of our Run-Off segment.

Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment expenses increased $74.7 million (50.3%) to $223.3 million for the three months ended June 30, 2008 from $148.6 million for the same period of 2007, and the loss ratio increased to 56.8% in 2008 from 44.1% in 2007.

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

• The growth in net earned premiums.

• Net reserve actions taken during the three months ended June 30, 2008 which decreased net estimated unpaid loss and loss adjustment expenses for accident years 2007 and prior by $18.5 million, as compared to net reserve actions taken during the three months ended June 30, 2007 which decreased estimated net unpaid loss and loss adjustment expenses for accident years 2006 and prior by $20.8 million. Decreases in the estimated net unpaid loss and loss adjustment expenses for prior accident years during the three months ended June 30, 2008 were as follows:

(Dollars In Millions)	Net Basis Decrease
Accident Year 2007	$	6.6
Accident Year 2006		4.8
Accident Year 2005		4.1
Accident Years 2004 and prior		3.0
Total	$	18.5

For accident year 2007, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability, commercial property, and management liability coverages due to better than expected case incurred loss development, primarily as a result of claim frequency being less than anticipated for commercial general liability and commercial property coverages, and claim severity being less than anticipated for management liability coverage. These lower loss estimates were partially offset by higher loss estimates for commercial automobile coverages due to higher than expected case incurred loss development, primarily as a result of both claim frequency and severity being greater than anticipated.

For accident year 2006, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial property and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated. These lower loss estimates were partially offset by higher loss estimates for commercial

36

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

	automobile coverages due to higher than expected case incurred loss development, primarily as a result of claim severity being greater than anticipated.
	For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for management liability and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated.
	For accident years 2004 and prior, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability, management liability, and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated.
•	An increase in the current accident year net ultimate loss and loss adjustment expense ratio for the three months ended June 30, 2008 compared to 2007. During the three months ended June 30, 2008, a net ultimate loss and loss adjustment expense ratio of 61.5% was estimated for the 2008 accident year. During the three months ended June 30, 2007, a net ultimate loss and loss adjustment expense ratio of 50.2% was estimated for the 2007 accident year. The increase in the 2008 accident year loss and loss adjustment expense ratio is principally attributable to:

§

Realized average rate decreases on renewal business approximating 4.4% and 2.4% for the commercial and specialty lines segments, respectively, for the three months ended June 30, 2008 compared to the same period in 2007.

§

$20.6 million of loss and loss adjustment expenses during the three months ended June 30, 2008 resulting from hail, tornado, and wind losses which occurred in Minnesota, Nebraska, Kansas, and Oklahoma during the period of May 22, 2008 through May 26, 2008, and which occurred in Illinois, Indiana, Kansas, Minnesota, Nebraska, and Oklahoma during the period of May 29, 2008 through June 1, 2008. We did not have similar losses during the three months ended June 30, 2007.

Establishing loss reserve estimates is a complex and imprecise process. Our estimation procedures employ several generally accepted actuarial methods to determine net unpaid loss and loss adjustment expenses. Some of these methods are based on actual loss development, while others are based on expected loss development, and still others use a blend of both. 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.

Acquisition Costs and Other Underwriting Expenses: Acquisition costs and other underwriting expenses increased $13.8 million (13.6%) to $115.5 million for the three months ended June 30, 2008 from $101.7 million for the same period of 2007, and the expense ratio decreased slightly to 29.4% in 2008 versus 30.2% in 2007. The increase in acquisition costs and other underwriting expenses was due primarily to the growth in net earned premiums.

Income Tax Expense: Our effective tax rate for the three months ended June 30, 2008 and 2007 was 28.8% and 33.3%, respectively. The effective rates for 2008 and 2007 differed from the 35% statutory rate principally due to investments in tax-exempt securities and the relative proportion of tax exempt income to our income before tax. The decrease in the effective tax rate during 2008 is due principally to increased investments in tax exempt securities.

Investments

On January 1, 2008, we adopted the provisions of SFAS 157. SFAS 157 defines fair value and provides a consistent framework for measuring items at fair value as previously permitted by existing accounting pronouncements. SFAS 157 provides a “fair value hierarchy” which prioritizes the quality of inputs utilized when measuring the items at fair

37

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

value and requires expanded disclosures for fair value measurements. As of June 30, 2008, the fair value of our total invested assets (financial assets consisting of total investments plus cash equivalents) has been determined in accordance with the provisions of SFAS 157. As a result of the adoption of SFAS 157, we note the following:

§ The fair value of our total invested assets is primarily measured utilizing a market based valuation methodology (“Market Approach”). A Market Approach utilizes prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities to measure fair value. We have consistently applied the Market Approach as of and for the three and six months ended June 30, 2008.

§ Approximately 98.7% of our total invested assets is measured utilizing significant observable inputs (Level 1 or Level 2 per SFAS 157). Approximately 1.3% of our total invested assets is measured utilizing significant unobservable inputs (Level 3 per SFAS 157).

§ Approximately 99.3% of our fixed maturity investments is measured utilizing significant observable inputs (Level 1 or Level 2 per SFAS 157). Approximately 93.6% of our equity investments is measured utilizing significant observable inputs (Level 1 or Level 2 per SFAS 157). We do not consider our use of unobservable inputs (Level 3 per SFAS 157) in our fair value measurements to be significant to our financial position, results of operations, or liquidity.

§ Significant observable inputs utilized to measure fair value include “matrix pricing” for fixed maturity investments (Level 2 per SFAS 157) and quoted market prices for equity investments (Level 1 per SFAS 157). “Matrix pricing” relies on observable inputs from active markets other than quoted market prices including, but not limited to, benchmark securities and yields, latest reported trades, quotes from brokers or dealers, issuer spreads, bids, offers, and other relevant reference data to determine fair value. “Matrix pricing” is used to measure the fair value of fixed maturity securities where obtaining individual quoted market prices is impractical.

§ The significant unobservable inputs utilized to measure fair value include broker pricing and net asset value calculations.

§ We made no material adjustments to the fair value of our invested assets as of and for the three and six months ended June 30, 2008.

We utilize external independent investment managers in obtaining the pricing inputs noted above for our fixed maturity and equity investments. In order to ensure we are maximizing our use of observable pricing inputs and minimizing our use of unobservable pricing inputs, we verify with our external investment managers that pricing for our fixed maturity and equity investments is obtained from external market sources. In the event that pricing is obtained from sources other than external market sources, we review the pricing inputs and reasons in order to determine that the fair value measurements resulting from these inputs are properly categorized within the “fair value hierarchy.” As our fair value measurements are primarily measured using external market information, they are sensitive to changes in market conditions.

Our investment objectives are the realization of relatively high levels of after-tax net investment income with competitive after-tax total rates of return subject to established specific guidelines and objectives based on our enterprise based asset allocation methods. We utilize external independent professional investment managers for our fixed maturity and equity investments to help us achieve these objectives. These investments consist of diversified issuers and issues, and as of June 30, 2008 approximately 86.7% and 10.3% of our total invested assets on a cost basis consisted of investments in fixed maturity and equity securities, respectively, versus 87.8% and 10.7%, respectively, as of December 31, 2007.

Of our total fixed maturity investments, asset backed, mortgage pass-through, and collateralized mortgage obligation securities, on a cost basis, amounted to $223.3 million, $572.2 million and $289.5 million, respectively, as of June 30, 2008, and $199.3 million, $604.3 million and $329.5 million, respectively, as of December 31, 2007.

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

We regularly perform impairment reviews with respect to our 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 we do not intend to hold a security to maturity or determine 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 reflected in our earnings as a realized loss in the period the impairment arose. These evaluations, for investments other than interests in securitized assets, resulted in non-cash realized investment losses of $11.7 million and $0.1 million, respectively, for the three months ended June 30, 2008 and 2007, and $22.4 million and $2.6 million, respectively, for the six months ended June 30, 2008 and 2007. Our 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 FASB. As a result of our impairment evaluations for investments in securitized assets, there were no non-cash realized investment losses recorded for the three and six months ended June 30, 2008 and 2007.

Our fixed maturity portfolio amounted to $2,844.2 million and $2,659.2 million, as of June 30, 2008 and December 31, 2007, respectively. 99.9% of the portfolio was comprised of investment grade securities as of June 30, 2008 and December 31, 2007. We had fixed maturity investments with gross unrealized losses amounting to $35.9 million and $7.0 million as of June 30, 2008 and December 31, 2007, respectively. Of these amounts, interests in securitized assets had gross unrealized losses amounting to $13.7 million and $3.0 million as of June 30, 2008 and December 31, 2007, respectively.

Securities with an Unrealized Loss as of June 30, 2008:

The following table identifies the period of time securities with an unrealized loss as of June 30, 2008 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 2.0% and 22.9%, respectively, of the total estimated fair value, or 4.7% and 11.4%, respectively, of the total gross unrealized loss included in the table below.

• The industry concentration as a percentage of total estimated fair value represents investments in a geographically diversified pool of investment grade municipal securities issued by states, political subdivisions, and public authorities under general obligation and/or special district/purpose issuing authority. The unrealized losses on these securities are generally attributable to changes both in market spreads and in the level of Treasury yields. The primary factor underlying the spread widening is the increasing market risk aversion to issues surrounding the monoline financial guarantors, given such guarantors’ significant participation in the municipal sector through their financial guarantee insurance.

• The industry concentration as a percentage of the total gross unrealized loss primarily represents investments in equity securities issued by companies in the diversified financial services industry. The unrealized losses on these securities are generally attributable to the recent correction in the financial services industry primarily caused by the deterioration of credit conditions and increased risk aversion in the marketplace during the second half of 2007 and the first half of 2008. As of June 30, 2008, these securities were evaluated for other than temporary impairment in accordance with the Company’s impairment policy, and the Company concluded that these securities were not other than temporarily impaired.

The contractual repayment of the municipal securities is backed either by the general taxing authority of the state or political subdivision or by general or specific revenues of the public authorities and, in addition, a portion is pre-refunded and supported by US Government collateral. Additionally, a portion of the securities is backed by financial guarantee insurance issued by monoline financial guarantors. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized costs of the investments. Given the investment grade credit quality of the issuers represented in the municipal portfolio, without considering any monoline financial guarantee, we believe we will be able to collect all amounts due according to the contractual terms of the investments. At the present time, we have the ability and intent to hold these securities until a recovery

39

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

of fair value, which may be maturity; therefore, we do not consider these investments to be other than temporarily impaired as of June 30, 2008.

(In Millions)	Gross Unrealized Losses as of June 30, 2008
	Fixed Maturities
	Available for Sale
	Excluding Interests
Continuous time in	in Securitized		Interests in		Fixed Maturities				Total
Unrealized loss position	Assets		Securitized Assets		Available for Sale		Equity Securities		Investments
0 – 3 months	$	5.0	$	6.0	$	11.0	$	10.7	$	21.7
4 – 6 months		9.3		4.4		13.7		9.3		23.0
7 – 9 months		1.3		0.2		1.5		10.3		11.8
10 – 12 months		0.1		0.1		0.2		—		0.2
13 – 18 months		5.6		0.9		6.5		—		6.5
19 – 24 months		0.1		—		0.1		—		0.1
> 24 months		0.8		2.1		2.9		—		2.9
Total Gross Unrealized Losses	$	22.2	$	13.7	$	35.9	$	30.3	$	66.2
Estimated fair value of securities with a gross unrealized loss	$	1,126.7	$	560.7	$	1,687.4	$	155.7	$	1,843.1

Our impairment evaluation as of June 30, 2008 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 our investments in U.S. Treasury Securities and Obligations of U.S. Government Agencies which have ratings of Aaa/AAA are attributable to the general level of interest rates. Of the 29 investment positions held, approximately 10.3% were in an unrealized loss position as of June 30, 2008.

Obligations of States and Political Subdivisions:

The unrealized losses on our investments in long term tax exempt securities, which have ratings of Baa3/BBB- to Aaa/AAA are attributable to changes both in market spreads and in the level of Treasury yields. Of the 968 investment positions held, approximately 57.9% 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.

Corporate Debt Securities:

The unrealized losses on our long term investments in corporate bonds, which have ratings from Baa3/BBB to Aaa/AAA are attributable primarily to changes in market spreads. Of the 62 investment positions held, approximately 59.7% 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.

Our evaluation as of June 30, 2008 for interests in securitized assets resulted in the following conclusions:

Asset Backed Securities:

The unrealized losses on our investments in Asset Backed Securities which have ratings of Baa2/BBB to Aaa/AAA, are attributable primarily to changes in market spreads. Of the 113 investment positions held, approximately 53.1% 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.

Mortgage Pass-Through Securities:

The unrealized losses on our investments in Mortgage Pass-Through Securities which have ratings of Aaa/AAA, are attributable primarily to changes in market spreads. Of the 150 investment positions held,

40

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

approximately 57.3% 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 our investments in Collateralized Mortgage Obligations which have ratings of A2/A to Aaa/AAA, are attributable primarily to changes in market spreads. Of the 167 investment positions held, approximately 33.5% 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.

Our impairment evaluation as of June 30, 2008 for equity securities resulted in the conclusion that we do not consider the equity securities remaining in an unrealized loss position to be other than temporarily impaired. Of the 2,922 investment positions held, approximately 45.8% were in an unrealized loss position.

Structured Securities Portfolio:

The fair value of our structured securities investment portfolio (Asset Backed, Mortgage Pass-Through and Collateralized Mortgage Obligation securities) amounted to $1,078.8 million as of June 30, 2008. AAA rated securities represented approximately 98.6% of our June 30, 2008 structured securities portfolio. Approximately $864.5 million of our structured securities investment portfolio is backed by residential collateral, consisting of:

• $569.4 million of U.S. government agency backed Mortgage Pass-Through Securities;

• $207.7 million of U.S. government agency backed Collateralized Mortgage Obligations;

• $68.1 million of non-U.S. government agency Collateralized Mortgage Obligations backed by pools of prime loans (generally consists of loans made to the highest credit quality borrowers with Fair Isaac Corporation (“FICO”) scores generally greater than 720);

• $16.2 million of structured securities backed by pools of ALT A loans (loans with less than normal documentation and borrowers with FICO scores in the approximated range of 650 to the low 700’s); and

• $3.1 million of structured securities backed by pools of subprime loans (loans with less than normal documentation, higher combined loan-to-value ratios and borrowers with FICO scores capped at approximately 650).

Our $19.3 million ALT-A and subprime overall AAA rated loan portfolio is comprised of 20 securities with net unrealized losses of $0.9 million as of June 30, 2008. These securities have the following characteristics:

• first to pay or among the first cash flow tranches of their respective transactions;

• weighted average life of 1.9 years;

• spread across multiple vintages (origination year of underlying collateral pool), and

• have not experienced any ratings downgrades as of June 30, 2008.

Our ALT-A and subprime loan portfolio has paid down to $19.3 million as of June 30, 2008, from $27.6 million as of December 31, 2007, and $42.0 million as of June 30, 2007.

As of June 30, 2008, we hold no investments in Collateralized Debt Obligations or Net Interest Margin securities.

We expect fixed maturity and equity markets, in general, to continue to experience more volatility than during most prior historical reporting periods over the past few years. This expectation is based on a number of variables including, but not limited to, events in the housing and mortgage finance sectors, issues surrounding the monoline financial guarantors and the impact on municipal and asset backed finance and the effect on capital markets and investors as financial institutions de-leverage and undergo a period of recapitalization. As of June 30, 2008, we had no impairments related to these market conditions. However, we expect that ongoing volatility in these sectors, in particular, and in spread related sectors, in general, may impact the prices of securities held in our average AA+ rated investment portfolio, including our average AAA rated structured securities portfolio.

41

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

Municipal Bond Portfolio:

Our $1,606.6 million municipal bond overall AA+ rated portfolio consists of $996.1 million of insured securities, or 62.0% of our total municipal bond portfolio. The weighted average underlying rating of the insured portion of our municipal bond portfolio is AA and the weighted average rating of the uninsured portion of our municipal bond portfolio is AA+. The following table represents our insured bond portfolio by monoline insurer as of June 30, 2008:

						Weighted Average
	Market Value of Insured		Percentage of			Underlying Rating of
	Municipal Bonds		Municipal Bond			Insured Municipal
Monoline Insurer	(In Millions)		Portfolio			Bonds
Financial Security Assurance, Inc.	$	327.9		20.4	%	AA
MBIA, Inc.		298.7		18.6		AA
FGIC Corporation.		198.9		12.4		AA-
AMBAC Financial Group, Inc.		166.1		10.3		AA-
XL Capital, LTD.		4.4		0.3		AA-
Total	$	996.0		62.0	%	AA

At the time of purchase, each municipal bond is evaluated with regard to certain characteristics including, but not limited to, the issuer, the underlying obligation and/or the revenue pledge/collateral. The presence of any “financial guarantee” insurance is not an attribute used in the purchase decision. We consider the “financial guarantee” insurance to be “extra” protection. As of June 30, 2008, we had no impairments or surveillance issues related to these insured municipal bonds.

Securities with an Unrealized Loss as of December 31, 2007:

The following table identifies the period of time securities with an unrealized loss as of December 31, 2007 have continuously been in an unrealized loss position. None of the amounts shown in the table include unrealized losses due to non-investment grade fixed maturity securities. No issuer of securities or industry represents more than 3.8% and 19.9%, respectively, of the total estimated fair value, or 9.0% and 20.5%, respectively, of the total gross unrealized loss:

• The industry concentration as a percentage of total estimated fair value represents investments in a geographically diversified pool of investment grade municipal securities issued by states, political subdivisions, and public authorities under general obligation and/or special district/purpose issuing authority. The unrealized losses on these securities are generally attributable to spread widening. The primary factor underlying the spread widening is the increasing market risk aversion to issues surrounding the monoline financial guarantors, given the monolines’ significant participation in the municipal sector through their financial guarantee insurance.

• The industry concentration as a percentage of the total gross unrealized loss primarily represents investments in equity securities issued by companies in the Diversified Financial Services industry. The unrealized losses on these securities are generally attributable to the recent correction in the Financial Services industry primarily caused by the deterioration of credit conditions in the marketplace during the third and fourth quarters of 2007. As of December 31, 2007, these equity securities were evaluated for other than temporary impairment in accordance with the Company’s impairment policy and the Company concluded that these securities were not other than temporarily impaired.

The contractual repayment of the Municipal securities is backed either by the general taxing authority of the state or political subdivision or by general or specific revenues of the public authorities. Additionally, a portion of the securities are backed by financial guarantee insurance issued by the monoline financial guarantors. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized costs of the investments. Given the investment grade credit quality of the issuers represented in the Municipal portfolio,

42

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

without considering any monoline financial guarantee, we believe we will be able to collect all amounts due according to the contractual terms of the investments. At the present time, we have the ability and intent to hold these securities until a recovery of fair value, which may be maturity; therefore, we do not consider these investments to be other than temporarily impaired as of December 31, 2007.

(In Millions)	Gross Unrealized Losses as of December 31, 2007
	Fixed Maturities
	Available for Sale
	Excluding Interests		Interests in		Fixed Maturities
Continuous time in	in Securitized		Securitized		Available		Equity		Total
Unrealized loss position	Assets		Assets		for Sale		Securities		Investments
0 – 3 months	$	0.2	$	0.7	$	0.9	$	8.1	$	9.0
>3 – 6 months		—		0.1		0.1		6.5		6.6
>6 – 9 months		0.8		—		0.8		7.6		8.4
>9 – 12 months		1.3		—		1.3		—		1.3
>12 – 18 months		0.2		—		0.2		—		0.2
>18 – 24 months		0.1		—		0.1		—		0.1
> 24 months		1.4		2.2		3.6		—		3.6
Total Gross Unrealized Losses	$	4.0	$	3.0	$	7.0	$	22.2	$	29.2
Estimated fair value of securities with a gross unrealized loss	$	570.4	$	357.6	$	928.0	$	118.1	$	1,046.1

Our impairment evaluation as of December 31, 2007 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 our Aaa/AAA rated investments in U.S. Treasury Securities and Obligations of U.S. Government Agencies are attributable to interest rate fluctuations since the date of purchase. Of the 30 investment positions held, approximately 26.7% 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 our investments in long term tax exempt securities, which have ratings of A1/A+ to AAA/Aaa, are generally caused by spread widening. Of the 873 investment positions held, approximately 32.8% 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 our long term investments in Corporate bonds, which have ratings from Baa3/BBB to Aaa/AAA, are generally caused by spread widening. Of the 73 investment positions held, approximately 79.5% 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.

Our impairment evaluation as of December 31, 2007 for interests in securitized assets resulted in the following conclusions:

Asset Backed Securities:

The unrealized losses on our investments in Asset Backed Securities, which have ratings from A2/A to Aaa/AAA are generally caused by spread widening. Of the 116 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.

43

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 our investments in Mortgage Pass-Through Securities which have ratings of Aaa/AAA are generally caused by spread widening. Of the 150 investment positions held, approximately 38.7% 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.

Collateralized Mortgage Obligations:

The unrealized losses on our investments in Collateralized Mortgage Obligations which have ratings of Aa2/AA+ to Aaa/AAA are generally caused by spread widening. Of the 172 investment positions held, approximately 41.3% 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.

Our impairment evaluation as of December 31, 2007 for equity securities resulted in the conclusion that we do not consider the equity securities to be other than temporarily impaired. Of the 2,674 investment positions held, approximately 38.4% were in an unrealized loss position.

Gross Realized Losses:

For the three months ended June 30, 2008, we did not have a gross loss on the sale of fixed maturity securities. For the three months ended June 30, 2008, our gross loss on the sale of equity securities was $2.9 million. The fair value of the equity securities at the time of sale was $8.0 million.

For the three months ended June 30, 2007, our gross loss on the sale of fixed maturity and equity securities was $0.2 million and $1.5 million, respectively. $1.2 million of the $1.5 million gross loss on the sale of equity securities for the three months ended June 30, 2007 was a result of the liquidation of one of our equity portfolios following our decision to change one of our common stock investment managers. The fair value of the fixed maturity and equity securities at the time of sale was $32.5 million and $19.0 million, respectively.

For the six months ended June 30, 2008, we did not have a gross loss on the sale of fixed maturity securities. For the six months ended June 30, 2008, our gross loss on the sale of equity securities was $6.3 million. The fair value of the equity securities at the time of sale was $13.5 million. $2.7 million of the $6.3 million gross loss on the sale of equity securities for the six months ended June 30, 2008 resulted from the sale during the three months ended March 31, 2008 of the common stock we held in The Bear Stearns Companies, Inc.

For the six months ended June 30, 2007, our gross loss on the sale of fixed maturity and equity securities amounted to $0.3 million and $2.0 million, respectively. $1.2 million of the $2.0 million gross loss on the sale of equity securities for the six months ended June 30, 2007 was a result of the liquidation of one of our equity portfolios following the decision to change one of our common stock investment managers. The $1.2 million realized gross loss on the sale of equity securities was in addition to the $1.6 million impairment loss recognized during the three months ended March 31, 2007 arising from the initial decision to change one of our common stock investment managers and no longer hold the securities to recovery. The fair value of the fixed maturity and equity securities at the time of sale was $33.7 million and $27.9 million, respectively.

Liquidity and Capital Resources

For the six months ended June 30, 2008, our fixed maturity investments experienced unrealized investment depreciation of $26.2 million, net of the related deferred tax benefit of $14.1 million, and our equity investments experienced unrealized investment depreciation of $15.6 million, net of the related deferred tax benefit of $8.4 million

As of June 30, 2008, we had total investments with a carrying value of $3,192.6 million, of which 89.1% 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

44

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

mortgage, mortgage pass-through and asset backed securities. The remaining 10.9% of our total investments consisted primarily of publicly traded common stock securities.

We produced net cash from operations of $254.2 million and $262.1 million for the six months ended June 30, 2008 and 2007, 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. Cash from operations for the six months ended June 30, 2008 was primarily generated from premium growth during the current year as a result of increases in the number of policies written. Net loss and loss expense payments were $278.4 million and $200.8 million, respectively, for the six months ended June 30, 2008 and 2007. We believe we have adequate liquidity to pay all claims and meet all other cash needs.

We generated $22.2 million of net cash from financing activities during the six months ended June 30, 2008.

Cash provided by financing activities consisted of:

• $57.2 million of cash provided from borrowings from the Federal Home Loan Bank of Pittsburgh (“FHLB”),

• $45.0 million of cash provided from borrowings from our unsecured $50.0 million credit agreement,

• $3.9 million of cash provided from proceeds from the issuance of shares pursuant to our stock based compensation plans and stock purchase plans,

• $2.0 million of cash provided from excess tax benefit from the issuance of shares pursuant to stock based compensation plans, and

• $2.0 million of cash provided from the collection of notes receivable associated with our employee stock purchase plans.

Cash used for financing activities included:

• $42.9 million of cash used to repurchase common stock under our stock purchase authorization;

• $45.0 million of cash used for repayments on our unsecured $50.0 million credit agreement.

During the six months ended June 30, 2008, Philadelphia Consolidated Holding Corp. received $80.0 million of dividend payments from Philadelphia Indemnity Insurance Company, one of our Insurance Subsidiaries.

On June 27, 2008, we entered into a Second Amendment to our existing unsecured Credit Agreement. This Amendment extended the maturity date of our revolving credit facility to July 11, 2008. On July 11, 2008, we entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with Bank of America, N.A. and Wachovia Bank, National Association. The Amended Credit Agreement amended and restated our existing unsecured Credit Agreement. The Amended Credit Agreement changed the terms of our existing Credit Agreement by extending the maturity date of our revolving credit facility to June 26, 2009, including a $10.0 million letter of credit facility as part of the aggregate $50.0 million revolving credit commitments of the Bank lenders, and increasing the unused commitment fee from .06% to .07% per annum. The Amended Credit Agreement provides capacity for working capital and other general corporate purposes and contains various representations, covenants and events of default typical for credit facilities of this type. As of June 30, 2008, no borrowings were outstanding under the Credit Agreement.

Two of our Insurance Subsidiaries are members of 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. Our Insurance Subsidiaries have utilized a portion of their borrowing capacity to purchase a diversified portfolio in investment grade floating rate securities. These purchases were funded by floating rate FHLB borrowing to achieve a positive spread between the rate of interest on these securities and borrowing rates. As of June 30, 2008 our Insurance Subsidiaries’ unused borrowing capacity was $589.7 million. The remaining borrowing capacity will provide an immediately available line of credit. As of June 30, 2008, our Insurance Subsidiaries had $57.2 million of borrowings outstanding at interest rates ranging from

45

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

LIBOR plus 0.15% to LIBOR plus 0.20% which mature twelve months or less from inception and are collateralized by $82.1 million of our fixed maturity securities.

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, our Insurance Subsidiaries’ capital and surplus is in excess of the prescribed risk-based capital requirements.

New Accounting Pronouncements

In March 2008, the FASB issued Statement No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”) to enhance disclosures about an entity’s derivative and hedging activities. SFAS 161 is effective for all financial statements issued in fiscal years and interim periods beginning after November 15, 2008 and early application is encouraged. SFAS 161 also encourages but does not require comparative disclosures for earlier periods at initial adoption. Because we do not currently engage in derivative transactions or hedging activities, we do not anticipate any significant financial statement disclosure impact resulting from SFAS 161.

In May 2008, the FASB issued Statement No. 162 “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”) to identify the sources of accounting principles and provide a framework for selecting the principles to be used in the preparation of financial statements in accordance with generally accepted accounting principles in the United States. SFAS 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” We do not anticipate any significant financial statement impact resulting from SFAS 162.

In May 2008, the FASB issued Statement No. 163 “Accounting for Financial Guarantee Insurance Contracts — an interpretation of FASB Statement No. 60” (“SFAS 163”) to eliminate diversity in practice in accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60 “Accounting and Reporting by Insurance Enterprises.” SFAS 163 is effective for all financial statements issued in fiscal years and interim periods beginning after December 15, 2008, with the exception of disclosures about insurance enterprises’ risk-management activities used to track and monitor deteriorating insured financial obligations, which are effective for the first period, including interim periods, after the issuance of SFAS 163. Except for these risk-management disclosures, early application is not permitted. As we do not currently enter into financial guarantee insurance contracts, we do not anticipate any significant financial statement or disclosure impact resulting from SFAS 163.

46

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our financial instruments are subject to the market risk of potential losses from adverse changes in market rates and prices. The primary market risks to us are equity price risks associated with investments in equity securities and interest rate and spread risks associated with investments in fixed maturities. We have established, among other criteria, duration, asset quality and asset allocation guidelines for managing our investment portfolio market risk exposure. Our investments are classified as Available for Sale and consist of diversified issuers and issues.

The table below provides information about our financial instruments that are sensitive to changes in interest rates and shows the effect of hypothetical changes in interest rates as of June 30, 2008 and 2007. 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 our 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)
June 30, 2008:
Investments
Total Fixed Maturities Available For Sale	$	2,844,209	200 bp decrease	$	3,133,908		10.2	%		11.8	%
			100 bp decrease	$	2,990,793		5.2	%		6.0	%
			50 bp decrease	$	2,917,768		2.6	%		3.0	%
			50 bp increase	$	2,770,855		(2.6	)%		(3.0	)%
			100 bp increase	$	2,698,571		(5.1	)%		(5.9	)%
			200 bp increase	$	2,558,889		(10.0	)%		(11.6	)%
June 30, 2007:
Investments
Total Fixed Maturities Available For Sale	$	2,367,228	200 bp decrease	$	2,590,289		9.4	%		11.0	%
			100 bp decrease	$	2,479,171		4.7	%		5.5	%
			50 bp decrease	$	2,423,438		2.4	%		2.8	%
			50 bp increase	$	2,310,641		(2.4	)%		(2.8	)%
			100 bp increase	$	2,254,153		(4.8	)%		(5.6	)%
			200 bp increase	$	2,142,740		(9.5	)%		(11.0	)%

47

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

Item 4. Controls and Procedures

     (a) Evaluation of Disclosure Controls and Procedures. Our 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 our 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 our disclosure controls and procedures, our 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 our management, with the participation of our chief executive officer (“CEO”) and chief financial officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and made known to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

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

48

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

As previously reported in Item 3 of the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2007, on February 26, 2008, the Company received a complaint filed on February 14, 2008 with the U.S. District Court for the Southern District of Florida by seven individuals. These individuals purported to act on behalf of a class of similarly situated persons who had been issued insurance policies by Liberty American Select Insurance Company, formerly known as Mobile USA Insurance Company (“LASIC”). The complaint, which is alleged to be a “class action complaint”, was filed against the Company and its subsidiaries, LASIC, Liberty American Insurance Company and Liberty American Insurance Group, Inc. The complaint requests an unspecified amount of damages “in excess of $5,000,000” and equitable relief to prevent the defendants from committing what are alleged to be unfair business practices. The plaintiffs allege that from the period from at least as early as September 1, 2003 through December 31, 2006 they and other policyholders sustained property damage covered under policies issued by LASIC, and that LASIC improperly denied or paid only a portion of the policyholders’ claims for which they were entitled to be reimbursed.

The Company believes that it has valid defenses to the claims made in the complaint, and that the claims may not be entitled to be brought as a class action. The Company will vigorously defend against such claims. Although there is no assurance as to the outcome of this litigation or as to its effect on the Company’s financial position, the Company believes, based on the facts currently known to it, that the outcome of this litigation will not have a material adverse effect on its financial position.

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, 2007, except for risks related to the proposed merger with an indirect wholly-owned subsidiary of Tokio Marine Holdings, Inc. (“TMHD”), referred in Note 15 to the consolidated financial statements included in this Form 10-Q and in Item 5 below. The Company is subject to several risks relating to the proposed merger, including the following:

(a) if the merger is not completed, the share price of our common stock may decline significantly;

(b) the occurrence of any circumstance that could give rise to the termination of the Merger Agreement; in certain circumstances we may, in the event of such termination, be obligated to pay to TMHD (i) a termination fee of $141.0 million and (ii) an expense reimbursement of up to $15.0 million;

(c) failure of TMHD to obtain certain required regulatory approvals, the failure of our shareholders to approve the merger or the failure to satisfy certain other conditions would prevent the closing of the merger;

(d) the failure of the merger to be completed for any reason;

(e) the risk that the proposed merger could disrupt our operations and that our management’s and employees’ attention may be diverted from day-to-day operations; and

(f) the effect of the announcement of the merger on our employee, agency and broker relationships, operating results and business generally.

49

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

     The Company’s purchases of its common stock during the second quarter of 2008 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
April 1 – April 30		6,170	(1)	$	34.68		—		—
		—			—		—	$	52,100,000	(2)
May 1 – May 31		500	(1)	$	30.64		—		—
		—			—		—	$	52,100,000	(2)
June 1 – June 30		6,025	(1)	$	34.36		—		—
		—			—			$	52,100,000	(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, was $125.3 million as of June 30, 2008. As of June 30, 2008, $73.2 million has been utilized.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

At the Company’s annual meeting of shareholders held on May 16, 2008, the following nominees were elected to the Board of Directors:

Name	Votes For		Votes Withheld
James J. Maguire		63,796,244		3,647,074
James J. Maguire, Jr.		67,067,553		375,765
Sean S. Sweeney		67,068,388		374,930
Aminta Hawkins Breaux		67,071,030		372,288
Michael J. Cascio		67,071,162		372,156
Elizabeth H. Gemmill		67,071,757		371,561
Paul R. Hertel, Jr.		67,069,780		373,538
Michael J. Morris		64,618,801		2,824,517
Shaun F. O’Malley		67,069,063		374,255
Donald A. Pizer		67,072,563		370,755
Ronald R. Rock		67,072,403		370,915

50

     The following other matters were approved at the Annual Meeting:

							Broker
	Votes For		Votes Against		Abstentions		Non-Votes
Approval of the appointment of PricewaterhouseCoopers, LLP as independent registered public accounting firm for the year 2008		67,339,986		85,982		17,352		—
Approval of an amendment to the Company’s Articles of Incorporation to adopt a majority vote standard for uncontested elections of Directors and eliminate cumulative voting in elections of Directors		62,007,356		1,124,776		118,362		4,192,827
Approval of an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 100,000,000 to 125,000,000		62,264,100		3,164,956		14,256		—

Item 5. Other Information

On July 23, 2008, the Company filed with the SEC a Current Report on Form 8-K reporting that it had entered into an Agreement and Plan of Merger with Tokio Marine Holdings, Inc. (“TMHD”) relating to a proposed merger pursuant to which, at the effective time thereof, (a) an indirect wholly-owned subsidiary of TMHD would merge with and into the Company, (b) the Company would become an indirect wholly-owned subsidiary of TMHD, and (c) the shareholders of the Company would receive $61.50 per share for each share of the Company held by them. For additional information about the proposed merger, see such Current Report and Note 15 to the consolidated financial statements included in this Form 10-Q.

51

Item 6. Exhibits

     Exhibits:

Exhibit No.	Description
10.1*	Casualty Excess of Loss Reinsurance Contract effective January 1, 2008.
10.2*	Casualty (Clash) Excess of Loss Contract effective January 1, 2008.
10.3*	Property Per Risk Excess of Loss Agreement of Reinsurance with General Reinsurance Corporation effective January 1, 2008.
10.4*	Property Fourth Per Risk Excess of Loss Reinsurance Agreement effective January 1, 2008 — 25% Placement via Willis Re Inc.
10.5*	Property Fifth Per Risk Excess of Loss Reinsurance Agreement effective January 1, 2008 — 50% Share with Arch Reinsurance Company.
10.6*	Terrorism Catastrophe Excess of Loss Reinsurance Contract — 20% Share with Validus Reinsurance, LTD. effective March 1, 2008
31.1*	Certification of the Company’s chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of the Company’s chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of the Company’s chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of the Company’s chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

52

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 August 5, 2008	James J. Maguire, Jr.
	James J. Maguire, Jr.
	President and Chief Executive Officer
	(Principal Executive Officer)
Date August 5, 2008	Craig P. Keller
	Craig P. Keller
	Executive Vice President, Secretary,
	Treasurer and Chief Financial Officer
	(Principal Financial and Accounting Officer)

53

EX-10.1

EXHIBIT 10.1

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

TABLE OF CONTENTS

ARTICLE		PAGE
I	BUSINESS COVERED		1
II	TERM		1
III	SPECIAL TERMINATION		2
IV	DEFINITIONS		3
	Ultimate Net Loss		3
	Extended Reporting Period Coverage		4
	Gross Net Earned Premium Income		4
	Insured		4
	Loss Occurrence		5
	Policy or Policies		5
V	LOSS IN EXCESS OF POLICY LIMITS		5
VI	EXTRA CONTRACTUAL OBLIGATIONS		5
VII	TERRITORY (BRMA 51A)		6
VIII	EXCLUSIONS		6
IX	ADDITIONAL PROVISIONS		8
X	AMOUNT OF COVERAGE AND RETENTION		9
XI	REINSURANCE PREMIUM		9
XII	NOTICE OF LOSS AND LOSS SETTLEMENTS		9
XIII	AGENCY AGREEMENT		10
XIV	SALVAGE AND SUBROGATION		10
XV	ERRORS AND OMISSIONS (BRMA 14C)		10
XVI	OFFSET		11
XVII	CURRENCY (BRMA 12A)		11
XVIII	TAXES (BRMA 50C)		11
XIX	FEDERAL EXCISE TAX (BRMA 17A)		11
XX	UNAUTHORIZED REINSURANCE (BRMA 55A)		12
XXI	NET RETAINED LINES		13
XXII	THIRD PARTY RIGHTS (BRMA 52C)		14
XXIII	SEVERABILITY		14
XXIV	GOVERNING LAW (BRMA 71A)		14
XXV	ACCESS TO RECORDS		14
XXVI	INSOLVENCY		14
XXVII	ARBITRATION		15
XXVIII	CONFIDENTIALITY		16
XXIX	SERVICE OF SUIT		16

ARTICLE		PAGE
XXX	TERRORISM RISK INSURANCE ACT OF 2002	18
XXXI	ENTIRE AGREEMENT	18
XXXII	MODE OF EXECUTION	18
XXXIII	INTERMEDIARY	19
	Schedule A
	Nuclear Incident Exclusion Clause - Liability - Reinsurance - U.S.A.
	Nuclear Incident Exclusion Clause - Liability - Reinsurance - Canada
	Terrorism Exclusion Endorsement (Reinsurance)
	War Exclusion

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.

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

B.

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

ARTICLE II

TERM

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

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B.	As respects Policies written for NYSARC Inc. and its member chapters, this Contract shall become effective 12:01 a.m., Eastern Standard Time, December 31, 2007, as respects losses occurring at or after that time and date, and shall continue in effect until 12:01 a.m., Eastern Standard Time, January 1, 2009.
C.	The Reinsurer shall cease to be liable for Loss Occurrences after the time and date of expiration of this Contract but shall remain liable for Ultimate Net Loss incurred by the Company with respect to Loss Occurrences under the Company’s Policies with the date of loss prior to the termination date of this Contract.
D.	The Company shall have the option to elect run-off coverage for Policies in force at the expiration of this Contract. If the Company chooses to run off liability, the Company will notify the Reinsurer prior to January 31, 2009. If run-off of liability is chosen, the Reinsurer shall continue to be liable for Ultimate Net Loss incurred by the Company under all Policies in force at the time and date of expiration until each Policy’s next anniversary, renewal or expiration, but in no event shall the Reinsurer’s liability continue for more than 12 months after the expiration date plus odd time, not to exceed a total of 18 months. The premium for the run-off coverage shall be the expiring rate from the attached Schedule A applied to the unearned subject premium for the Policies in force as of December 31, 2008.

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
3.	The Reinsurer’s policyholders’ surplus has been reduced by whichever is greater, either 25% of the amount of surplus at the inception of this Contract or 25% of the amount at the latest anniversary; or
4.	The Reinsurer has become merged with, acquired or controlled by any company, corporation or individual(s) not controlling the party’s operations at the inception of this Contract; however, this subparagraph A4 shall not apply where the acquiring or surviving company, corporation, or individuals have a Standard & Poor’s Insurer Financial Strength Rating equal to or higher than an “A-“ and/or an A.M. Best’s rating equal to or higher than an “A-” following such change in acquisition, merger or control; or

Page 2

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 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.

Page 3

	The phrase “claim-specific declaratory judgment expenses,” as used in this Contract will mean all expenses incurred by the Company in connection with declaratory judgment actions brought to determine the Company’s defense and/or indemnification obligations that are allocable to specific Policies and claims subject to this Contract. Declaratory judgment expenses will be deemed to have been incurred by the Company on the date of the original loss (if any) giving rise to the declaratory judgment action.
	All salvages, recoveries or payments recovered or received subsequent to loss settlements hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto.
	For purposes of this definition, the phrase “becomes liable to pay” shall mean the existence of a judgment, which the Company does not intend to appeal, or a release has been obtained by the Company, or the Company has accepted a proof of loss.
	Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Company’s Ultimate Net Loss has been ascertained.
B.	Extended Reporting Period Coverage
	“Extended Reporting Period Coverage” as used herein shall mean coverage for claims made after termination or expiration of the Company’s Policy on losses that would have been covered under the terminated or expired Policy had the claims been made during the term of that Policy. All claims made against or reported to the Company during an extended reporting period shall be deemed to have been made against or reported to the Company on the last full day of the Policy period to which the extended reporting period applies. For purposes of this Contract, the date of loss for any claim coming within Extended Reporting Period Coverage, whether such coverage is automatically extended under the Policy or whether a specific endorsement is issued, will be the termination or expiration date of the Policy.
C.	Gross Net Earned Premium Income
	“Gross Net Earned Premium Income,” as used in this Contract, shall mean gross earned premium income during the term of this Contract on business the subject of this Contract less earned premium income paid for reinsurances, recoveries under which would inure to the benefit of this Contract.
D.	Insured
	“Insured,” as used in this Contract, shall have the same meaning as this term or similar term in the Company’s Policies. However, in the event of any ambiguity or dispute relating to this term, the Company shall be the sole judge of what constitutes one Insured.

Page 4

E.	Loss Occurrence
	“Loss Occurrence,” as used in this Contract, shall have the same meaning as this term or similar term (e.g., loss, claims-made, losses discovered, wrongful act, error, omission) in the Company’s Policies. However, in the event of any ambiguity or dispute relating to this term, the Company shall be the sole judge of what constitutes one Loss Occurrence.
F.	Policy or Policies
	“Policy” or “Policies,” as used in this Contract, shall mean any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, including any extended reporting periods, by or on behalf of the Company.

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.

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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.

ARTICLE VII

TERRITORY (BRMA 51A)

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

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.

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F.	Financial Guarantee or Insolvency, when written as such.
	However, the liability of the Company under any bond covering losses due to negligence of any person or failure of any person to faithfully perform his duty or failure to account for and pay over money or other property in his custody shall not be considered Financial Guarantee or Insolvency.
	Notwithstanding the foregoing, no claim is to attach hereto in respect of any loss or losses arising as a result of:

1.

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

2.

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

	The above shall not apply as respects claims made under the Company’s Specialty Lines Division Policies.
G.	Pollution liability to the extent excluded in the Company’s original Policies. However, this exclusion shall not apply:

1.	When a judicial entity having legal jurisdiction invalidates the Company’s Pollution exclusion, thereby obligating the Company for liability when such liability for Pollution was intended to be excluded by the Company’s exclusion.
2.	In respect of any Policy written in a state whose insurance regulatory authorities have prohibited the Company from including a Pollution liability exclusion in its Policies.

H.	Business classified by the Company as Primary Rental Liability and Supplemental Liability.
I.	Liability assumed by the Company under any form of treaty reinsurance; however, group intra-company reinsurance (if applicable), local agency reinsurance accepted in the normal course of business and/or Policies written by another carrier at the Company’s request and reinsured 100% by the Company, as well as Policies written for the captive of the Company’s Insured, will not be excluded hereunder.
J.	Terrorism pursuant to the “Terrorism Exclusion Endorsement (Reinsurance)” attached hereto.
K.	Loss or liability excluded under the provisions of the “War Exclusion” attached hereto.
L.	Any losses arising out of the manufacturing of tobacco or tobacco products, when written as such.

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M.	Any losses arising out of the manufacturing of latex gloves or latex products, when written as such.
N.	Business classified by the Company as Nursing Home General Liability or Nursing Home Umbrella Liability.
O.	Business classified as Unsupported Umbrella.

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.

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 underwriting or a corporate 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 or a corporate officer 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.

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.	Any Policies classified by the Company as Public Directors and Officers Liability insurance, with the exception of Public Directors and Officers Liability insurance in force at the inception of this Contract, shall be submitted to the Reinsurer for acceptance into the Contract.
C.	Business classified by the Company as Specialty Lines Excess shall be limited to a maximum of 5.0% of the total Gross Net Earned Premium Income subject to this Contract. Any Policies that are specially accepted in accordance with paragraph B, above, shall not be subject to this condition.

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D. 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 sublimit in the Company’s original Policies of $3,000,000, or so deemed, and shall be subject to a Gross Net Earned Premium Income limitation of $5,000,000 for the term of this Contract, as stated in paragraph A of the TERM ARTICLE.

ARTICLE X

AMOUNT OF COVERAGE AND RETENTION

A.

With respect to all business covered hereunder, the Reinsurer will be liable for $14,000,000 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.

B.

Applicable to Policies incepting prior to July 1, 2007, when the Company writes an amateur sports Umbrella or Excess Liability Policy through American Specialty Insurance & Risk Services, Inc., the Reinsurer will be liable for $5,000,000 of Ultimate Net Loss in respect of each Loss Occurrence, each Insured, in excess of the Company’s retention of $6,000,000 Ultimate Net Loss, each Loss Occurrence, each Insured, where the Ultimate Net Loss is inclusive of any primary Policy written by the Company.

ARTICLE XI

REINSURANCE 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 reported by the Company during the term of this Contract on all business the subject matter hereof, subject to a minimum premium of $43,360,000.
B.	The Company shall pay to the Reinsurer an annual deposit premium of $54,200,000 payable in quarterly installments of $13,550,000 due April 1; July 1; and October 1, 2008; and January 1, 2009.
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

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	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

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.

ARTICLE XIV

SALVAGE AND SUBROGATION

The Reinsurer shall be credited with salvage or subrogation recoveries (i.e., reimbursement obtained or recovery made by the Company, less loss adjustment expense incurred in obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage and subrogation recoveries 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. In the event that there are no recoveries or the expenses exceed the amount of recovery, salvage or other related expenses shall be treated and paid by the Reinsurer as part of Ultimate Net Loss.

ARTICLE XV

ERRORS AND OMISSIONS (BRMA 14C)

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, provided such omission or error is rectified upon discovery.

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ARTICLE XVI

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 XVII

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 XVIII

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 XIX

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.
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.

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ARTICLE XX

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;
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;

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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 XXI

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.
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.

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ARTICLE XXII

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 XXIII

SEVERABILITY

If any provision of this Contract shall be rendered illegal or unenforceable by the laws or regulations 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 Contract or the enforceability of such provision in any other jurisdiction.

ARTICLE XXIV

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 that state’s 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 XXV

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 XXVI

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, with reasonable provision for verification, 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

Page 14

	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 proportionate 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 subscribing 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 agreed that, 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 its liquidator, receiver, conservator, 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.
D.	In the event of the insolvency of any company or companies listed in the designation of “Company” under this Contract, this Article shall apply only to the insolvent company or companies.

ARTICLE XXVII

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 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.

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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 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 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 XXIX

SERVICE OF SUIT

(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 authorization is required by insurance regulatory authorities. This Article is not intended to

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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, and 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, 445 South Figueroa Street, 38th Floor, Los Angeles, California 90071 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, Commissioner or Director of Insurance, or other officer specified for that purpose in the

Page 17

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 XXX

TERRORISM RISK INSURANCE ACT OF 2002

A. Any financial assistance the Company receives under the Terrorism Risk Insurance Act of 2002, including the Terrorism Risk Insurance Extension Act of 2005, and any other extensions or amendments thereto (“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 XXXI

ENTIRE AGREEMENT

This Contract shall constitute the entire agreement between the parties with respect to the business reinsured by this Contract, except that any other contract expressly disclosed in this Contract or in any exhibit or document attached to this Contract shall also be included within such entire agreement. Notwithstanding the foregoing, this Article shall not be construed as limiting in any way the admissibility of evidence regarding the formation, interpretation purpose, or intent of this Contract.

ARTICLE XXXII

MODE OF EXECUTION

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

Page 18

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 XXXIII

INTERMEDIARY

Willis Re Inc., Two Liberty Place, 50 South 16^th Street, Suite 2500, Philadelphia, Pennsylvania 19102, is hereby recognized as the intermediary negotiating this Contract and through whom all communications relating thereto shall be transmitted to the Company or the Reinsurer. However, all communications concerning accounts, claim information, funds and inquiries related thereto shall be transmitted to the Company or the Reinsurer through Willis Re Inc., 5420 Millstream Road, Suite 200, P.O. Box 3000, McLeansville, North Carolina, 27301-3000. Payments by the Company to Willis Re Inc. shall be deemed to constitute payment to the Reinsurer and payments by the Reinsurer to Willis Re Inc. shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

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

Signed this 30th day of April, 2008 .

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY

By	/s/ Christopher J. Maguire
Printed Name Christopher J. Maguire
Title EVP & COO
Executive Vice President & Chief Operating Officer

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SCHEDULE A

	Adjustable
Product Line	%Rate
Auto Liability		0.170	%
General Liability		0.170	%
Excess Auto		0.170	%
Umbrella		30.000	%
Specialty Lines
Accountants E&O		7.930	%
Consultant’s Liability		7.930	%
Lawyers E&O		7.930	%
Other E&O		7.930	%
Professional Excess Liability		7.930	%
Private Company Protection Plus		7.930	%
Corporate D&O		7.930	%
Non-Profit and Flexi Plus 5 D&O Liability		7.930	%
Employment Related Practice		7.930	%

Schedule A

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.

Page 1 of 2  

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 thereat.

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

Page 2 of 2  

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.

Page 1 of 2  

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

Page 2 of 2  

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
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 greater than 50,000 capacity, 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 5,000 person in capacity, with exception to: 1) Concert Halls and Performing Arts centers 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

Page 1 of 2  

Class of Business (continued)	Coverage
Pesticides, Herbicides, Insecticides — Manufacture	CGL/UMB
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 25,000 in seating capacity 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 $14,000,000.

Page 2 of 2  

WAR EXCLUSION

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 damage.

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

ALLIED WORLD ASSURANCE COMPANY, LTD.
(the “Subscribing Reinsurer”)

with respect to the

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT
(the “Contract”)

issued to

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”)

The Subscribing Reinsurer shall have a 27.50% share in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract..

As respects Policies written for NYSARC Inc. and its member chapters, this Agreement shall commence at 12:01 a.m. Eastern Standard Time, December 31, 2007, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

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

Signed this 12th day of February, 2008.

ALLIED WORLD ASSURANCE COMPANY, LTD.

By Stephen O’Flynn/Vice President

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

EVEREST REINSURANCE COMPANY
(the “Subscribing Reinsurer”)

with respect to the

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT
(the “Contract”)

issued to

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”)

The Subscribing Reinsurer shall have a 27.50% share in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

As respects Policies written for NYSARC Inc. and its member chapters, this Agreement shall commence at 12:01 a.m. Eastern Standard Time, December 31, 2007, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

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

Signed this 4^th day of March, 2008.

EVEREST REINSURANCE COMPANY

By John Buckwalter

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

LIBERTY MUTUAL INSURANCE COMPANY
(the “Subscribing Reinsurer”)

with respect to the

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT
(the “Contract”)

issued to

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”)

The Subscribing Reinsurer shall have a 15.00% share in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

As respects Policies written for NYSARC Inc. and its member chapters, this Agreement shall commence at 12:01 a.m. Eastern Standard Time, December 31, 2007, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

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

Signed this 24th day of February, 2008.

LIBERTY MUTUAL INSURANCE COMPANY

By Dennis Mekemson

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

TRANSATLANTIC REINSURANCE COMPANY
(the “Subscribing Reinsurer”)

with respect to the

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT
(the “Contract”)

issued to

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”)

The Subscribing Reinsurer shall have a 30.00% share in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

As respects Policies written for NYSARC Inc. and its member chapters, this Agreement shall commence at 12:01 a.m. Eastern Standard Time, December 31, 2007, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

IT IS ALSO AGREED that the following SERVICING CLAUSE replaces the INTERMEDIARY ARTICLE in the Contract.

SERVICING CLAUSE

Willis Re Inc., Two Liberty Place, 50 South 16^th Street, Suite 2500, Philadelphia, Pennsylvania 19102 is hereby recognized as the servicing agent for this Contract. However, all communications concerning accounts, claim information, funds and inquiries related thereto shall be transmitted to the Company or the Reinsurer through Willis Re Inc., 5420 Millstream

Road, P.O. Box 3000, McLeansville, North Carolina 27301-3000. Payments by the Company to Willis Re Inc. shall be deemed to constitute payment to the Reinsurer and payments by the Reinsurer to Willis Re Inc. shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

The provisions of this Contract shall remain otherwise unchanged.

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

Signed this 1^st day of April, 2008.

TRANSATLANTIC REINSURANCE COMPANY

By Nancy Gates Vice President

EX-10.2

EXHIBIT 10.2

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE
both of Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT

TABLE OF CONTENTS

ARTICLE		PAGE
I	BUSINESS COVERED		1
II	COMMENCEMENT AND TERMINATION		2
III	SPECIAL TERMINATION		2
IV	DEFINITIONS		3
	Extended Reporting Period Coverage		3
	Gross Net Earned Premium Income		4
	Insured		4
	Loss Occurrence		4
	Policy or Policies		4
	Act(s) of Terrorism		4
	Ultimate Net Loss		5
V	LOSS IN EXCESS OF POLICY LIMITS		6
VI	EXTRA CONTRACTUAL OBLIGATIONS		6
VII	TERRITORY (BRMA 51A)		7
VIII	EXCLUSIONS		7
IX	SPECIAL PROVISION		9
X	SPECIAL ACCEPTANCES		9
XI	COVERAGE		10
XII	REINSTATEMENT		10
XIII	REINSURANCE PREMIUM		11
XIV	NOTICE OF LOSS AND LOSS SETTLEMENTS		11
XV	AGENCY AGREEMENT		12
XVI	SALVAGE AND SUBROGATION		12
XVII	ERRORS AND OMISSIONS (BRMA 14C)		12
XVIII	OFFSET		12
XIX	CURRENCY (BRMA 12A)		12
XX	TAXES (BRMA 50C)		13
XXI	FEDERAL EXCISE TAX (BRMA 17A)		13
XXII	UNAUTHORIZED REINSURANCE (BRMA 55A)		13
XXIII	NET RETAINED LINES		15
XXIV	THIRD PARTY RIGHTS (BRMA 52C)		15
XXV	SEVERABILITY		16
XXVI	GOVERNING LAW (BRMA 71A)		16

ARTICLE		PAGE
XXVII	ACCESS TO RECORDS		16
XXVIII	INSOLVENCY		16
XXIX	ARBITRATION		17
XXX	CONFIDENTIALITY		18
XXXI	SERVICE OF SUIT		18
XXXII	TERRORISM RISK INSURANCE ACT OF 2002		20
XXXIII	ENTIRE AGREEMENT		20
XXXIV	MODE OF EXECUTION		20
XXXV	INTERMEDIARY		21
	Exhibit A
	Nuclear Incident Exclusion Clause — Liability — Reinsurance — U.S.A.
	Nuclear Incident Exclusion Clause — Liability — Reinsurance — Canada War Exclusion

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT
(the “Contract”)

between

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE
both of Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

and

THE SUBSCRIBING REINSURER(S) EXECUTING THE
INTERESTS AND LIABILITIES AGREEMENT(S)
ATTACHED HERETO
(the “Reinsurer”)

ARTICLE I

BUSINESS COVERED

A.	By this Contract the Reinsurer agrees to reinsure the net excess liability of the Company under its Policies in force at the effective time and date hereof or issued or renewed after that time and date by or on behalf of the Company and classified by the Company as Casualty and Liability, which is defined as insurance which is classified in the NAIC Annual Statement as commercial multiple peril (liability portion coverages), other liability — occurrence and claims made, commercial and private passenger automobile liability, commercial umbrella liability, and professional liability lines of business. The business covered under this Article includes business written by the Company’s Commercial and Specialty Lines Divisions. It is understood and agreed that, as respects Policies on a claims-made or losses-discovered basis, any Extended Reporting Period Coverage provided thereunder shall be reinsured hereunder, provided the date of loss is during the term of this Contract.
B.	Furthermore, it is agreed that the Company may add other Casualty and Liability product lines of business to the scope of this Contract with prior written approval of the Reinsurer.
C.	The classes of business reinsured under this Contract are deemed to include:

1.	Coverages required for non-resident drivers under the motor vehicle financial responsibility law or the motor vehicle compulsory insurance law or any similar law of any state or province, following the provisions of the Company’s Policies when they include or are deemed to include so-called “Out of State Insurance” provisions;
2.	Coverages required under Section 30 of the Motor Carrier Act of 1980 and/or any amendments thereto.

Page 1

ARTICLE II

COMMENCEMENT AND TERMINATION

A.	This Contract shall become effective at 12:01 a.m., Eastern Standard Time, January 1, 2008 as respects losses occurring at or after that time and date, and shall continue in effect until 12:01 a.m., Eastern Standard Time, January 1, 2009.
B.	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, 2009. If run-off of liability is chosen, the Reinsurer shall continue to be liable for Ultimate Net Loss incurred by the Company under all Policies in force at the time and date of expiration until each Policy’s next anniversary, renewal or expiration, but in no event shall the Reinsurer’s liability continue for more than 12 months after the expiration date plus odd time, not to exceed a total of 18 months. The premium for the run-off coverage shall be the expiring rate from the attached Schedule A applied to the unearned subject premium for the Policies in force as of December 31, 2008.

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
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; however, this subparagraph A4 shall not apply where the acquiring or surviving company, corporation, or individuals have a Standard & Poor’s Insurer

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Financial Strength Rating equal to or higher than an “A-” and/or an A.M. Best’s rating equal to or higher than an “A-” following such change in acquisition, merger or control; or

5.	The Reinsurer has reinsured its entire liability under this Contract without the terminating party’s prior written consent; or
6.	The Reinsurer ceases writing new or renewal business; or
7.	The Reinsurer has been assigned an A.M. Best’s rating of less than “A-” or a Standard & Poor’s Insurer Financial Strength Rating of less than “A-”.

B.

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

C.

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

ARTICLE IV

DEFINITIONS

A.

Extended Reporting Period Coverage

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

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

1.	“Loss Occurrence,” as used in this Contract, shall mean any one disaster or casualty or accident or loss or series of disasters or casualties or accidents or losses arising out of or caused by one event, as defined within the Company’s Policies. However, in the event of any ambiguity or dispute relating to this term, the Company shall be the sole judge of what constitutes one Loss Occurrence.
2.	When two or more Policies, one or more (but not all) of which are on a claims-made or losses-discovered basis, are involved in the same Loss Occurrence, the date of loss for purposes of this Contract will be the actual date of loss; provided however that, if the loss under the occurrence or accident Policies is reported more than five years after December 31 of the year in which the loss occurred, the date of loss shall be the date first established under the claims-made and losses-discovered Policies.
3.	When two or more Policies, all of which are on a claims-made or losses-discovered basis, are involved in the same Loss Occurrence, the date of loss for purposes of this Contract will be the date when the first insured involved had the claim made or discovered the loss.

E.	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.

F.	Act(s) of Terrorism
	“Act(s) of Terrorism,” as used in this Contract, shall mean

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 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)

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retaliating against any country for direct or vicarious support by that country or 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 Contract.

G.	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 90% of any Loss in Excess of Policy Limits as defined in the LOSS IN EXCESS OF POLICY LIMITS ARTICLE, 90% of any Extra Contractual Obligations as defined in the EXTRA CONTRACTUAL OBLIGATIONS ARTICLE, ex-gratia payments subject to prior approval, expenses of litigation and interest, claim-specific declaratory judgment expenses, and all other loss expense of the Company including subrogation, salvage, and recovery expenses (office expenses and salaries of officials and employees not classified as loss adjusters are not chargeable as expenses for purposes of this paragraph), but salvages and all recoveries, including recoveries under all reinsurances, which inure to the benefit of this Contract (whether recovered or not), shall be first deducted from such loss to arrive at the amount of liability attaching hereunder.
	The phrase “ex-gratia payments” shall mean payments made as an accommodation by the Company in settlement of a claim for which no coverage exists under the Policy reinsured hereunder, subject to the prior approval of the Reinsurer.
	The phrase “claim-specific declaratory judgment expenses,” as used in this Contract will mean all expenses incurred by the Company in connection with declaratory judgment actions brought to determine the Company’s defense and/or indemnification obligations that are allocable to specific Policies and claims subject to this Contract. Declaratory judgment expenses will be deemed to have been incurred by the Company on the date of the original loss (if any) giving rise to the declaratory judgment action.
	All salvages, recoveries or payments recovered or received subsequent to loss settlements hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto.
	For purposes of this definition, the phrase “becomes liable to pay” shall mean the existence of a judgment, which the Company does not intend to appeal, or a release has been obtained by the Company, or the Company has accepted a proof of loss.
	Nothing in this clause shall be construed to mean that losses are not recoverable hereunder until the Company’s Ultimate Net Loss has been ascertained.

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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 (BRMA 51A)

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

ARTICLE VIII

EXCLUSIONS

This Contract does not cover and specifically excludes:

A.	Pools, Associations or Syndicates, except losses from Assigned Risk Plans or similar plans, are not excluded.
B.	Nuclear Incident pursuant to the “Nuclear Incident Exclusion Clause - Liability — Reinsurance — U.S.A.” attached hereto.
C.	Nuclear Incident pursuant to the “Nuclear Incident Exclusion Clause - Liability — Reinsurance — Canada” attached hereto.
D.	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.
E.	Financial Guarantee or Insolvency, when written as such.
	However, the liability of the Company under any bond covering losses due to negligence of any person or failure of any person to faithfully perform his duty or failure to account for and pay over money or other property in his custody shall not be considered Financial Guarantee or Insolvency.
	Notwithstanding the foregoing, no claim is to attach hereto in respect of any loss or losses arising as a result of:

1.	The insolvency of any financial institution at which trust moneys are deposited or insolvency of any person, firm or company, or
2.	The fall in the market value of investments unless such loss is the direct result of a) a dishonest, fraudulent, criminal or negligent act on the part of the bonded person or b) a dishonest, fraudulent or criminal act on the part of any other person or persons or c) unless such loss is solely created by a physical damage loss to property other than

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where such physical damage loss could have been recovered from a third party but for the insolvency of such third party.

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

G.	Business classified by the Company as Primary Rental Liability and Supplemental Liability.
H.	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.
I.	Loss or liability excluded under the provisions of the “War Exclusion” attached hereto.
J.	Business classified by the Company as Nursing Home General Liability or Nursing Home Umbrella Liability.
K.	Workers’ Compensation.
L.	Loss or damage (including related cost and expense) 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 exposure.

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, H, I, and K as set forth above), then a loss for which the Company is liable because of such invalidation shall not be excluded hereunder.

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 underwriting or a corporate 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 or a corporate officer of the Company of the existence of the hazard which makes the exclusion applicable; or

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(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.

ARTICLE IX

SPECIAL PROVISION

The Company will maintain the following reinsurance; and recoveries, if any, thereunder, shall inure to the benefit of both the Company and the Reinsurer hereunder:

1.	Casualty Excess of Loss reinsurance of $14,000,000 of Ultimate Net Loss in respect of each Loss Occurrence or claims made, each Insured, in excess of the Company’s retention of $2,000,000 Ultimate Net Loss, each Loss Occurrence or claims made, each Insured. Ultimate Net Loss is inclusive of any primary Policy written by the Company and of Loss Adjustment Expense.
	This inuring reinsurance excludes Policies with per claim or per occurrence limits of $1,000,000 and less. However, 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.
2.	Policies, subject to this Contract, with inuring coverage indicated in paragraph 1, above, shall not exceed a combined limit for both the primary Policy and umbrella Policy of $16,000,000 per claim or per occurrence.

ARTICLE X

SPECIAL ACCEPTANCES

A.	Business not within the terms of this Contract may be submitted to the Reinsurer for special acceptance and, if accepted by the Reinsurer, shall be subject to all of the terms of this Contract, except as modified by the Special Acceptance.
B.	Renewal of Policies, which have previously received a Special Acceptance under prior Contracts, are deemed to be covered hereunder.
C.	Further, should a Reinsurer become party to this Contract subsequent to the acceptance of any business not normally covered hereunder, that Reinsurer will automatically accept the special acceptances as being part of this Contract.

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ARTICLE XI

COVERAGE

A.

As respects each excess layer hereunder, the Reinsurer shall be liable for 100% of the Ultimate Net Loss in excess of the “Company’s Retention” for the excess layer, as stated in Exhibit A attached hereto, as a result of any one Loss Occurrence. The Reinsurer’s liability in respect of any one Loss Occurrence shall not exceed 100% of the “Reinsurer’s Limit, Each Loss Occurrence” for the excess layer, as stated in Exhibit A attached hereto. The Reinsurer’s liability arising out of Act(s) of Terrorism shall not exceed 100% of the “Reinsurer’s Annual Limit for Act(s) of Terrorism for each layer, as stated in Exhibit A attached hereto.

B.

The Reinsurer’s liability in respect of all losses occurring during any one Contract Year shall not exceed 100% of the “Reinsurer’s Limit, All Loss Occurrences” for the excess layer, as stated in Exhibit A attached hereto.

ARTICLE XII

REINSTATEMENT

A.	As respects each excess layer hereunder, should all or any part of the Reinsurer’s limit of liability for the excess layer be exhausted as a result of a Loss Occurrence, the sum so exhausted shall be reinstated from the date the Loss Occurrence commenced.
B.	For each amount so reinstated for the excess layer, the Company agrees to pay an additional premium at the time of the Reinsurer’s payment of the loss calculated in accordance with the following formula:

1.	The percentage of the “Reinsurer’s Limit, Each Loss Occurrence” for the excess layer, as stated in Exhibit A attached hereto, exhausted by the Loss Occurrence.
2.	The reinsurance premium paid or payable for the excess layer for the term of this Contract.

The dollar amount resulting from the multiplication of subparagraphs B1 and B2 above shall equal the reinstatement premium for the excess layer. If at the time of the Reinsurer’s payment of a loss hereon, the reinsurance premium for the excess layer as calculated under this Contract is unknown, the calculation of the reinstatement premium shall be based upon the deposit premium for the excess layer, subject to adjustment when the reinsurance premium is finally established.

C. Nevertheless, the Reinsurer’s liability hereunder shall not exceed the “Reinsurer’s Limit, Each Loss Occurrence” for the excess layer, as stated in Exhibit A attached hereto, in respect of any one Loss Occurrence, and shall be further limited to the “Reinsurer’s Limit, All Loss Occurrences” for the excess layer, as stated in Exhibit A attached hereto, in respect of all losses occurring during the term of this Contract.

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ARTICLE XIII

REINSURANCE PREMIUM

A.	As premium for the reinsurance provided hereunder for each excess layer during each Contract Year, the Company shall pay the Reinsurer the “Premium Rate” for the excess layer, as stated in Exhibit A attached hereto, times its Net Earned Premium for the Contract Year, subject to the “Minimum Premium” for the excess layer as stated in Exhibit A attached hereto.
B.	The Company shall pay the Reinsurer the “Deposit Premium” for the excess layer, as stated in Exhibit A attached hereto, in “Quarterly Installments,” as stated in Exhibit A attached hereto, on January 1, April 1; July 1; and October 1, 2008.
C.	Within 90 days after the end of each Contract Year, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer during the Contract Year, computed in accordance with paragraph A, and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly.

ARTICLE XIV

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.

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ARTICLE XV

AGENCY AGREEMENT

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.

ARTICLE XVI

SALVAGE AND SUBROGATION

The Reinsurer shall be credited with salvage or subrogation recoveries (i.e., reimbursement obtained or recovery made by the Company, less loss adjustment expense incurred in obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage and subrogation recoveries 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. In the event that there are no recoveries or the expenses exceed the amount of recovery, salvage or other related expenses shall be treated and paid by the Reinsurer as part of Ultimate Net Loss.

ARTICLE XVII

ERRORS AND OMISSIONS (BRMA 14C)

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, provided such omission or error is rectified upon discovery.

ARTICLE XVIII

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 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.

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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 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 XXI

FEDERAL EXCISE TAX (BRMA 17A)

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

A. The subscribing 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 subscribing 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

UNAUTHORIZED REINSURANCE (BRMA 55A)

(Applies only to a subscribing 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 unearned premium and losses covered hereunder which it shall be required by law to set up, it will forward to the subscribing reinsurer a statement showing the proportion of such reserves which is applicable to the subscribing reinsurer. The subscribing reinsurer hereby agrees to fund such reserves in respect of unearned premium, known outstanding losses that have been reported to the subscribing reinsurer and allocated Loss Adjustment Expense relating thereto, losses and allocated Loss

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Adjustment Expense paid by the Company but not recovered from the subscribing reinsurer, plus reserves for losses incurred but not reported, as shown in the statement prepared by the Company (hereinafter referred to as “subscribing reinsurer’s obligations”) by funds withheld, cash advances or a Letter of Credit. The subscribing 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 subscribing 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 subscribing 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 subscribing reinsurer and Company agree that the Letters of Credit provided by the subscribing 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 subscribing 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 subscribing reinsurer’s obligations under this Contract;
3.	To fund an account with the Company for the subscribing 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 subscribing reinsurer;
4.	To pay the subscribing 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 subparagraph 1 or 3, or in the case of subparagraph 4, the actual amount determined to be due, the Company shall promptly return to the subscribing 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 subscribing 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

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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 subscribing reinsurer’s obligations, for the sole purpose of amending the Letter of Credit, in the following manner:

1.

If the statement shows that the subscribing reinsurer’s obligations exceed the balance of credit as of the statement date, the subscribing 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 subscribing 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 subscribing 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 XXIII

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 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 XXIV

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.

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ARTICLE XXV

SEVERABILITY

If any provision of this Contract shall be rendered illegal or unenforceable by the laws or regulations 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 Contract or the enforceability of such provision in any other jurisdiction.

ARTICLE XXVI

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 that state’s 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 XXVII

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 XXVIII

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, with reasonable provision for verification, 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,

Page 16

subject to the approval of the Court, against the Company as part of the expense of conservation or 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.

B. Where two or more subscribing 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 agreed that, 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 its liquidator, receiver, conservator, 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 payee under such Policies and in substitution for the obligations of the Company to such payees.

D. In the event of the insolvency of any company or companies listed in the designation of “Company” under this Contract, this Article shall apply only to the insolvent company or companies.

ARTICLE XXIX

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 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.

Page 17

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 XXX

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 XXXI

SERVICE OF SUIT

(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 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

Page 18

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, and 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, 445 South Figueroa Street, 38th Floor, Los Angeles, California 90071 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, 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.

Page 19

ARTICLE XXXII

TERRORISM RISK INSURANCE ACT OF 2002

A. Any financial assistance the Company receives under the Terrorism Risk Insurance Act of 2002, including the Terrorism Risk Insurance Extension Act of 2005, and any other extensions or amendments thereto (“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 XXXIII

ENTIRE AGREEMENT

This Contract shall constitute the entire agreement between the parties with respect to the business reinsured by this Contract, except that any other contract expressly disclosed in this Contract or in any exhibit or document attached to this Contract shall also be included within such entire agreement. Notwithstanding the foregoing, this Article shall not be construed as limiting in any way the admissibility of evidence regarding the formation, interpretation purpose, or intent of this Contract.

ARTICLE XXXIV

MODE OF EXECUTION

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.

Page 20

ARTICLE XXXV

INTERMEDIARY

Willis Re Inc., Two Liberty Place, 50 South 16^th Street, Suite 2500, Philadelphia, Pennsylvania 19102, is hereby recognized as the intermediary negotiating this Contract and through whom all communications relating thereto shall be transmitted to the Company or the Reinsurer. However, all communications concerning accounts, claim information, funds and inquiries related thereto shall be transmitted to the Company or the Reinsurer through Willis Re Inc., 5420 Millstream Road, Suite 200, P.O. Box 3000, McLeansville, North Carolina, 27301-3000. Payments by the Company to Willis Re Inc. shall be deemed to constitute payment to the Reinsurer and payments by the Reinsurer to Willis Re Inc. shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

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

Signed this 30^th day of April, 2008.

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY

By /s/ Christopher J. Maguire

Printed Name Christopher J. Maguire

Title EVP & COO

By Executive Vice President & Chief Operating Officer

Page 21

EXHIBIT A

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT

issued to

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE
both of Bala Cynwyd, Pennsylvania

	93984001-08			93984002-08			93984003-08
	First Excess			Second Excess			Third Excess
Company’s Retention	$	2,000,000		$	5,000,000		$	10,000,000
Reinsurer’s Limit, Each Loss Occurrence	$	3,000,000		$	5,000,000		$	10,000,000
Reinsurer’s Annual Limit, Act(s) of Terrorism	$	3,000,000		$	5,000,000		$	10,000,000
Reinsurer’s Limit, All Loss Occurrences	$	6,000,000		$	10,000,000		$	20,000,000
Deposit Premium	$	855,978		$	850,560		$	1,218,956
Quarterly Installments	$	213,995		$	212,640		$	304,739
Premium Rate		0.0790	%		0.0785	%		0.1125	%
Minimum Premium	$	684,782		$	680,448		$	975,165

EXHIBIT A

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.

Page 1 of 2

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 thereat.

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

Page 2 of 2

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.

Page 1 of 2

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

Page 2 of 2

WAR EXCLUSION

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 damage.

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

ALLIED WORLD ASSURANCE COMPANY, LTD.
(the “Subscribing Reinsurer”)

with respect to the

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT
(the “Contract”)

issued to

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE
both of Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

The Subscribing Reinsurer shall have the following share(s) in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company:

30.00% of the First Casualty Excess of Loss Reinsurance Layer
 0.00% of the Second Casualty Excess of Loss Reinsurance Layer
 0.00% of the Third Casualty Excess of Loss Reinsurance Layer

NOTE: 0.00% means no share.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

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

Signed this 11^th day of March, 2008.

ALLIED WORLD ASSURANCE COMPANY, LTD.

By Robert Moreno

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

HANNOVER RUCKVERSICHERUNG AG
(the “Subscribing Reinsurer”)

with respect to the

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT
(the “Contract”)

issued to

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE
both of Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

The Subscribing Reinsurer shall have the following share(s) in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company:

20.00% of the First Casualty Excess of Loss Reinsurance Layer
20.00% of the Second Casualty Excess of Loss Reinsurance Layer
20.00% of the Third Casualty Excess of Loss Reinsurance Layer

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

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

Signed this 11 day of February, 2008.

HANNOVER RUCKVERSICHERUNG AG

By Axel Trieloff

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

HARBOR POINT REINSURANCE U. S., INC.
(the “Subscribing Reinsurer”)

with respect to the

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT
(the “Contract”)

issued to

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE
both of Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

The Subscribing Reinsurer shall have the following share(s) in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company:

 5.00% of the First Casualty Excess of Loss Reinsurance Layer
20.00% of the Second Casualty Excess of Loss Reinsurance Layer
10.00% of the Third Casualty Excess of Loss Reinsurance Layer

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

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

Signed this 25^th day of February, 2008.

HARBOR POINT REINSURANCE U. S., INC.

By William Pentony

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

LIBERTY MUTUAL INSURANCE COMPANY
(the “Subscribing Reinsurer”)

with respect to the

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT
(the “Contract”)

issued to

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE
both of Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

The Subscribing Reinsurer shall have the following share(s) in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company:

5.00% of the First Casualty Excess of Loss Reinsurance Layer
0.00% of the Second Casualty Excess of Loss Reinsurance Layer
5.00% of the Third Casualty Excess of Loss Reinsurance Layer

NOTE: 0.00% means no share.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

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

Signed this 8^th day of April, 2008.

LIBERTY MUTUAL INSURANCE COMPANY

By Dennis Mekemson

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

PLATINUM UNDERWRITERS REINSURANCE, INC.
(the “Subscribing Reinsurer”)

with respect to the

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT
(the “Contract”)

issued to

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE
both of Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

The Subscribing Reinsurer shall have the following share(s) in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company:

 0.00% of the First Casualty Excess of Loss Reinsurance Layer
10.00% of the Second Casualty Excess of Loss Reinsurance Layer
 7.50% of the Third Casualty Excess of Loss Reinsurance Layer

NOTE: 0.00% means no share.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

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

Signed this 11^th day of February, 2008.

PLATINUM UNDERWRITERS REINSURANCE, INC.

By Jeff Gearheart

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of
TRANSATLANTIC REINSURANCE COMPANY
(the “Subscribing Reinsurer”)

with respect to the

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT
(the “Contract”)

issued to

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE
both of Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

The Subscribing Reinsurer shall have the following share(s) in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company:

0.00% of the First Casualty Excess of Loss Reinsurance Layer
10.00% of the Second Casualty Excess of Loss Reinsurance Layer
17.50% of the Third Casualty Excess of Loss Reinsurance Layer

NOTE: 0.00% means no share.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

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

Signed this 20^th day of March, 2008.

TRANSATLANTIC REINSURANCE COMPANY

By Brenda J. Jansen

EX-10.3

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

UNDERWRITERS AT LLOYD’S, LONDON
AS SET FORTH IN THE SIGNING SCHEDULE ATTACHED HERETO
(the “Subscribing Reinsurer”)

with respect to the

CASUALTY EXCESS OF LOSS
REINSURANCE CONTRACT
(the “Contract”)

issued to

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE
both of Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

The Subscribing Reinsurer shall have a share in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company. The Subscribing Reinsurer’s percentage share shall equal the sum of the final signed lines percentage share(s) as executed on the attached signing page(s) for Lloyd’s Underwriters.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008 and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement per the attached signing page(s).

Lloyd’s, London

TABLE OF CONTENTS

to
AGREEMENT OF REINSURANCE
NO. 9034-08
between
PHILADELPHIA INDEMNITY INSURANCE COMPANY
PHILADELPHIA INSURANCE COMPANY
and
GENERAL REINSURANCE CORPORATION

		Page
GENERAL ARTICLES
Article I	SCOPE OF AGREEMENT		1
Article II	PARTIES TO THE AGREEMENT		2
Article III	MANAGEMENT OF CLAIMS AND LOSSES		2
Article IV	RECOVERIES		2
Article V	TRIA INUREMENT		2
Article VI	PREMIUM REPORTS AND REMITTANCES		3
Article VII	ERRORS AND OMISSIONS		3
Article VIII	SPECIAL ACCEPTANCES		3
Article IX	RESERVES AND TAXES		4
Article X	OFFSET		4
Article XI	INSPECTION OF RECORDS		4
Article XII	ARBITRATION		4
Article XIII	INSOLVENCY OF THE COMPANY		5
Article XIV	ENTIRE AGREEMENT		5
EXHIBIT A — EXCESS OF LOSS REINSURANCE (Per Risk) of Property Business
Section 1	BUSINESS SUBJECT TO THIS EXHIBIT		A-1
Section 2	COMMENCEMENT		A-1
Section 3	LIABILITY OF THE REINSURER		A-1
Section 4	DEFINITIONS		A-2
Section 5	EXCLUSIONS		A-7
Section 6	OTHER REINSURANCE	A-10
Section 7	REINSURANCE PREMIUM	A-10
Section 8	REPORTS AND REMITTANCES	A-11
Section 9	AUTOMATIC REINSTATEMENT	A-12
Section 10	TERMINATION	A-12
Section 11	MORTGAGEE REINSURANCE ENDORSEMENT	A-13
EXHIBIT B — EXCESS OF LOSS REINSURANCE (Per Risk) of Property Business (Coverage for Terrorism Only)
Section 1	BUSINESS SUBJECT TO THIS EXHIBIT		B-1
Section 2	TERM		B-1
Section 3	LIABILITY OF THE REINSURER		B-1
Section 4	DEFINITIONS		B-2
Section 5	EXCLUSIONS		B-2
Section 6	REINSURANCE PREMIUM		B-3
Section 7	REPORTS AND REMITTANCES		B-3

AGREEMENT OF REINSURANCE

GENERAL REINSURANCE CORPORATION
A Berkshire Hathaway Company

NO. 9034-08

between

PHILADELPHIA INDEMNITY INSURANCE COMPANY
PHILADELPHIA INSURANCE COMPANY
One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
And any additional company established or acquired by the Company
(herein collectively referred to as the “Company”)

and

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

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

Article I — SCOPE OF AGREEMENT

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

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

     EXHIBIT A — EXCESS OF LOSS REINSURANCE

of
Property Business

     EXHIBIT B — EXCESS OF LOSS REINSURANCE

of
Property Business (Coverage for Terrorism Only)

GENERAL REINSURANCE CORPORATION

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Article II — PARTIES TO THE AGREEMENT

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

Article III — MANAGEMENT OF CLAIMS AND LOSSES

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

Article IV — RECOVERIES

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

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

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

Article V — TRIA INUREMENT

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

If the sum of:

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

GENERAL REINSURANCE CORPORATION

- 3 -

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

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

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

Article VI — PREMIUM REPORTS AND REMITTANCES

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

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

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

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

Article VII — ERRORS AND OMISSIONS

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

Article VIII — SPECIAL ACCEPTANCES

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

Article IX — RESERVES AND TAXES

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

GENERAL REINSURANCE CORPORATION

- 4 -

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

Article X — OFFSET

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

Article XI — INSPECTION OF RECORDS

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

Article XII — ARBITRATION

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

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

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

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

Each party shall bear the cost of its own arbitrator and shall jointly and equally bear with the other party the expense of the third arbitrator and other costs of the arbitration. In the event

GENERAL REINSURANCE CORPORATION

- 5 -

both arbitrators are chosen by one party, the fees of all arbitrators shall be equally divided between the parties.

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

Article XIII — INSOLVENCY OF THE COMPANY

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

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

Article XIV — ENTIRE AGREEMENT

This Agreement constitutes the entire Agreement between the parties with respect to the business reinsured hereunder. Any change or modification to this Agreement shall be made by written amendment to this Agreement and signed by the parties hereto.

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

GENERAL REINSURANCE CORPORATION

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duplicate,

this 2^nd day of June, 2008,

	PHILADELPHIA INDEMNITY INSURANCE COMPANY PHILADELPHIA INSURANCE COMPANY
	Christopher J Maguire EVP & COO
Attest: William A McKenna
and this 22nd day of May, 2008.
	GENERAL REINSURANCE CORPORATION
	Joan Lafrance Senior Vice President
Attest: Diane B Hyland

EXHIBIT A

GENERAL REINSURANCE CORPORATION

A - 7

Attached to and made a part of
Agreement of Reinsurance No. 9034-08

EXCESS OF LOSS REINSURANCE
(Per Risk)
of
Property Business

Section 1 — BUSINESS SUBJECT TO THIS EXHIBIT

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

Section 2 — COMMENCEMENT

This Exhibit shall apply to new and renewal policies of the Company becoming effective at and after 12:01 A.M., January 1, 2008, and to policies of the Company in force at 12:01 A.M., January 1, 2008, with respect to claims and losses resulting from Loss Occurrences taking place at and after the aforesaid time and date, and shall continue in force until terminated in accordance with the provisions of the section entitled TERMINATION.

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

Class of Business	Company Retention		Limits of Liability of the Reinsurer
Property Business	$	2,500,000	First Excess Cover: The next
			$2,500,000 in excess of the first
			$2,500,000

GENERAL REINSURANCE CORPORATION

A - 8

SCHEDULE OF REINSURANCE (Continued)

Class of Business	Company Retention	Limits of Liability of the Reinsurer
		Second Excess Cover: The next
		$5,000,000 in excess of the first
		$5,000,000
		Third Excess Cover: The next
		$5,000,000 in excess of the first
		$10,000,000

The liability of the Reinsurer shall not exceed:

(a)

$5,000,000 under the First Excess Cover nor $10,000,000 under the Second Excess Cover nor $10,000,000 under the Third Excess Cover with respect to all Net Loss on all Risks involved in one Loss Occurrence.

(b)

$20,000,000 under the Second Excess Cover nor $15,000,000 under the Third Excess Cover with respect to all Net Loss on all Risks involved in all Loss 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 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.

Section 4 — DEFINITIONS

(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

GENERAL REINSURANCE CORPORATION

A - 9

	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.
	Nothing in this definition shall imply that losses are not recoverable hereunder until the Company’s Net Loss has been finally ascertained.
(c)	Adjustment Expense
	This term shall mean expenditures by the Company within the terms of its policies in the direct defense of claims and in connection with Extra Contractual Obligations and as allocated to an individual claim or loss (other than for office expenses and for the salaries and expenses of employees of the Company or of any subsidiary or related or wholly owned company of the Company) made in connection with the disposition of a claim, loss, or legal proceeding including investigation, negotiation, and legal expenses; court costs; prejudgment interest; and postjudgment interest.
	Notwithstanding the provisions of the article entitled MANAGEMENT OF CLAIMS AND LOSSES, this term shall also be deemed to include any expenses incurred by the Company in bringing or in defending a declaratory judgment action brought to determine the Company’s obligations to its insured with respect to a specific claim under a policy (or coverage part thereof) reinsured hereunder. However, the amount of any declaratory judgment expense that may be included in computation of Adjustment Expense shall not exceed the lesser of the amount of insurance under the policy or the Reinsurer’s Limit of Liability for each Risk under this Exhibit.
	The date on which a declaratory judgment expense is incurred by the Company shall be deemed, in all circumstances, to be the date of the original Loss Occurrence.
(d)	Extra Contractual Obligations
	This term shall mean a loss which is not covered under any other provision of this Exhibit resulting from an action taken by the insured or assignee arising from the Company’s handling of any claim otherwise covered under this Exhibit on the Risks reinsured hereunder which have total amounts of insurance greater than the Company Retention.
	The date on which an Extra Contractual Obligation is incurred by the Company shall be deemed, in all circumstances, to be the date of the original Loss Occurrence.
	There shall be no coverage hereunder where the Extra Contractual Obligation has been incurred due to the adjudication or admission of

GENERAL REINSURANCE CORPORATION

A - 10

	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 which indemnifies or protects the Company against claims which are the subject matter of this definition shall inure to the benefit of the Reinsurer and shall be deducted to arrive at the amount of the Company’s Net Loss.
	Loss otherwise covered hereunder includes punitive damages awarded against the Company where such coverage is permitted by applicable law.
(e)	Risk
	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:
(1)	A Building and its contents, regardless of the number of insureds or policies involved, including time element coverages, shall never be considered more than one Risk.
	When two or more Buildings and their contents, including time element coverages, are situated at the same General Location, the Company shall identify on its records at the time of acceptance by the Company those individual Buildings and their contents, including time element coverages, that are to be considered to constitute each Risk; if such identification is not made, all of the Buildings and their contents situated at the same General Location shall be considered one Risk.
	When there are known and named extensions of coverage involving other risk locations (including but not limited to suppliers extensions, customer extensions and interdependencies and whether triggered by physical loss at the risk location or another location) that are included and formally recorded on the Company’s records at the time of acceptance of the Risk, all such known and named extensions of coverage shall be included in calculation of the one Risk.
(2)	Unknown, unnamed or unidentified extensions of coverage shall be considered separate Risks. The maximum amount which may be included in Net Loss with respect to each such Risk shall be $250,000. Further, the Limit of Liability of the Reinsurer shall not exceed $500,000 of Net Loss with respect to all such Risks involved in one Loss Occurrence. Such Loss Occurrence limit is part of, and not in addition to the Loss Occurrence limit stipulated in the section entitled LIABILITY OF THE REINSURER.
(3)	As respects the Company’s Antique/Collector Car Program, each collection will be considered a Risk.

GENERAL REINSURANCE CORPORATION

A - 11

(f)	Building
	This term shall mean each structure enclosed within exterior walls. Exterior walls are defined as walls constructed on the perimeter foundation, regardless of the number of additional structures or roofs placed upon this perimeter foundation.
(g)	Loss Occurrence
	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:

(a)	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.
(b)	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.
(c)	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.”
(d)	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.”

GENERAL REINSURANCE CORPORATION

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(e) As regards firestorms, brush fires, and any other fires or a series of fires, irrespective of origin (except as provided in subparagraphs (a) and (b) above, which spread through trees, grassland or other vegetations, all individual losses sustained by the Company which occur during any period of 168 consecutive hours within a 150-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.”

	For all those “loss occurrences,” the Company may choose the date and time when any such period of consecutive hours commences, provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss, and provided that only one such period of 168 consecutive hours shall apply with respect to one event, except for any “loss occurrence” referred to in subparagraphs (a) and (b) above where only one such period of 72 consecutive hours shall apply with respect to one event, regardless of the duration of the event.
	No individual losses occasioned by an event that would be covered by 72 hours clauses may be included in any “loss occurrence” claimed under the 168 hours provision.
(h)	General Location
	This term shall mean a contiguous and unbroken tract of land surrounded by public roads, railroads, rivers or other natural barriers.
(i)	Agreement Year
	This term shall mean each twelve month period commencing on January 1st.
(j)	Company’s Subject Earned Premium
	This term shall mean the premium earned by the Company on the business reinsured hereunder, after deduction from such premium earned of the portion paid for share reinsurance which inures to the benefit of the Reinsurer.

Section 5 — EXCLUSIONS

This Exhibit shall not apply to:

(a)	Reinsurance assumed by the Company other than reinsurance of primary business assumed from affiliated companies;
(b)	Nuclear incident per the Nuclear Incident Exclusion Clause — Physical Damage — Reinsurance attached hereto;

GENERAL REINSURANCE CORPORATION

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(c)	Any loss or liability accruing to the Company directly or indirectly from any insurance written by or through any pool or association including pools or associations in which membership by the Company is required under any statutes or regulations;
(d)	Any liability of the Company arising from its participation or membership in any insolvency fund;
(e)	Any loss or damage directly or indirectly arising out of, caused by, or resulting from war, as described in paragraph (1) below, or any act of terrorism, as described in paragraphs (2), (3), (4) and (5) below. Such loss or damage is excluded regardless of (i) any other cause or event contributing to such loss or damage in any way or at any time, or (ii) whether such loss or damage is accidental or intentional.
(1)	War, including undeclared or civil war; warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or insurrection, rebellion, revolution, usurped power or action taken by governmental authority in hindering or defending against any of these. War includes any activity that would be included as an “act of terrorism” in paragraphs (2), (3), (4) and (5) below, but for the fact that such activity was perpetrated by an official, employee or agent of a foreign state acting for or on behalf of such state.
(2)	Any “act of terrorism”, as described in paragraphs (3), (4) and (5) below, but only with respect to loss or damage that is not excluded by paragraph (1) above.
(3)	Any act defined as an “act of terrorism” in the Terrorism Risk Insurance Act of 2002 as subsequently amended.
(4)	Any act authorized by a governmental authority for the purpose of preventing, terminating, countering or responding to any act or threat of terrorism or for the purpose of preventing or minimizing the consequences of any act or threat of terrorism.

(5) Any activity (other than an act described in (3) above), including the threat of an activity or any preparation for an activity, that (a) causes either (i) damage to property, or (ii) injury to persons; and (b) appears to be intended to: (i) intimidate or coerce a civilian population, or (ii) disrupt any segment of an economy, or (iii) influence the policy of a government by intimidation or coercion, or (iv) affect the conduct of a government by destruction, assassination, kidnapping or hostage-taking, or (v) advance a political, religious or ideological cause; provided, however, that an “act of terrorism” for purposes of this exclusion shall not include any act or threat as described above perpetrated by an official, employee or agent of a foreign state acting for or on behalf of such state.

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(f)	Risks written on a layered basis, whether primary or excess of loss, or policies written with a deductible or franchise of more than $500,000; however, this exclusion shall not apply to policies which provide a percentage deductible or franchise in connection with windstorm, earthquake or flood;
(g)	Pollution to the extent excluded in the Company’s policies. Nevertheless, if the insured elects to purchase any “buy back” or additional coverage options, such options shall not be covered hereunder;
(h)	Insurance against earthquake, except when written in conjunction with fire and otherwise eligible perils;
(i)	Insurance on growing crops;
(j)	Insurance against flood, surface water, waves, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not, except when written in conjunction with fire and otherwise eligible perils;
(k)	Business classified as fidelity;
(l)	Credit insurance;
(m)	Business classified as boiler and machinery;
(n)	Mortgage impairment insurance and similar kinds of insurance, howsoever styled, providing coverage to an insured with respect to its mortgagee interest in property or its owner interest in foreclosed property;
(o)	Difference in conditions insurance and similar kinds of insurance, howsoever styled, but not to include the Condominium Association Difference in Conditions Coverage Form (PI-DIC-1, 11/03);
(p)	Risks which have a total insurable value of more than $250,000,000; however, this exclusion shall not apply if the Company writes 100% of the Risk;
(q)	Losses with respect to overhead transmission and distribution lines and their supporting structures, other than those on or within 1,000 feet of the insured premises. However, public utilities extension and/or suppliers extension and/or contingent business interruption coverage are not subject to this exclusion, provided these are not part of a transmitters’ or distributors’ policy;
(r)	Inland marine business with respect to the following:

(1)	Cargo insurance when written as such with respect to ocean vessels;
(2)	Faulty film, tape, processing and editing insurance and cast insurance;
(3)	Furriers’ customers policies;

GENERAL REINSURANCE CORPORATION

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(4)	Insurance on livestock under so-called “mortality policies”;
(5)	Mining equipment while underground;
(6)	Registered mail and armored car insurance;

(s)	Loss of, damage to, or failure of, or consequential loss resulting therewith (including but not limited to earnings and extra expense) of satellites, spacecraft, and launch vehicles, including cargo and freight carried therein, in all phases of operation (including but not limited to manufacturing, transit, pre-launch, launch, and in-orbit);
(t)	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;
(u)	Mobile homes unless written as part of a commercial multiple peril policy;
(v)	Watercraft, other than watercraft insured under a standard homeowners policy or when written as part of contents coverage under a commercial multiple peril policy.

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

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.

GENERAL REINSURANCE CORPORATION

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The Company may also purchase 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.

Section 7 — REINSURANCE PREMIUM

The Company shall pay to the Reinsurer:

(a) For Commercial Property business:

(1)	For the First Excess Cover, 1.74% of the Company’s Subject Earned Premium;
(2)	For the Second Excess Cover, 1.11% of the Company’s Subject Earned Premium;
(3)	For the Third Excess Cover, 0.34% of the Company’s Subject Earned Premium.

(b) For Builders Risk business:

(1)	For the First Excess Cover, 3.60% of the Company’s Subject Earned Premium;
(2)	For the Second Excess Cover, 3.91% of the Company’s Subject Earned Premium;
(3)	For the Third Excess Cover, 1.50% of the Company’s Subject Earned Premium.

Section 8 — REPORTS AND REMITTANCES

(a)	Reinsurance Premium
	Within 25 days after the close of each calendar quarter, the Company shall render to the Reinsurer a report of the reinsurance premium for the quarter with respect to the Company’s Subject Earned Premium during the quarter, summarizing the reinsurance premium by line of insurance. The amount due the Reinsurer, shall be remitted within 25 days after the close of the quarter.
(b)	Claims and Losses
	The Company shall report promptly to the Reinsurer each claim or loss which in the Company’s opinion may involve the reinsurance afforded by this Exhibit. The Company shall also report promptly to the Reinsurer any action alleging Extra Contractual Obligations against the

GENERAL REINSURANCE CORPORATION

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	Company or any declaratory judgment action brought by or against the Company on the business reinsured hereunder. The Company shall advise the Reinsurer of the estimated amount of Net Loss in connection with each such claim or loss and of any subsequent changes in such estimates.
	Promptly upon receipt of a definitive statement of Net Loss from the Company, but within no more than 25 days after receipt of such statement, the Reinsurer shall pay to the Company the Reinsurer’s portion of Net Loss. The Company shall report to the Reinsurer any subsequent changes in the amount of Net Loss, and the amount due either party shall be remitted promptly, but within no more than 25 days after receipt of such report.
(c)	P.C.S. Catastrophe Bulletins
	The Company shall furnish to the Reinsurer, upon request, the following information with respect to each catastrophe set forth in the Catastrophe Bulletins published by the Property Claim Services:

(1)	The preliminary estimates of the amount recoverable from the Reinsurer;
(2)	The Reinsurer’s portion of claims, losses, and Adjustment Expenses paid less salvage recovered during each calendar quarter;
(3)	The Reinsurer’s portion of reserves for claims, losses, and Adjustment Expenses at the end of each calendar quarter.

(d)	General
	In addition to the reports required by (a), (b), and (c) above, the Company shall furnish such other information as may be required by the Reinsurer for the completion of the Reinsurer’s quarterly and annual statements and internal records.
	All reports shall be rendered on forms or in format acceptable to the Company and the Reinsurer.

Section 9 — AUTOMATIC REINSTATEMENT

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

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

GENERAL REINSURANCE CORPORATION

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(b)	For first $5,000,000 so reinstated in the Third Excess Cover, there shall be no additional reinsurance premium;
(c)	For the next $5,000,000, so reinstated in the Third Excess Cover, the Company shall pay to the Reinsurer an additional reinsurance premium that shall be the product of 100% of the reinsurance premium set forth in sub-paragraph (c) of the section entitled REINSURANCE PREMIUM for the Agreement Year multiplied by the amount of the reinstated Limit of Liability of the Reinsurer divided by $5,000,000.

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

Section 10 — TERMINATION

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

(a) The Reinsurer shall continue to be liable, with respect to policies in force at the time and date of termination, for claims and losses resulting from Loss Occurrences taking place until the expiration, cancellation, or next anniversary date, not to exceed one year (or as respects builders risk policies not to exceed 24 months) of each such policy of the Company, which ever occurs first. The reinsurance premium for policies in force at the time and date of termination shall be calculated by applying the provisions of the section entitled REINSURANCE PREMIUM to the monthly earned premiums that derive from the unearned premium applicable to policies in force at the time and date of termination.

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

Section 11 — MORTGAGEE REINSURANCE ENDORSEMENTS

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

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

(a)	Benefit pro-rata in reductions of the Company’s loss by salvage, subrogation, compromise, or otherwise.
(b)	Be automatically subrogated to all of the mortgagee’s rights against the Company under the policy.
(c)	Be completely discharged from its obligation to make any payment to the Company under this Exhibit and be entitled to set off against any amount due from the Reinsurer to the Company under this or any other agreement for any amounts for which the Reinsurer would not be liable except for the existence of such Mortgagee Reinsurance Endorsement.

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

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

EXHIBIT B

Agreement No. 9034-08
GENERAL REINSURANCE CORPORATION

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Attached to and made a part of
Agreement of Reinsurance No. 9034-08

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

Section 1 — BUSINESS SUBJECT TO THIS EXHIBIT

This Exhibit shall apply to Property Business written by the Company, as defined in Exhibit A to this Agreement, but only as respects loss or damage directly or indirectly arising out of, caused by, or resulting from Terrorism Occurrences taking place during the term of this Exhibit, 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.

Section 2 — TERM

This Exhibit shall apply to new and renewal policies of the Company becoming effective at and after 12:01 A.M., January 1, 2008, and to policies of the Company in force at 12:01 A.M., January 1, 2008, 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, 2009.

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

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

Class of Business	Company Retention		Limits of Liability of the Reinsurer
Property Business	$	2,500,000	$	12,500,000

The liability of the Reinsurer shall not exceed $12,500,000 under this Exhibit with respect to all Net Loss arising out of all loss or damage directly or indirectly arising out of, caused by, or resulting from all Terrorism Occurrences taking place during the term of this Exhibit,

Agreement No. 9034-08
GENERAL REINSURANCE CORPORATION

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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.

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.

Section 4 — DEFINITIONS

The terms “Company Retention”, “Net Loss”, “Adjustment Expense”, “Extra Contractual Obligations”, “Risk”, “Building” and “General Location” shall have the same meaning as in Exhibit A to this Agreement.

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

(1)

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

(2)

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

Section 5 — EXCLUSIONS

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

(e) Any loss or damage directly or indirectly arising out of, caused by, or resulting from war, including undeclared or civil war; warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or insurrection, rebellion, revolution, usurped power or action taken by governmental authority in hindering or defending against any of these. War includes any activity that would be included as an Act of Terrorism, but for the fact that such activity was perpetrated by an official, employee or agent of a foreign state acting for or on behalf of such state. Such loss or dam-

Agreement No. 9034-08
GENERAL REINSURANCE CORPORATION

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age is excluded regardless of (i) any other cause or event contributing to such loss or damage in any way or at any time, or (ii) whether such loss or damage is accidental or intentional.

Section 6 — REINSURANCE PREMIUM

The Company shall pay to the Reinsurer a flat reinsurance premium of $1,000,000.

     Section 7 — REPORTS AND REMITTANCES

(a)	Reinsurance Premium
	Within 25 days after the close of each calendar quarter, the Company shall pay to the Reinsurer one quarter of the flat reinsurance premium stipulated in the section entitled REINSURANCE PREMIUM.
(b)	Claims and Losses
	The Company shall report promptly to the Reinsurer each claim or loss which in the Company’s opinion may involve the reinsurance afforded by this Exhibit. The Company shall also report promptly to the Reinsurer any action alleging Extra Contractual Obligations against the Company or any declaratory judgment action brought by or against the Company on the business reinsured hereunder. The Company shall advise the Reinsurer of the estimated amount of Net Loss and Adjustment Expense in connection with each such claim or loss and of any subsequent changes in such estimates.
	Promptly upon receipt of a definitive statement of Net Loss and Adjustment Expense from the Company, but within no more than 25 days after receipt of such statement, the Reinsurer shall pay to the Company the Reinsurer’s portion of Net Loss and the Reinsurer’s portion of Adjustment Expense, if any. The Company shall report to the Reinsurer any subsequent changes in the amount of Net Loss and/or Adjustment Expense, and the amount due either party shall be remitted promptly, but within no more than 25 days after receipt of such report.
(c)	General
	In addition to the reports required by (a), (b), and (c) above, the Company shall furnish such other information as may be required by the Reinsurer for the completion of the Reinsurer’s quarterly and annual statements and internal records.
	All reports shall be rendered on forms or in format acceptable to the Company and the Reinsurer.

Agreement No. 9034-08
GENERAL REINSURANCE CORPORATION

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EX-10.4

EXHIBIT 10.4

PHILADELPHIA INSURANCE COMPANY
Bala Cynwyd, Pennsylvania
PHILADELPHIA INDEMNITY INSURANCE COMPANY
Bala Cynwyd, Pennsylvania

PROPERTY FOURTH PER RISK EXCESS OF LOSS
REINSURANCE AGREEMENT

TABLE OF CONTENTS

ARTICLE		PAGE
I	BUSINESS COVERED		1
II	TERM		1
III	SPECIAL TERMINATION		2
IV	DEFINITIONS		3
	Building		3
	Declaratory Judgment Expense		4
	Extra Contractual Obligations/Loss in Excess of Policy Limits		4
	Loss Adjustment Expense		5
	Loss Occurrence (NMA 2244/BRMA 27A)		5
	Net Earned Premium		6
	Policy or Policies		6
	Risk		6
	Terrorism		7
	Ultimate Net Loss		7
V	TERRITORY (BRMA 51A)		8
VI	EXCLUSIONS		8
VII	COVERAGE		10
VIII	REINSTATEMENT		11
IX	REINSURANCE PREMIUM		11
X	NOTICE OF LOSS AND LOSS SETTLEMENTS		12
XI	AGENCY AGREEMENT		12
XII	SALVAGE AND SUBROGATION		12
XIII	ERRORS AND OMISSIONS (BRMA 14C)		13
XIV	OFFSET		13
XV	CURRENCY (BRMA 12A)		13
XVI	TAXES (BRMA 50C)		13
XVII	FEDERAL EXCISE TAX (BRMA 17A)		14
XVIII	UNAUTHORIZED REINSURANCE (BRMA 55C)		14
XIX	NET RETAINED LINES (BRMA 32E)		16
XX	TRIA INUREMENT		16
XXI	SPECIAL ACCEPTANCES		17
XXII	MORTGAGEE REINSURANCE ENDORSEMENTS		17
XXIII	THIRD PARTY RIGHTS (BRMA 52C MODIFIED)		18

ARTICLE		PAGE
XXIV	SEVERABILITY		18
XXV	GOVERNING LAW (BRMA 71A)		18
XXVI	ACCESS TO RECORDS (BRMA 1E)		18
XXVII	INSOLVENCY		19
XXVIII	ARBITRATION		19
XXIX	SERVICE OF SUIT		21
XXX	MODE OF EXECUTION		22
XXXI	INTERMEDIARY		22
	Nuclear Incident Exclusion Clause — Physical Damage — Reinsurance — U.S.A.
	War Exclusion

PROPERTY FOURTH PER RISK EXCESS OF LOSS
REINSURANCE AGREEMENT
(the “Contract”)

between

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

and

THE SUBSCRIBING REINSURER(S) EXECUTING THE
INTERESTS AND LIABILITIES AGREEMENT(S)
ATTACHED HERETO
(the “Reinsurer”)

ARTICLE I

BUSINESS COVERED

By this Contract the Reinsurer agrees to reinsure the excess liability of the Company under its Policies in force at the effective time and date hereof or issued or renewed at or after that time and date, and classified by the Company as Property business which is defined as insurance which is classified in the NAIC Annual Statement as fire, allied lines, inland marine, commercial multiple peril (property coverages), automobile physical damage (comprehensive and collision) when written on a garage or open lot basis, subject to the terms, conditions and limitations hereafter set forth.

ARTICLE II

TERM

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

B. Upon termination of this Contract, the entire liability of the Reinsurer for losses occurring subsequent to the date of termination shall cease concurrently with the date of termination of this Contract.

Page 1

C. Notwithstanding the above, the Company shall have the option to elect run-off coverage for Policies in force at the expiration of this Contract. If the Company chooses to run off liability, the Company will notify the Reinsurer prior to January 31, 2009. If run-off of liability is chosen, the Reinsurer shall continue to be liable for Ultimate Net Loss incurred by the Company under all Policies in force at the time and date of expiration until each Policy’s next anniversary, renewal or expiration, but in no event shall the Reinsurer’s liability continue for more than 12 months after the expiration date plus odd time, not to exceed a total of 18 months. The premium for the run-off coverage shall be the premium rate stated in paragraph A of the REINSURANCE PREMIUM ARTICLE times its Net Earned Premium for the run-off period for the Policies in force as of December 31, 2008.

D. If this Contract 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 expiration of this Contract, provided that no part of such Loss Occurrence is claimed against any renewal or replacement of this Contract.

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
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.

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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.

D. The Company may request special funding for any Reinsurer’s participation if this Contract is terminated for reasons set forth in subparagraph A.1-7 above. If the Company elects to exercise its special funding option, said Reinsurer will, within 30 calendar days of the date of the Company’s request to do so, provide the Company with a cash advance, trust agreement, escrow account for the benefit of the Company, letter of credit, or a combination thereof acceptable to the Company to fund the Reinsurer’s share of the reserves hereunder for losses (including loss and loss expense paid by the Company but not recovered from the Reinsurer, loss and loss expense reported and outstanding, loss and loss expenses incurred but not reported) and unearned premium, as if it were an unauthorized Reinsurer and subject to the UNAUTHORIZED REINSURANCE ARTICLE. This paragraph D shall not apply to Reinsurers who, at the inception of this Contract, have been assigned an A.M. Best’s Financial Strength Rating of A+ or higher or a Standard & Poor’s rating of A+ or higher or to Underwriting Members of Lloyd’s, London.

ARTICLE IV

DEFINITIONS

A. Building

“Building” as used herein shall mean such structure enclosed within exterior walls. Exterior walls are defined as walls constructed on the perimeter foundation, regardless of the number of additional structures or roofs placed upon this perimeter foundation.

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B. Declaratory Judgment Expense

“Declaratory Judgment Expense” as used herein shall mean all 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 subject to this Contract. Declaratory Judgment Expense shall be deemed to have been incurred on the date of the original loss (if any) giving rise to the declaratory judgment action.

C. Extra Contractual Obligations/Loss in Excess of Policy Limits

1.	Extra Contractual Obligations
	This Contract shall protect the Company for any “Extra Contractual Obligations” which as used herein shall mean any punitive, exemplary, compensatory or consequential damages, other than Loss in Excess of Policy Limits, paid or payable by the Company as a result of an action against it by its insured, its insured’s assignee or a third party claimant, by reason of alleged or actual negligence, fraud or bad faith on the part of the Company in handling a claim under a Policy subject to this Contract.
	An Extra Contractual Obligation shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the Policy.
2.	Loss in Excess of Policy Limits
	This Contract shall protect the Company for any “Loss in Excess of Policy Limits” which as used herein shall mean an amount that the Company would have been contractually liable to pay had it not been for the limit of the original Policy as a result of an action against it by its insured or its insured’s assignee or a third party claimant. Such loss in excess of the limit shall have 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.
3.	This paragraph C shall not apply where an Extra Contractual Obligation and/or Loss in Excess of Policy Limits has been incurred due to the fraud committed by a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with a member of the Board of Directors or a corporate officer or a partner of any other corporation or partnership.
4.	Recoveries from any form of insurance or reinsurance which protects the Company against claims which are the subject matter of this paragraph C shall inure to the benefit of this Contract.

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D. Loss Adjustment Expense

“Loss Adjustment Expense” as used herein shall mean all costs and expenses allocable to a specific claim that are incurred by the Company in the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim, including court costs and costs of supersedeas and appeal bonds, and including 1) pre-judgment interest, unless included as part of the award or judgment; 2) post-judgment interest; 3) legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including Declaratory Judgment Expense; and 4) a pro rata share of salaries and expenses of Company field employees, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract. Loss Adjustment Expense does not include unallocated loss adjustment expense. Unallocated loss adjustment expense includes, but is not limited to, salaries and expenses of employees, other than (4) above, and office and other overhead expenses.

E. Loss Occurrence (NMA 2244/BRMA 27A)

1. 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:

a.	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.
b.	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 assured’s premises by strikers, provided such occupation commenced during the aforesaid period.
c.	As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the introductory portion of subparagraph 1) and fire following directly occasioned by the earthquake, only those individual fire

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	losses which commence during the period of 168 consecutive hours may be included in the Company’s “Loss Occurrence.”
d.	As regards “freeze,” only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting of frozen pipes and tanks) may be included in the Company’s “Loss Occurrence.”

2.	Except for those “Loss Occurrences” referred to in subparagraphs a and b 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.
3.	However, as respects those “Loss Occurrences” referred to in subparagraphs a and b 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.
4.	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.

F.	Net Earned Premium
	“Net Earned Premium” as used herein is defined as gross earned premium of the Company during the term of the Contract for the classes of business reinsured hereunder, less the earned portion of premiums ceded by the Company for reinsurance which inures to the benefit of this Contract.
G.	Policy or Policies
	“Policy” or “Policies” as used herein shall mean the Company’s binders, policies and contracts providing insurance and reinsurance on the classes of business covered under this Contract.
H.	Risk
	“Risk” as used herein shall mean what constitutes one Risk as established by the Company at the time of acceptance, provided:

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

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2.

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

3.

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

I.	Terrorism
	“Terrorism” as used herein shall mean:

1.	An activity, including the threat of an activity or any preparation for an activity, that (a) causes either (i) damage to property or (ii) injury to persons and (b) appears to be intended to: (i) intimidate or coerce a civilian population or (ii) disrupt any segment of an economy or (iii) influence the policy of a government by intimidation or coercion or (iv) affect the conduct of a government by destruction, assassination, kidnapping or hostage-taking or (v) advance a political, religious or ideological cause; provided, however, that an act of Terrorism for purposes of this definition shall not include any act or threat as described above perpetrated by an official, employee or agent of a foreign state acting for or on behalf of such state.
2.	Any act authorized by a governmental authority for the purpose of preventing, terminating, countering or responding to any act or threat of terrorism or for the purpose of preventing or minimizing the consequences of any act or threat of Terrorism.
3.	An activity that involves the use, release or escape of nuclear materials, or directly or indirectly results in nuclear reaction or radiation or radioactive contamination, and it appears that one purpose of the terrorism was to release such materials.
4.	An activity that is carried out by means of the dispersal or application of pathogenic or poisonous biological or chemical materials or an activity where pathogenic or poisonous biological or chemical materials are released, and it appears that one purpose of the terrorism was to release such materials.

J.

Ultimate Net Loss

The term “Ultimate Net Loss” shall mean the actual loss, including any pre-judgment interest which is included as part of the award or judgment, Loss Adjustment Expense, 100% of Loss in Excess of Policy Limits, and 100% of Extra Contractual Obligations, paid or to be paid by the Company on its net retained liability after making deductions for all recoveries, salvages, subrogations and all claims on inuring reinsurance, whether

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collectible or not; provided, however, that in the event of the insolvency of the Company, payment by the Reinsurer shall be made in accordance with the provisions of the INSOLVENCY ARTICLE. 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.

ARTICLE V

TERRITORY (BRMA 51A)

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

ARTICLE VI

EXCLUSIONS

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

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

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

C. Self-insurance or self-insured obligations, howsoever styled, of the Company, its affiliates or subsidiaries, or any insurance wherein the Company, its affiliates or subsidiaries are named as the insured party, either alone or jointly with some other party, notwithstanding that no legal liability may arise in respect thereof by reason of the fact that the Company, its affiliates or subsidiaries, may not be obligated by law to pay a claim to itself, its affiliates or subsidiaries;

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

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

F. War per the attached “War Exclusion” attached hereto;

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

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

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

J. Insurance on growing crops;

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

L. Business classified by the Company as crime and fidelity when written as part of a package policy;

M. Credit insurance;

N. Business classified as boiler and machinery;

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

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

Q. Any incident that involves the use, release or escape of pathogenic or poisonous biological or chemical materials or of nuclear materials, or to any incident that directly or indirectly results in nuclear reaction or radiation or radioactive contamination. However, this exclusion does not apply to the Terrorism Annual Aggregate Limit as stated in paragraph B of the COVERAGE ARTICLE.

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

S. Offshore property Risks;

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T. Inland marine business with respect to the following:

1.	Cargo insurance when written as such with respect to ocean vessels;
2.	Faulty Film, tape, processing and editing insurance and cast insurance;
3.	Drilling rigs for natural fuels;
4.	Furriers’ customers policies;
5.	Insurance on livestock under so-called “mortality policies”;
6.	Mining equipment while underground;
7.	Registered mail and armored car insurance;

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

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

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

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

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, then a loss for which the Company is liable because of such invalidation shall not be excluded hereunder.

ARTICLE VII

COVERAGE

A. The Reinsurer shall be liable for the amount of Ultimate Net Loss in excess of the Company’s retention, being $15,000,000 each risk, each loss, subject to a limit of liability to the Reinsurer of $35,000,000 each risk, each loss, and further subject to a limit of liability to the Reinsurer of $35,000,000 each Loss Occurrence. The Reinsurer’s limit of liability in respect to all risks, all losses shall not exceed $70,000,000.

B. The Reinsurer’s liability in respect to Terrorism losses shall not exceed $35,000,000.

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C.	The Company shall maintain in force other reinsurance, recoveries under which shall inure to the benefit of this Contract.
D.	The Company shall be permitted to carry underlying reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract.

ARTICLE VIII

REINSTATEMENT

A. Should all or any part of the Reinsurer’s limit of liability be exhausted as a result of a loss, the sum so exhausted shall be reinstated from the date the loss commenced.

B. For each amount so reinstated, the Company agrees to pay an additional premium at the time of the Reinsurer’s payment of the loss calculated in accordance with the following formula:

1.	The amount of limit exhausted for each risk, each loss divided by $35,000,000.
2.	The reinsurance premium paid or payable for the term of this Contract.

The dollar amount resulting from the multiplication of subparagraphs 1 and 2 above shall equal the reinstatement premium. If at the time of the Reinsurer’s payment of a loss hereon, the reinsurance premium as calculated under this Contract is unknown, the calculation of the reinstatement premium shall be based upon the deposit premium subject to adjustment when the reinsurance premium is finally established.

C. Nevertheless, the Reinsurer’s liability hereunder shall not exceed $35,000,000 in respect of each risk, each loss in respect of any one loss, and shall be further limited to $35,000,000 each Loss Occurrence, and shall be further limited to $70,000,000 in respect of all risks, all losses occurring during the term of this Contract.

ARTICLE IX

REINSURANCE PREMIUM

A. As premium for the reinsurance provided hereunder, the Company shall pay the Reinsurer 0.635% of its Net Earned Premium during the term of this Contract, subject to a minimum premium of $2,994,000.

B. The Company shall pay the Reinsurer a deposit premium of $3,327,000 in four equal installments of $831,750 on April 1; July 1; October 1, 2008; and January 1, 2009.

C. Within 90 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

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paragraph A, and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly.

ARTICLE X

NOTICE OF LOSS AND LOSS SETTLEMENTS

A. The Company shall advise the Reinsurer promptly of all losses which, in the opinion of the Company, may result in a claim hereunder and of all subsequent developments thereto which, in the opinion of the Company, may materially affect the position of the Reinsurer.

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

C. All loss settlements made by the Company that are within the terms and conditions of the Policy or by way of compromise, and except as otherwise provided in this Contract, shall be binding upon the Reinsurer. Upon receipt of satisfactory proof of loss and within no more than 25 days of receipt of the proof of loss, the Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement in accordance with this Contract.

D. Ex-gratia payments shall be recoverable hereunder only where the Company, through written communication prior to settlement, counsels with the Reinsurer and the Reinsurer concurs, in writing, with the settlement proposed by the Company.

ARTICLE XI

AGENCY AGREEMENT

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.

ARTICLE XII

SALVAGE AND SUBROGATION

The Reinsurer shall be credited with salvage or subrogation recoveries (i.e., reimbursement obtained or recovery made by the Company, less Loss Adjustment Expense incurred in obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage and subrogation recoveries thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation

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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.

ARTICLE XIII

ERRORS AND OMISSIONS (BRMA 14C)

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, provided such omission or error is rectified upon discovery.

ARTICLE XIV

OFFSET

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

ARTICLE XV

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 XVI

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.

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ARTICLE XVII

FEDERAL EXCISE TAX (BRMA 17A)

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

A. The subscribing 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 subscribing 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 XVIII

UNAUTHORIZED REINSURANCE (BRMA 55C)

(Applies only to a subscribing 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 subscribing reinsurer a statement showing the proportion of such reserves which is applicable to the subscribing reinsurer. The subscribing reinsurer hereby agrees to fund such reserves in respect of known outstanding losses that have been reported to the subscribing reinsurer and allocated Loss Adjustment Expense relating thereto, losses and allocated Loss Adjustment Expense paid by the Company but not recovered from the subscribing reinsurer, plus reserves for losses incurred but not reported, as shown in the statement prepared by the Company (hereinafter referred to as “subscribing reinsurer’s obligations”) by funds withheld, cash advances or a Letter of Credit. The subscribing 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 subscribing 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 subscribing 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

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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 subscribing reinsurer and Company agree that the Letters of Credit provided by the subscribing 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 subscribing 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 subscribing reinsurer’s obligations under this Contract;
3.	To fund an account with the Company for the subscribing 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 subscribing reinsurer;
4.	To pay the subscribing 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 subparagraph 1 or 3, or in the case of subparagraph 4, the actual amount determined to be due, the Company shall promptly return to the subscribing 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 subscribing 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 subscribing reinsurer’s obligations, for the sole purpose of amending the Letter of Credit, in the following manner:

1.	If the statement shows that the subscribing reinsurer’s obligations exceed the balance of credit as of the statement date, the subscribing 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 subscribing 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 subscribing reinsurer, release such excess

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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 XIX

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 XX

TRIA INUREMENT

A. As respects any “insured loss,” as defined in the Terrorism Risk Insurance Act of 2002, including the Terrorism Risk Insurance Extension Act of 2005, and any other extensions or amendments thereto (“TRIA”), for which the Reinsurer makes a payment to the Company under this Contract, the following provisions shall apply.

B. If the sum of

1.	Financial assistance provided under TRIA to the Company and its affiliates, if any, (as “affiliate” is defined in TRIA) with respect to all “insured loss” that applies to each “program year,” as defined in TRIA and
2.	Amounts due from all reinsurance which the Company and its affiliates, if any, purchase, including but not limited to this reinsurance, all other treaty reinsurance and all facultative reinsurance, and whether collectible or not, under which there is a recoverable for any such “insured loss”

exceeds the amount of the Company’s and its affiliates’, if any, gross “insured loss,” the excess amount shall be allocated to the Reinsurer in the ratio that the Reinsurer’s liability for the “insured loss” under this Contract bears to the total collectible reinsurance recoverables for the “insured loss” under 2 above.

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

ARTICLE XXI

SPECIAL ACCEPTANCES

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

B. Renewal of Policies, which have previously received a Special Acceptance under prior Contracts, are deemed to be covered hereunder.

C. Further, should a reinsurer become party to this Contract subsequent to the acceptance of any business not normally covered hereunder, that reinsurer will automatically accept the special acceptances as being part of this Contract.

ARTICLE XXII

MORTGAGEE REINSURANCE ENDORSEMENTS

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

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

1.	Benefit pro-rata in reductions of the Company’s loss by salvage, subrogation, compromise, or otherwise.
2.	Be automatically subrogated to all of the mortgagee’s rights against the Company under the policy.
3.	Be completely discharged from its obligation to make any payment to the Company under this Contract and be entitled to set off against any amount due from the Reinsurer to the Company under this or any other agreement for any amounts for which the Reinsurer would not be liable except for the existence of such Mortgagee Reinsurance Endorsement.

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

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

ARTICLE XXIII

THIRD PARTY RIGHTS (BRMA 52C MODIFIED)

Except for the provisions of the MORTGAGEE REINSURANCE ENDORSEMENTS ARTICLE, 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 XXIV

SEVERABILITY

If any provision of this Contract shall be rendered illegal or unenforceable by the laws or regulations 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 Contract or the enforceability of such provision in any other jurisdiction.

ARTICLE XXV

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 that state’s 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 XXVI

ACCESS TO RECORDS (BRMA 1E)

The Reinsurer or its designated representatives shall have access to the books and records of the Company on matters relating to this reinsurance at all reasonable times for the purpose of obtaining information concerning this Contract or the subject matter hereof.

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ARTICLE XXVII

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, with reasonable provision for verification, 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 proportionate 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 subscribing 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 agreed that, 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 its liquidator, receiver, conservator, 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.

D. In the event of the insolvency of any company or companies listed in the designation of “Company” under this Contract, this Article shall apply only to the insolvent company or companies.

ARTICLE XXVIII

ARBITRATION

A. As a condition precedent to any right of action hereunder, any irreconcilable dispute arising out of the interpretation, performance or breach of this Contract, including the formation or

Page 19

validity thereof, whether arising before or after the expiry or termination of the Contract, shall be submitted for decision to a panel of 3 arbitrators. Notice requesting arbitration will be in writing and sent by certified mail, return receipt requested, or such reputable courier service as is capable of returning proof of receipt of such notice by the recipient to the party demanding arbitration.

B. One arbitrator shall be appointed by each party. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days notice by certified mail or reputable courier as provided above of its intention to do so, may appoint the second arbitrator.

C. The two arbitrators shall, before instituting the hearing, appoint an impartial third arbitrator who shall preside at the hearing. If the 2 arbitrators are unable to agree upon the 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 of being requested to do so, either party may request a district court judge of the federal district court having jurisdiction over the geographical area in which the arbitration is to take place, or if the federal court declines to act, the state court having general jurisdiction in such area to select the third arbitrator from a list of 6 individuals (3 named by each arbitrator previously appointed). All arbitrators shall be disinterested active or former senior executives of insurance or reinsurance companies or Underwriters at Lloyd’s, London.

D. Within 30 days after notice of appointment of all arbitrators, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules for hearings. The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Unless the panel agrees otherwise, arbitration shall take place in Bala Cynwyd, Pennsylvania, but the venue may be changed when deemed by the panel to be in the best interest of the arbitration proceeding. Insofar as the arbitration panel looks to substantive law, it shall consider the law of the State of Pennsylvania. The decision of any 2 arbitrators when rendered in writing shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate.

E. The panel shall make its decision considering the custom and practice of the applicable insurance and reinsurance business as promptly as possible following the termination of the hearings. Judgment upon the award may be entered in any court having jurisdiction thereof.

F. If more than one subscribing reinsurer is involved in arbitration where there are common questions of law or fact and a possibility of conflicting awards or inconsistent results, all such subscribing reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the subscribing reinsurers constituting the one party; provided, however, that nothing therein shall impair the rights of such subscribing reinsurers to assert several, rather than joint defenses or claims, nor be construed as changing the liability of the subscribing reinsurers under the terms of this Contract from several to joint.

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

ARTICLE XXIX

SERVICE OF SUIT

(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 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, 445 South Figueroa, 38th Floor, Los Angeles, California 90071 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

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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, 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 XXX

MODE OF EXECUTION

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

INTERMEDIARY

Willis Re Inc., Two Liberty Place, 50 South 16^th Street, Suite 2500, Philadelphia, Pennsylvania 19102 is hereby recognized as the intermediary negotiating this Contract and through whom all communications relating thereto shall be transmitted to the Company or the Reinsurer. However, all communications concerning accounts, claim information, funds and inquiries related thereto shall be transmitted to the Company or the Reinsurer through Willis Re Inc., 5420 Millstream Road, P.O. Box 3000, McLeansville, North Carolina 27301-3000. Payments by the Company to Willis Re Inc. shall be deemed to constitute payment to the Reinsurer and payments by the

Page 22

Reinsurer to Willis Re Inc. shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

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

Signed this                                          day of                                                                                                      , 200                    .

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY

By

Printed Name

Title

Page 23

NUCLEAR INCIDENT EXCLUSION CLAUSE — PHYSICAL DAMAGE —
REINSURANCE — U.S.A.

1) This Agreement does not cover any loss or liability accruing to the Reinsured, 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 Agreement does not cover any loss or liability accruing to the Reinsured, 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 Agreement does not cover any loss or liability by radioactive contamination accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph 3) shall not operate

a) where the Reinsured 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 Government Authority having jurisdiction thereof.

4) Without in any way restricting the operations of paragraphs 1), 2) and 3) hereof, this Agreement does not cover any loss or liability by radioactive contamination accruing to the Reinsured, 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 Reinsured 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) Reinsured 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 operations of paragraph 1) hereof, it is understood and agreed that:

a) all policies issued by the Reinsured 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 Reinsured 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

WAR EXCLUSION

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 damage.

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

HANNOVER RUCKVERSICHERUNG AG
(the “Subscribing Reinsurer”) with respect to the PROPERTY FOURTH PER RISK EXCESS OF LOSS
REINSURANCE AGREEMENT
(the “Contract”)

issued to

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

The Subscribing Reinsurer shall have a 5.00% share in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

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

Signed this 28th day of February, 2008.

HANNOVER RUCKVERSICHERUNG AG

By Dirk Heuer Senior Underwriter & Assistant Vice President

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

QBE REINSURANCE CORPORATION
(the “Subscribing Reinsurer”) with respect to the PROPERTY FOURTH PER RISK EXCESS OF LOSS
REINSURANCE AGREEMENT
(the “Contract”)

issued to

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

The Subscribing Reinsurer shall have a 4.75% share in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008, and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

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

Signed this 15th day of February, 2008.

QBE REINSURANCE CORPORATION

By Gregory R. Cuilwik Vice President

INTERESTS AND LIABILITIES AGREEMENT
(the “Agreement”)

of

UNDERWRITERS AT LLOYD’S, LONDON
AS SET FORTH IN THE SIGNING PAGE(S) ATTACHED HERETO
(the “Subscribing Reinsurer”)

with respect to the

PROPERTY FOURTH PER RISK EXCESS OF LOSS
REINSURANCE AGREEMENT
(the “Contract”)

issued to

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

The Subscribing Reinsurer shall have a share in the interests and liabilities of the “Reinsurer” as set forth in the Contract attached hereto and executed by the Company. The Subscribing Reinsurer’s percentage share shall equal the sum of the final signed lines percentage share(s) as executed on the attached signing page(s) for Lloyd’s Underwriters.

This Agreement shall commence at 12:01 a.m., Eastern Standard Time, January 1, 2008 and shall continue in force until 12:01 a.m., Eastern Standard Time, January 1, 2009, unless earlier terminated in accordance with the attached Contract.

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

IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement per the attached signing page(s).

Lloyd’s, London

EX-10.5

EXHIBIT 10.5

PHILADELPHIA INSURANCE COMPANY
Bala Cynwyd, Pennsylvania
PHILADELPHIA INDEMNITY INSURANCE COMPANY
Bala Cynwyd, Pennsylvania

PROPERTY FIFTH PER RISK EXCESS OF LOSS
REINSURANCE AGREEMENT

INTERESTS AND LIABILITIES AGREEMENT
Attaching and forming part of

PROPERTY FIFTH PER RISK EXCESS OF LOSS
REINSURANCE AGREEMENT
(the “Contract”)

between

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
Bala Cynwyd, Pennslyvania
And any additional company established or acquired by the Company
(the “Company”)

and

ARCH REINSURANCE COMPANY
Nebraska
(with other participants, the “Subscribing Reinsurers”)
Arch Reinsurance Agreement Number: E159430

It is hereby mutually understood and agreed that as of January 01, 2008 the above Subscribing Reinsurer’s share in the interests and liabilities of the Subscribing Reinsurers in the Contract will be 50.0%. As consideration, the above Subscribing Reinsurer shall receive 50.0% share of the premium named in the Contract.

The share of the above Subscribing Reinsurer will be separate and apart form the shares of other Subscribing Reinsurers and will not be joint with those of the other Subscribing Reinsurers and the above Subscribing Reinsurer will in no event participate in the interests and liabilities of the other Subscribing Reinsurers.

The parties hereto have caused this Interests and Liabilities Agreement to be executed by their duly authorized representatives.

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE		ARCH REINSURANCE COMPANY
COMPANY
Signature:	Christopher J. Maguire	Signature:	Meg N. Moore
Title:	EVP & COO	Title:	Underwriting Director
Date:	5/19/2008	Date:	4/28/2008

TABLE OF CONTENTS

ARTICLE		PAGE
I	BUSINESS COVERED		1
II	TERM		1
III	SPECIAL TERMINATION		2
IV	DEFINITIONS		3
V	TERRITORY (BRMA 51A)		8
VI	EXCLUSIONS		8
VII	COVERAGE		10
VIII	REINSTATEMENT		11
IX	REINSURANCE PREMIUM		11
X	NOTICE OF LOSS AND LOSS SETTLEMENTS		12
XI	AGENCY AGREEMENT		12
XII	SALVAGE AND SUBROGATION		12
XIII	ERRORS AND OMISSIONS (BRMA 14C)		13
XIV	OFFSET		13
XV	CURRENCY (BRMA 12A)		13
XVI	TAXES (BRMA 50C)		13
XVII	FEDERAL EXCISE TAX (BRMA 17A)		14
XVIII	UNAUTHORIZED REINSURANCE (BRMA 55C)		14
XIX	NET RETAINED LINES (BRMA 32E)		16
XX	TRIA INUREMENT		16
XXI	SPECIAL ACCEPTANCES		17
XXII	MORTGAGEE REINSURANCE ENDORSEMENTS		17
XXIII	THIRD PARTY RIGHTS (BRMA 52C MODIFIED)		18
XXIV	SEVERABILITY		18
XXV	GOVERNING LAW (BRMA 71A)		18
XXVI	ACCESS TO RECORDS (BRMA 1E)		18
XXVII	INSOLVENCY		19
XXVIII	ARBITRATION		19
XXIX	SERVICE OF SUIT		21
XXX	MODE OF EXECUTION		22
	Nuclear Incident Exclusion Clause — Physical Damage — Reinsurance — U.S.A.		23
	War Exclusion		24

PROPERTY FIFTH PER RISK EXCESS OF LOSS
REINSURANCE AGREEMENT
(the “Contract”)

between

PHILADELPHIA INSURANCE COMPANY
PHILADELPHIA INDEMNITY INSURANCE COMPANY
Bala Cynwyd, Pennsylvania
And any additional company established or acquired by the Company
(the “Company”)

and

THE SUBSCRIBING REINSURER(S) EXECUTING THE
INTERESTS AND LIABILITIES AGREEMENT(S)
ATTACHED HERETO
(the “Reinsurer”)

ARTICLE I

BUSINESS COVERED

By this Contract the Reinsurer agrees to reinsure the excess liability of the Company under its Policies in force at the effective time and date hereof or issued or renewed at or after that time and date, and classified by the Company as Property business which is defined as insurance which is classified in the NAIC Annual Statement as fire, allied lines, inland marine, commercial multiple peril (property coverages), automobile physical damage (comprehensive and collision) when written on a garage or open lot basis, subject to the terms, conditions and limitations hereafter set forth.

ARTICLE II

TERM

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

B. Upon termination of this Contract, the entire liability of the Reinsurer for losses occurring subsequent to the date of termination shall cease concurrently with the date of termination of this Contract.

1

C. Notwithstanding the above, the Company shall have the option to elect run-off coverage for Policies in force at the expiration of this Contract. If the Company chooses to run off liability, the Company will notify the Reinsurer prior to January 31, 2009. If run-off of liability is chosen, the Reinsurer shall continue to be liable for Ultimate Net Loss incurred by the Company under all Policies in force at the time and date of expiration until each Policy’s next anniversary, renewal or expiration, but in no event shall the Reinsurer’s liability continue for more than 12 months after the expiration date plus odd time, not to exceed a total of 18 months. The premium for the run-off coverage shall be the premium rate stated in paragraph A of the REINSURANCE PREMIUM ARTICLE times its Net Earned Premium for the run-off period for the Policies in force as of December 31, 2008.

D. If this Contract 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 expiration of this Contract, provided that no part of such Loss Occurrence is claimed against any renewal or replacement of this Contract.

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

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.

2

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.

D. The Company may request special funding for any Reinsurer’s participation if this Contract is terminated for reasons set forth in subparagraph A.1-7 above. If the Company elects to exercise its special funding option, said Reinsurer will, within 30 calendar days of the date of the Company’s request to do so, provide the Company with a cash advance, trust agreement, escrow account for the benefit of the Company, letter of credit, or a combination thereof acceptable to the Company to fund the Reinsurer’s share of the reserves hereunder for losses (including loss and loss expense paid by the Company but not recovered from the Reinsurer, loss and loss expense reported and outstanding, loss and loss expenses incurred but not reported) and unearned premium, as if it were an unauthorized Reinsurer and subject to the UNAUTHORIZED REINSURANCE ARTICLE. This paragraph D shall not apply to Reinsurers who, at the inception of this Contract, have been assigned an A.M. Best’s Financial Strength Rating of A+ or higher or a Standard & Poor’s rating of A+ or higher or to Underwriting Members of Lloyd’s, London.

ARTICLE IV

DEFINITIONS

A. Building

“Building” as used herein shall mean such structure enclosed within exterior walls. Exterior walls are defined as walls constructed on the perimeter foundation, regardless of the number of additional structures or roofs placed upon this perimeter foundation.

3

B. Declaratory Judgment Expense

“Declaratory Judgment Expense” as used herein shall mean all 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 subject to this Contract. Declaratory Judgment Expense shall be deemed to have been incurred on the date of the original loss (if any) giving rise to the declaratory judgment action.

C. Extra Contractual Obligations/Loss in Excess of Policy Limits

1. Extra Contractual Obligations

This Contract shall protect the Company for any “Extra Contractual Obligations” which as used herein shall mean any punitive, exemplary, compensatory or consequential damages, other than Loss in Excess of Policy Limits, paid or payable by the Company as a result of an action against it by its insured, its insured’s assignee or a third party claimant, by reason of alleged or actual negligence, fraud or bad faith on the part of the Company in handling a claim under a Policy subject to this Contract.

An Extra Contractual Obligation shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

2. Loss in Excess of Policy Limits

This Contract shall protect the Company for any “Loss in Excess of Policy Limits” which as used herein shall mean an amount that the Company would have been contractually liable to pay had it not been for the limit of the original Policy as a result of an action against it by its insured or its insured’s assignee or a third party claimant. Such loss in excess of the limit shall have 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.

3. This paragraph C shall not apply where an Extra Contractual Obligation and/or Loss in Excess of Policy Limits has been incurred due to the fraud committed by a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with a member of the Board of Directors or a corporate officer or a partner of any other corporation or partnership.

4. Recoveries from any form of insurance or reinsurance which protects the Company against claims which are the subject matter of this paragraph C shall inure to the benefit of this Contract.

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D. Loss Adjustment Expense

“Loss Adjustment Expense” as used herein shall mean all costs and expenses allocable to a specific claim that are incurred by the Company in the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim, including court costs and costs of supersedeas and appeal bonds, and including 1) pre-judgment interest, unless included as part of the award or judgment; 2) post-judgment interest; 3) legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including Declaratory Judgment Expense; and 4) a pro rata share of salaries and expenses of Company field employees, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract. Loss Adjustment Expense does not include unallocated loss adjustment expense. Unallocated loss adjustment expense includes, but is not limited to, salaries and expenses of employees, other than (4) above, and office and other overhead expenses.

E. Loss Occurrence (NMA 2244/BRMA 27A)

1. 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:

a. 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.

b. 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 assured’s premises by strikers, provided such occupation commenced during the aforesaid period.

c. As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the introductory portion of subparagraph 1) and fire following directly occasioned by the earthquake, only those individual fire

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         losses which commence during the period of 168 consecutive hours may be included in the Company’s “Loss Occurrence.”

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

2. Except for those “Loss Occurrences” referred to in subparagraphs a and b 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.

3. However, as respects those “Loss Occurrences” referred to in subparagraphs a and b 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.

4. 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.

F. Net Earned Premium

“Net Earned Premium” as used herein is defined as gross earned premium of the Company during the term of the Contract for the classes of business reinsured hereunder, less the earned portion of premiums ceded by the Company for reinsurance which inures to the benefit of this Contract.

G. Policy or Policies

“Policy” or “Policies” as used herein shall mean the Company’s binders, policies and contracts providing insurance and reinsurance on the classes of business covered under this Contract.

H. Risk

“Risk” as used herein shall mean what constitutes one Risk as established by the Company at the time of acceptance, provided:

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

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

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

I. Terrorism

“Terrorism” as used herein shall mean:

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

2. Any act authorized by a governmental authority for the purpose of preventing, terminating, countering or responding to any act or threat of terrorism or for the purpose of preventing or minimizing the consequences of any act or threat of Terrorism.

3. An activity that involves the use, release or escape of nuclear materials, or directly or indirectly results in nuclear reaction or radiation or radioactive contamination, and it appears that one purpose of the terrorism was to release such materials.

4. An activity that is carried out by means of the dispersal or application of pathogenic or poisonous biological or chemical materials or an activity where pathogenic or poisonous biological or chemical materials are released, and it appears that one purpose of the terrorism was to release such materials.

J. Ultimate Net Loss

The term “Ultimate Net Loss” shall mean the actual loss, including any pre-judgment interest which is included as part of the award or judgment, Loss Adjustment Expense, 100% of Loss in Excess of Policy Limits, and 100% of Extra Contractual Obligations, paid or to be paid by the Company on its net retained liability after making deductions for all recoveries, salvages, subrogations and all claims on inuring reinsurance, whether

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collectible or not; provided, however, that in the event of the insolvency of the Company, payment by the Reinsurer shall be made in accordance with the provisions of the INSOLVENCY ARTICLE. 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.

ARTICLE V

TERRITORY (BRMA 51A)

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

ARTICLE VI

EXCLUSIONS

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

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

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

C. Self-insurance or self-insured obligations, howsoever styled, of the Company, its affiliates or subsidiaries, or any insurance wherein the Company, its affiliates or subsidiaries are named as the insured party, either alone or jointly with some other party, notwithstanding that no legal liability may arise in respect thereof by reason of the fact that the Company, its affiliates or subsidiaries, may not be obligated by law to pay a claim to itself, its affiliates or subsidiaries;

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

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

F. War per the attached “War Exclusion” attached hereto;

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

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

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

J. Insurance on growing crops;

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

L. Business classified by the Company as crime and fidelity when written as part of a package policy;

M. Credit insurance;

N. Business classified as boiler and machinery;

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

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

Q. Any incident that involves the use, release or escape of pathogenic or poisonous biological or chemical materials or of nuclear materials, or to any incident that directly or indirectly results in nuclear reaction or radiation or radioactive contamination. However, this exclusion does not apply to the Terrorism Annual Aggregate Limit as stated in paragraph B of the COVERAGE ARTICLE.

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

S. Offshore property Risks;

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T. Inland marine business with respect to the following:

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

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

3. Drilling rigs for natural fuels;

4. Furriers’ customers policies;

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

6. Mining equipment while underground;

7. Registered mail and armored car insurance;

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

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

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

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

ARTICLE VII

COVERAGE

A. The Reinsurer shall be liable for the amount of Ultimate Net Loss in excess of the Company’s retention, being $50,000,000 each risk, each loss, subject to a limit of liability to the Reinsurer of $25,000,000 each risk, each loss, and further subject to a limit of liability to the Reinsurer of $25,000,000 each Loss Occurrence. The Reinsurer’s limit of liability in respect to all risks, all losses shall not exceed $50,000,000.

B. The Reinsurer’s liability in respect to Terrorism losses shall not exceed $25,000,000.

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C. The Company shall maintain in force other reinsurance, recoveries under which shall inure to the benefit of this Contract.

D. The Company shall be permitted to carry underlying reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract.

ARTICLE VIII

REINSTATEMENT

A. Should all or any part of the Reinsurer’s limit of liability be exhausted as a result of a loss, the sum so exhausted shall be reinstated from the date the loss commenced.

B. For each amount so reinstated, the Company agrees to pay an additional premium at the time of the Reinsurer’s payment of the loss calculated in accordance with the following formula:

1. The amount of limit exhausted for each risk, each loss divided by $25,000,000.

2. The reinsurance premium paid or payable for the term of this Contract.

The dollar amount resulting from the multiplication of subparagraphs 1 and 2 above shall equal the reinstatement premium. If at the time of the Reinsurer’s payment of a loss hereon, the reinsurance premium as calculated under this Contract is unknown, the calculation of the reinstatement premium shall be based upon the deposit premium subject to adjustment when the reinsurance premium is finally established.

C. Nevertheless, the Reinsurer’s liability hereunder shall not exceed $25,000,000 in respect of each risk, each loss in respect of any one loss, and shall be further limited to $25,000,000 each Loss Occurrence, and shall be further limited to $50,000,000 in respect of all risks, all losses occurring during the term of this Contract.

ARTICLE IX

REINSURANCE PREMIUM

A. As premium for the reinsurance provided hereunder, the Company shall pay the Reinsurer 0.1908% of its Net Earned Premium during the term of this Contract, subject to a minimum premium of $1,000,000.

B. The Company shall pay the Reinsurer a deposit premium of $1,000,000 in four equal installments of $250,000 on April 1; July 1; October 1, 2008; and January 1, 2009.

C. Within 90 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

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      paragraph A, and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly.

ARTICLE X

NOTICE OF LOSS AND LOSS SETTLEMENTS

A. The Company shall advise the Reinsurer promptly of all losses which, in the opinion of the Company, may result in a claim hereunder and of all subsequent developments thereto which, in the opinion of the Company, may materially affect the position of the Reinsurer.

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

C. All loss settlements made by the Company that are within the terms and conditions of the Policy or by way of compromise, and except as otherwise provided in this Contract, shall be binding upon the Reinsurer. Upon receipt of satisfactory proof of loss and within no more than 25 days of receipt of the proof of loss, the Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement in accordance with this Contract.

D. Ex-gratia payments shall be recoverable hereunder only where the Company, through written communication prior to settlement, counsels with the Reinsurer and the Reinsurer concurs, in writing, with the settlement proposed by the Company.

ARTICLE XI

AGENCY AGREEMENT

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.

ARTICLE XII

SALVAGE AND SUBROGATION

The Reinsurer shall be credited with salvage or subrogation recoveries (i.e., reimbursement obtained or recovery made by the Company, less Loss Adjustment Expense incurred in obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage and subrogation recoveries thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation

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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.

ARTICLE XIII

ERRORS AND OMISSIONS (BRMA 14C)

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, provided such omission or error is rectified upon discovery.

ARTICLE XIV

OFFSET

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

ARTICLE XV

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 XVI

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.

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ARTICLE XVII

FEDERAL EXCISE TAX (BRMA 17A)

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

A. The subscribing 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 subscribing 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 XVIII

UNAUTHORIZED REINSURANCE (BRMA 55C)

(Applies only to a subscribing 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 subscribing reinsurer a statement showing the proportion of such reserves which is applicable to the subscribing reinsurer. The subscribing reinsurer hereby agrees to fund such reserves in respect of known outstanding losses that have been reported to the subscribing reinsurer and allocated Loss Adjustment Expense relating thereto, losses and allocated Loss Adjustment Expense paid by the Company but not recovered from the subscribing reinsurer, plus reserves for losses incurred but not reported, as shown in the statement prepared by the Company (hereinafter referred to as “subscribing reinsurer’s obligations”) by funds withheld, cash advances or a Letter of Credit. The subscribing 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 subscribing 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 subscribing 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

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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 subscribing reinsurer and Company agree that the Letters of Credit provided by the subscribing 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 subscribing 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 subscribing reinsurer’s obligations under this Contract;

3. To fund an account with the Company for the subscribing 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 subscribing reinsurer;

4. To pay the subscribing 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 subparagraph 1 or 3, or in the case of subparagraph 4, the actual amount determined to be due, the Company shall promptly return to the subscribing 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 subscribing 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 subscribing reinsurer’s obligations, for the sole purpose of amending the Letter of Credit, in the following manner:

1. If the statement shows that the subscribing reinsurer’s obligations exceed the balance of credit as of the statement date, the subscribing 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 subscribing 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 subscribing reinsurer, release such excess

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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 XIX

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 XX

TRIA INUREMENT

A. As respects any “insured loss,” as defined in the Terrorism Risk Insurance Act of 2002, including the Terrorism Risk Insurance Extension Act of 2005, and any other extensions or amendments thereto (“TRIA”), for which the Reinsurer makes a payment to the Company under this Contract, the following provisions shall apply.

B. If the sum of

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

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

exceeds the amount of the Company’s and its affiliates’, if any, gross “insured loss,” the excess amount shall be allocated to the Reinsurer in the ratio that the Reinsurer’s liability for the “insured loss” under this Contract bears to the total collectible reinsurance recoverables for the “insured loss” under 2 above.

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

ARTICLE XXI

SPECIAL ACCEPTANCES

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

B. Renewal of Policies, which have previously received a Special Acceptance under prior Contracts, are deemed to be covered hereunder.

C. Further, should a reinsurer become party to this Contract subsequent to the acceptance of any business not normally covered hereunder, that reinsurer will automatically accept the special acceptances as being part of this Contract.

ARTICLE XXII

MORTGAGEE REINSURANCE ENDORSEMENTS

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

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

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

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

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

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

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

ARTICLE XXIII

THIRD PARTY RIGHTS (BRMA 52C MODIFIED)

Except for the provisions of the MORTGAGEE REINSURANCE ENDORSEMENTS ARTICLE, 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 XXIV

SEVERABILITY

If any provision of this Contract shall be rendered illegal or unenforceable by the laws or regulations 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 Contract or the enforceability of such provision in any other jurisdiction.

ARTICLE XXV

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 that state’s 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 XXVI

ACCESS TO RECORDS (BRMA 1E)

The Reinsurer or its designated representatives shall have access to the books and records of the Company on matters relating to this reinsurance at all reasonable times for the purpose of obtaining information concerning this Contract or the subject matter hereof.

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ARTICLE XXVII

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, with reasonable provision for verification, 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 proportionate 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 subscribing 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 agreed that, 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 its liquidator, receiver, conservator, 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.

D. In the event of the insolvency of any company or companies listed in the designation of “Company” under this Contract, this Article shall apply only to the insolvent company or companies.

ARTICLE XXVIII

ARBITRATION

A. As a condition precedent to any right of action hereunder, any irreconcilable dispute arising out of the interpretation, performance or breach of this Contract, including the formation or

19

validity thereof, whether arising before or after the expiry or termination of the Contract, shall be submitted for decision to a panel of 3 arbitrators. Notice requesting arbitration will be in writing and sent by certified mail, return receipt requested, or such reputable courier service as is capable of returning proof of receipt of such notice by the recipient to the party demanding arbitration.

B. One arbitrator shall be appointed by each party. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days notice by certified mail or reputable courier as provided above of its intention to do so, may appoint the second arbitrator.

C. The two arbitrators shall, before instituting the hearing, appoint an impartial third arbitrator who shall preside at the hearing. If the 2 arbitrators are unable to agree upon the 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 of being requested to do so, either party may request a district court judge of the federal district court having jurisdiction over the geographical area in which the arbitration is to take place, or if the federal court declines to act, the state court having general jurisdiction in such area to select the third arbitrator from a list of 6 individuals (3 named by each arbitrator previously appointed). All arbitrators shall be disinterested active or former senior executives of insurance or reinsurance companies or Underwriters at Lloyd’s, London.

D. Within 30 days after notice of appointment of all arbitrators, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules for hearings. The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Unless the panel agrees otherwise, arbitration shall take place in Bala Cynwyd, Pennsylvania, but the venue may be changed when deemed by the panel to be in the best interest of the arbitration proceeding. Insofar as the arbitration panel looks to substantive law, it shall consider the law of the State of Pennsylvania. The decision of any 2 arbitrators when rendered in writing shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate.

E. The panel shall make its decision considering the custom and practice of the applicable insurance and reinsurance business as promptly as possible following the termination of the hearings. Judgment upon the award may be entered in any court having jurisdiction thereof.

F. If more than one subscribing reinsurer is involved in arbitration where there are common questions of law or fact and a possibility of conflicting awards or inconsistent results, all such subscribing reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the subscribing reinsurers constituting the one party; provided, however, that nothing therein shall impair the rights of such subscribing reinsurers to assert several, rather than joint defenses or claims, nor be construed as changing the liability of the subscribing reinsurers under the terms of this Contract from several to joint.

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

ARTICLE XXIX

SERVICE OF SUIT

(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 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, 445 South Figueroa, 38th Floor, Los Angeles, California 90071 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

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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, 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 XXX

MODE OF EXECUTION

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.

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NUCLEAR INCIDENT EXCLUSION CLAUSE — PHYSICAL DAMAGE — REINSURANCE — U.S.A.

1) This Agreement does not cover any loss or liability accruing to the Reinsured, 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 Agreement does not cover any loss or liability accruing to the Reinsured, 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 Agreement does not cover any loss or liability by radioactive contamination accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph 3) shall not operate

a) where the Reinsured 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 Government Authority having jurisdiction thereof.

4) Without in any way restricting the operations of paragraphs 1), 2) and 3) hereof, this Agreement does not cover any loss or liability by radioactive contamination accruing to the Reinsured, 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 Reinsured 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) Reinsured 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 operations of paragraph 1) hereof, it is understood and agreed that:

a) all policies issued by the Reinsured 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 Reinsured 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

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WAR EXCLUSION

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 damage.

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EX-10.6

EXHIBIT 10.6

TERRORISM CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE MARCH 1, 2008

between

PHILADELPHIA INSURANCE COMPANY
and
PHILADELPHIA INDEMNITY INSURANCE COMPANY

BALA CYNWYD, PENNSYLVANIA, USA

(hereinafter referred to as the “Reinsured”)

by

VALIDUS REINSURANCE, LTD.

HAMILTON, BERMUDA

(hereinafter referred to as the “Reinsurers”)

Under the terms of this Contract, the above Reinsurers agree to assume severally and not jointly with other participants

a 20.00% share

of the liability described in the attached Contract and, as consideration, the above Reinsurers shall receive a 20.00% share of the premium named therein.

Signed in Hamilton, Bermuda, this 28th day of March, 2008,

VALIDUS REINSURANCE, LTD.
BY:	JEFF A. CLEMENTS
TITLE:	EXECUTIVE VICE PRESIDENT

Towers Perrin No. G26004.08

TERRORISM CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE MARCH 1, 2008

between

PHILADELPHIA INSURANCE COMPANY
and
PHILADELPHIA INDEMNITY INSURANCE COMPANY

BALA CYNWYD, PENNSYLVANIA, USA

and signed on Bala Cynwyd, Pennsylvania, this 18th date of June, 2008.

PHILADELPHIA INSURANCE COMPANY and PHILADELPHIA INDEMNITY INSURANCE COMPANY
BY:	CHRISTOPHER MAGUIRE
TITLE:	EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER

Towers Perrin No. G26004.08

PHILADELPHIA INSURANCE COMPANY
and
PHILADELPHIA INDEMNITY INSURANCE COMPANY
Bala Cynwyd, Pennsylvania, USA
(hereinafter referred to as the “Reinsured”)

TERRORISM CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
(hereinafter referred to as the “Contract”)

INDEX

ARTICLE	SUBJECT	PAGE
ARTICLE 1	BUSINESS COVERED		1
ARTICLE 2	COMMENCEMENT AND TERMINATION		1
ARTICLE 3	REINSURANCE COVERAGE		2
ARTICLE 4	EXCLUSIONS		4
ARTICLE 5	REINSURANCE PREMIUM		6
ARTICLE 6	DEFINITION OF LOSS OCCURRENCE		7
ARTICLE 7	NET RETAINED LINE		7
ARTICLE 8	REVIEW		8
ARTICLE 9	REPORTS, LOSS AND LOSS SETTLEMENTS		10
ARTICLE 10	ORIGINAL CONDITIONS		11
ARTICLE 11	ERRORS AND OMISSIONS		11
ARTICLE 12	CURRENCY		12
ARTICLE 13	FEDERAL EXCISE TAXES AND OTHER TAXES		12
ARTICLE 14	ACCESS TO RECORDS		12
ARTICLE 15	RESERVES		13
ARTICLE 16	SERVICE OF SUIT		16
ARTICLE 17	ARBITRATION		17
ARTICLE 18	INSOLVENCY		20
ARTICLE 19	CLAIMS COOPERATION		21
ARTICLE 20	CONFIDENTIALITY		21
ARTICLE 21	LATE PAYMENTS		22
ARTICLE 22	OFFSET		23
ARTICLE 23	SPECIAL TERMINATION		23
ARTICLE 24	TERRORISM RECOVERY – TERRORISM RISK INSURANCE PROGRAM		26
ARTICLE 25	VARIOUS OTHER TERMS		27
ARTICLE 26	INTERMEDIARY		28

Towers Perrin No. G26004.08

 1.

PHILADELPHIA INSURANCE COMPANY
and
PHILADELPHIA INDEMNITY INSURANCE COMPANY
Bala Cynwyd, Pennsylvania, USA
(hereinafter referred to as the “Reinsured”)

TERRORISM CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT
(hereinafter referred to as the “Contract”)

MARCH 1, 2008

ARTICLE 1

BUSINESS COVERED

A. This Contract applies to losses occurring during its term on all Covered Policies, except as hereinafter excluded, classified by the Reinsured as Property or Casualty, that are in force at the inception of, or written with a Policy period (new or renewal) that is effective during the term of this Contract (“Business Covered”).

B. The term “Covered Policies”, whenever used herein, shall mean all binders, policies, contracts, certificates and other obligations, whether oral or written, of insurance or reinsurance written as all lines of business classified by the Reinsured (except as hereinafter excluded) as commercial property and commercial liability, including the following annual statement lines: Fire, Allied lines, commercial multiple peril (non-liability portion), commercial multiple peril (liability portion), inland marine, other liability (including professional liability), fidelity, burglary and theft.

C. Covered Policies hereunder shall be written on standard industry Policy forms of the line(s) of business indicated and which include cover for Acts of Terrorism. Forms substantially similar to ISO forms shall be deemed approved. Policy forms broader than the forms customarily used for the lines of business written by the Reinsured will be submitted for the Reinsurers’ prior review and approval. Any material changes made to such forms shall be subject to prior notice as set forth in the Article entitled REVIEW.

ARTICLE 2

COMMENCEMENT AND TERMINATION

     This Contract shall incept at 12:01 a.m., Eastern Standard Time, March 1, 2008 and shall remain in force until 12:01 a.m., Eastern Standard Time, March 1, 2009 (“Contract Term”). Should this Contract terminate while a Loss Occurrence is in progress, the entire loss arising out of the Loss Occurrence shall be subject to this Contract.

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ARTICLE 3

REINSURANCE COVERAGE

Part One – ACTS OF TERRORISM

Section I (applicable to Loss Occurrence covered in conjunction with the Terrorism Risk Insurance Act of 2002, the Terrorism Risk Extension Act of 2005 and the Terrorism Risk Insurance Program Reauthorization Act of 2007 (all “TRIA”) or any amendment thereto)

A. With respect to losses occurring during the Contract Term on Covered Policies that are Business Covered (including, for the avoidance of doubt, lines of business that are Covered Policies hereunder, but not covered lines under TRIA), the Reinsurers shall be liable to, indemnify and reinsure the Reinsured for each and every Loss Occurrence that is a Certified Act of Terrorism, as defined and certified in accordance with TRIA, for one hundred percent (100%) of the excess Net Loss above an initial Net Loss to the Reinsured of USD ten million ($10,000,000) each and every Loss Occurrence; but the Reinsurers shall not be liable for more than USD fifty million ($50,000,000) of Net Loss for each and every such Loss Occurrence.

B. “Certified Act(s) of Terrorism” means any act that is certified by the Secretary of the Treasury in concurrence with the Secretary of State and the Attorney General of the United States pursuant to TRIA.

Section II (applicable to Loss Occurrence not covered in conjunction with TRIA)

A. With respect to losses occurring during the Contract Term on Covered Policies that are Business Covered, the Reinsurers shall be liable to, indemnify and reinsure the Reinsured for each and every Loss Occurrence that results from an Act of Terrorism that is not a Certified Act of Terrorism (“Non-Certified Act of Terrorism”), for one hundred percent (100%) of the excess Net Loss above an initial Net Loss to the Reinsured of USD ten million ($10,000,000) each and every Loss Occurrence; but the Reinsurers shall not be liable for more than USD fifty million ($50,000,000) of Net Loss for each and every such Loss Occurrence.

B. For the purposes of this Section, an “Act of Terrorism” shall be any act or preparation in respect of action, designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of any political, religious, ideological, or similar purpose 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:

1. involves violence against one or more persons; or

2. involves damage to property; or

Towers Perrin No. G26004.08

3.

3. endangers life other than that of the person committing the action; or

4. creates a risk to health or safety of the public or a section of the public; or

5. involves physical loss, damage, cost, or expense caused by, contributed to by, resulting from, or arising out of or in connection with any action in directly responding to any Act of Terrorism; or

6. are defined as such in any of the Reinsured’s policy forms that have been the subject of the Reinsurers’ express written prior review and approval.

C. Loss or damage occasioned by riot, strikes, civil commotion, vandalism or malicious mischief as those terms have been interpreted by United States Courts to apply to insurance policies shall not be construed to be an “Act of Terrorism”.

Section lll (applicable to both Section I and Section II)

A. The Reinsurers’ liability in respect of excess Net Loss hereunder for losses occurring during the Contract Term shall be limited to USD one hundred million ($100,000,000) in the aggregate as respects all Net Loss on Covered Policies that are Business Covered hereunder as a result of all Loss Occurrences taking place during the Contract Term in respect of both Section I and Section II combined.

B. In the event that the Terrorism Reinsurance Insurance Program, (“TRIP”) as established by TRIA terminates, the parties will endeavor to continue to employ the definitions of “Act of Terrorism” as set forth in Section 1 above, but for the certification by the Secretary of the Treasury. In the event that the parties cannot agree on whether such Loss Occurrence is subject to coverage under Section I or Section II, the decision shall be subject to the Article entitled “Arbitration” in this Contract and the payment due date shall be determined by the date of the Panel’s reasoned decision.

Part Two – REINSURANCE LOSS

A. “Net Loss” shall mean the actual loss incurred by the Reinsured under Business Covered hereunder including (i) sums paid in settlement of claims and suits and in satisfaction of judgments, (ii) prejudgment interest when added to a judgment, (iii) all expenses incurred in connection with adjustment, defense, settlement and litigation of claims and suits, satisfaction of judgments, resistance to or negotiations concerning a loss (excluding the normal office expenses of the Reinsured and salaries of the Reinsured) and (iv) any interest on judgments other than prejudgment interest when added to a judgment.

B. All salvages, recoveries, payments and reversals or reductions of verdicts or judgments (net of the cost of obtaining such salvage, recovery, payment or reversal or reduction of a verdict or judgment) whether recovered, received or obtained prior or subsequent to loss settlement under this Contract, including amounts

Towers Perrin No. G26004.08

4.

recoverable under other reinsurance, whether collected or not, shall be applied as if recovered, received or obtained prior to the aforesaid settlement and shall be deducted from the actual losses sustained to arrive at the amount of the Net Loss. Nothing in this Article shall be construed to mean losses are not recoverable until the final Net Loss to the Reinsured finally has been ascertained.

C. The Reinsurers shall be subrogated, as respects any loss for which the Reinsurers shall actually pay or become liable, but only to the extent of the amount of payment by or the amount of liability to the Reinsurers, to all the rights of the Reinsured against any person or other entity who may be legally responsible for damages as a result of said loss. Should the Reinsured elect not to enforce such rights, the Reinsurers are hereby authorized and empowered to bring any appropriate action in the name of the Reinsured or its policyholders, or otherwise to enforce such rights. The Reinsurers shall promptly remit to the Reinsured the amount of any judgment awarded in such an action in excess of the amount of payment by, or the amount of liability to, the Reinsurers hereunder.

ARTICLE 4

EXCLUSIONS

A. This Contract shall not cover any Net Loss arising from Certified Acts of Terrorism or Non-Certified Acts of Terrorism that results from:

1. An act committed as part of the course of a war declared by the Congress of the United States of America as set forth in Section 102(1)(B)(i) of TRIA; or

2. Seizure or illegal occupation; or

3. Confiscation, requisition, detention, legal or illegal occupation, embargo, quarantine, or an order of public or government authority which deprives the insured of the use or value of the property, or arising from acts of contraband or illegal transportation or illegal trade; or

4. Contingent Business Interruption, written as such, unless specially accepted by the Reinsurers hereon; or

5. Workers’ Compensation and Employers’ Liability, written as such; or

6. Pollutants or contaminants whether directly or indirectly arising from or as consequence of the discharge of pollutants or contaminants, which pollutants and contaminants shall include but not be limited to any solid, liquid, gaseous or thermal irritant, contaminant or toxic or hazardous substance or any substance the presence, existence or release of which endangers or threatens to endanger the health, safety or welfare of persons or the environment; or

Towers Perrin No. G26004.08

5.

7. Electronic attack, including computer hacking or the introduction of any form of computer virus. Notwithstanding the foregoing, this Contract will respond to a Loss Occurrence arising from attacks involving the use of a mobile telephone, remote control, or radio controlled device or any other electronic device or system or such like in the launch and/or guidance system and/or firing mechanism and/or detonation of any explosive bomb, weapon or missile subject always to the other terms and conditions of this Contract; or

8. Increased cost occasioned by any Public or Civil Authority’s enforcement of any ordinance or law regulating the reconstruction, repair or demolition of any property; or

9. Cessation, fluctuation or variation in, or insufficiency of, water, gas or electricity supplies and telecommunications of any type or service; or

10. Threat or hoax, in the absence of physical damage due to an act or series of Acts of Terrorism; or

11. Burglary, house — breaking, theft or larceny or caused by any person taking part therein; or

12. Extra-Contractual Obligation. “Extra-Contractual Obligation” means liabilities, including Loss Excess of Policy Limits, that are not covered under any other provision of this Contract and which arise from the handling of any claim on Business Covered hereunder by reason of alleged or actual negligence, gross negligence, fraud, or bad faith on the part of the Reinsured. As used herein, “Loss Excess of Policy Limits” means any amount of loss, together with any legal costs and expenses incurred in connection therewith, paid as damages or in settlement by the Reinsured in excess of its Policy Limits, but otherwise within the coverage terms of the Policy, arising from an allegation or claim of its insured, its insured’s assignee, or other third party, which alleges negligence, gross negligence, bad faith or other tortuous conduct on the part of the Reinsured in the handling of a claim under a Policy subject to this Contract, in rejecting a settlement within the Policy Limits, in discharging a duty to defend or prepare the defense in the trial of an action against its insured, or in discharging its duty to prepare or prosecute an appeal consequent upon such an action. For the avoidance of doubt, the decision by the Reinsured to settle a claim for an amount within the coverage of the Policy but not within the Policy limit when the Reinsured has reasonable basis to believe that it may have liability to its insured or assignee or other third party on the claim will be deemed a Loss Excess of Policy Limits.

Towers Perrin No. G26004.08

6.

B. This Contract shall not cover any Net Loss arising from any part of Non-Certified Acts of Terrorism that results from a loss occasioned directly or indirectly by war or invasion (whether war be declared or not), hostile acts of sovereign or government entities, civil war, rebellion, revolution, insurrection, civil commotion assuming the proportions of or amounting to an uprising, military or usurped power or martial law or confiscation by order of any government or public authority.

ARTICLE 5

REINSURANCE PREMIUM

Part One – PREMIUM

     As premium for the reinsurance provided hereunder, the Reinsured shall pay the Reinsurers a flat premium of USD four million five hundred thirty one thousand two hundred fifty ($4,531,250) in two (2) installments of USD two million two hundred sixty five thousand six hundred twenty five ($2,265,625) on March 1, 2008 and on September 1, 2008.

Part Two – REINSTATEMENT PREMIUM

A. Each claim hereunder shall reduce the amount of the Reinsurers’ liability from the time of the Loss Occurrence by the sum paid, but the sum so reduced shall be reinstated immediately from the time of the Loss Occurrence.

B. For each amount so reinstated, the Reinsured agrees to pay an additional premium calculated by multiplying one hundred percent (100%) of the annual reinsurance premium earned hereon by the percentage that the amount reinstated bears to the limit (i.e., USD fifty million [$50,000,000]) of this Contract. Nevertheless, the liability of the Reinsurers shall never be more than USD fifty million ($50,000,000) Net Loss in respect of any one Loss Occurrence, nor more than USD one hundred million ($100,000,000) Net Loss in all in respect of all Loss Occurrences during the Contract Term.

C. A statement of reinstatement premium due the Reinsurers shall be prepared by the Reinsured and submitted to the Reinsurers with each loss payment request hereunder. The reinstatement premium shall be based upon one hundred percent (100%) of the annual reinsurance premium earned by the Reinsurer hereunder. The amount of reinstatement premium due Reinsurers shall be offset against the loss payment due the Reinsured with only the net amount due to be remitted by the debtor party.

Towers Perrin No. G26004.08

7.

Part Three – NO CLAIMS BONUS

A. In the event that no claims arise under this Contract then the Reinsurers will allow to the Reinsured a return premium equal to their participation in this Contract multiplied by USD three hundred twelve thousand five hundred ($312,500) payable effective March 1, 2009.

B. The return premium payment by the Reinsurers to the Reinsured shall constitute the commutation of this Contract and such payment once effected shall be regarded as a full and final release of the Reinsurers from all liability hereunder.

ARTICLE 6

DEFINITION OF LOSS OCCURRENCE

A. The term “Loss Occurrence” shall mean any one loss and/or series of losses arising out of and directly caused by one Act or series of Acts of Terrorism for the same apparent purpose or cause. The duration and extent of any one Loss Occurrence shall be limited to all losses sustained by the Reinsured during any period of seventy two (72) consecutive hours arising out of the same apparent purpose or cause. However, no such period of seventy two (72) consecutive hours may extend beyond the expiration of this Contract unless direct physical damage by an Act of Terrorism occurs prior to the expiration and within said period of seventy two (72) consecutive hours, nor shall any period of seventy two (72) consecutive hours commence prior to the attachment of this reinsurance.

B. As respects coverage provided in Section I of the Article entitled “Reinsurance Coverage”, Loss Occurrence shall be consistent with the determination of the Secretary of the Treasury of a Certified Act of Terrorism. As respects coverage provided in Section II of the Article entitled “Reinsurance Coverage”, all losses flowing from an apparently coordinated plan of attack shall be deemed a single Loss Occurrence even though they may be separate in time or space subject always to the above seventy two (72) hour period.

ARTICLE 7

NET RETAINED LINE

A. This Contract applies only to that portion of the exposure to loss from Acts of Terrorism on any Policy which the Reinsured retains net for its own account, 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

Towers Perrin No. G26004.08

8.

of that portion of the exposure to loss from Acts of Terrorism on any Policy which the Reinsured retains net for its own account shall be included. Recoveries under the Terrorism Risk Insurance Program referenced in the Article entitled TERRORISM RECOVERY — TERRORISM RISK INSURANCE PROGRAM shall be disregarded in calculating the Net Loss to which this reinsurance applies.

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

C. Where the Reinsured comprises more than one insurance company, reinsurance among the companies collectively called the “Reinsured” hereunder or between any of them and any of their affiliates under common control with the Reinsured shall be entirely disregarded for all purposes of this Contract.

D Permission is hereby granted to the Reinsured to carry underlying Terrorism reinsurance below the attachment of this Contract and recoveries made thereunder shall be disregarded for all purposes of this Contract and shall inure to the sole benefit of the Reinsured.

ARTICLE 8

REVIEW

A. The Reinsured has provided the Reinsurers, prior to the commencement of this Contract, with information concerning its Policy forms and Underwriting Practices and Covered Policies in respect to coverage for Acts of Terrorism. The Reinsured shall report to the Reinsurers as soon as practically possible upon the happening of any of the following:

1. Change in control of the Reinsured via a closing upon a definitive agreement to sell or merge approved by the applicable regulatory authorities including but not limited to (a) become merged with, acquired or controlled by any company, corporation or individual(s) not controlling the party’s operations previously (though excluding transactions among entities under common control); or

2. A transfer by portfolio transfer of the Business Covered; or

3. Material Change in the Reinsured’s Underwriting Practices that materially increases the Reinsured’s underwriting exposure to a Loss Occurrence arising from an Act of Terrorism. For the purpose of this condition, a material change shall mean the following: (i) from inception, an increase of twenty percent (20%) or USD twenty million ($20,000,000), whichever is greater, or more in the Total Insured Values covered in those

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zip codes set forth in Schedule A, Target Area zip codes (“Target Area TIV Increase”) or (ii) any material change to the Reinsured’s coverage forms concerning terrorism (“Material Change”), or (iii) the commencement of the Reinsured offering terrorism coverage on a stand-alone basis (“Offering of Stand-Alone Terrorism”).

     As used herein, the reference to a “zip code” or a “Target Area zip code” shall mean that entire area encompassed by all zip codes within an area described by reference only to the first three digits of a zip code.

     For example, an area made up of zip codes 89712, 89713, and 89714 will be considered for the purposes of this Contract the “zip code” or “Target Area zip code” of “897”

B. In the event of a failure to timely report to the Reinsurers in A(1) or A(2) above, the Reinsurer shall have a right to cancel the Contract with fifteen (15) days advance notice.

C. In the event of A(3) above,

1. The Reinsurer shall have the right to review the impact of any Material Change in the Reinsured’s Underwriting Practices and either accept the change or propose a modification to the terms of this Contract;

2. In the event that: (i) the Material Change in the Reinsured’s Underwriting Practices is not reported to the Reinsurer in a timely fashion or (ii) the Reinsured does not accept the Reinsurer’s proposal to modify the terms of this Contract per C(1) above, then the following conditions shall apply:

a. In respect of a Material Change or Offering of Stand-Alone Terrorism, no coverage shall be afforded hereunder for that portion of Net Loss from a Loss Occurrence that occurs after the date of the Material Change/Offering of Stand-Alone Terrorism that directly results from such Material Change and/or Offering of Stand-Alone Terrorism.

b. In respect of a Target Area TIV Increase, the Reinsurer shall have the option to reduce the contribution to Net Loss in a Loss Occurrence from a Target Area according to the following fraction:

(Total Insured Value in applicable Target Area at August 31, 2007 *1.20)^*
divided by actual Total Insured Value in applicable Target Area at the date of the Loss Occurrence.

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^* In the event that USD twenty million ($20,000,000) is greater than 1.2 times the Total Insured Value in the applicable Target Area at the inception of this Contract, such amount shall be utilized rather than 1.2 times the Total Insured Value in the applicable Target Area at the inception of this Contract.

ARTICLE 9

REPORTS, LOSS AND LOSS SETTLEMENTS

Part One – REINSURED EXPOSURES

A. The Reinsured has provided the Reinsurers a statement of Reinsured Exposure prior to the Contract Term, (“Statement”), reflecting the Reinsured’s Total Insured Values for terrorism coverage at the date of that report (“Gross TIV”) plus the Total Insured Values for Terrorism coverage in the Target Area zip codes at the same date. The Reinsured shall provide the Reinsurers an updated Statement each calendar quarter thereafter during the Contract Term, reflecting the Gross TIV and the subtotal for the Total Insured Values for Terrorism coverage in the Target Area zip codes at the same date. Such report shall be due within ninety (90) days following the end of each calendar quarter.

B. The term “Reinsured Exposure” shall mean the difference between the Gross TIV and the Total Insured Values for Terrorism coverage in the Target Area zip codes on the date of the report.

Part Two – CLAIM REPORTING

A. The Reinsured shall advise the Reinsurers promptly of all losses which, in the opinion of the Reinsured, are likely to result in a claim hereunder or are incurred in the Reinsured’s books at fifty percent (50%) of the retention hereunder and of all subsequent developments thereto that may materially affect the position of the Reinsurers. Inadvertent omission or oversight in giving such notice shall in no way affect the liability of the Reinsurers. However, the Reinsurers shall be informed of such omission or oversight promptly upon its discovery.

B. The Reinsured shall have the right to settle all claims under its Policies. All loss settlements made by the Reinsured, within the terms and conditions of this Contract, and provided that such settlement is not an Ex-gratia Settlement made without the prior approval of the Reinsurers, shall be binding upon the Reinsurers, and the Reinsurers agree to pay or allow, as the case may be, their share of each such settlement in accordance with this Contract all amounts for which it is

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obligated immediately upon being furnished by the Reinsured with Reasonable Evidence of the Amount Due. Reasonable Evidence of the Amount Due shall consist of a notarized certification by an Officer of the Reinsured that the amount requested to be paid and submitted by the certification is due and payable to the Reinsured by the Reinsurers under the terms and conditions of this Contract.

C. “Ex-gratia Settlements”, as used in this Contract, will mean all settlements of losses not covered under the express terms of the policies that are primarily motivated by the customer business relationship. “Ex-gratia Settlements” will not include settlements of losses which (1) arise from court decisions or other judicial acts or orders, (2) arise from the good faith position of the Reinsured of probable coverage under the Policies, nor (3) settlements made to avoid costs that could be incurred in connection with potential or actual litigation relating to coverage issues arising under the Policies subject to this Contract.

D. In addition, the Reinsured shall furnish the Reinsurers a periodic statement showing the unearned premium, the total reserves for outstanding Net Losses including loss adjustment expense, and such other information as may be required by the Reinsurers for completion of their NAIC annual statements.

ARTICLE 10

ORIGINAL CONDITIONS

     The Reinsurer’s liability to the Reinsured shall be subject in all respects to the same risks, terms, clauses, conditions, interpretations, alterations, modifications cancellations and waivers as the respective insurances of the Reinsured’s Policies and the Reinsurer shall pay losses as may be paid thereon, the true intent of this Contract being that in each and every case to which this Contract applies, the Reinsurer shall follow the settlements of the Reinsured, subject always to the limits, terms and conditions of this Contract .

ARTICLE 11

ERRORS AND OMISSIONS

     Inadvertent delays, errors or omissions made by the Reinsured in connection with this Contract (including the reporting of claims) shall not relieve the Reinsurer from any liability which would have attached had such delay, error or omission not occurred, provided always that such delay, error or omission shall be rectified as soon as possible after discovery by the Reinsured’s Home Office. Nothing in this Article shall, however, be held to override the provisions of the Article entitled REVIEW.

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ARTICLE 12

CURRENCY

     Whenever the word “Dollars”, “USD” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars. Amounts paid or received by the Reinsured 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 Reinsured.

ARTICLE 13

FEDERAL EXCISE TAXES AND OTHER TAXES

A. To the extent that any portion of the reinsurance premium for this Contract is subject to the Federal Excise Tax (as imposed under Section 4371 of the Internal Revenue Code) and the Reinsurer is not exempt therefrom, the Reinsurer shall allow for the purpose of paying the Federal Excise Tax, a deduction by the Reinsured of the applicable percentage of the premium payable hereon. In the event of any return of premium becoming due hereunder, the Reinsurer shall deduct the applicable same percentage from the return premium payable hereon and the Reinsured or its agent shall take steps to recover the tax from the United States Government. In the event of any uncertainty, upon the written request of the Reinsured, the Reinsurer will immediately file a certificate of a senior corporate officer of the Reinsurer certifying to its entitlement to the exemption from the Federal Excise Tax with respect to one or more transactions.

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

ARTICLE 14

ACCESS TO RECORDS

     The Reinsured 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, during the term of this Contract and thereafter, all non-privileged books, records and papers of the Reinsured directly related to any reinsurance hereunder, or the subject matter hereof, provided that if the Reinsurer has ceased active market operations, this right of access shall be subject to that Reinsurer being current in all payments owed the Reinsured.

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ARTICLE 15

RESERVES

(Unless otherwise required by law to obtain full credit for this Contract, in recognition of the security in place under the Lloyd’s Credit for Reinsurance Trust, the provisions of this Article shall not apply to participating Lloyd’s Syndicates.)

A. If any Reinsurer is unauthorized or otherwise unqualified in any state or other United States jurisdiction, and if, without such security, a financial penalty to the Reinsured would result on any statutory statement or report it is required to make or file with insurance regulatory authorities or a court of law in the event of insolvency, for reasons of the Reinsured’s financial security and condition, that Reinsurer will timely secure the Reinsurer’s share of Obligations under this Contract in a manner, form, and amount acceptable to the Reinsured and to all applicable insurance regulatory authorities in accordance with this Article.

B. The Reinsurer shall secure such Obligations, within thirty (30) days after the receipt of the Reinsured’s written request regarding the Reinsurer’s share of Obligations under this Contract (but not later than December 31) of each year by either:

1. Clean, irrevocable, and unconditional evergreen letter(s) of credit issued and confirmed, if confirmation is required by the applicable insurance regulatory authorities, by a qualified United States financial institution as defined under the Insurance Law of the Reinsured’s domiciliary state and acceptable to the Reinsured and to insurance regulatory authorities;

2. A trust account meeting at least the standards of New York’s Insurance Regulation 114 and the Insurance Law of the Reinsured’s domiciliary state; or

3. Cash advances or funds withheld or a combination of both, which will be under the exclusive control of the Reinsured (“Funds Deposit”).

C. The “Obligations” referred to herein means the then current (as of the end of each calendar quarter) sum of:

1. The amount of the ceded unearned premium reserve for which the Reinsurer is responsible to the Reinsured;

2. The amount of Net Loss and other amounts paid by the Reinsured for which the Reinsurer is responsible to the Reinsured but has not yet paid;

3. The amount of ceded reserves for Net Loss for which the Reinsurer is responsible to the Reinsured;

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4. The amount of return and refund premiums paid by the Reinsured for which the Reinsurer is responsible to the Reinsured but has not yet paid.

D. The Reinsured, or its successors in interest, may draw, at any time and from time to time, upon the:

1. Established letter of credit (or subsequent cash deposit);

2. Established trust account (or subsequent cash deposit); or

3. Funds Deposit;

without diminution or restriction because of the insolvency of either the Reinsured or the Reinsurer for one or more of the following purposes set forth below:

E. Draws shall be made only for the following purposes:

1. To make payment to and reimburse the Reinsured for the Reinsurer’s share of Net Loss and other amounts paid by the Reinsured under its Policies and for which the Reinsurer is responsible under this Contract that is due to the Reinsured but unpaid by the Reinsurer including but not limited to the Reinsurer’s share of premium refunds and returns; and

2. To obtain a cash advance of the entire amount of the remaining balance under any letter of credit in the event that the Reinsured:

a. has received notice of non-renewal or expiration of the letter of credit or trust account;

b. has not received assurances satisfactory to the Reinsured of any required increase in the amount of the letter of credit or trust account, or its replacement or other continuation of the letter of credit or trust account at least thirty (30) days before its stated expiration date;

c. has been made aware that others may attempt to attach or otherwise place in jeopardy the security represented by the letter of credit or trust account; or has concluded that the trustee or issuing (or confirming) bank’s financial condition is such that the security represented by the letter of credit or trust account may be in jeopardy;

and under any of those circumstances where the Reinsurer’s entire Obligations, or part thereof, under this Contract remain un-liquidated and un-discharged at least thirty (30) days prior to the stated expiration date or at the time the Reinsured learns of the possible jeopardy to the security represented by the letter of credit or trust account.

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F. If the Reinsured draws on the letter of credit or trust account to obtain a cash advance, the Reinsured will hold the amount of the cash advance so obtained in the name of the Reinsured in any qualified United States financial institution as defined under the Insurance Law of the Reinsured’s domiciliary state in trust solely to secure the Obligations referred to above and for the use and purposes enumerated above and to return any balance thereof to the Reinsurer:

1. Upon the complete and final liquidation and discharge of all of the Reinsurer’s Obligations to the Reinsured under this Contract; or

2. In the event the Reinsurer subsequently provides alternate or replacement security consistent with the terms hereof and acceptable to the Reinsured.

G. The Reinsured will prepare and forward at annual intervals or more frequently as determined by the Reinsured, but not more frequently than quarterly to the Reinsurer a statement for the purposes of this Article, showing the Reinsurer’s share of Obligations as set forth above. If the Reinsurer’s share thereof exceeds the then existing balance of the security provided, the Reinsurer will, within fifteen (15) days of receipt of the Reinsured’s statement, but never later than December 31 of any year, increase the amount of the letter of credit, (or subsequent cash deposit), trust account or Funds Deposit to the required amount of the Reinsurer’s share of Obligations set forth in the Reinsured’s statement, but never later than December 31 of any year. If the Reinsurer’s share thereof is less than the then existing balance of the cash advance, the Reinsured will release the excess thereof to the Reinsurer upon the Reinsurer’s written request. The Reinsurer will not attempt to prevent the Reinsured from holding the cash advance or Funds Deposit so long as the Reinsured is acting in accordance with this Article.

H. Any assets deposited to a trust account will be valued according to their current fair market value and will consist only of cash (U.S. legal tender), certificates of deposit issued by a qualified United States financial institution as defined under the Insurance Law of the Reinsured’s domiciliary state and payable in cash, and investments of the types no less conservative than those specified in Section 1404 (a)(1)(2)(3) (8) and (10) of the New York Insurance Law and which are admitted assets under the Insurance Law of the Reinsured’s domiciliary state. Investments issued by the parent, subsidiary, or affiliate of either the Reinsured or the Reinsurer will not be eligible investments. All assets so deposited will be accompanied by all necessary assignments, endorsements in blank, or transfer of legal title to the trustee in order that the Reinsured may negotiate any such assets without the requirement of consent or signature from the Reinsurer or any other entity.

I. All settlements of account between the Reinsured and the Reinsurer will be made in cash or its equivalent. All income earned and received by the amount held in an established trust account will be added to the principal.

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J. The Reinsured’s “successors in interest” will include those by operation of law, including without limitation, any liquidator, rehabilitator, receiver, or conservator.

K. The Reinsurer will take any other reasonable steps that may be required for the Reinsured to take full credit on its statutory financial statements for the reinsurance provided by this Contract.

ARTICLE 16

SERVICE OF SUIT

A. This Article only applies to Reinsurers domiciled outside of the United States and/or unauthorized in any state, territory or district of the United States having jurisdiction over the Reinsured. Furthermore, this Article will not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Article entitled ARBITRATION. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Article entitled ARBITRATION for resolving disputes arising out of this Contract.

B. In the event of any dispute, the Reinsurer, at the request of the Reinsured, 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 any obligation to arbitrate disputes arising from this Contract or 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.

C. Service of process in any such suit against the Reinsurer may be made upon Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or the entity identified on the Reinsurer’s signature page to this Contract, (whichever applicable shall be hereinafter referred to as the “Firm”) and in any suit instituted, the Reinsurer shall abide by the final decision of such court or of any Appellate Court in the event of an appeal.

D. The Firm is authorized and directed to accept service of process on behalf of the Reinsurer in any such suit and/or upon the request of the Reinsured to give a written undertaking to the Reinsured that they shall enter a general appearance upon the Reinsurer’s behalf in the event such a suit shall be instituted.

E. Further, as required by and pursuant to any statute of any state, territory or district of the United States which makes provision therefore, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in

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office, as their 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 Reinsured 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 17

ARBITRATION

A. Any and all disputes between the Reinsured and the Reinsurer arising out of, relating to, or concerning this Contract, whether sounding in contract or tort and whether arising during or after termination of this Contract, shall be submitted to the decision of a Board of arbitration composed of two (2) arbitrators and an umpire (“Board”) meeting at a site in the city in which the principal headquarters of the Reinsured are located. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below.

B. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant’s notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator.

C. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be current or former senior officers of property-casualty insurance companies, reinsurance companies, or Lloyds Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance not currently representing any party participating in the arbitration. The Reinsured and the Reinsurer as aforesaid shall each appoint an arbitrator and the two (2) arbitrators shall choose a third arbitrator before instituting the hearing. As time is of the essence, if the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant’s written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two (2) arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request ARIAS U. S. (“ARIAS”) to apply its procedures to appoint a third arbitrator for the arbitration with the qualifications set forth above in this Article. If the use of ARIAS procedures fails

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to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The third arbitrator shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed.

D. The claimant and respondent shall each submit initial briefs to the Board outlining the facts, the issues in dispute and the basis, authority, and reasons for their respective positions within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the respondent may submit a reply brief to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to.

E. The Board shall consider this Contract as an honorable engagement and shall make a decision and award with regard to the terms expressed in this Contract, the original intentions of the parties to the extent reasonably ascertainable, and the custom and usage of the property and casualty insurance and reinsurance business.

F. The Board shall be relieved of all judicial formalities and the decision and award shall be based upon a hearing in which evidence shall be allowed though the formal rules of evidence shall not strictly apply. Cross examination and rebuttal shall be allowed. At its own election or at the request of the Board, either party may submit a post-hearing brief for consideration of the Board within twenty (20) days of the close of the hearing.

G. The Board shall render its decision and award in writing within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding.

H. The Board may award (i) interest at a rate of up to four hundred (400) basis points above the prime rate as published in the Wall Street Journal (eastern edition), but not less than five percent (5%) per annum, on the date of the award calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party, (ii) attorney fees and punitive, exemplary, or treble damages if the actions of either party in prosecuting, defending or causing the arbitration are made in bad faith and constitute outrageous behavior in the opinion of the Board.

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I. Either party may apply to a court of competent jurisdiction for an order confirming any decision and the award; a judgment of that Court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys’ fees of the party so applying and court costs will be paid by the party against whom confirmation is sought.

J. Except in the event of a consolidated arbitration, each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. The remaining costs of the arbitration proceedings shall be finally allocated by the Board.

K. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses at the arbitration those of its employees, those of its affiliates as any other participating party reasonably requests which are relevant providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive.

L. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board.

M. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board.

N. Upon request of the Reinsured made to the affected Reinsurers and to the Board not later than ten (10) days after the third arbitrator’s appointment, the Board may order a consolidated hearing between the Reinsured and all affected Reinsurers participating in this Contract if the Board is satisfied in its discretion that the issues in dispute affect more than one Reinsurer and a consolidated hearing would be in the interest of fairness, and a prompt and cost effective resolution of the issues in dispute.

O. If the parties mutually agree to or the Board orders a consolidated hearing, all other affected participating Reinsurers shall join and participate in the arbitration under time frames established by the Board and will be bound by the Board’s decision and award unless excused by the Board in its discretion.

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P. Any Reinsurer may decline to actively participate in a consolidated arbitration if in advance of the hearing, that Reinsurer shall file with the Board a written agreement in form satisfactory to the Board to be bound by the decision and award of the Board in the same fashion and to the same degree as if it actively participated in the arbitration.

Q. In the event of an order of consolidation by the Board, the arbitrator appointed by the original Reinsurer shall be subject to being and may be replaced within thirty (30) days of the decision to have a consolidated arbitration by an arbitrator named collectively by the Reinsurers or in the absence of agreement, by the Lead Reinsurer, or if there is no Lead Reinsurer, the Reinsurer with the largest participation in this Contract affected by the dispute. In the event two (2) or more Reinsurers affected by the dispute each have the same largest participation, they shall agree among themselves as to the replacement arbitrator, if any, to be appointed. The third arbitrator shall be the final determiner in the event of any dispute over replacement of that arbitrator. All other aspects of the arbitration shall be conducted as provided for in this Article provided that (1) each party actively participating in the consolidated arbitration will have the right to its own attorney, position, and related claims and defenses; (2) each party will not, in presenting its position, be prevented from presenting its position by the position set forth by any other party; and (3) the cost and expense of the arbitration, exclusive of attorney’s fees (which will be borne exclusively by the respective retaining party) but including the expense of any stenographer by each party actively participating in the consolidated arbitration or as the Board shall determine to be fair and appropriate under the circumstances.

ARTICLE 18

INSOLVENCY

A. In the event of insolvency and the appointment of a conservator, liquidator, or statutory successor of the Reinsured, the portion of any risk or obligation assumed by the Reinsurer shall be payable to the conservator, liquidator, or statutory successor on the basis of claims allowed against the insolvent Reinsured by any court of competent jurisdiction or by any conservator, liquidator, or statutory successor of the Reinsured having authority to allow such claims, without diminution because of that insolvency, or because the conservator, liquidator, or statutory successor has failed to pay all or a portion of any claims.

B. Payments by the Reinsurer as above set forth shall be made directly to the Reinsured or to its conservator, liquidator, or statutory successor, except where this contract of reinsurance specifically provides another payee of such reinsurance or except as provided by applicable law and regulation (such as subsection (a) of section 4118 of the New York Insurance laws) in the event of the insolvency of the Reinsured.

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C. In the event of the insolvency of the Reinsured, the liquidator, receiver, conservator or statutory successor of the Reinsured shall give written notice to the Reinsurer of the pendency of a claim against the insolvent Reinsured on the Policy or Policies reinsured within a reasonable time after such claim is filed in the insolvency proceeding and during the pendency of such claim any 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 which it may deem available to the Reinsured or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable subject to court approval against the insolvent Reinsured as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Reinsured solely as a result of the defense undertaken by the Reinsurer.

D. Where two (2) or more Reinsurers are involved in the same claim and a majority in interest elects 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 Reinsured.

ARTICLE 19

CLAIMS COOPERATION

     When so requested in writing, the Reinsured shall afford the Reinsurer or its representatives an opportunity to be associated with the Reinsured, at the expense of the Reinsurer, in the defense of any claim, suit or proceeding involving this Contract, and the Reinsured and the Reinsurer shall cooperate in every respect in the defense of such claim, suit or proceeding, provided the Reinsured shall have the right to make any decision in the event of disagreement over any matter of defense or settlement subject always to the conditions of the Article entitled ORIGINAL CONDITIONS.

ARTICLE 20

CONFIDENTIALITY

A. The information, data, statements, representations and other materials provided by the Reinsured or the Reinsurer to the other arising from consideration and participation in this Contract whether contained in the reinsurance submission, this Contract, or in materials or discussions arising from or related to this Contract, may contain confidential or proprietary information as expressly indicated by the Disclosing Party (“Disclosing Party”) in writing from time to time to the other party of the respective parties (“Confidential Information”). This Confidential Information is intended for the sole use of the parties to this Contract (and their retrocessionaires, respective auditors and legal counsel) as may be necessary in analyzing and/or accepting a participation in and/or executing their respective responsibilities under or related to this Contract. Disclosing or using Confidential Information disclosed

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under this Contract for any purpose beyond (i) the scope of this Contract, (ii) the reasonable extent necessary to perform rights and responsibilities expressly provided for under this Contract, (iii) the reasonable extent necessary to administer, report to and effect recoveries from retrocessional Reinsurers, or (iv) persons with a need to know the information and who are obligated to maintain the confidentiality of the Confidential Information or who have agreed in writing to maintain the confidentiality of the Confidential Information is expressly forbidden without the prior written consent of the Disclosing Party. Copying, duplicating, disclosing, or using Confidential Information for any purpose beyond this expressed purpose is forbidden without the prior written consent of the Disclosing Party.

B. Should a party (“Receiving Party”) receive a third party demand pursuant to subpoena, summons, or court or governmental order, to disclose Confidential Information that has been provided by another party to this Contract, the Receiving Party shall, to the extent permitted by law, make commercially reasonable efforts to notify the Disclosing Party promptly upon receipt of the demand and prior to disclosure of the Confidential Information and provide the Disclosing Party a reasonable opportunity to object to the disclosure. If such notice is provided, the Receiving Party may after the passage of five (5) business days after providing notice, proceed to disclose the Confidential Information as necessary to satisfy such a demand without violating this Contract. If the Disclosing Party timely objects to the release of the Confidential Information, the Receiving Party will comply with the reasonable requests of the Disclosing Party in connection with the Disclosing Party’s efforts to resist release of the Confidential Information. The Disclosing Party shall bear the cost of resisting the release of the Confidential Information.

ARTICLE 21

LATE PAYMENTS

A. Payments from the Reinsurer to the Reinsured shall have as a due date the date on which the Reinsured Reasonable Evidence of Amount Due is received by the Reinsurer, and shall be overdue sixty (60) days thereafter. Payments due from the Reinsurer to the Reinsured will not be considered overdue if the Reinsurer requests, in writing, that such payment be made by drawing on a letter of credit or other similar method of funding that has been established for this Contract, provided that there is an adequate balance in place, and further provided that such advice to draw is received by the Reinsured within the sixty (60) day deadline set forth above. Payments from the Reinsured to the Reinsurer will have a due date as the date specified in this Contract and will be overdue sixty (60) days thereafter. Premium adjustments will be overdue sixty (60) days from the Contract due date or one hundred (120) days after the expiration or renewal date, whichever is greater.

B. The Reinsured will provide the Reinsurer with reasonable evidence of amount due, supplemented by copies of any proof of loss and a copy of the claim adjuster’s report(s) or any other reasonable evidence of indemnification. If subsequent to receipt of this evidence, the information contained therein is

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unreasonably insufficient or not in substantial accordance with the contractual conditions of this Contract, then the payment due date as specified above will be deemed to be the date upon which the Reinsurer received the additional information necessary to approve payment of the claim and the claim is presented in a reasonably acceptable manner. This paragraph is only for the purpose of establishing when a claim payment is overdue, and will not alter the provisions of the Article entitled REPORTS, LOSS AND LOSS SETTLEMENTS or other pertinent contractual stipulations of this Contract.

C. If payment is made of overdue amounts within thirty (30) days of the due date, overdue amounts will bear simple interest from the overdue date at a rate determined by the one month London Interbank Offered Rate for the first business day of the calendar month in which the amount becomes overdue, as published in The Wall Street Journal, plus four hundred (400) basis points to be calculated weekly. If payment is made of overdue amounts more than thirty (30) days after the due date, overdue amounts will bear simple interest from the overdue date at a rate determined by the one-month London Interbank Offered Rate for the first business day of the calendar month in which the amount becomes overdue, as published in The Wall Street Journal, plus four hundred basis (400) points to be calculated weekly but in no event less than five percent (5%) simple interest. If the sum of the compensating additional amount computed in respect of any overdue payment is less than one quarter of one percent (0.25%) of the amount overdue, or USD one thousand ($1,000), whichever is greater, and/or the overdue period is one week or less, then the interest amount shall be waived. The basis point standards referred to above shall be doubled if the late payment is due from a Reinsurer who is no longer an active reinsurance market.

ARTICLE 22

OFFSET

     The Reinsured and the Reinsurer shall have the right to offset any balance or amounts due from one party to the other under the terms of this Contract. The party asserting the right of offset may exercise such right any time whether the balances due are on account of premiums or losses or otherwise and immediately inform the Intermediary accordingly. In the event of the insolvency of any party, offset shall be as permitted by applicable law.

ARTICLE 23

SPECIAL TERMINATION

A. The Reinsured may terminate or commute this Contract upon the happening of any one of the following circumstances at any time by the giving of fifteen (15) days prior written notice to the Reinsurer:

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1. The Reinsurer ceases active underwriting operations or a State Insurance Department or other legal authority orders the Reinsurer to cease writing business in all jurisdictions; or

2. The Reinsurer has: a) become insolvent, b) been placed under supervision (voluntarily or involuntarily), c) been placed into liquidation or receivership, or d) had instituted against it proceedings for the appointment of a supervisor, 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

3. The Reinsurer’s (a) policyholders’ surplus (“PHS”) has been reduced by whichever is greater, (i) twenty percent (20%) of the amount of PHS at the inception of this Contract or (ii) twenty percent (20%) of the amount of PHS stated in its last filed quarterly or annual statutory statement with its state of domicile; or (b) AM Best’s insurer financial strength rating becomes less than “A-” (N.B. as respects alien Reinsurers, a Standard & Poor’s Insurance Rating of less than “BBB” will apply; as respects Lloyd’s Syndicates where an AM Best insurer financial strength rating is not available, a reduction of the Reinsurer’s S&P Lloyd’s Syndicate Assessment (LSA) ranking from the LSA ranking that was in effect at the inception of this Contract; or

4. The Reinsurer has entered into a definitive agreement to (a) become merged with, acquired or controlled by any company, corporation or individual(s) not affiliated with or controlling the party’s operations previously; or (b) directly or indirectly assign all or essentially all of its entire liability for obligations (as defined in the Article entitled “Reserves”) under this Contract to another party without the Reinsured’s prior written consent; or

5. There is either:

a. a severance or obstruction of free and unfettered communication and/or normal commercial or financial intercourse between the United States of America and the country in which the Reinsurer is incorporated or has its principal office as a result of war, currency regulations or any circumstances arising out of political, financial or economic uncertainty; or

b. a severance (of any kind) of any two or more of the following executives of the Reinsurer from active employment of the Reinsurer during the most recent sixty (60) day period: President, Chief Underwriting Officer, Chief Actuary, Chief Claims Officer or Chief Financial Officer.

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B. In the event that notice of termination is given by reason of an event described in A(3) above (the “Termination Notice”) and prior to the effective date of the termination (the “Termination Date”), the Chief Financial Officer of the Reinsurer represents and certifies in writing to the Reinsured that (i) the deterioration of the Reinsurer’s financial condition is the direct and sole result of a recent major property catastrophe(s) or the result of an Act(s) of Terrorism (either the “Event”) and (ii) that it is actively seeking and has a high probability of successfully obtaining additional capital to substantially replace the capital loss because of the Event (the “Extension Notice”), the Termination Date shall be extended an additional thirty (30) days from the Termination Date (the “Extended Termination Date”). If prior to the Extended Termination Date, the Chief Financial Officer of the Reinsurer represents and certifies in writing to the Reinsured that (a) it has raised sufficient capital so as to return its PHS to within five percent (5%) of the Reinsurer’s PHS last filed with its domiciliary regulatory authorities prior to the Event, (b) obtained reinstatement of its rating agency grade(s) to the level as existed immediately prior to the Event, the Termination Notice shall be null and void. Otherwise, this Contract shall terminate on the Extended Termination Date in the manner described in the Termination Notice.

C. In the event the Reinsured elects termination, the Reinsured shall with the notice of termination specify that termination will be on a Cut-Off basis and thus relieve the Reinsurer for losses occurring subsequent to the Reinsurer’s specified termination date. The Reinsurer shall within fifteen (15) days of the termination date return the liability for the unearned portion of any ceded premium paid hereunder, calculated as of the termination date, and cash in that amount and the minimum premium provisions, if any, shall be waived.

D. In the event the Reinsured elects to commute, the Reinsurer shall return the sum total of the net present value (“capitalized”) of the ceded (1) Reserves for Net Loss outstanding, (2) Reserves for Net Loss incurred but not reported, and (3) unearned premium reserves. In the event the parties are unable to agree on the capitalized value of the reserves to be returned to the Reinsured, the Reinsured and the Reinsurer shall jointly appoint an independent and neutral actuary experienced in such matters and the mutually agreed actuary shall render a decision. In the event that the Reinsured and the Reinsurer are unable to agree upon a single actuary within thirty (30) days, the parties shall ask the then current President of the Casualty Actuarial Society to appoint an actuary with those qualifications within another thirty (30) days. The decision of the actuary will be final and binding on both parties. The Reinsured and the Reinsurer shall share equally the fees and expenses of the actuary. Upon payment of the amount so agreed or determined by the actuary to the Reinsured, the Reinsurer and the Reinsured shall each be completely released from all liability to each other under this Contract.

E. If the Reinsurer is not otherwise obligated under the Article entitled RESERVES of this Contract, to provide the Reinsured security in order for the Reinsured to obtain credit for the reinsurance provided by this Contract and the Reinsurer has not cured the conditions described above, other than as expressed

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in conditions A(4) and A(5) above, the Reinsured shall also have the option, if it does not elect the commutation option described above, to require the Reinsurer to provide the Reinsured with collateral funding as if the Reinsurer were otherwise obligated to provided security for the Reinsurer’s obligations under this Contract in an amount and manner and as provided for under the Article entitled RESERVES of this Contract. The Reinsured shall have the option to require the Reinsurer to provide collateral funding but, provided it is reasonably acceptable to the Reinsured and any insurance regulatory authorities involved, the Reinsurer shall have the sole option of determining the method of funding referred to above. In recognition of security a participating Reinsurer or Lloyd’s Syndicate may place under the terms of a master trust agreement, such as the US Lloyd’s Credit for Reinsurance Trust, the provisions of this Paragraph shall not apply to that participating Reinsurer or Lloyd’s Syndicate that has fully funded one hundred percent (100%) of the obligations to the Reinsured, as the term obligations is defined in the Article entitled RESERVES, pursuant to the terms of that trust agreement and the applicable funding requirements and procedures.

ARTICLE 24

TERRORISM RECOVERY – TERRORISM RISK INSURANCE PROGRAM

A. As respects the Insured Losses of the Reinsured for each Program Year, to the extent the Reinsured’s total reinsurance recoverables for Insured Losses, whether collected or not, when combined with the financial assistance available to the Reinsured under the United States’ Government Terrorism Risk Insurance Program (“TRIP”) exceeds the aggregate amount of Insured Losses paid by the Reinsured, less any other recoveries or reimbursements, (the “Excess Recovery”), a share of the Excess Recovery shall be allocated to the Reinsured and the Reinsurer. The Reinsured’s share of the Excess Recovery shall be deemed to be an amount equal to the proportion that the Reinsured’s Insured Losses bear to the Insurer’s total Insured Losses for each Program Year. The Reinsurer’s share of the Excess Recovery shall be deemed to be an amount equal to the proportion that the Reinsurer’s payment of Insured Losses under this Contract bears to the Reinsured’s total collected reinsurance recoverables for Insured Losses. The Reinsured shall provide the Reinsurer with all necessary data respecting the transactions covered under this Article.

B. The method set forth herein for determining an Excess Recovery (hereinafter the “Contract Method”) is intended to be consistent with the United States Treasury Department’s construction and application of Section 103(g)(2) of the Terrorism Risk Insurance Act of 2002, the Terrorism Risk Insurance Extension Act of 2005, and the Terrorism Risk Insurance Program Reauthorization Act of 2007 (collectively referred to as the “Act”). To the extent the Contract Method is

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inconsistent with the Treasury Department’s construction and application of TRIA, such method shall be deemed to conform with the Treasury Department’s construction and application of TRIA. Nevertheless, the Reinsured shall be the sole judge as to the reasonable allocation of Recoveries under TRIP to this or to other reinsurance Contracts.

C. “Reinsured” shall have the same meaning as “Insurer” under TRIA and “Insured Losses”, and “Program Year” shall follow the definitions as provided in TRIA.

ARTICLE 25

VARIOUS OTHER TERMS

A. This Contract shall be binding upon and inure to the benefit of the Reinsured and Reinsurer and their respective successors and assigns provided, however, that this Contract may not be assigned by either party without the prior written consent of the other which consent may be withheld by either party in its sole unfettered discretion. This provision shall not be construed to preclude the assignment by the Reinsured of reinsurance recoverables to another party for collection.

B. The territorial limits of this Contract shall be identical with those of the Reinsured’s Policies.

C. This Contract shall constitute the entire agreement between the parties with respect to the Business Covered hereunder. There are no understandings between the parties other than as expressed in this Contract or any amendment thereto. Any change or modification of this Contract shall be null and void unless made by amendment to the Contract and signed by both parties or otherwise clearly and unequivocally amended by exchange of letters or electronic mail. Nothing in this Article shall act to preclude the introduction of submission-related documents in any dispute between the parties.

D. Except as may be provided in the Article entitled ARBITRATION, this Contract shall be governed by and construed according to the laws of the Commonwealth of Pennsylvania, exclusive of that state’s rules with respect to conflicts of law.

E. The headings preceding the text of the Articles and paragraphs of this Contract are intended and inserted solely for the convenience of reference and shall not affect the meaning, interpretation, construction or effect of this Contract.

F. This Contract is solely between the Reinsured and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract.

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G. If any provisions 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.

H. The failure of the Reinsured or Reinsurer to insist on strict compliance with this Contract or to exercise any right or remedy shall not constitute a waiver of any rights contained in this Contract nor estop the parties from thereafter demanding full and complete compliance nor prevent the parties from exercising any remedy.

I. Each party shall be excused for any reasonable failure or delay in performing any of its respective obligations under this Contract, if such failure or delay is caused by Force Majeure. “Force Majeure” shall mean any act of God, strike, lockout, act of public enemy, any accident, explosion, fire, storm, earthquake, flood, drought, peril of sea, riot, embargo, war or foreign, federal, state or municipal order or directive issued by a court or other authorized official, seizure, requisition or allocation, any failure or delay of transportation, shortage of or inability to obtain supplies, equipment, fuel or labor or any other circumstance or event beyond the reasonable control of the party relying upon such circumstance or event; provided, however, that no such Force Majeure circumstance or Event shall excuse any failure or delay beyond a period exceeding ten (10) days from the date such performance would have been due but for such circumstance or Event.

J. The obligations of each Reinsurer with respect to this Contract are several and not joint and in the event of any failure or default by any Reinsurer to perform any of its obligations hereunder, no other Reinsurer shall have any obligation with respect to such failure or default.

K. This Contract may be executed by the parties hereto in any number of counterparts, and by each of the parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

ARTICLE 26

INTERMEDIARY

A. Towers Perrin Forster & Crosby, Inc. (“Towers Perrin”) 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 Reinsured or the Reinsurer through Towers Perrin, 1500 Market Street, Centre Square East, Philadelphia, PA 19102-4790. Payments by the Reinsured 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 Reinsured only to the extent that such payments are actually received by the Reinsured.

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B. Whenever notice is required within this Contract, such notice may be given by certified mail, registered mail, or overnight express mail. Notice shall be deemed to be given on the date received by the Receiving Party.

Towers Perrin No. G26004.08

SCHEDULE A

TARGET AREA ZIP CODES

ZIP CODE	US STATE	US COUNTY
10022	NEW YORK	NEW YORK
89109	NEVADA	CLARK
10017	NEW YORK	NEW YORK
10036	NEW YORK	NEW YORK
10019	NEW YORK	NEW YORK
10020	NEW YORK	NEW YORK
60606	ILLINOIS	COOK
10001	NEW YORK	NEW YORK
10038	NEW YORK	NEW YORK
22102	VIRGINIA	FAIRFAX
10004	NEW YORK	NEW YORK
10021	NEW YORK	NEW YORK
60603	ILLINOIS	COOK
55402	MINNESOTA	HENNEPIN
92618	CALIFORNIA	ORANGE
23607	VIRGINIA	NEWPORT NEWS CITY
90245	CALIFORNIA	LOS ANGELES (REST OF)
60611	ILLINOIS	COOK
94104	CALIFORNIA	SAN FRANCISCO
90278	CALIFORNIA	LOS ANGELES (REST OF)
92101	CALIFORNIA	SAN DIEGO

Towers Perrin No. G26004.08

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 control 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.
August 5, 2008		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 control 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
August 5, 2008		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 June 30, 2008 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

August 5, 2008

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 June 30, 2008 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

August 5, 2008