Exhibit 10.1

FIRST AMENDMENT

TO

MASTER AGREEMENT

THIS FIRST AMENDMENT (this "Amendment"), dated and effective as of September 17, 2007, to the Master Agreement (the "Agreement") dated as of July 3, 2007, by and between AmTrust Financial Services, Inc., a Delaware corporation ("AmTrust") and Maiden Holdings, Ltd., a Bermuda corporation ("Maiden Holdings"), is made by and between AmTrust and Maiden Holdings.

 

RECITALS

 

WHEREAS, pursuant to Section 7.3 of the Agreement, the parties hereto wish to amend certain provisions of the Agreement in the manner set forth in this Amendment.

 

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS AND USAGE

 

1.1	Definitions . Capitalized terms used but not defined herein shall have the meaning set forth in the Agreement.

 

1.2	Headings . The headings contained in this Amendment are for reference purposes only and shall not affect the meaning or interpretation of this Amendment.

 

ARTICLE II

AMENDMENTS

 

2.1	The fourth, fifth, sixth and seventh Recitals of the Agreement are hereby deleted in their entirety and replaced with the following:

 

WHEREAS, after the Effective Time and the licensing and capitalization of Maiden Insurance, subject to the receipt of regulatory approval, Maiden Holdings plans to cause Maiden Insurance to reinsure, pursuant to a Quota Share Reinsurance Agreement between AmTrust International Insurance, Ltd. ("AII") and Maiden Insurance, in the form attached hereto as Exhibit A (the "Reinsurance Agreement"), 40% of all ultimate net loss each such AmTrust Ceding Insurer incurs as a result of losses under all of its respective workers’ compensation, general liability, commercial automobile liability, specialty risk and extended warranty policies (the “Covered Business”) to the extent reinsured by AII pursuant to existing reinsurance agreements between the AmTrust Ceding Insurers and AII (the "Underlying Reinsurance Agreements"), and such other types of policies that Maiden Insurance desires to reinsure pursuant to the provisions of the Reinsurance Agreement as more particularly set forth in the Reinsurance Agreement, and

 

 

2.2	Section 1.3 of the Agreement is hereby amended and restated in its entirety as follows:

 

1.3

Agreements Contemplated .

 

(a)   This Agreement contemplates that, in order to effectuate the business goals set forth herein, Maiden Insurance and AII shall (i) no later than September 17, 2007 , execute and deliver the Reinsurance Agreement and (ii) promptly following the execution hereof negotiate in good faith and execute and deliver a loan agreement on mutually acceptable terms and conditions between Maiden Insurance and AII, provided that such loan agreement shall include the terms and provision set forth in Exhibit B (the "Loan Agreement").

 

(b)   If either party to this Agreement determines in good faith that (i) the mix of business represented by the Covered Business as of the end of any semi-annual period during the term of the Reinsurance Agreement differs materially from (ii) the mix of business represented by the Covered Business reinsured by Maiden Insurance under the Reinsurance Agreement as of the Effective Time, then, upon written notice by such party to the other party hereto, the parties hereto shall cause Maiden Insurance and AII, respectively, to promptly negotiate in good faith appropriate adjustments to the rate of commissions payable under the Reinsurance Agreement.

 

2.3	Section 1.4 of the Agreement is hereby amended and restated in its entirety as follows:

 

1.4   Representations, Warranties and Covenants . AmTrust hereby represents, warrants and covenants to Maiden that:

 

(a)   AmTrust shall cause AII to enforce its rights and exercise its remedies under the Underlying Reinsurance Agreements on a timely basis and in an arms-length manner;

 

(b)   AmTrust shall cause AII to cede to Maiden Insurance pursuant to the Reinsurance Agreement an amount of premium equal to forty percent (40%) of Affiliate Subject Premium (as defined in the Reinsurance Agreement) with respect to each AmTrust Ceding Insurer as more particularly set forth in the Reinsurance Agreement, unless AII shall no longer be an Affiliate (as defined in the Reinsurance Agreement) of AmTrust or AII shall have become insolvent, or shall have been placed into liquidation or receivership (whether voluntary or involuntary), or there shall have been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, or trustee in bankruptcy or other agent known by whatever name, to take possession of its assets or control of its operations (an “AII Insolvency”);

 

(c)   Subject to applicable law, AmTrust shall cause each AmTrust Ceding Insurer, to the extent such AmTrust Ceding Insurer writes Covered Business, to cede to AII not less than forty percent (40%) of Affiliate Subject Premium in accordance with the terms of an Underlying Reinsurance Agreement, unless AII shall no longer be an Affiliate of AmTrust or an AII Insolvency shall have occurred, in which event AmTrust shall either cause each such AmTrust Ceding Insurer, as a cedent, to cede the Subject Premium to (i) Maiden Insurance, as reinsurer, on terms substantially similar to the Reinsurance Agreement mutatis   mutandis or (ii) another Affiliate of AmTrust, as a reinsurer, reasonably acceptable to Maiden Insurance, which shall in turn retrocede such Subject Premium to Maiden Insurance on terms substantially similar to the Reinsurance Agreement mutatis   mutandis and Maiden Holdings shall cause Maiden Insurance to accept such cession or retrocession.

 

 

(d)   if an Affiliate writes direct business that is not of a type constituting Covered Business (including direct business that would be Covered Business, except that the retention of such Affiliate as to any one risk under any Policy (as defined in the Reinsurance Agreement) shall be greater than $5,000,000) or AmTrust directly or indirectly acquires an Affiliate after the date of this Agreement that writes direct business of any type, AmTrust shall cause AII to offer Maiden Insurance the opportunity to reinsure forty percent (40%) of such Affiliate's gross written premium, less the cost of inuring reinsurance and other deductions from premium ceded to AII, attributable to such additional business and, if Maiden Insurance accepts such offer within thirty (30) days of such offer, shall cause such Affiliate to reinsure such business to AII pursuant to an Underlying Reinsurance Agreement, which shall in turn cede such business to Maiden Insurance pursuant to and in accordance with the terms of the Reinsurance Agreement, unless AII shall no longer be an Affiliate of AmTrust or an AII Insolvency shall have occurred, in which event AmTrust shall either cause such Affiliate that is a direct writer, as a cedent, or another Affiliate of AmTrust, as retrocedent, reasonably acceptable to Maiden Insurance, to make such offer to Maiden Insurance;

 

(e)   AmTrust shall cause AII and the AmTrust Ceding Insurers to (i) not assign any Underlying Reinsurance Agreement (including without limitation Underlying Reinsurance Agreements entered into after the date hereof) without the prior written consent of Maiden Insurance, such consent to not be unreasonably withheld, (ii) not amend or waive any provision of any Underlying Reinsurance Agreement (or, in the case of Underlying Reinsurance Agreements entered into after the date hereof, agree to any such provision) that could reasonably be expected to affect the definition of Subject Premium or Ultimate Net Loss (both as defined in the Underlying Reinsurance Agreement) or the method of calculation of Subject Premium or Net Ultimate Loss under the Reinsurance Agreement or terms or provisions relating to the timing or manner of payments to Maiden Insurance under the Reinsurance Agreement, or otherwise could reasonably be expected to have a material adverse affect on the financial condition of AII, without the prior written consent of Maiden Insurance, such consent to not be unreasonably withheld;

 

(f)   AmTrust shall cause AII and the AmTrust Ceding Insurers to deliver to Maiden Insurance concurrent copies of all notices delivered under the Underlying Reinsurance Agreements and under each reinsurance trust agreement among AII, an AmTrust Ceding Insurer and a trustee;

 

 

(g)   AmTrust shall cause the AmTrust Ceding Insurers to permit Maiden Insurance to examine, and make and retain (at Maiden Insurance's expense) copies of, their books and records and to make their executives reasonably available to Maiden Insurance

 

(h)   AmTrust shall cause the AmTrust Ceding Insurers to timely provide to AII all information required for AII to deliver to Maiden Insurance the information required by Article VII of the Reinsurance Agreement;

 

(i)   if an AmTrust Ceding Insurer withdraws Reinsurer Trust Assets (as defined in the Reinsurance Agreement) from a Trust Account (as defined in the Reinsurance Agreement) or draws on a Letter of Credit (as defined in the Reinsurance Agreement) provided by the Reinsurer pursuant to the Reinsurance Agreement, AmTrust shall cause such AmTrust Ceding Insurer to take such steps as are necessary to not commingle Reinsurer Trust Assets or drawings under such Letter of Credit with its own assets or AII's assets, including but not limited to, by maintaining Maiden Insurance's assets in a separately identifiable account, except for purpose of paying claims or other amounts due under the applicable Underlying Reinsurance Agreement; and

 

(j)   AmTrust hereby represents and warrants that AII and the AmTrust Ceding Insurers maintain, as of the date hereof, excess reinsurance coverage with respect to Extra Contractual Obligations and Loss in Excess of Policy Limits (both as defined in the Reinsurance Agreement) pursuant to the reinsurance agreements set forth on Exhibit C hereto, which coverage indemnifies AII and the AmTrust Ceding Insurers, collectively, for: 100% of $9 million excess of $1 million and 90% of $110 million excess of $20 million, respectively. AmTrust shall use commercially reasonable efforts to maintain excess reinsurance providing substantially the same protection as to Extra Contractual Obligations and Loss in Excess of Policy Limits during the term of the Reinsurance Agreement. AmTrust shall notify Maiden Insurance in writing not less than 60 days prior to the date on which any such excess reinsurance is terminated or amended.

 

2.4	Section 2.1of the Agreement is hereby amended and restated in its entirety as follows:

 

2.1   Duties of the Parties after the Effective Time . If AmTrust acquires a majority equity interest in any other insurance company that writes direct business (an “Additional AmTrust Ceding Insurer”) and such company writes direct business of a type constituting Covered Business, AmTrust (i) will cause such Additional AmTrust Additional Ceding Insurer to enter into an Underlying Reinsurance Agreement with AII and (ii) will cause AII to reinsure Covered Business written by such Additional AmTrust Ceding Insurer with Maiden Insurance pursuant to the Reinsurance Agreement, unless AII shall no longer be an Affiliate of AmTrust or an AII Insolvency shall have occurred, in which event AmTrust shall either cause each such Additional AmTrust Ceding Insurer, as cedent, to cede the Subject Premium to (x) Maiden Insurance, as reinsurer, on terms substantially similar to the Reinsurance Agreement mutatis   mutandis or (y) another Affiliate of AmTrust, as reinsurer, reasonably acceptable to Maiden Insurance, which shall in turn retrocede such Subject Premium to Maiden Insurance on terms substantially similar to the Reinsurance Agreement mutatis   mutandis and Maiden Holdings shall cause Maiden Insurance to accept such cession or retrocession.

 

  

2.5   Sections 1.5, 3.1 and 4.1 of the Agreement are hereby amended by replacing references to "Reinsurance Agreements" with "Reinsurance Agreement" and by replacing references to "Reinsurance Trust Agreements" to "Loan Agreement."

 

2.6	Section 7.1 of the Agreement is hereby amended by deleting the word “and” at the end of subsection (b) thereof, adding to the end of subsection (c) the word “and” and inserting as new subsection (d) following subsection (c) the following:

 

(d)   automatically upon the termination of the Reinsurance Agreement, other than as a result of a Company Change of Control (as defined in the Reinsurance Agreement);

2.7	Section 7.2 of the Agreement is hereby amended and restated in its entirety as follows:

 

7.2   Effect of Termination . In the event that this Agreement is terminated as provided in Section 7.1 above, this Agreement shall forthwith become void (other than this Section 7.2, and Sections 8.1, 9.1 through 9.3, 9.5 through 9.11, and Article X hereof which shall remain in full force and effect) and there shall be no further liability on the part of AmTrust or Maiden Holdings. Nothing contained in this Section 7.2 shall relieve any party hereto from liability for its breach of this Agreement.

2.8	The Agreement is hereby amended by adding thereto a new Article X to read as follows:

 

10.1   AmTrust Guarantee . To induce Maiden Insurance to enter into the Reinsurance Agreement and the Loan Agreement, AmTrust hereby unconditionally, irrevocably and absolutely guarantees to Maiden Insurance the punctual performance and discharge of all the obligations of AII when due and arising under Article XXIII of the Reinsurance Agreement and under the Loan Agreement (the "AII Agreements") at any time and of any kind or nature whatsoever (the “Obligations”) ; provided , however , that, except as otherwise provided in Section 10.2, it is a condition to AmTrust's liability under this Article X that (i) Maiden Insurance shall have provided AII with written notice that specifies AII’s failure to pay and/or perform the Obligations within any applicable cure period, with a copy to AmTrust, and (ii) AII shall have failed to fully cure such deficient performance and/or payment to Maiden Insurance’s reasonable satisfaction within ten (10) business days after AmTrust’s receipt of such notice. The guarantee set forth in this Article X (“Guarantee”) is a guarantee of timely payment and performance of the Obligations by AmTrust. Maiden Insurance may proceed directly against AmTrust, and AmTrust shall pay and/or perform the Obligations directly to Maiden Insurance, if AII fails to so cure such deficient performance and/or payment within such ten (10) business day period.

 

 

10.2   Scope of Guarantee . AmTrust hereby agrees that this Guarantee is a continuing guarantee and that AmTrust’s obligation to pay and/or perform or cause performance of the Obligations in full shall be unconditional, irrespective of and unaffected by (i) the absence of any action to enforce the same; (ii) the rendering of any judgment against AII or any action to enforce the same; (iii) any waiver, consent, grant of time, forbearance or other indulgence by Maiden Insurance to or for the benefit of AII with respect to Obligations that are not subject to a claim by Maiden Insurance under the Guarantee; (iv) (x) AII becoming insolvent or suspending its business; (y) AII filing a voluntary petition or consenting to an involuntary petition purporting to be pursuant to any reorganization or insolvency law of any jurisdiction or making a general assignment for the benefit of creditors or applying for or consenting to the appointment of a receiver or trustee for a substantial part of its property (collectively, a “Bankruptcy Event”); (v) the genuineness, validity, regularity or enforceability of the Obligations, except to the extent that any lack of genuineness, validity, regularity or enforceability of the Obligations is due to the acts or omissions of Maiden Insurance; (vi) any transaction or series of transactions that results in a change of control of AII; and (vii) subject to the requirement that the Obligations are then due under the AII Agreements, any circumstances that might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety or any other matter that would release a guarantor. In the event of a Company Change of Control, if Maiden Insurance shall not terminate the Reinsurance Agreement in accordance with the terms and provisions of the Reinsurance Agreement, this Guarantee shall automatically terminate and be of no further force and effect.

 

Notwithstanding anything to the contrary contained in this Article X, in the event of a Bankruptcy Event affecting AII, Maiden Insurance may proceed directly against AmTrust for the payment in full of all Obligations of AII then due and payable. Maiden Insurance shall not be required to file any claim in the event of a Bankruptcy Event, it being understood and agreed that Maiden Insurance’s failure so to file and any action taken by a governmental Entity in connection with a Bankruptcy Event shall not diminish or in any way affect AmTrust’s obligation to Maiden Insurance under Article X or the timing, amount or recoverability of the Obligations under the Guarantee; provided that if Maiden Insurance shall not so file such a claim, it hereby grants to AmTrust a power of attorney to file on behalf of Maiden Insurance any such claim as shall be reasonably necessary to preserve any subrogation claim that AmTrust may have as a result of the performance of its obligations hereunder. Maiden Insurance agrees to execute any instrument that AmTrust may reasonably request to evidence such power of attorney. AmTrust hereby waives diligence, presentment, demand of payment or any defense, right of set-off or counterclaim that AII may have or assert under the AII Agreements as to the Obligations.

 

Except for the notice requirements under Section 10.1, which shall not be waived under this Section 10.2, AmTrust further waives any right to require a proceeding first against AII or any other person before proceeding against AmTrust, protest or notice with respect to the Obligations and all demands whatsoever, and covenants that this Guarantee shall not be discharged except by complete payment of the Obligations. This Guarantee shall continue to be effective or be reinstated (to the extent that any payment made is rescinded or must otherwise be restored or returned by Maiden Insurance), as the case may be, if at any time any payment made by AII   to Maiden Insurance is rescinded or must otherwise be restored or returned by Maiden Insurance in the event of a Bankruptcy Event, all as though such payment had not been made.

 

 

10.3   Payments. Payment of amounts to Maiden Insurance under the Guarantee shall be made promptly by AmTrust on demand in writing by wire transfer in immediately available funds to an account or accounts designated by Maiden Insurance. AmTrust shall reimburse Maiden Insurance on demand for all reasonable costs, expenses and charges (including without limitation reasonable fees and charges of legal counsel for Maiden Insurance) incurred by Maiden Insurance in connection with the enforcement of this Guarantee .

 

ARTICLE III

MISCELLANEOUS

 

3.1	Confirmation of the Agreement . Except as amended by this Amendment, the Agreement remains in full force and effect, without further modification or amendment.

 

3.2	Governing Law . This Amendment shall be governed by the laws of the State of New York, without regard to principles of conflict of laws.

 

3.3	Counterparts . This Amendment may be executed in one or more counterparts, and such counterparts together shall constitute one and the same agreement.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.

 

	AMTRUST FINANCIAL SERVICES, INC.
	By:	/s/ Stephen Ungar
	Name:	Stephen Ungar
	Title:	Secretary

Exhibit B

Terms of Loan

1.   Commitment : During the term of the Reinsurance Agreement, any renewals thereof, and any periods thereafter in which Maiden Insurance remains liable to AII for Covered Business, Maiden Insurance shall make advances under the Loan to AII with respect to each AmTrust Ceding Insurer which AII is obligated to secure in an amount equal to its proportionate share of collateral for AII’s Obligations (as defined in the Reinsurance Agreement) to the AmTrust Ceding Insurer, unless in accordance with the Reinsurance Agreement, Maiden Insurance elects to fund or provide for collateral other than through advances under the Loan; provided however that Maiden Insurance shall not be required to make an advance under the Loan if and to the extent that AII shall have failed to perform its obligations to Maiden Insurance (including its payment obligations) under Article XXIII of the Reinsurance Agreement after expiration of any applicable cure period.

2.   Use of Proceeds : AII agrees to deposit Loan proceeds in Trust Accounts (as defined in the Reinsurance Agreement) established or to be established for each such AmTrust Ceding Insurer on the same terms as apply to the Trust Account with respect to Reinsurer Trust Assets (as defined in the Reinsurance Agreement).

3.   Interest : An amount equal to the actual amount of dividends, interest and other income earned on the portion of the Loan proceeds with respect to an AmTrust Ceding Insurer deposited in the Trust Accounts and, to the extent so transferred, Loan proceeds held by an AmTrust Ceding Insurer in a segregated account as described in Sections C(5)(d) or D(4) of Article XXIII of the Reinsurance Agreement. To the extent that the sum of principal amount of such proceeds (including the undistributed earnings and interest thereon) and the Aggregate Collateral Value (as defined in the Reinsurance Agreement) with respect to such AmTrust Ceding Insurer exceeds the Reinsurer’s proportionate share of the Obligations to such AmTrust Ceding Insurer, such earnings and interest will be paid quarterly, less any amounts due and payable (i) by Maiden Insurance under the Reinsurance Agreement or the Asset Management Agreement (as defined in the Reinsurance Agreement) or (ii) to any Trustee (as defined in the Reinsurance Agreement with respect to loan proceeds deposited into a Trust Account. AII agrees that all Loan proceeds, including those deposited into a Trust Account or held in a segregated account, as described above, will be managed for AII by AII Insurance Management, Ltd. (“AIM”) in accordance the terms of and pursuant to the Asset Management Agreement dated July 3, 2007 entered into by Maiden Insurance and AIM (the “Asset Management Agreement”) and invested in accordance with the investment guidelines established pursuant to the Asset Management Agreement. AII and Maiden Insurance agree that, pursuant to the Loan, AIM will acknowledge and agree to such management of the Loan proceeds.

4.   Maturity : Each Loan advance shall mature on the earliest to occur of (i) ten (10) years following the date such advance was made with respect to an AmTrust Ceding Insurer, (ii) there are no further Obligations due to such AmTrust Ceding Insurer or (iii) AII is no longer required to secure such Obligations.

 

 

5.   Prepayments : If, as of the end of a calendar quarter, the sum of the Aggregate Collateral Value and the outstanding advances under the Loan, in each case with respect to an AmTrust Ceding Insurer, shall exceed Maiden Insurance’s proportionate share of the Obligations to such AmTrust Ceding Insurer, the advances under the Loan with respect to such AmTrust Ceding Insurer shall be prepaid in an amount equal to the lesser of the amount of such advances or such excess within 60 days following the end of such quarter, less, in either case, any amounts due and payable by Maiden Insurance under the Reinsurance Agreement.

6.   Frequency of Advances . AII shall be entitled to request advances under the Loan quarterly. An advances shall be made within 10 days of each such request.

7.   Automatic Reduction in Principal : If an AmTrust Ceding Insurer withdraws Loan proceeds from a Trust Account with respect to an AmTrust Ceding Insurer into which Loan advances with respect to such AmTrust Ceding Insurer have been deposited, or from the segregated account described in Section C(5)(d) or D(4) of Article XXIII of the Reinsurance Agreement, funded by withdrawals from such a Trust Account, for the purpose of reimbursing such AmTrust Ceding Insurer for Ultimate Net Loss not received from AII or for unearned premiums due to such AmTrust Ceding Insurer but not otherwise paid by AII, the outstanding principal amount of the Loan and the advances with respect to such AmTrust Ceding Insurer automatically shall be reduced by the amount of such withdrawal and, as of the date the AmTrust Ceding Insurer applies such amount for such purposes, interest shall no longer be due on the amount of the reduction in principal.

 

 

2.	First Workers’ Compensation Catastrophe Excess of Loss Reinsurance Contract
	Reinsurer:	Various
	Term:	May 1, 2007 to May 1, 2008
	Retention and Limit:	30 million xs 20 million
	ECO/EPL:	90% (Subject to Retention and Limit)
	Intermediary:	Willis Re Inc.

3.	Second Workers’ Compensation Catastrophe Excess of Loss Reinsurance Contract
	Reinsurer:	Various
	Term:	May 1, 2007 to May 1, 2008
	Retention and Limit:	30 million xs 50 million
	ECO/EPL:	90% (Subject to Retention and Limit)
	Intermediary:	Willis Re Inc.

4.	Third Workers’ Compensation Catastrophe Excess of Loss Reinsurance Contract
	Reinsurer:	Various
	Term:	May 1, 2007 to May 1, 2008
	Retention and Limit:	50 million xs 80 million
	ECO/EPL:	90% (Subject to Retention and Limit)
	Intermediary:	Willis Re Inc.

 

 

QUOTA SHARE REINSURANCE AGREEMENT

 

BETWEEN

 

AMTRUST INTERNATIONAL INSURANCE, LTD

HAMILTON, BERMUDA

 

(hereinafter referred to as the “Company”)

 

AND

 

MAIDEN INSURANCE COMPANY, LTD

HAMILTON, BERMUDA

 

(hereinafter referred to as the “Reinsurer”)

 

 

ARTICLE I - BUSINESS REINSURED

 

A.

The Reinsurer, subject to the terms and conditions hereunder and the exclusions set forth herein, agrees to indemnify the Company, as specified in Article V below, for its Ultimate Net Loss which accrues during the term of this Agreement under any and all binders, policies, or contracts of insurance issued by Affiliates (including as a member or reinsurer of any assigned risk or similar plans) and reinsured by the Company (individually, a “Policy” and, collectively, “Policies”) pursuant to an Underlying Reinsurance Agreement to the extent covering the lines of insurance specified in Schedule A hereto, but not including any Ultimate Net Loss with respect to any risk under any Policy if the applicable ceding Affiliate’s retention with respect to such risk shall be greater than $5,000,000) (all hereinafter referred to as “Covered Business”).

 

B.

The Company hereby agrees that, if it reinsures binders, policies, or contracts of insurance issued by Affiliates that cover lines of insurance other than those specified in Schedule A hereto (“Additional Business”), it shall offer to the Reinsurer the opportunity to reinsure, on a retrocession basis, all such Additional Business pursuant to this Agreement.   If the Reinsurer elects in its sole discretion to so reinsure any Additional Business, such Additional Business shall be considered “Covered Business” for all purposes, and shall be subject to all of the terms and conditions, of this Agreement, other than (a) the date and time as of which the reinsurance of such Additional Business shall be effective for purposes of this Agreement and (b) the ceding commission allowed in respect of such Additional Business, which terms and conditions described in clauses (a) and (b) shall be mutually agreed upon by the Reinsurer and the Company.

 

ARTICLE II - COMMENCEMENT

 

This Agreement shall commence effective as of 12:01 a.m., Eastern Standard Time, July 1, 2007 (the “Effective Time”) and shall remain in force thereafter, subject to the terms and conditions for termination stipulated in Article XXI - TERM AND TERMINATION.

 

ARTICLE III - TERRITORY

 

This Agreement shall follow the territorial limits of the Covered Business.

 

ARTICLE IV - DEFINITIONS

 

A.

“Affiliate” means Rochdale, Wesco, Technology, IGI, AIU, Associated Industries Insurance Company (“AIIC”) and each other insurance company more than fifty percent (50%) of the voting securities of which are directly or indirectly controlled by AmTrust Financial Services, Inc. (“AmTrust”), for so long as AmTrust continues to so directly or indirectly control such entity.

 

B.

“Affiliate Subject Premium” means, for each Affiliate, the gross written premium, as defined in the subject Underlying Reinsurance Agreement, charged by such Affiliate for Covered Business, less the cost of inuring reinsurance (and, in the case of IGI, less commissions paid by IGI in respect of Policies issued by IGI), but without deduction for any Federal Excise Tax payable by such Affiliate as a result reinsuring Subject Business to the Company.

 

 

C.

“Extra Contractual Obligations” means 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, or, to the extent reinsured pursuant to an Underlying Reinsurance Agreement, against an Affiliate, by an Affiliate's insured, an assignee of an Affiliate's insured or a third party claimant, by reason of alleged or actual negligence, fraud or bad faith on the part of the Company or any Affiliate in handling a claim under a Policy (whether or not paid) subject to this Agreement, but in each case excluding fraudulent or criminal acts by a director or executive officer of the Company or an Affiliate or criminal acts by the Company or an Affiliate.

 

D.

“Loss Adjustment Expenses” means court costs, post-judgment interest, and allocated investigation, adjustment and legal expenses of the Company related to and charged to a specific claim file, but shall not include general overhead expenses of the Company or salaries, per diem and other remuneration of the Company’s employees.

 

E.

“Loss in Excess of Policy Limits” means an amount that the Company would have been contractually obligated to pay had it not been for the limit of the original Policy, as a result of an action against it, or, to the extent reinsured pursuant to an Underlying Reinsurance Agreement, against an Affiliate, by an Affiliate's insured, an assignee of an Affiliate's insured or a third party claimant, 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 trial of any action against its insured or in the preparation or prosecution of an appeal consequent upon such action, but in each case excluding fraudulent or criminal acts by a director or executive officer of the Company or an Affiliate or criminal acts by the Company or an Affiliate.

 

F.	"Net Loss Ratio" means, for any period, the ratio of (a) Ultimate Net Loss ceded to the Reinsurer plus the Reinsurer’s quota share of ceded reserves for Ultimate Net Loss (including losses incurred but not reported) during such period, to (b) the Subject Premiums earned during such period.

 

G.

“Subject Premium” means, for each Affiliate, the percentage of the premium ceded to the Company under the Underlying Reinsurance Agreement to which such Affiliate is a party equal to forty percent (40%) of the Affiliate Subject Premium, in respect of Covered Business in accordance with the terms of the Underlying Reinsurance Agreements, to the extent the Affiliates shall have collected such premiums, and whether or not such Affiliates shall have remitted such premiums to the Company.

 

H.

“Ultimate Net Loss” means the sum actually paid or to be paid by the Company to Affiliates in settlement of losses for which the Company is liable in accordance with the terms of an Underlying Reinsurance Agreement, after making deductions for all inuring reinsurance (whether inuring to the benefit of the Company or to an Affiliate), whether or not collectible by an Affiliate or by the Company, and all Recoveries, and shall include payments to Affiliates for Loss Adjustment Expenses, Extra Contractual Obligations and Loss in Excess of Policy Limits (subject to the limitations specified in Article XXII hereof).

 

 

I.

"Underlying Reinsurance Agreement" means each of (a) that certain AmTrust Intercompany Reinsurance Agreement, effective June 1, 2006, by and among Technology Insurance Company, Inc. ("Technology"), Rochdale Insurance Company ("Rochdale"), Wesco Insurance Company ("Wesco") and the Company, (b) that certain 70% Whole Account Quota Share Reinsurance Agreement, effective as of July 1, 2006, by and between IGI Insurance Company Limited ("IGI") and the Company, (c) that certain Quota Share Reinsurance Agreement, effective as of May 1, 2007, by and between AmTrust International Underwriters, Ltd. ("AIU") and the Company, and (d) any other reinsurance agreement entered into from time to time after the date hereof by and between an Affiliate, as ceding company, including without limitation AIIC, and the Company, as reinsurer.

 

ARTICLE V - LIABILITY OF THE REINSURER

 

A.

Commencing as of the Effective Time, the Company hereby agrees to cede to the Reinsurer, and the Reinsurer agrees to accept and reinsure, the Ultimate Net Loss of the Company equal to forty percent (40%) of the Affiliate Ultimate Net Loss with respect to Covered Business ceded to the Company by each Affiliate, subject to all other terms and conditions set forth in this Agreement; provided , however , that the Reinsurer's maximum liability hereunder in respect of a single loss under a Policy reinsured hereunder (without taking into account any Loss Adjustment Expenses, Extra Contractual Obligations or Loss in Excess of Policy Limits attributable thereto) shall not exceed $2,000,000. For purposes of this Agreement, "Affiliate Ultimate Net Loss" means the sum actually paid or to be paid by such Affiliate in settlement of losses for which it is liable in respect of the Covered Business, after making deductions for all inuring reinsurance (other than reinsurance with any direct or indirect subsidiary of AmTrust), whether collectible or not, and all Recoveries. Without limiting the generality of the foregoing, the Reinsurer shall be liable for its proportionate share of any experience-related premium rebates or credits to policyholders under Policies of workers compensation insurance, and shall benefit proportionately to the extent any such policyholder pays any additional premiums as a result of the experience under such Policies.

 

B.

If an Affiliate Change in Control or Affiliate Run-Off Event occurs with respect to any Affiliate, the Reinsurer shall be entitled to elect not to reinsure Covered Business related to Policies issued or renewed by such Affiliate (“Applicable Covered Business”) effective as of such Affiliate Change in Control or Affiliate Run-Off Event (the “Election Effective Date”). Such election shall be in writing (an “Affiliate Run-Off Notice”), and shall be given not later than thirty (30) days following the date on which the Reinsurer has actual knowledge that the Affiliate Change in Control or the Affiliate Run-Off event (as applicable) shall have occurred. Subject to the immediately following sentence, if the Reinsurer makes such an election, all reinsurance hereunder of Applicable Covered Business that is in force as of the Election Effective Date shall remain in full force and effect until the applicable expiration date, anniversary date, or prior termination date of the Policies attributable to the Applicable Covered Business (the “Run-Off Policies”). The Company shall be entitled to notify the Reinsurer, within thirty (30) days following delivery to it of the Affiliate Run-Off Notice, that the Reinsurer shall not be liable for any Ultimate Net Loss arising out of the Run-Off Policies to the extent such Ultimate Net Loss occurs, accrues or arises on or after the Election Effective Date and, if the Company makes such election, the Reinsurer shall, within thirty (30) days following the date of such election, return to the Company the unearned premium attributable to the Run-Off Policies in force as of the Election Effective Date, less the unearned portion of the ceding commission paid thereon.

 

 

C.	For purposes of this Agreement:

 

1.

an “Affiliate Change of Control” will be deemed to occur with respect to an Affiliate when either (a) an individual person, corporation or other entity, or a group of commonly controlled persons, corporations or entities, acquires, including through merger, directly or indirectly, more than fifty percent (50%) of the voting securities of such Affiliate or obtains the power to vote (directly or through proxies) more than fifty percent (50%) of the voting securities of such Affiliate, except if such individual person, corporation or other entity is under common control with the Affiliate, or (b) AmTrust no longer directly or indirectly controls the power to vote more than fifty percent (50%) of the voting securities of such Affiliate; provided that in no event shall the acquisition, including through merger, of more than fifty percent (50%) of the voting securities of AmTrust or of the power to vote (directly or through proxies) more than fifty percent (50%) of the voting securities of AmTrust, or the merger, combination or amalgamation of AmTrust into any person, or similar transaction pursuant to which AmTrust shall not be the surviving entity, be deemed a "Affiliate Change of Control".

 

2.

An “Affiliate Run-off Event” shall be deemed to have occurred as to an Affiliate if:

 

(a)   such Affiliate ceases writing new or renewal business and elects to run off its existing business or an insurance or other regulatory authority orders such party to cease writing new or renewal business; or

 

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

 

D.

No more frequently than quarterly the Company shall, and shall cause each ceding Affiliate under an Underlying Reinsurance Agreement to, provide to the Reinsurer and its representatives reasonable access, on reasonable advance notice and during business hours, to its claims files with respect to Covered Business. The Reinsurer shall have the right, but not the obligation, to consult with the Company and such Affiliate regarding the handling of any disputed or contested claim.

 

 

ARTICLE VI - PREMIUM AND CEDING COMMISSION

 

A.

As consideration for entering into this Agreement, the Company shall transfer to the Reinsurer, not later than October 30, 2007, the portion of premium attributable to Covered Business ceded to the Company by each Affiliate equal to the Subject Premium that is unearned as of the Effective Time (the "Initial Premium"). The Reinsurer shall be entitled to verify the accuracy of the amount of Initial Premium so transferred and shall be entitled to dispute such amount if it has reason to believe in good faith that the Company improperly or inaccurately calculated such amount.

 

B.	Subject to and in accordance with the terms of Article VII, in addition to the payment of the Initial Premium, during the term of this Agreement, the Company shall cede to the Reinsurer the Subject Premium. .

 

C.

The Reinsurer shall allow the Company a 31% commission on all Subject Premium ceded hereunder until July 1, 2008 and attributable to Covered Business. Thereafter, during the remaining term of this Agreement, the commission may be adjusted on each January 1 and July 1 (each an “Adjustment Date”) based on the Net Loss Ratio, calculated during the period from the Effective Time through the date that is six months prior to the applicable Adjustment Date, of the Covered Business as follows: (a) the ceding commission shall increase 0.5% for every 1.0% decline in the Net Loss Ratio below 60% up to a maximum ceding commission of 32%, and (b) the ceding commission shall decrease 0.5% for every 1.0% increase in the Net Loss Ratio above 60%, subject to a minimum ceding commission of 30%. The Company and the Reinsurer acknowledge and agree that the commission payable hereunder shall be subject to appropriate adjustments if Additional Business is reinsured hereunder as described in Section B of Article I hereof. The Company shall allow the Reinsurer return commission on return premiums at the rate in effect when the return premiums were originally ceded to the Reinsurer. It is expressly agreed that the ceding commission allowed the Company includes provision for all commissions, taxes, assessments (other than assessments based on losses of an Affiliate, as a ceding company under an Underlying Reinsurance Agreement) and all other expenses of whatever nature of the Company and Affiliates, except loss adjustment expense.

 

ARTICLE VII - ACCOUNTS, REPORTS AND REMITTANCES

 

Within thirty (30) days following the end of each calendar quarter, the Company shall report to the Reinsurer:

 

A.	Affiliate Subject Premium, by Affiliate and by line of Covered Business, for the quarter

 

B.	Ceded Subject Premium, by Affiliate and by line of Covered Business, for the quarter;

 

C.	Ceding commission thereon;

 

D.	Ceded Ultimate Net Loss in respect of Covered Business, by Affiliate and by line of Covered Business, as of the end of the quarter;

 

 

E.	Reinsurer’s share of Recoveries made by Company during the quarter, as determined in accordance with Article VIII hereof; and

 

F.	The balance due to or from the Reinsurer as determined by subtracting the sum of (C) and (D) from the sum of (B) and (E).

 

The Company shall provide, and shall cause all Affiliates to provide, to the Reinsurer all information respecting premiums and losses, including reserves, as reasonably requested by the Reinsurer, including without limitation such information as is reasonably necessary to enable the Reinsurer to maintain and adjust the balance of the collateral to be provided pursuant to the terms of Article XXIII of this Agreement.

 

If the amount calculated pursuant to paragraph F above is negative, the Reinsurer shall remit to the Company the absolute value of such amount within fifteen (15) days following the Company’s submission of the quarterly report to the Reinsurer. If the amount calculated pursuant to paragraph F above is positive, the Company shall remit such amount to the Reinsurer simultaneously with the Company’s submission of the quarterly report to the Reinsurer.

 

ARTICLE VIII - RECOVERIES

 

The Company shall pay to or credit the Reinsurer with the Reinsurer’s portion of any recovery connected with an Ultimate Net Loss obtained from salvage, subrogation or other insurance (collectively, "Recoveries"), and such amount shall be paid or credited to the Reinsurer when obtained irrespective of the termination of this Agreement. Expenses allocated to the Company by Affiliates in connection with obtaining Recoveries shall be apportioned between the Company and the Reinsurer in the proportion that the benefit to each party from such Recoveries bears to the total amount of the Recovery.

 

ARTICLE IX - OFFSET

 

The Company or the Reinsurer may offset any balance, whether on account of premium, commission, claims or losses, Loss Adjustment Expenses, Recoveries or any other amount due from one such party to the other such party under this Agreement. The right of offset shall not be affected by the insolvency of the Company or the Reinsurer.

 

ARTICLE X -PREMIUM TAXES

 

The Company shall be liable for all taxes on premiums paid to it with respect to the business reinsured pursuant to the Agreement.

 

ARTICLE XI - EXCISE TAXES

 

The Company shall be liable for the U.S. federal insurance excise tax ("FET") (as imposed under section 4371 of the Internal Revenue Code) to the extent premium paid by it to the Reinsurer under this Agreement is subject to the FET. The Company acknowledges and agrees that the net amount of Subject Premium due to the Reinsurer hereunder (being the Reinsurer’s proportionate share of Subject Premium less the ceding commission described in Article VI hereof) shall not be reduced as a result of or in order to pay such Federal Excise Tax, if any.

 

 

ARTICLE XII - ERRORS AND OMISSIONS

 

The Reinsurer shall not be relieved of liability because of an error or accidental omission by the Company in reporting any claim, 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 XIII - AMENDMENTS

 

The terms and conditions contained in this Agreement may be changed, altered or amended as the parties may agree, provided such change, alteration or amendment is evidenced by Addendum to this Agreement executed by the Company and the Reinsurer.

 

ARTICLE XIV - ACCESS TO RECORDS

 

The Company shall comply with the Reinsurer’s reasonable request for any information relating to this Agreement. Additionally, the Reinsurer, or its authorised representatives, shall have the right to inspect at any reasonable time at the offices of the Company and the Affiliates (or that of service providers), and shall be permitted to make and retain copies of, all papers, books, accounts, documents, claims files and other records of the Company and the Affiliates relating to this Agreement, and in connection therewith the Company shall make available to the Reinsurer responsible representatives of the Company and the Affiliates upon reasonable prior notice. The Reinsurer’s right of inspection shall continue to exist after the termination of this Agreement.

 

ARTICLE XV - INTENTIONALLY OMITTED

 

ARTICLE XVI - ARBITRATION

 

A.

As a condition precedent to any right of action hereunder, any dispute arising out of the interpretation, performance or breach of this Agreement, including the formation or validity thereof (each, a "Dispute"), shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall be in writing and sent certified or registered mail, return receipt requested.

 

B.

Each party shall choose one arbitrator and the two arbitrators shall, before instituting the hearing, choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint its arbitrator within thirty (30) days after being requested to do so by the other party, which request shall be made by certified or registered mail, the latter may appoint the second arbitrator and then notify the other party by certified or registered mail of its appointment.

 

 

C.

If the first two arbitrators are unable to agree upon the third arbitrator within thirty (30) days of their appointment, each arbitrator shall name three candidates within ten days thereafter, two of whom shall be declined by the other arbitrator within fifteen days after receiving their names, and within five days the choice shall be made between the two remaining candidates by drawing lots. All arbitrators shall be disinterested active or former executive officers of insurance or reinsurance companies or Underwriters at Lloyd’s.

 

D.

Within thirty (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 New York, New York, 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 New York. The decision of any two 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 hearings. Judgment upon the award may be entered in any court having jurisdiction thereof. Except as provided above, arbitration shall be based, insofar as applicable, upon the then most current version of the Procedures for the Resolution of U.S. Insurance and Reinsurance Disputes provided by ARIAS US.

 

F.

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. In the event that both arbitrators are chosen by one party, the fees of all arbitrators shall be equally divided between the parties. The panel shall allocate the remaining costs of the arbitration.

 

ARTICLE XVII - APPLICABLE LAW

 

This Agreement shall be governed by the laws of the State of New York, without regard to any conflicts of law principles thereof that would call for the application of the laws of any other jurisdiction.

 

ARTICLE XVIII - NO THIRD-PARTY BENEFICIARIES

 

 

ARTICLE XIX - FOLLOW THE FORTUNES

 

The Reinsurer’s liability shall attach simultaneously to that of the Company and all reinsurance for which the Reinsurer shall be liable by virtue of this Agreement shall be subject in all respects to the same risks, terms, rates, conditions, interpretations, assessments, waivers, and the same modifications, alterations and cancellations, as the Policies to which this Agreement relates.

 

 

ARTICLE XX - CURRENCY

 

All premium and loss payments hereunder shall be in the currency designated in the applicable Underlying Reinsurance Agreement.

 

ARTICLE XXI - TERM AND TERMINATION

 

A.

This Agreement shall remain in effect until three years following the Effective Time, and shall automatically renew for successive three-year periods thereafter, unless the Reinsurer or Company elects to terminate this Agreement effective as of the expiration of any such three-year period. If the Reinsurer or Company elects to so terminate this Agreement, it shall give written notice to the other party hereto not less than nine months prior to the expiration of any such three-year period.

 

B.

Notwithstanding the provisions of Section A of this Article XXI, the Reinsurer may terminate this Agreement in the event of any of the following (clauses 1 through 5 below, collectively, the “Company Termination Events”) by written notice to the Company no later than thirty (30) days (or in the case of a Company Termination Event described in subsection B(1) below, ten (10) days) following actual knowledge of the applicable Company Termination Event by the Reinsurer:

 

1.   the Company is thirty (30) or more days in arrears on payment due to the Reinsurer under this Agreement, and has not cured such breach within thirty (30) days following written notice thereof from the Reinsurer (unless the amount not so paid is the subject of a good faith dispute) (a “Company Payment Default”);

 

2.   the Company has ceased writing new or renewal business and has elected to run off its existing business or an insurance or other regulatory authority has ordered such party to cease writing new or renewal business;

 

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

 

4.   a Company Change of Control has occurred. For purposes of this Agreement, a “Company Change of Control” will be deemed to occur with respect to the Company when either (a) an individual person, corporation or other entity, or a group of commonly controlled persons, corporations or entities, acquires, including through merger, directly or indirectly, more than fifty percent (50%) of the voting securities of the Company or obtains the power to vote (directly or through proxies) more than fifty percent (50%) of the voting securities of the Company, except if such individual person, corporation or other entity is under common control with such Company, or (b) AmTrust no longer directly or indirectly controls the power to vote more than fifty percent (50%) of the voting securities of the Company; provided that in no event shall the acquisition, including through merger, of more than fifty percent (50%) of the voting securities of AmTrust or of the power to vote (directly or through proxies) more than fifty percent (50%) of the voting securities of AmTrust, or the merger, combination or amalgamation of AmTrust into any person, or similar transaction pursuant to which AmTrust shall not be the surviving entity, be deemed a "Company Change of Control"; or

 

 

5.   the combined shareholders' equity of the Company and the Affiliates is reduced to 50% or less of the amount of such shareholders’ equity at either the inception of this Agreement or at the latest renewal or anniversary date of this Agreement.

 

Termination as a result of a Company Payment Default shall be effective upon not less than ten (10) days prior written notice from the Reinsurer to the Company, and termination as a result of any other Company Termination Event shall be effective upon not less than thirty (30) days prior written notice from the Reinsurer to the Company. For greater certainty, the Reinsurer may not terminate this Agreement as a result of a Company Termination Event unless such event is continuing on the date it delivers its notice of termination to the Company.

 

C.

Notwithstanding the provisions of Section A of this Article XXI, the Company may terminate this Agreement, in the event of any of the following (clauses 1 through 6 below, collectively, the “Reinsurer Termination Events”) by written notice to the Reinsurer no later than thirty (30) days (or in the case of a Reinsurer Termination Event described in subsection B(1) below, ten (10) days) following actual knowledge of the applicable Reinsurer Termination Event by the Company:

 

1.   the Reinsurer is thirty (30) or more days in arrears on payment due to the Company under this Agreement or its obligations under Article XXIII and the Reinsurer has not cured such breach within thirty (30) days following written notice thereof from the Company (unless the amount not so paid is the subject of a good faith dispute) (a “Reinsurer Payment Default”);

 

2.   the Reinsurer has ceased writing new or renewal business and has elected to run off its existing business or an insurance or other regulatory authority has ordered the party to cease writing new or renewal business;

 

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

 

 

4.   a Reinsurer Change of Control has occurred. For purposes of this Agreement, a “Reinsurer Change of Control” will be deemed to occur when either (a) an individual person, corporation or other entity, or a group of commonly controlled persons, corporations or entities, acquires, including through merger, directly or indirectly, more than fifty percent (50%) of the voting securities of the Reinsurer or obtains the power to vote (directly or through proxies) more than fifty percent (50%) of the voting securities of the Reinsurer, except if such individual person, corporation or other entity is under common control with the Reinsurer or (b) Maiden Holdings, Ltd. no longer directly or indirectly controls the power to vote more than fifty percent (50%) of the voting securities of the Reinsurer;

 

5.   the Reinsurer's shareholders' equity is reduced to 50% or less of the amount of its shareholders’ equity at either the inception of this Agreement or at the latest renewal or anniversary date of this Agreement; or

 

6.   the Reinsurer fails to maintain an A.M. Best rating of A- or better.

 

Termination as a result of a Reinsurer Payment Default shall be effective upon not less than ten (10) days prior written notice from the Company to the Reinsurer, and termination as a result of any other Reinsurer Termination Event shall be effective upon not less than thirty (30) days prior written notice from the Company to the Reinsurer. For greater certainty, the Company may not terminate this Agreement as a result of a Reinsurer Termination Event unless such event is continuing on the date the applicable Company delivers its notice of termination to the Reinsurer.

 

D.

Following the effective date of the termination of this Agreement as described in Sections A, B or C of this Article XXI, all reinsurance hereunder of Covered Business shall remain in force until the expiration date, anniversary date, or prior termination date of all Policies included therein, unless, not later than thirty (30) days following such effective date of termination of this Agreement, the Company shall elect that the Reinsurer shall not be liable for any Ultimate Net Loss that occurs, accrues or arises on or after the effective date of termination. If the Company shall make such election, within thirty (30) days following the date of such election, the Reinsurer shall return to the Company the unearned premium applicable to such Policies in force at the time and date of termination, less the unearned portion of the ceding commission paid thereon.

 

ARTICLE XXII - EXTRA CONTRACTUAL OBLIGATIONS AND LOSS IN EXCESS OF POLICY LIMITS

 

A.	The Reinsurer shall indemnify the Company for the Reinsurer’s quota share portion of Extra-Contractual Obligations and Loss in Excess of Policy Limits.

 

B.

The Reinsurer shall receive the benefit of its proportionate share of recoveries from any other form of insurance or reinsurance that protects the Company or any Affiliate against any loss or liability covered under this Article XVII, which shall be deducted from the total amount of any Extra-Contractual Obligation and/or Loss in Excess of Policy Limits in determining the amount of Extra-Contractual Obligation and/or Loss in Excess of Policy Limits that shall be indemnified under this Article XXII.

 

 

C.	The Company shall be indemnified in accordance with this Article XXII to the extent that indemnification of the Company or subject Affiliate is permitted by applicable law.

 

ARTICLE XXIII - UNAUTHORIZED REINSURANCE

 

A.

If the Company is unauthorized or otherwise unqualified in any state or other United States jurisdiction, and if, without security in a form acceptable to the insurance regulatory authorities having jurisdiction over an Affiliate, a financial penalty to such Affiliate, arising from the inability to make a reduction to liabilities for the reinsurance ceded to the Company or the recording of a liability for unauthorized reinsurance,   would result on any statutory statement or report such Affiliate is required to make or file with such insurance regulatory authorities or a court of law in the event of insolvency, the Reinsurer will timely fund or provide for the Reinsurer’s share of security for the Obligations (as defined below) under the Underlying Reinsurance Agreement with such Affiliate by:

 

1.   lending assets to the Company on terms and conditions that shall be mutually acceptable to the Company and the Reinsurer (a “Loan”), provided, however, that the terms and conditions of the Loan shall be consistent with the terms and conditions set forth in Exhibit B to that certain First Amendment, dated as of September 17, 2007, to the Master Agreement, dated as of July 3, 2007, by and between AmTrust and Maiden Holdings, Ltd.;

 

2.   transferring to the Company assets (the "Reinsurer Trust Assets") for deposit into one or more trust accounts established or to be established by Company for the sole benefit of such Affiliate (each, a “Trust Account”) with a trustee (the “Trustee”), which Trustee shall be at the time a Trust Account is established, and shall continue to be, a member of the Federal Reserve System and shall not be a parent, subsidiary or affiliate of the Reinsurer, Company or such Affiliate, pursuant to a trust agreement meeting the applicable requirements of the jurisdictions having regulatory authority over each applicable Affiliate (each a “Trust Agreement”);

 

3.   delivering one or more clean, unconditional and irrevocable letters of credit to such Affiliate (each, a "Letter of Credit") in form and substance satisfying the requirements of the jurisdictions having regulatory authority over such Affiliate; and/or

 

4.   requesting that the Company cause such Affiliate to withhold Subject Premium in lieu of remitting Affiliate Subject Premium to the Company (the "Subject Withheld Funds", together with any other Affiliate Subject Premium that shall be withheld under an Underlying Reinsurance Agreement, the “Withheld Funds”) in accordance with the terms of the Underlying Reinsurance Agreement with such Affiliate.

 

For the avoidance of doubt, the Reinsurer shall be permitted to elect any or a combination of the above forms of security, provided that the aggregate value of the security funded or provided by the Reinsurer equals the Reinsurer's proportionate share of the Obligations. The Company and the Reinsurer acknowledge and agree that, as of the date of execution of this Agreement, the Reinsurer intends to satisfy this obligation in the form of a Loan.

 

 

B.	The “Obligations” referred to herein means, as to each Affiliate, the then current (as of the end of each calendar quarter) sum of:

 

1.   The amount of ceded Ultimate Net Loss for which the Company is responsible to such Affiliate but has not yet paid;

 

2.   The amount of ceded reserves for Ultimate Net Loss (including without limitation ceded reserves for claims reported but not resolved and losses incurred but not reported) for which the Company is responsible to such Affiliate; and

 

3.   The amount of ceded reserves for unearned Affiliate Subject Premiums attributable to such Affiliate.

 

C.	With respect to the Trust Accounts, the following shall apply:

 

1.   The Reinsurer shall transfer Reinsurer Trust Assets to the Company, and the Company shall immediately upon receipt thereof transfer to the Trustee, for deposit into the applicable Trust Account, such Reinsurer Trust Assets, to be held in trust by the Trustee for the benefit of such Affiliate as security for the payment of the Reinsurer's proportionate share of the Obligations to such Affiliate. The Reinsurer Trust Assets shall be maintained in the Trust Account as long as the Reinsurer continues to remain liable for its proportionate share of such Obligations; provided however, that all Reinsurer Trust Assets shall be maintained in a sub-account of the Trust Account separate and apart from any other assets deposited therein by the Company. For each Trust Account in which Reinsurer Trust Asset shall be deposited, the Company shall authorize and direct the Trustee to timely provide to the Reinsurer all account statements and other notices to be delivered to the Company under the related Trust Agreement.

 

2.   The Reinsurer agrees that the Reinsurer Trust Assets shall be valued according to their current fair market value and shall consist only of currency of the United States of America, certificates of deposit issued by a United States bank and payable in United States legal tender, and investments of the types permitted by the insurance regulatory authorities with jurisdiction over the applicable Affiliate in regards to security provided with respect to the obligations of an unauthorized or unqualified reinsurer (“Authorized Investments”). The Company agrees that the Reinsurer Trust Assets will be managed for the Company by AII Insurance Management, Ltd. (“AIM”) in accordance the terms of and pursuant to the Asset Management Agreement dated July 3, 2007 entered into by Reinsurer and AIM (the “Asset Management Agreement”) and, by executing this Agreement (solely for purposes of this Section C(2)), AIM acknowledges and agrees to the provisions of this Section C(2).

 

3.   The Reinsurer, prior to transferring the Reinsurer Trust Assets to the Company, shall execute all assignments and endorsements in blank, and shall transfer legal title to the Company of all shares, obligations or any other assets requiring assignments, in order to permit the Reinsurer to transfer to the Trustee such Reinsurer Trust Assets for deposit into the Trust Account.

 

 

4.   All settlements of account between the Company and an Affiliate with respect to Reinsurer Trust Assets shall be made in cash or its equivalent.

 

5.   The Reinsurer acknowledges that the Reinsurer Trust Assets may be withdrawn by such Affiliate at any time, notwithstanding any provisions in the Underlying Reinsurance Agreement to which such Affiliate is a party, provided that such Affiliate has agreed in such Underlying Reinsurance Agreement that such withdrawn assets shall be applied and utilized by such Affiliate or any successor of such Affiliate by operation of law, including, without limitation, any liquidator, rehabilitator, receiver or conservator of such Affiliate, without diminution because of the insolvency of such Affiliate or the Company, only for the following purposes:

 

(a)

to reimburse such Affiliate for the Company’s share of any Ultimate Net Loss paid by such Affiliate but not received from the Company or for unearned premiums due to such Affiliate but not otherwise paid by the Company with respect to the business reinsured hereunder; or

 

(b)

to make payment to the Company of any amounts held in the Trust Accounts established for the benefit of such Affiliate that exceed 102% of the Company’s Obligations to such Affiliate (less the undrawn balance available under any Letter(s) of Credit for the benefit of such Affiliate and less the fair market value of the Withheld Funds of such Affiliate); or

 

(c)

to pay any other amounts the Affiliate claims are due under the Underlying Reinsurance Agreement or

 

(d)

where such Affiliate has received notification of termination of a Trust Account in which Reinsurer Trust Assets are held, and where the Obligations under the related Underlying Reinsurance Agreement remain unliquidated and undischarged ten (10) days prior to such termination, to withdraw amounts equal to such Obligations (less the undrawn balance available under any Letter(s) of Credit for the benefit of such Affiliate and less the fair market value of the Withheld Funds of such Affiliate) and deposit such amounts in a separate account, in the name of such Affiliate, in any United States bank or trust company, apart from its general assets, in trust for such uses and purposes specified in subparagraphs (a) and (b) above as may remain executory after such withdrawal and for any period after such termination.

 

D.

The Reinsurer acknowledges that any Letter(s) of Credit provided by it pursuant hereto for the benefit of an Affiliate may be drawn upon by such Affiliate at any time, notwithstanding any provisions in the Underlying Reinsurance Agreement to which such Affiliate is a party, provided that such Affiliate has agreed in such Underlying Reinsurance Agreement that any amounts drawn shall be applied and utilized by such Affiliate or any successor of such Affiliate by operation of law, including, without limitation, any liquidator, rehabilitator, receiver or conservator of such Affiliate, without diminution because of the insolvency of such Affiliate or the Company, only for the following purposes:

 

 

1.   to pay or reimburse the Affiliate for the Company's share of any premiums returned to the owners of Policies on account of cancellations of such Policies;

 

2.   to pay or reimburse the Affiliate for the Company's share of Ultimate Net Loss paid or payable by the Affiliate under the terms and provisions of the Policies;

 

3.   to pay any other amounts the Affiliate claims are due under the Underlying Reinsurance Agreement; and

 

4.   to fund an account with the Affiliate in an amount at least equal to the deduction, for reinsurance ceded as to such Affiliate's Policies, for the uses and purposes described in clauses 1, 2 and 3 above. Such amount shall include, but not be limited to, amounts for policy reserves, reserves for claims and losses incurred (including losses incurred but not reported), loss adjustment expenses, and unearned premiums.

 

E.	With respect to assets to be returned to the Reinsurer, the following shall apply:

 

1.   The Company, at the written request of the Reinsurer, shall use commercially reasonable efforts to seek the applicable Affiliate’s approval to withdraw all or any part of the Reinsurer Trust Assets from the Trust Account established for the benefit of such Affiliate and shall transfer such assets to the Reinsurer, provided that the withdrawal conforms to the following requirements:

 

(a)

the Reinsurer shall, at the time of any such withdrawal, deliver to the Company, for deposit by the Company into such Trust Account, other Authorized Investments having a market value equal to the market value of the assets withdrawn from such Trust Account, and

 

(b)

after such withdrawal, transfer, and deposit into such Trust Account, the market value of assets in the Trust Accounts established for the benefit of such Affiliate is no less than 102% of the Obligations to such Affiliate (less the undrawn balance available under any Letter(s) of Credit for the benefit of such Affiliate and less the fair market value of the Withheld Funds of such Affiliate).

 

2.   The Company, at the request of the Reinsurer, shall use its best efforts to seek each Affiliate's approval to permit an amendment to, or to surrender and replace, a Letter of Credit, provided that, after such amendment or surrender and replacement, the remaining undrawn balance, if any, of such Letter of Credit, plus the fair market value of assets in Trust Accounts established for the benefit of such Affiliate, plus the fair market value of the Withheld Funds of such Affiliate, plus the undrawn balance of any other Letters of Credit for the benefit of such Affiliate, is not less 102% of the Obligations to such Affiliate.

 

 

3.   If an Affiliate returns to the Company excess assets withdrawn from the Trust Account established for such Affiliate, excess amounts drawn on a Letter of Credit, or an excess portion of the Withheld Funds, the Company shall immediately return to the Reinsurer its proportionate share of such excess assets.

 

4.   If, as of any date of determination, and with respect to any Affiliate, the sum of (w) the fair market value of the Reinsurer Trust Assets for the benefit of such Affiliate, (x) the undrawn balance of any Letters of Credit for the benefit of such Affiliate provided by the Reinsurer pursuant to Section A of this Article XXIII, (y) the fair market value of any separate account established by such Affiliate as described in Section C(5)(d) or D(4) of this Article XXIII, and (z) the Subject Withheld Funds of such Affiliate (the “Aggregate Collateral Value”), exceeds the Reinsurer’s share of the Obligations to such Affiliate (the excess Aggregate Collateral Value, the "Excess Collateral Value"), the Company shall, with respect to such excess collateral, at its option, undertake one or more of the following:

 

(a)   a withdrawal of such Reinsurer Trust Assets and the payment of withdrawn Reinsurer Trust Assets to the Reinsurer pursuant to Section E(1) of this Article XXIII,

 

(b)   payment to the Reinsurer of an amount in cash;

 

(c)   payment to the Company by such Affiliate of Withheld Funds, and the payment to the Reinsurer of its proportionate share thereof;

 

(d)   a payment to the Company by such Affiliate from any separate account or accounts established by such Affiliate as described in Sections C(5)(d) and D(4) of this Article XXIII, and the payment to the Reinsurer of its proportionate share thereof; and/or

 

(e)   the amendment or replacement of any of such Letters of Credit, with the consent of the Reinsurer, not to be unreasonably withheld, to reduce the undrawn balance of such Letters of Credit after giving effect to such amendment or replacement;

 

provided that the aggregate amount of such payments to the Reinsurer pursuant to (a) through (d) above plus such reduction in the undrawn balance of the Letters of Credit pursuant to (e) above shall at least equal the Excess Collateral Value. The Aggregate Collateral Value and the Reinsurer’s share of the Obligations shall be calculated (separately as to each Affiliate) as of the last day of each calendar quarter during the term of this Agreement, and the Excess Collateral Value, if any, resulting from such calculations shall be remitted to the Reinsurer not later than the forty-fifth (45 ^th ) calendar day following the end of such calendar quarter.

 

5.   In the event that any Affiliate withdraws Reinsurer Trust Assets from a Trust Account, draws on a Letter of Credit and/or utilizes Subject Withheld Funds in excess of the Reinsurer’s proportionate share of the Obligations, in excess of the amount payable by the Reinsurer to the Company with respect to such Obligations, or other than for the purposes described in Sections C(5) and D of this Article XXIII, the Company shall reimburse Reinsurer immediately for the amount of the excess or the misapplied amount (as the case may be), taking into account any payments made by the Company to the Reinsurer pursuant to Section E(4) of this Article XXIII.

 

 

6.   If an Affiliate withdraws Reinsurer Trust Assets from a Trust Account, or draws on a Letter of Credit, and deposits such assets in a separate account as described in Sections C(5)(d) and D(4) of this Article XXIII, the Company shall pay to the Reinsurer, not later than 15 calendar days following the end of each calendar month during the term of this Agreement, an amount equal to all dividends, interest and other income earned on the assets held in such account during such month, except to the extent that such dividends, interest or other income relate to assets of the Reinsurer for which the Company has made payment to the Reinsurer pursuant to Paragraph 3 or 4 of this Article XXIII(E) and except to the extent that the Aggregate Collateral Value at such time is less than the Reinsurer’s share of the Obligations to such Affiliate; provided that any such payment shall be net of the Reinsurer’s proportionate share of fees of the Trustee with respect to Reinsurer Trust Assets and shall be reduced by the amount of any unpaid fees or expenses then due and payable under the Asset Management Agreement .

 

F.

The Company, upon receipt and not less frequently than quarterly, will provide to the Reinsurer statements prepared by the Affiliates for the purpose of showing the Company’s Obligations in respect of each Affiliate and a statement prepared by Company showing the Reinsurer’s proportionate share thereof. If the Reinsurer’s share thereof exceeds the market value of the security provided by the Reinsurer to the Company for such Affiliate as required by in Section A of this Article XXIII, the Reinsurer will, within fifteen (15) days of receipt of the statements, provide additional security of such types with respect to the Reinsurer’s proportionate share of the Obligations to such Affiliate(s).

 

G.

If the Company is unauthorized or otherwise unqualified in any jurisdiction outside of the United States, and if, without security, a financial penalty to an Affiliate domiciled outside of the United States would result on any statutory statement or report it is required to make or file with the insurance regulatory authority having jurisdiction over such Affiliate or a court of law in the event of insolvency, the Reinsurer will timely secure the Reinsurer’s share of the Obligations in form and substance satisfying the requirements of the insurance regulatory authority having jurisdiction over such Affiliate.

 

ARTICLE XXIV - SERVICE OF SUIT

 

Subject to Article XVI, it is agreed that the Company and Reinsurer have the right 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 or remand of a case to another court as permitted by the laws of the United States or of any state in the United States.

 

It is further agreed that the Company may serve process upon the Reinsurer by serving:

 

A Person indicated by the Company in a written notice to the Reinsurer within five (5) days of the date hereof.

 

 

The right of the Company to bring suit as provided herein shall be limited to a suit brought in its own name and for its own account.

 

ARTICLE XXV - MISCELLANEOUS

 

A.	Entire Agreement . This Agreement contains the entire agreement between the parties hereto relating to the subject matter hereof and supersedes and replaces all oral statements and prior writings with respect thereto.

 

B.	Assignment . Neither party may assign any of its rights or obligations hereunder without the prior written consent of the other party.

 

C.

Counterparts . This Agreement may be executed in any number of counterparts, and by the parties on separate counterparts, but will not be effective until each party has executed at least one counterpart. Each counterpart will constitute an original of this Agreement, but all the counterparts will together constitute but one and the same instrument. All signatures of the parties to this Agreement may be transmitted by facsimile, and such facsimile will, for all purposes, be deemed to be the original signature of such Party whose signature it reproduces and will be binding upon such Party.

 

D.

Waiver . Except as otherwise expressly set forth in this Agreement, there shall be no waiver of any breach of the terms of this Agreement, nor waiver of any right, remedy, power or privilege conferred by this Agreement, except as notified in writing by the party waiving to the other party, or as otherwise expressly provided for in this Agreement. Notwithstanding this, and for the avoidance of doubt:

 

1.   any waiver of a breach of any term of this Agreement or of any default hereunder shall not be deemed a waiver of any subsequent breach or default and shall in no way affect the other terms of this Agreement; and

 

2.   no failure to exercise and no delay on the part of any party in exercising any right, remedy, power or privilege of that party under this Agreement and no course of dealing between the parties shall be construed or operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any right, remedy, power or privilege. The rights and remedies provided by this Agreement are cumulative and are not exclusive of any rights or remedies provided by law.

 

E.	Headings . The headings of the Articles of this Agreement are inserted for convenience only, and shall not affect the meaning or construction of any provision of this Agreement.

 

F.

Notices . Any notice and other communication required or permitted hereunder shall be in writing and shall be delivered personally, sent by facsimile transmission (and immediately after transmission confirmed by telephone), or sent by certified, registered or express mail, postage prepaid; provided, however, that the party delivering a communication by facsimile transmission shall retain the electronically generated confirmation of delivery, showing the telephone number to which the transmission was sent and the date and time of the transmission. Any such notice shall be deemed given when so delivered personally or sent by facsimile transmission (and immediately after transmission confirmed by telephone), or, if mailed, on the date shown on the receipt therefor, as follows (or to such other address or facsimile number as the party shall furnish the other party in accordance with this paragraph):

 

 

If to the Company, to:

 

AmTrust International Insurance, Ltd.

Suite 102 Washington Mall

7 Reid Street

Hamilton HM 11

Bermuda

Tel: 441.292.6564

Fax: 441.292.5796

With a copy to:

 

AmTrust Financial Services, Inc.

59 Maiden Lane, 6 ^th Floor

New York, NY 10038

Tel: 212.220.7120

Fax: 212.220.7130

Attention: General Counsel

If to the Reinsurer, to:

 

Maiden Insurance Company, Ltd.

7 Reid Street

Hamilton HM 11

Bermuda

Attention: CFO

Tel: 441-295-5225

Fax:

 

With a copy to:

 

Conyers Dill and Pearman

Clarendon House

2 Church Street

PO Box HM 666

Hamilton HM CX

Bermuda

Attention: Christopher Garrod, Esq.

Tel: (441) 295 1422

Fax: (441) 292 4720

 

 

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IN WITNESS WHEREOF the parties hereto, by their respective duly authorized officers, have executed this QUOTA SHARE REINSURANCE AGREEMENT, in duplicate, as of the dates recorded below:

 

AMTRUST INTERNATIONAL INSURANCE, LTD.

By:	/s/ Michael F Bott
Name:	Michael F Bott
Title:	Senior Vice President
Dated:	September 17, 2007

 

MAIDEN INSURANCE COMPANY, LTD.

 

AII INSURANCE MANAGEMENT, LTD.

(solely for the purposes of Section C(2) of Article XXIII hereof)