Heritage Insurance Holdings, Inc. (Form: 10-Q, Received: 08/06/2014 16:38:10)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number

001-36462

Heritage Insurance Holdings, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

45-5338504

(State of Incorporation)

(IRS Employer

Identification No.)

2600 McCormick Drive, Suite 300

Clearwater, Florida 33759

(Address, including zip code, of principal executive offices)

(727) 362-7202

(Registrant’s telephone number, including area code)

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 ¨ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate number of shares of the Registrant’s Common Stock, $0.0001 par value, outstanding on August 5, 2014 was 29,794,960.

HERITAGE INSURANCE HOLDINGS, INC.

Table of Contents


		Page
PART I – FINANCIAL INFORMATION
Item 1 Financial Statements

Condensed Consolidated Balance Sheets: June 30, 2014 (unaudited) and December 31, 2013		1
Condensed Consolidated Statements of Income and Comprehensive Income: Three and six months ended June 30, 2014 and 2013 (unaudited)		2
Condensed Consolidated Statements of Cash Flows: Six months ended June 30, 2014 and 2013 (unaudited)		3
Condensed Consolidated Statements of Stockholders’ Equity: Six months ended June 30, 2014 and 2013 (unaudited)		4
Notes to Unaudited Condensed Consolidated Financial Statements		5 - 18

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3 Quantitative and Qualitative Disclosures about Market Risk		30

Item 4 Controls and Procedures		31

PART II – OTHER INFORMATION

Item 1 Legal Proceedings		32

Item 1A Risk Factors		32

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		32

Item 6 Exhibits		34

Signatures

Certifications

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

HERITAGE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share amounts)


	*June 30, 2014*		*December 31, 2013*
	*(unaudited)*
ASSETS
Fixed maturity securities, available for sale, at fair value (amortized cost of $132,132 and $105,955 in 2014 and 2013, respectively)	$	133,417	$	104,668
Equity securities, available for sale, at fair value (cost of $15,174 and $25,446 in 2014 and 2013, respectively)		17,538		25,446
Mortgage loan, held to maturity, at amortized cost		6,021		6,063

Total investments		156,976		136,177
Cash and cash equivalents		182,116		65,059
Accrued investment income		1,331		971
Premiums receivable, net		43,432		10,347
Prepaid reinsurance premiums		87,264		31,252
Reinsurance premiums receivable		—		5,337
Income taxes receivable		10,255		5,073
Deferred income taxes		—		4,436
Deferred policy acquisition costs, net		25,392		9,765
Property and equipment, net		13,768		10,935
Other assets		5,297		2,626

Total Assets	$	525,831	$	281,978

LIABILITIES AND STOCKHOLDERS’ EQUITY
Unpaid losses and loss adjustment expenses	$	34,533	$	19,344
Unearned premiums		159,430		116,243
Reinsurance payable		81,373		29,591
Income taxes payable		2,348		2,805
Deferred income taxes		3,326		—
Accrued compensation		3,144		505
Advance premiums		7,905		3,829
Other liabilities		12,165		8,756

Total Liabilities		304,224		181,073

Commitments and contingencies (Note 12)
Redeemable shares (Note 15)		—		20,921
Stockholders’ Equity
Common stock, $0.0001 par value, 50,000,000 shares authorized, 29,794,960 and 14,007,150 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively		3		1
Additional paid-in capital		183,984		62,849
Accumulated other comprehensive income (loss)		2,242		(790	)
Retained earnings		35,378		17,924

Total Stockholders’ Equity		221,607		79,984

Total Liabilities and Stockholders’ Equity	$	525,831	$	281,978

See accompanying notes to unaudited condensed consolidated financial statements.

HERITAGE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited)

(Amounts in thousands, except per share and share amounts)


	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2014*			*2013*			*2014*			*2013*
REVENUE:
Gross premiums written	$	99,269		$	81,049		$	168,172		$	97,398
Increase in gross unearned premiums		(35,144	)		(53,009	)		(43,187	)		(49,033	)

Gross premiums earned		64,125			28,040			124,985			48,365
Ceded premiums		(19,830	)		(6,416	)		(38,454	)		(6,774	)

Net premiums earned		44,295			21,624			86,531			41,591
Retroactive reinsurance		—			26,072			—			26,072
Net investment income		719			124			1,337			335
Net realized gains (losses)		24			(46	)		(18	)		(48	)
Other revenue		1,501			827			2,567			993

Total revenue		46,539			48,601			90,417			68,943

EXPENSES:
Losses and loss adjustment expenses		19,244			7,870			39,831			13,148
Policy acquisition costs		6,384			865			10,857			982
General and administrative expenses		5,801			5,579			12,798			9,567
Interest expense		—			6			—			11

Total expenses		31,429			14,320			63,486			23,708

Income before income taxes		15,110			34,281			26,931			45,235
Provision for income taxes		5,544			13,263			9,477			17,162

Net income	$	9,566		$	21,018		$	17,454		$	28,073

OTHER COMPREHENSIVE INCOME:
Change in net unrealized gains (losses) on investments	$	2,908		$	(1,811	)	$	4,918		$	(1,817	)
Reclassification adjustment for net realized investment losses		(24	)		46			18			48
Income tax expense related to items of other comprehensive income		(1,112	)		681			(1,904	)		682

Total comprehensive income	$	11,338		$	19,934		$	20,486		$	26,986

Weighted average shares outstanding
Basic		22,119,754			15,203,100			19,256,172			12,983,525

Diluted		24,333,476			15,203,100			21,684,230			12,983,525

Earnings per share
Basic	$	0.43		$	1.38		$	0.91		$	2.16
Diluted	$	0.39		$	1.38		$	0.80		$	2.16

See accompanying notes to unaudited condensed consolidated financial statements.

HERITAGE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)


	*Six Months Ended June 30,*
	*2014*			*2013*
OPERATING ACTIVITIES
Net income	$	17,454		$	28,073
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		—			575
Amortization of bond discount		924			327
Depreciation and amortization		272			27
Net realized losses		18			48
Deferred income taxes		5,858			(788	)
Changes in operating assets and liabilities:
Accrued investment income		(360	)		(390	)
Premiums receivable, net		(33,085	)		(5,161	)
Prepaid reinsurance premiums		(56,012	)		(68,391	)
Reinsurance premiums receivable		5,337			(46,355	)
Income taxes receivable		(5,182	)		—
Deferred policy acquisition costs, net		(15,627	)		(4,122	)
Other assets		(2,671	)		(26,644	)
Unpaid losses and loss adjustment expenses		15,189			8,100
Unearned premiums		43,187			49,033
Reinsurance payable		51,782			52,442
Income taxes payable		(457	)		8,608
Accrued compensation		2,639			4,718
Advance premiums		4,076			2,870
Other liabilities		2,352			3,544

Net cash provided by operating activities		35,694			6,514

INVESTING ACTIVITIES
Proceeds from sales and maturities of investments available for sale		24,747			2,615
Purchases of investments available for sale		(41,552	)		(56,772	)
Cost of property and equipment acquired		(3,105	)		(9,831	)

Net cash used in investing activities		(19,910	)		(63,988	)

FINANCING ACTIVITIES
Proceeds from issuance of equity and redeemable shares		88			33,300
Proceeds from issuance of equity from initial public offering and private placement, net of discount fee and direct costs of issuance		78,670			—
Proceeds from issuance of exercise of warrants		22,515			—

Net cash provided by financing activities		101,273			33,300

Increase (decrease) in cash and cash equivalents		117,057			(24,174	)
Cash and cash equivalents at beginning of period		65,059			63,872

Cash and cash equivalents at end of period	$	182,116		$	39,698

Supplemental Cash Flows Information:
Interest paid	$	—		$	48

Income taxes paid	$	9,258		$	7,278

See accompanying notes to unaudited condensed consolidated financial statements.

HERITAGE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

Six Months Ended June 30, 2014 and 2013

(Unaudited)

(Amounts in thousands, except share amounts)


	Common Stock Shares			Common Stock Amount		Additional Paid-In Capital			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income			Total Stockholders’ Equity
Balance at December 31, 2013		14,007,150		$	1	$	62,849		$	17,924		$	(790	)	$	79,984
Temporary equity reclassified to equity		2,338,350			—		20,921			—			—			20,921
Member tax distribution		—			—		(1,057	)		—			—			(1,057	)
Issuance of equity		17,850			—		88			—			—			88
Net unrealized change in investments, net of tax		—			—		—			—			3,032			3,032
Issuance of common stock equity in initial public offering and private placement, net of discount fee and direct costs of issuance of $6,530		6,909,091			1		69,469			—			—			69,470
Issuance of common stock to underwriters for over allotment, net of discount fee and direct costs of issuance of $700		900,000			—		9,200			—			—			9,200
Exercise of warrants		5,622,519			1		22,514			—			—			22,515
Net income		—			—		—			17,454			—			17,454

Balance at June 30, 2014		29,794,960		$	3	$	183,984		$	35,378		$	2,242		$	221,607

Balance at December 31, 2012		8,310,450		$	1	$	33,584		$	(5,466	)	$	—		$	28,119
Equity reclassified to temporary equity		(1,058,250	)		—		(4,150	)		—			—			(4,150	)
Issuance of equity		6,403,050			—		31,655			—			—			31,655
Exercise of stock options		38,250			—		150			—			—			150
Net unrealized change in investments, net of tax		—			—		—			—			(1,087	)		(1,087	)
Change in fair value of redeemable shares		—			—		—			(1,555	)		—			(1,555	)
Net income		—			—		—			28,072			—			28,072

Balance at June 30, 2013		13,693,500		$	1	$	61,239		$	21,051		$	(1,087	)	$	81,204

See accompanying notes to unaudited condensed consolidated financial statements.

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1. ORGANIZATION, CONSOLIDATION AND PRESENTATION

Organization

Heritage Insurance Holdings, Inc. (the “Company”) was initially formed as a Florida limited liability company in 2012. On January 1, 2014, the Company formed a Delaware limited liability company, also named Heritage Insurance Holdings, LLC and merged with it in order to domicile the Company in Delaware. Effective May 22, 2014, Heritage Insurance Holdings, LLC converted into a Delaware corporation named Heritage Insurance Holdings, Inc.

The Company’s primary product is personal residential insurance, which the Company currently offers in Florida only under authorization from the Florida Office of Insurance Regulation (“FLOIR”).

On May 22, 2014, the Company’s registration statement on Form S-1 was declared effective, pursuant to which it sold 6,900,000 shares of common stock to the public at a price of $11.00 per share, including 900,000 shares sold pursuant to the underwriters’ over-allotment option (the “IPO”). Concurrent with the IPO, the Company completed a private placement with Ananke, an affiliate of Nephila Capital Ltd, to purchase $10.0 million of the Company’s common stock at a price per share equal to the public offering price. The Company’s total net proceeds from the IPO and the Private Placement were $78.6 million, after deducting underwriting discounts and other expenses.

On June 13, 2014, Heritage Property & Casualty Insurance Company (“Heritage P&C”), entered into an Insurance Policy Acquisition and Transition Agreement (the “Agreement”) with the Florida Insurance Guaranty Association (“FIGA”) and the Florida Department of Financial Services (“DFS”), the Receiver of Sunshine State Insurance Company (“SSIC”). Pursuant to the Agreement, Heritage P&C has the right to offer a new policy of insurance, effective June 27, 2014 to all (subject to limited exceptions) Florida SSIC policyholders having in-force policies (“Transition Policies”), without the need for SSIC policyholders to file a new application with Heritage P&C or pay premium that has already been paid to SSIC (“Transition Coverage”). As of June 27, 2014, SSIC had approximately 33,000 policies in force, representing approximately $58.9 million of in force premium and unearned premium of approximately $29.3 million. The Transition Coverage will terminate at the end of the original SSIC policy period. Upon termination of each Transition Policy, Heritage P&C will renew such policies at the lesser of SSIC’s and Heritage P&C’s rates on either SSIC’s or Heritage P&C’s forms, respectively. The SSIC policies represented approximately 19% of the Company’s total policies in force at June 30, 2014. Heritage P&C was assigned the entirety of the unearned premium. As consideration, Heritage P&C paid $10.0 million to the DFS, which will be amortized as acquisition costs in relation to the earning of the approximate $29.3 million of unearned premium. The $100 per policy FIGA statutory deductible and unearned commissions that will be paid to FIGA, as part of the transaction, will be deducted from the $10.0 million payment.

The Company conducts its operations under one business segment.

Consolidation and Presentation

The Company prepares its financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). GAAP differs from statutory accounting principles prescribed or permitted for insurance entities by regulatory authorities. While preparing its financial statements, the Company makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenues and expenses during the reporting period. Accordingly, actual results will differ from those estimates. Reported amounts that require the Company to make extensive use of estimates include its reserves for unpaid losses and loss adjustment expenses, deferred policy acquisition costs and investments. Except for the captions on its Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Income and Comprehensive Income, the Company generally uses the term loss expense(s) to collectively refer to both losses and loss adjustment expenses.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the information set forth therein have been included. The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and footnotes for the year ended December 31, 2013 as filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), on May 27, 2014. Results for the six month period ended June 30, 2014 are not necessarily an indication of the results that may be expected for the full fiscal year ending December 31, 2014.

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The Company qualifies as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, the Company is eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies. The Company intends to continue to take advantage of some, but not all, of the exemptions available to emerging growth companies until such time that it is no longer an emerging growth company. The Company has, however, irrevocably elected not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. As a result, the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies, other than those below, are described in Note 2 in our audited consolidated financial statements as referred to above.

Offering costs

Offering costs incurred in connection with the IPO, which included underwriters’ fees, legal and accounting fees, printing and other fees were deducted from the gross proceeds of the IPO. The proceeds from the issuance of shares net of offering costs is included in additional paid in capital in the consolidated statements of stockholders’ equity. The Company incurred in aggregate $7.2 million in offering costs related to the IPO.

Income Taxes

On May 22, 2014, the Company converted from a limited liability company to a corporation. As a limited liability company, the Company was treated as a partnership for tax purposes, and accordingly was not subject to entity-level federal or state income taxation. The Company’s income tax provision generally consisted of income taxes payable by its separate subsidiaries that are taxed as corporations. As such, the Company’s effective tax rate as a limited liability company has historically been driven primarily by the taxable income recognized with respect to gross premiums written. As a corporation, the Company is subject to typical corporate U.S. federal and state income tax rates on a consolidated basis which it expects to result in a statutory tax rate of approximately 38.575% under current tax law.

Accounting Pronouncements

The Company describes below recent pronouncements that have had or may have a significant effect on its financial statements or on its disclosures. The Company does not discuss recent pronouncements that a) are not anticipated to have an impact on, or b) are unrelated to its financial condition, results of operations, or related disclosures.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”) which supersedes current revenue recognition guidance, including most industry-specific guidance. ASU 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. The guidance also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue that is recognized. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The Company is evaluating the impact of the new guidance on its consolidated financial statements

Subsequent Events

The Company follows the provisions of ASC Topic 855-10, “Subsequent Events,” relating to subsequent events. This guidance establishes principles and requirements for subsequent events. This guidance defines the period after the balance sheet date during which events or transactions that may occur would be required to be disclosed in the company’s financial statements. The Company has evaluated subsequent events up to the date of issuance of this report. (see Note 18 )

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 3. INVESTMENTS

The following table details the difference between cost or adjusted/amortized cost and estimated fair value, by major investment category, at June 30, 2014 and December 31, 2013 (in thousands):


	*Cost or Adjusted /* *Amortized Cost*		*Gross Unrealized* *Gains*		*Gross Unrealized* *Losses*		*Fair Value*
	(In thousands)
*June 30, 2014*
U.S. government and agency securities	$	1,214	$	7	$	5	$	1,216
States, municipalities and political subdivisions		15,961		253		22		16,192
Special revenue		55,759		630		99		56,290
Industrial and miscellaneous		56,603		592		93		57,102
Redeemable preferred stocks		2,595		57		35		2,617

Total fixed maturities		132,132		1,539		254		133,417
Nonredeemable preferred stocks		7,278		199		56		7,421
Equity securities		7,896		2,226		5		10,117

Total equity securities		15,174		2,425		61		17,538
Mortgage loan participation		6,021		—		—		6,021

Total investments	$	153,327	$	3,964	$	315	$	156,976


	*Cost or Adjusted /* *Amortized Cost*		*Gross Unrealized* *Gains*		*Gross Unrealized* *Losses*		*Fair Value*
*December 31, 2013*
U.S. government and agency securities	$	1,486	$	—	$	44	$	1,442
States, municipalities and political subdivisions		14,255		42		136		14,161
Special revenue		41,114		89		608		40,595
Industrial and miscellaneous		46,726		69		480		46,315
Redeemable preferred stocks		2,374		4		223		2,155

Total fixed maturities		105,955		204		1,491		104,668
Nonredeemable preferred stocks		5,283		6		331		4,958
Equity securities		20,163		370		45		20,488

Total equity securities		25,446		376		376		25,446
Mortgage loan participation		6,063		—		—		6,063

Total investments	$	137,464	$	580	$	1,867	$	136,177

The Company calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. The Company determines the cost or adjusted/ amortized cost of the security sold using the specific-identification method. The following tables detail the Company’s realized gains (losses) by major investment category for the six and three months ended June 30, 2014 and 2013, respectively:


	*Six Months Ended June 30,*
	*2014*					*2013*
	*Gains (Losses)*			*Fair Value at Sale*		*Gains (Losses)*			*Fair Value at Sale*
	(In thousands)
Fixed maturities	$	104		$	4,384	$	3		$	229
Equity securities		14			15,015		—			—

Total realized gains		118			19,399		3			229

Fixed maturities		(88	)		2,660		(49	)		1,887
Equity securities		(48	)		1,683		(2	)		456

Total realized losses		(136	)		4,343		(51	)		2,343

Net realized losses	$	(18	)	$	23,742	$	(48	)	$	2,572

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements


	*Three Months Ended June 30,*
	*2014*					*2013*
	*Gains (Losses)*			*Fair Value at Sale*		*Gains (Losses)*			*Fair Value at Sale*
	(In thousands)
Fixed maturities	$	118		$	3,793	$	2		$	154
Equity securities		—			—		—			—

Total realized gains		118			3,793		2			154

Fixed maturities		(78	)		2,577		(46	)		1,724
Equity securities		(16	)		1,007		(2	)		427

Total realized losses		(94	)		3,584		(48	)		2,151

Net realized gain (losses)	$	24		$	7,377	$	(46	)	$	2,305

The table below summarizes the Company’s fixed maturities at June 30, 2014 by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturity of those obligations.


	*Cost or Amortized Cost*		*Percent of Total*			*Fair Value*		*Percent of Total*
	(In thousands)					(In thousands)
June 30, 2014
Due in one year or less	$	7,244		5.48	%	$	7,271		5.45	%
Due after one year through five years		80,750		61.11	%		81,301		60.94	%
Due after five years through ten years		27,627		20.91	%		28,115		21.07	%
Due after ten years		16,511		12.50	%		16,730		12.54	%

Total	$	132,132		100.00	%	$	133,417		100.00	%

The following table summarizes the Company’s net investment income by major investment category for the three and six month periods ended June 30, 2014 and 2013, respectively:


	*For the Three Months Ended,*				*For the Six Months Ended,*
	*June 30, 2014*		*June 30, 2013*		*June 30, 2014*		*June 30, 2013*
	(In thousands)
Fixed maturities	$	633	$	207	$	1,152	$	366
Equity securities		253		115		439		169
Cash, cash equivalents and short-term investments		32		14		45		21
Other investments		78		—		163		4

Net investment income		996		336		1,799		560
Investment expenses		277		212		462		225

Net investment income, less investment expenses	$	719	$	124	$	1,337	$	335

During the Company’s quarterly evaluations of its securities for impairment, the Company determined that none of its investments in debt and equity securities that reflected an unrealized loss position were other-than-temporarily impaired. The issuers of the Company’s debt securities continue to make interest payments on a timely basis and have not suffered any credit rating reductions. The Company does not intend to sell nor is it likely that it would be required to sell the debt securities before the Company recovers its amortized cost basis. All the issuers of the equity securities it owns had near-term prospects that indicated the Company could recover its cost basis, and the Company also has the ability and the intent to hold these securities until the value equals or exceeds its cost.

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents an aging of our unrealized investment losses by investment class as of June 30, 2014 and December 31, 2013 (in thousands):


	*Less Than Twelve Months*						*Twelve Months or More*
	*Number of* *Securities*		*Gross Unrealized* *Losses*		*Fair Value*		*Number of* *Securities*		*Gross Unrealized* *Losses*		*Fair Value*
	(In thousands)						(In thousands)
*June 30, 2014*
U.S. government and agency securities		1	$	—	$	250		2	$	5	$	204
States, municipalities and political subdivisions		1		2		174		6		21		1,926
Industrial and miscellaneous		12		17		5,528		19		76		5,646
Special revenue		6		9		2,451		26		89		7,144
Redeemable preferred stocks		10		2		562		14		33		569

Total fixed maturities		30	$	30	$	8,965		67	$	224	$	15,489

Nonredeemable preferred stocks		1		8		1,160		1		48		1,134
Equity securities		1		5		183		—		0		0

Total equity securities		2		13		1,343		1		48		1,134

Total		32	$	43	$	10,308		68	$	272	$	16,623

*December 31, 2013*
U.S. government and agency securities		6	$	44	$	1,335		—	$	—	$	—
States, municipalities and political subdivisions		17		116		8,294		2		20		341
Industrial and miscellaneous		89		413		30,962		6		66		888
Special revenue		59		582		27,256		3		27		502
Redeemable preferred stocks		27		223		1,844		—		—		—

Total fixed maturities		198		1,378		69,691		11		113		1,731

Nonredeemable preferred stocks		58		331		4,349		—		—		—
Equity securities		4		45		689		—		—		—

Total equity securities		62		376		5,038		—		—		—

Total		260	$	1,754	$	74,729		11	$	113	$	1,731

NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table shows the fair value of the Company’s financial instruments and where in the fair value hierarchy the fair value measurements are included as of the dates indicated below:


June 30, 2014	Total		Level 1		Level 2		Level 3
	(in thousands)
Fixed maturity investments
U.S. Government and Government agencies	$	1,216	$	—	$	1,216	$	—
States, municipalities and political subdivisions		16,192		—		16,192		—
Special Revenue		56,290		—		56,290		—
Industrial and miscellaneous		57,102		—		57,102		—
Redeemable preferred stocks		2,617		2,617		—		—

Total fixed maturity investments	$	133,417	$	2,617	$	130,800	$	—

Equity securities	$	10,117	$	10,117	$	—	$	—
Non-redeemable preferred stocks		7,421		7,421		—		—

Total equity securities	$	17,538	$	17,538	$	—	$	—

Total investments	$	150,955	$	20,155	$	130,800	$	—

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements


December 31, 2013	Total		Level 1		Level 2		Level 3
	(in thousands)
Fixed maturity investments
U.S. Government and Government agencies	$	1,442	$	—	$	1,442	$	—
States, municipalities and political subdivisions		14,161		—		14,161		—
Special Revenue		40,595		—		40,595		—
Industrial and miscellaneous		46,315		—		46,315		—
Redeemable preferred stocks		2,155		2,155		—		—

Total fixed maturity investments	$	104,668	$	2,155	$	102,513	$	—

Equity securities	$	20,488	$	20,488	$	—	$	—
Non-redeemable preferred stocks		4,958		4,958		—		—

Total equity securities	$	25,446	$	25,446	$	—	$	—

Total investments	$	130,114	$	27,601	$	102,513	$	—

NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment, net consists of the following at June 30, 2014 and December 31, 2013:


	*June 30, 2014*		*December 31, 2013*
	(In thousands)
Land	$	2,582	$	2,582
Building		8,336		7,090
Computer hardware and software		953		364
Office furniture and equipment		268		176
Tenant and leasehold improvements		1,835		873
Vehicle fleet		216		—

Total, at cost		14,190		11,085
Less: accumulated depreciation and amortization		422		150

Property and equipment, net	$	13,768	$	10,935

Depreciation and amortization expense for property and equipment was $104,000 and $272,000 for the three and six-month periods ended June 30, 2014, respectively. The Company’s real estate consists of 13 acres of land and two buildings with a gross area of 148,000 square feet. The Company relocated to these facilities during March 2014. These facilities and the related existing tenant lease agreements were acquired in April 2013 for a total purchase price of $9.8 million paid in cash.

The Company currently leases space to non-affiliates and its subsidiary Heritage P&C, and occupies space in one of the buildings.

NOTE 6. EARNINGS PER SHARE

Basic earnings per weighted average common share (“EPS”) is calculated by dividing net income by the weighted average number of basic common shares outstanding during the period. Diluted earnings per share amounts are based on the weighted average number of common shares including outstanding warrants and the net effect of potentially dilutive common shares outstanding.

The following table sets forth the computation of basic and diluted EPS for the periods indicated.


	*Three Months Ended June 30,*				*Six Months Ended June 30,*
	*2014*		*2013*		*2014*		*2013*
Basic earnings per share:
Net income attributable to common stockholders (000’s)	$	9,566	$	21,018	$	17,454	$	28,073
Weighted average shares outstanding		22,119,754		15,203,100		19,256,172		12,983,525

Basic earnings per share:	$	0.43	$	1.38	$	0.91	$	2.16

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements


	*Three Months Ended June 30,*				*Six Months Ended June 30,*
	*2014*		*2013*		*2014*		*2013*
Diluted earnings per share:
Net income attributable to common stockholders (000’s)	$	9,566	$	21,018	$	17,454	$	28,073
Weighted average shares outstanding		22,119,754		15,203,100		19,256,172		12,983,525
Weighted average dilutive shares		2,213,722		—		2,428,058		—

Total weighted average dilutive shares		24,333,476		15,203,100		21,684,230		12,983,525

Diluted earnings per share:	$	0.39	$	1.38	$	0.80	$	2.16

NOTE 7. DEFERRED POLICY ACQUISITION COSTS

The Company defers certain costs in connection with written policies, called Deferred Policy Acquisition Costs (“DPAC”), net of corresponding amounts of ceded reinsurance commissions, called Deferred Reinsurance Ceding Commissions (“DRCC”). Net DPAC is amortized over the effective period of the related insurance policies.

The Company anticipates that its deferred policy acquisition costs will be fully recoverable in the near term. The table below depicts the activity with regard to deferred policy acquisition costs during the three and six-month periods ended June 30, 2014 and 2013 (in thousands):


	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2014*			*2013*			*2014*			*2013*
	(In thousands)						(In thousands)
Beginning Balance	$	12,226		$	1,326		$	9,765		$	32
Policy acquisition costs deferred		19,550			3,693			26,484			5,103
Amortization		(6,384	)		(865	)		(10,857	)		(982	)

Ending Balance	$	25,392		$	4,154		$	25,392		$	4,154

The deferred policy acquisition costs at June 30, 2014 include the unamortized portion of $10.0 million of deferred costs paid during June 2014 in connection with the Company’s assumption of policies from SSIC.

NOTE 8. INCOME TAXES

During the six months ended June 30, 2014, the Company recorded $9.5 million of income tax expense which resulted in an estimated annual effective tax rate of 35.2%. The effective tax rate was primarily impacted due to income earned while the Company was a limited liability company in the amount of $2.7 million, which was not subject to entity level taxation.

The Company’s deferred income tax asset of $4.4 million at December 31, 2013 decreased to $3.3 million deferred tax liability at June 30, 2014 primarily due to the increase in deferred acquisition costs resulting from the assumption of SSIC policies in June 2014.

NOTE 9. REINSURANCE

The Company’s reinsurance program is designed, utilizing its risk management methodology, to address its exposure to catastrophes. The Company’s program provides reinsurance protection for catastrophes including hurricanes, tropical storms, and tornadoes. These reinsurance agreements are part of the Company’s catastrophe management strategy, which is intended to provide its stockholders an acceptable return on the risks assumed in its property business, and to reduce variability of earnings, while providing protection to the Company’s policyholders.

Effective December 4, 2012, concurrent with the effective date of the Company’s initial assumption transaction with Citizens Property Insurance Corporation (“Citizens”), the Company secured catastrophe excess of loss reinsurance providing $9.5 million of protection in excess of its $2.0 million primary retention through May 31, 2013. Loss payments under this contract reduce the limits of coverage afforded by the amounts paid, but the limit of coverage would be reinstated from the time of the occurrence of the loss. The Company would pay an additional premium calculated at pro rata of 100% of the reinsurer’s premium for the term of this contract, being pro rata only as to the fraction of the reinsurer’s limit of liability and reinstated simultaneously with the reinsurer’s loss payment. Under no circumstances would the reinsurer’s liability exceed $9.5 million for any one loss occurrence, and $19.0 million for all loss occurrences during the contract term.

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

During the second quarter of 2013, the Company placed its reinsurance program for the period from June 1, 2013 through May 31, 2014. The Company’s reinsurance program, which was segmented into layers of coverage, protected it for excess property catastrophe losses and loss adjustment expenses. The Company’s previous year’s reinsurance program incorporated the mandatory coverage required by law to be placed with the Florida Hurricane Catastrophe Fund, a state-mandated catastrophe reinsurance fund (“FHCF”). The Company also purchased private reinsurance below, alongside and above the FHCF layer, as well as aggregate reinsurance coverage. The following describes the various layers of the Company’s 2013 reinsurance program.

•

The Company’s Retention . For the first catastrophic event, the Company may have a primary retention of the first $9.0 million of losses and loss adjustment expenses, of which the Company’s reinsurance subsidiary, Osprey Re Ltd (“Osprey”), is responsible for $3.0 million. For a second and third catastrophic event, Heritage P&C’s primary retention decreased to $3.0 million per event. To the extent that there was reinsurance coverage remaining, Heritage P&C has no primary retention for events beyond the third catastrophic event. Osprey had no primary retention beyond the first catastrophic event.

•

Layers Below FHCF . Immediately above the Company’s retention, the Company purchased $94.0 million of reinsurance from third party reinsurers and Osprey. Through Osprey, the Company retained an aggregate participation in this coverage of $3.5 million, comprised of a 3% participation of $31.0 million of losses and loss adjustment expenses in excess of $9.0 million, or $0.9 million, and a 4% participation of $63.0 million of losses and loss adjustment expenses in excess of $40.0 million, or $2.5 million. Through the payment of a reinstatement premium, the Company was able to reinstate the full amount of this reinsurance one time. To the extent that $94.0 million or a portion thereof was exhausted in a first catastrophic event, the Company purchased reinstatement premium protection insurance to pay the required premium necessary for the reinstatement of this coverage.

•

FHCF Layer . The Company’s FHCF coverage included an estimated maximum provisional limit of 90% of $270.0 million, or $243.0 million, in excess of the Company’s retention and private reinsurance of $103.0 million. The limit and retention of the FHCF coverage is subject to upward or downward adjustment based on, among other things, submitted exposures to FHCF by all participants. The Company purchased coverage alongside and above the FHCF layer from third party reinsurers. The layer alongside was in the amount of $27.0 million and the layer immediately above was in the amount of $28.5 million. To the extent the FHCF coverage was adjusted, this private reinsurance would adjust to fill in any gaps in coverage up to the reinsurers’ aggregate limits for this layer. Through the payment of a reinstatement premium, the Company was able to reinstate the full amount of this private reinsurance one time. To the extent that all or a portion of either of these private layers was exhausted in a first catastrophic event, the Company purchased reinstatement premium protection insurance to pay the required premium necessary for the reinstatement of this coverage. The FHCF coverage could not be reinstated once exhausted, but it did provide coverage for multiple events.

•

Aggregate Coverage . In addition to the layers described above, the Company also purchased $170.0 million of aggregate reinsurance coverage for losses and loss adjustment expenses in excess of $401.5 million for a first catastrophic event. To the extent that this coverage was not fully exhausted in the first catastrophic event, it provided coverage commencing at its reduced retention levels for second and subsequent events and where underlying coverage has been previously exhausted. There is no reinstatement of the aggregate reinsurance coverage once exhausted, but it did provide coverage for multiple events.

For a first catastrophic event, the Company’s 2013 reinsurance program provided coverage for $571.5 million of losses and loss adjustment expenses, including its retention, and the Company was responsible for all losses and loss adjustment expenses in excess of such amount. For subsequent catastrophic events, the Company’s total available coverage depended on the magnitude of the first event, as the Company may had coverage remaining from layers that were not previously fully exhausted. The Company also purchased reinstatement premium protection insurance to provide an additional $149.5 million of coverage. The Company aggregate reinsurance layer also provides coverage for second and subsequent events to the extent not exhausted in prior events.

During April 2014, Heritage P&C entered into two catastrophe reinsurance agreements with Citrus Re Ltd., a newly-formed Bermuda special purpose insurer. The agreements provide for three years of coverage from catastrophe losses caused by certain named storms, including hurricanes, beginning on June 1, 2014. The limit of coverage of $200 million is fully

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

collateralized by a reinsurance trust account for the benefit of Heritage P&C. Heritage P&C pays a periodic premium to Citrus Re Ltd. during this three-year risk period. Citrus Re Ltd. issued $200 million of principal-at-risk variable notes due April 2017 to fund the reinsurance trust account and its obligations to Heritage P&C under the reinsurance agreements. The maturity date of the notes may be extended up to two additional years to satisfy claims for catastrophic events occurring during the three-year term of the reinsurance agreements. The Company has determined that, while Citrus Re Ltd. is a variable interest entity, the Company does not have any variable interests in Citrus Re Ltd. Accordingly, consolidation of or disclosures associated with Citrus Re Ltd. are not applicable.

During the second quarter of 2014, the Company placed its reinsurance program for the period from June 1, 2014 through May 31, 2015. The Company’s reinsurance program, which is segmented into layers of coverage, protects it for excess property catastrophe losses and loss adjustment expenses. The Company’s current reinsurance program incorporates the mandatory coverage required by law to be placed with FHCF. We also purchase private reinsurance below, alongside and above the FHCF layer, as well as aggregate reinsurance coverage. The following describes the various layers of our 2014 reinsurance program.

•

The Company’s Retention . For the first catastrophic event, the Company may have a primary retention of the first $15.0 million of losses and loss adjustment expenses, of which Osprey is responsible for $6.0 million. For a second event, Heritage P&C’s primary retention decreases to $2.0 million and Osprey is responsible for $4.0 million. To the extent that there is reinsurance coverage remaining, Heritage P&C has a $2.0 million primary retention for events beyond the third catastrophic event. Osprey has no primary retention beyond the second catastrophic event.

•

Layers Below FHCF . Immediately above the Company’s retention, the Company has purchased $185.0 million of reinsurance from third party reinsurers. Through the payment of a reinstatement premium, we are able to reinstate the full amount of this reinsurance one time. To the extent that $185.0 million or a portion thereof is exhausted in a first catastrophic event, the Company has purchased reinstatement premium protection insurance to pay the required premium necessary for the reinstatement of this coverage.

•

FHCF Layer . Our FHCF coverage includes an estimated maximum provisional limit of 90% of $484.0 million, or $435.0 million, in excess of our retention and private reinsurance of $166.0 million. The limit and retention of the FHCF coverage is subject to upward or downward adjustment based on, among other things, submitted exposures to FHCF by all participants. We have purchased coverage alongside from third party reinsurers. The layer alongside is in the amount of $49.0 million. To the extent the FHCF coverage is adjusted, this private reinsurance will adjust to fill in any gaps in coverage up to the reinsurers’ aggregate limits for this layer. The FHCF coverage cannot be reinstated once exhausted, but it does provide coverage for multiple events.

•

CAT Bond Layer . Immediately above the FHCF layer is the coverage provided by the reinsurance agreements entered into with Citrus Re Ltd., as described above in this footnote. The first contract with Citrus Re Ltd. provides $150.0 million of coverage and the second contract provides an additional $50.0 million of coverage. Osprey provides $25.0 million of coverage alongside the second contract.

•

Aggregate Coverage . In addition to the layers described above, the Company has also purchased $105.0 million of aggregate reinsurance coverage for losses and loss adjustment expenses in excess of $885.0 million for a first catastrophic event. To the extent that this coverage is not fully exhausted in the first catastrophic event, it provides coverage commencing at its reduced retention levels for second and subsequent events and where underlying coverage has been previously exhausted. There is no reinstatement of the aggregate reinsurance coverage once exhausted, but it does provide coverage for multiple events. Osprey Re Ltd. provides $20.0 million of protection in the layer above $940.0 million.

For a first catastrophic event, the Company’s reinsurance program provides coverage for $990.0 million of losses and loss adjustment expenses, including its retention, and the Company is responsible for all losses and loss adjustment expenses in excess of such amount. For subsequent catastrophic events, the Company’s total available coverage depends on the magnitude of the first event, as the Company may have coverage remaining from layers that were not previously fully exhausted. The Company has also purchased reinstatement premium protection insurance to provide an additional $185.0 million of coverage. The Company aggregate reinsurance layer also provides coverage for second and subsequent events to the extent not exhausted in prior events.

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Assumption Transactions and Assumed Premiums Written

On June 27, 2014, the Company assumed approximately $58.9 million (representing 33,000 policies in force) of annualized premiums from SSIC. The SSIC policies account for approximately 19% of the Company’s total policies in force as of June 30, 2014. Prior to June 27, 2014, substantially all of the Company’s policies have been obtained in connection with assumption transactions with Citizens, pursuant to which the Company recorded the assumed premiums written in the amount of the unearned premiums transferred to the Company. In connection with each assumption transaction, the Company assumes the responsibility of the primary writer of the risk through the expiration of the term of the policy.

The following table depicts written premiums, earned premiums and losses, showing the effects that the Company’s assumption transactions have on these components of the Company’s Unaudited Condensed Consolidated Statements of Income:


	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2014*			*2013*			*2014*			*2013*
	(In thousands)						(In thousands)
Premium written:
Direct	$	71,072		$	28,187		$	123,172		$	39,765
Assumed		28,197			52,862			45,000			57,633
Ceded		(94,452	)		(75,163	)		(94,466	)		(75,165	)

Net premium written	$	4,817		$	5,886		$	73,706		$	22,233

Change in unearned premiums:
Direct	$	(26,025	)	$	(21,839	)	$	(43,982	)	$	(32,525	)
Assumed		(9,119	)		(31,170	)		795			(16,508	)
Ceded		74,622			68,747			56,012			68,391

Net decrease (increase)	$	39,478		$	15,738		$	12,825		$	19,358

Premiums earned:
Direct	$	45,047		$	6,348		$	79,190		$	7,240
Assumed		19,078			21,692			45,795			41,125
Ceded		(19,830	)		(6,416	)		(38,454	)		(6,774	)

Net premiums earned	$	44,295		$	21,624		$	86,531		$	41,591

Losses and LAE incurred:
Direct	$	14,463		$	1,653		$	24,713		$	1,802
Assumed		4,781			6,217			15,118			11,346
Ceded		—			—			—			—

Net losses and LAE incurred	$	19,244		$	7,870		$	39,831		$	13,148

The following table highlights the effects that the Company’s assumption transactions have on unpaid losses and loss adjustment expenses and unearned premiums:


	*June 30, 2014*			*December 31, 2013*
	*(In thousands)*
Unpaid losses and loss adjustment expenses:
Direct	$	21,030		$	10,037
Assumed		13,503			9,307

Gross unpaid losses and LAE		34,533			19,344
Ceded		—			—

Net unpaid losses and LAE	$	34,533		$	19,344

Unearned premiums:
Direct	$	118,982		$	75,000
Assumed		40,448			41,243

Gross unearned premiums		159,430			116,243
Ceded		(87,264	)		(31,252	)

Net unearned premiums	$	72,166		$	84,991

There were no amounts recoverable under the Company’s reinsurance agreements for the three month and six months June 30, 2014 and June 30, 2013. Prepaid reinsurance premiums related to 16 reinsurers at June 30, 2014 and December 31, 2013.

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

There was no amounts receivable with respect to reinsurers at June 30, 2014 and December 31, 2013. Thus, there were no concentrations of credit risk associated with reinsurance receivables as of June 30, 2014 and December 31, 2013. The percentages of assumed premiums earned to net premiums earned for the six-month periods ended June 30, 2014 and 2013 were 53% and 99%, respectively.

NOTE 10. RESERVE FOR UNPAID LOSSES

The Company determines the reserve for unpaid losses on an individual-case basis for all incidents reported. The liability also includes amounts for which are commonly referred to as incurred but not reported, or “IBNR”, claims as of the balance sheet date.

The table below summarizes the activity related to the Company’s reserve for unpaid losses for the three and six month periods ended June 30, 2014 and 2013 (in thousands):


	*Three Months Ended June 30,*					*Six Months Ended June 30,*
	*2014*		*2013*			*2014*		*2013*
	(In thousands)					(In thousands)
Balance, beginning of period	$	28,456	$	4,973		$	19,344	$	1,393
Less: reinsurance recoverable on unpaid losses		—		—			—		—

Net balance, beginning of period		28,456		4,973			19,344		1,393

Incurred related to:
Current year		19,027		8,255			39,582		13,553
Prior years		217		(385	)		249		(405	)

Total incurred		19,244		7,870			39,831		13,148

Paid related to:
Current year		11,085		2,547			16,326		4,538
Prior years		2,082		803			8,316		510

Total paid		13,167		3,350			24,642		5,048

Net balance, end of period		34,533		9,493			34,533		9,493
Plus: reinsurance recoverable on unpaid losses		—		—			—		—

Balance, end of period	$	34,533	$	9,493		$	34,533	$	9,493

The significant increase in the Company’s reserves for unpaid losses in 2014 from 2013 is primarily due to the increase in policy base as a result of the assumption of Citizens policies in 2013.

The Company writes insurance in the state of Florida, which could be exposed to hurricanes or other natural catastrophes. Although the occurrence of a major catastrophe could have a significant effect on its monthly or quarterly results, such an event is unlikely to be so material as to disrupt its overall normal operations. However, the Company is unable to predict the frequency or severity of any such events that may occur in the near term or thereafter.

The Company believes that the reserve for unpaid losses reasonably represents the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.

The Company’s losses incurred related to the prior year reflect a reserve deficiency of $217,000 and $249,000 for the three and six months ended June 30, 2014 and a redundancy of $385,000 and $405,000 for the three and six months ended June 30, 2013, respectively. The nominal deficiency and redundancy we experienced in 2014 and 2013, respectively, resulted from changes to the Company’s estimate of ultimate losses on claims incurred in prior years not attributable to any specific trend or claims handling dynamic.

NOTE 11. STATUTORY ACCOUNTING AND REGULATIONS

The insurance industry is heavily-regulated. State laws and regulations, as well as national regulatory agency requirements, govern the operations of all insurers such as our insurance subsidiary. The various laws and regulations require that insurers maintain minimum amounts of statutory surplus and risk-based capital, they restrict insurers’ ability to pay dividends, they specify allowable investment types and investment mixes, and they subject insurers to assessments.

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The Company’s insurance subsidiary must file with the insurance regulatory authorities an “Annual Statement” which reports, among other items, net income (loss) and surplus as regards policyholders, which is called stockholder’s equity under GAAP. For the six-month periods ended June 30, 2014 and 2013, our insurance subsidiary recorded statutory net income of $2.0 million and $25.1 million, respectively. The Company’s insurance subsidiary is domiciled in Florida, and the laws of that state require that its insurance subsidiary maintain capital and surplus equal to the greater of $15.0 million or 10% of its liabilities. The Company’s statutory capital surplus was $121.3 million and $63.1 million at June 30, 2014 and December 31, 2013, respectively. State law also requires our insurance subsidiary to adhere to prescribed premium-to-capital surplus ratios, with which the Company is in compliance.

NOTE 12. COMMITMENT AND CONTINGENCIES

The Company is involved in claims-related legal actions arising in the ordinary course of business. The Company accrues amounts resulting from claims-related legal actions in unpaid losses and loss adjustment expenses during the period that it determines an unfavorable outcome becomes probable and it can estimate the amounts. Management makes revisions to its estimates based on its analysis of subsequent information that the Company receives regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the awarding of damages and (iv) trends in general economic conditions, including the effects of inflation. When determinable, the Company discloses the range of possible losses in excess of those accrued and for reasonably possible losses.

NOTE 13. RELATED PARTY TRANSACTIONS

The Company has been party to various related party transactions involving certain of its officers, directors and stockholders. The Company has entered into these arrangements without obligation to continue its effect in the future and the associated expense was immaterial to its results of operations or financial position as of June 30, 2014 and December 31, 2013.

•

The Company leased the space that it had occupied through March 2014 at 700 Central Avenue, Ste. 500 St. Petersburg, Florida from a real estate management company controlled by a stockholder. The Company leased the space without obligation to continue doing so in the future. For the six-month periods ended June 30, 2014 and 2013 the Company incurred rent expense of approximately $101,000 and $243,000 respectively. The Company relocated to one of the buildings located on its Clearwater property in March 2014.

•

The Company has entered into an agreement with a real estate management company controlled by one of its directors to manage its Clearwater office space. Management services are provided at a fixed fee, plus ordinary and necessary out of pocket expenses. Fees for additional services, such as the oversight of construction activity, are provided for on an as needed basis.

•

The Company has entered into an agreement for the construction of a parking facility for its Clearwater property with a relative of one of its directors. Since commencement of the construction in 2014, the Company has made payments of approximately $1.6 million for engineering and architectural services, and expects to pay an aggregate of approximately $2.4 million in connection with this construction project.

•

The Company’s insurance subsidiary received water mitigation services from SVM Restoration Services, Inc. (“SVM”), a Florida corporation providing water loss mitigation services in Florida. SVM was controlled by an executive officer and stockholder through February 28, 2014. During the six-month periods ended June 30, 2014 and 2013, the Company incurred approximately $438,000 and $529,000, respectively, payable to SVM. On March 1, 2014, we acquired the assets of SVM for $2.5 million, which have been allocated $150,000 to property and equipment and $2.35 million to goodwill included in other assets. The allocation of purchase price as of March 31, 2014 is preliminary pending our evaluation of the underlying asset values. The acquired assets will be deployed by our subsidiary, Contractors’ Alliance Network, LLC, in the delivery of a broadened spectrum of services. Pro forma disclosures have been omitted as this acquisition is not material to our consolidated financial statements.

NOTE 14. EMPLOYEE BENEFIT PLAN

The Company provides a 401(k) plan for substantially all of its employees. The Company contributes 3% of employees’ salary, up to the maximum allowable contribution, regardless of the employees’ level of participation in the plan. For the six-month periods ended June 30, 2014 and 2013, the Company’s contributions to the plan on behalf of the participating employees were $87,000, and $31,000, respectively.

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 15. EQUITY

The total amount of authorized capital stock consists of 50,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of June 30, 2014, the Company had 29,794,960 shares of common stock and 30,600 warrants outstanding reflecting total paid in capital of $184.0 million as of such date.

Common Stock

Holders of common stock are entitled to one vote for each share held on all matters subject to a vote of stockholders, subject to the rights of holders of any outstanding preferred stock. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election, subject to the rights of holders of any outstanding preferred stock. Holders of common stock will be entitled to receive ratably any dividends that the board of directors may declare out of funds legally available therefor, subject to any preferential dividend rights of outstanding preferred stock. Upon the Company’s liquidation, dissolution or winding up, the holders of common stock will be entitled to receive ratably its net assets available after the payment of all debts and other liabilities and subject to the prior rights of holders of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of the Company’s capital stock are fully paid and nonassessable.

Equity Issuances

As more fully disclosed in our previously referred to financial statements for the year ended December 31, 2013, there were, as of December 31, 2013, 14,007,150 shares of common stock outstanding and 2,338,350 redeemable shares outstanding, representing $62,849 of additional paid-in capital and $20,921 of redeemable shares. The following discloses the changes in our stockholders’ equity during 2014.

First Quarter 2014

In the first quarter 2014, the Company raised an additional $88,000 of capital through the issuance of 17,850 investment units, comprised of 17,850 shares of common stock and 17,850 warrants to purchase shares of common stock at an exercise price of $5.88 per share.

Second Quarter 2014

Prior to the IPO, certain of the Company’s stockholders held warrants to purchase an aggregate of 7,716,300 shares of the Company at an exercise price of $5.88 per share. On May 22, 2014, warrants to purchase an aggregate of 7,685,700 shares were exercised (the “Warrant Exercise”), including warrants to purchase an aggregate of 3,858,150 shares exercised on a cashless basis. Pursuant to the cashless exercise provisions of the warrants, each warrant holder paid the exercise price by surrendering to the Company an amount of shares having a value equal to the aggregate exercise price of the warrants being exercised. The terms of the warrants provided that the value ascribed to each share surrendered to the Company as payment for the exercise price was equal to the initial public offering price per share of common stock. As a result, an aggregate of 5,622,519 shares were issued in connection with the Warrant Exercise. The Company received $22.5 million in proceeds from the cash exercise of 3,827,550 warrants.

All remaining 30,600 warrants can be exercised at an exercise price equal to $5.88 per share on or before March 31, 2018. At issuance, equity warrants are recorded at their relative fair values, using the relative fair value method, in the stockholders’ equity section of the condensed consolidated balance sheets. The Company’s equity warrants can only be settled through the issuance of shares and are not subject to anti-dilution provisions. The aggregate intrinsic value of warrants was approximately $0.3 million at June 30, 2014.

Public Offering and Concurrent Private Placement

On May 29, 2014, the Company sold as part of the IPO 6,900,000 shares of common stock at $11.00 per share of common stock, including 900,000 shares sold pursuant to the underwriters’ over-allotment option for gross cash proceeds in aggregate of $75.9 million. The Company incurred an underwriter discount fee of $5.3 million or $0.77 per share of common stock, netting proceeds (before expenses) of $70.6 million or $10.23 per share of common stock.

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Ananke, an affiliate of Nephila Capital Ltd, purchased $10.0 million of the Company’s common stock (909,090 shares) in a concurrent private placement at a price per share equal to the public offering price. Poseidon Re Ltd., another affiliate of Nephila Capital Ltd, is currently a participating reinsurer in the Company’s reinsurance program. The sale of such shares was not registered under the Securities Act and was conducted in accordance with Section 4(a)(2) of the Securities Act.

In addition, in connection with the Concurrent Private Placement, a reinsurer affiliated with or designated by Nephila Capital Ltd was provided with a right of first refusal to participate in the Company’s future reinsurance programs, subject to certain exceptions. The right of first refusal terminates on May 31, 2019, subject to certain conditions.

NOTE 16. STOCK-BASED COMPENSATION

The Company has adopted the Heritage Insurance Holdings, Inc., Omnibus Incentive Plan (the “Plan”) effective on May 22, 2014. The Plan has authorized 2,981,737 shares of common stock reserved for issuance under the Plan for future grants.

At June 30, 2014 and 2013, there were 2,981,737 and 0 shares available for grant under the Plan, respectively.

The Company recognizes compensation expense under ASC 718 for its stock-based payments based on the fair value of the awards. The Company grants stock options at exercise prices equal to the fair market value of the Company’s stock on the dates the options are granted. The options have a maximum term of ten years from the date of grant and vest primarily in equal annual installments over a range of one to five year periods following the date of grant for employee options. If a participant’s employment relationship ends, the participant’s vested awards will remain exercisable for the shorter of a period of 30 days or the period ending on the latest date on which such award could have been exercisable. The fair value of each option grant is separately estimated for each grant date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The Company estimates the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense.

Stock Options

During the six months ended June 30, 2014 and 2013, the Company did not grant any stock options.

Stock-based compensation costs for restricted stock grants is measured based on the closing fair market value of our common stock on the date of grant. The Company recognizes stock-based compensation costs over the award’s requisite service period on a straight-line basis for the time-based restricted stock grants. We granted no restricted stock awards during the six-month periods ended June 30, 2014 and 2013, respectively.

NOTE 17. STOCK SPLIT

In connection with the IPO in May 2014, the Company’s Board of Directors approved a 2,550 for 1 stock split of the Company’s Shares. The Stock split became effective on May 7, 2014. All share and per share amounts in the Unaudited Condensed Consolidated Financial Statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this stock split and for changes allocated with conversion from a limited liability company to a corporation.

NOTE 18. SUBSEQUENT EVENTS

We evaluated all subsequent events and transactions up to the date of issuance of this report for potential recognition or disclosure in our financial statements.

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

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes and information included under this Item 2 and elsewhere in this quarterly report on Form 10-Q and in our Prospectus filed pursuant to Rule 424 (b) under the Securities Act with the Securities and Exchange Commission (“SEC”) on May 27, 2014. Unless the context requires otherwise, as used in this Form 10-Q, the terms “we,” “us,” “our,” “the Company,” “our company,” and similar references refer to Heritage Insurance Holdings, Inc., a Delaware corporation, and its subsidiaries. All dollar amounts, except per share amounts stated in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are in thousands unless specified otherwise.

FORWARD-LOOKING STATEMENTS

In addition to historical information, this quarterly report contains forward-looking statements as defined under federal securities laws. Such statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. Typically, forward-looking statements can be identified by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions. The important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include but are not limited to the effect of governmental regulation; changes in insurance regulations; the frequency and extent of claims; uncertainties inherent in reserve estimates; catastrophic events; a change in the demand for, pricing of, availability of or collectability of reinsurance; restrictions on our ability to change premium rates; increased rate pressure on premiums; and other risks and uncertainties detailed herein and from time to time in our SEC reports.

Overview

We are a property and casualty insurance holding company headquartered in Clearwater, Florida and, through our subsidiary, Heritage Property & Casualty Insurance Company (“Heritage P&C”) we provide personal residential insurance for single-family homeowners and condominium owners, rental property insurance and commercial residential insurance in the state of Florida. We are vertically integrated and control or manage substantially all aspects of insurance underwriting, actuarial analysis, distribution and claims processing and adjusting. We are led by an experienced senior management team with an average of 26 years of insurance industry experience. We began operations in August 2012, and in December 2012 we began selectively assuming policies from Citizens Property Insurance Corporation (“Citizens”), a Florida state-supported insurer, through participation in a legislatively established “depopulation program” designed to reduce the state’s risk exposure by encouraging private companies to assume insurance policies from Citizens. We also write policies outside the Citizens depopulation program, which we refer to as voluntary policies. Heritage P&C is currently rated “A” (“Exceptional”) by Demotech, a rating agency specializing in evaluating the financial stability of insurers.

As of June 30, 2014, we had approximately 171,000 policies in force, approximately 69% of which were assumed from Citizens. For the six months ended June 30, 2014 and 2013, we had gross premiums written of $168.2 million and $97.4 million, respectively, and net income of $17.5 million and $28.1 million, respectively. At June 30, 2014, we had total assets of $525.8 million and total stockholders’ equity of $221.6 million.

We market and write voluntary policies through a network of approximately 1,200 independent agents. Approximately 150 of our agents came to us as part of the SSIC transaction described below. We intend to pursue additional voluntary business from agents in our existing independent agent network, expand our independent agent network and seek additional opportunities to use insurer-affiliated agents to offer our personal residential policies in Florida. While we had 19,657 voluntary policies (12% of our total policies in force) as of June 30, 2014, during the six months ended June 30, 2014, we wrote an average of 1,803 new voluntary policies per month. The voluntary market is a significant component of our growth strategy.

Recent Developments

Initial Public Offering and Concurrent Private Placement

On May 29, 2014, we completed our initial public offering (“IPO”) in which we sold an aggregate of 6,900,000 shares of our common stock at $11.00 per share, including 900,000 shares sold pursuant to the underwriters’ over-allotment option. We received net proceeds of $69.0 million from the IPO, after deducting the underwriters discounted offering expenses.

In connection with the IPO, Ananke Ltd, an affiliate of Nephila Capital Ltd, agreed to purchase $10.0 million of our common stock in a concurrent private placement (the “Private Placement”) at a price per share equal to the IPO price. Poseidon Re Ltd., another affiliate of Nephila Capital Ltd, is currently a participating reinsurer in our reinsurance program. We received net proceeds of $9.6 million in connection with the Private Placement after deducting discounts and expenses.

In addition, in connection with the Private Placement, we granted a reinsurer affiliated with or designated by Nephila Capital Ltd a right of first refusal to participate in our future reinsurance programs, subject to certain exceptions. The right of first refusal terminates on May 31, 2019, subject to certain conditions.

In connection with the IPO, warrants to purchase an aggregate of 7,685,700 were exercised by existing stockholders. We issued 3,827,550 shares in exchange for $22.5 million pursuant to cash exercises and 1,794,969 shares in connection with cashless exercises.

Sunshine State Insurance Company Policy Acquisition

On June 13, 2014, Heritage P&C entered into an Insurance Policy Acquisition and Transition Agreement (the “Agreement”) with the Florida Insurance Guaranty Association (“FIGA”) and the Florida Department of Financial Services (“DFS”), the Receiver of Sunshine State Insurance Company (“SSIC”). Pursuant to the Agreement, Heritage P&C has the right to offer a new policy of insurance, effective June 27, 2014 to all (subject to limited exceptions) Florida SSIC policyholders having in-force policies (“Transition Policies”), without the need for SSIC policyholders to file a new application with HPCI or pay premium that has already been paid to SSIC (“Transition Coverage”). As of June 27, 2014, SSIC had approximately 33,000 policies in force, representing approximately $58.9 million of in force premium and unearned premium of approximately of $29.3 million. The Transition Coverage will terminate at the end of the original SSIC policy period. Upon termination of each Transition Policy, Heritage P&C will renew such policies at the lesser of SSIC’s and Heritage P&C’s rates on either SSIC’s or Heritage P&C’s forms, respectively. The SSIC policies represented approximately 19% of our total policies in force at June 30, 2014. Heritage P&C was assigned the entirety of the unearned premium. As consideration, Heritage P&C paid $10.0 million to the DFS, which will be amortized as acquisition costs in relation to the earning of the approximate $29.3 million of unearned premium. The $100 per policy FIGA statutory deductible and unearned commissions that will be paid to FIGA, as part of the transaction, will be deducted from the $10.0 million payment.

Catastrophe Bond Program

On April 17, 2014, Heritage P&C entered into a catastrophe reinsurance agreement with Citrus Re Ltd., a newly-formed Bermuda special purpose insurer. The agreement provides for three years of coverage from catastrophe losses caused by certain named storms, including hurricanes, beginning on June 1, 2014. The limit of coverage of $200 million is fully collateralized by a reinsurance trust account for the benefit of Heritage P&C. Heritage P&C pays a periodic premium to Citrus Re Ltd. during this three-year risk period. Citrus Re Ltd. issued $200.0 million of principal-at-risk variable notes due April 17, 2017 to fund the reinsurance trust account and its obligations to Heritage P&C under the reinsurance agreement. The maturity date of the notes may be extended up to two additional years to satisfy claims for catastrophic events occurring during the three-year term of the reinsurance agreement.

On April 24, 2014, Heritage P&C entered into a second catastrophe reinsurance agreement with Citrus Re Ltd. providing for $50.0 million of coverage on substantially similar terms as the agreement described above. Citrus Re Ltd. issued an additional $50.0 million of principal-at-risk variable notes due April 24, 2017 to fund its obligations under the reinsurance agreement.

While the Company determined that Citrus Re Ltd. is a variable interest entity, the Company does not have any variable interests in this entity. Accordingly, consolidation of or disclosures associated with Citrus Re Ltd. are not applicable.

Highlights For The Six Month Period Ended June 30, 2014

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Approximately 171,000 policies in-force at June 30, 2014, of which approximately 69% were assumed from Citizens, 19% were assumed from SSIC and 12% from voluntary sales

•

Gross premiums written of $168.2 million and total revenue of $90.4 million

•

Net premiums earned of $86.5 million

•

Net income of $17.5 million

•

Combined ratio of 81.6% on a gross basis; combined ratio of 73.4% on a net basis

•

Cash, cash equivalents and investments of $339.1 million, with total assets of $525.8 million

Key Components of Our Results of Operations

Revenue

Gross premiums written . Gross premiums written represent, with respect to a fiscal period, the sum of assumed premiums written (premiums from policies that we assumed from Citizens, net of opt-outs) plus direct premiums written (premiums from subsequent renewals of Citizens’ policies and voluntary policies written during the period, net of any midterm cancellations), in each case prior to ceding premiums to reinsurers.

Gross premiums earned . Gross premiums earned represent the total premiums earned during a fiscal period from policies assumed from Citizens, subsequent renewals of such policies and voluntary policies. Premiums associated with assumed policies are earned ratably over the remaining term of the policy and premiums associated with voluntary and renewal policies are earned ratably over the twelve-month term of the policy.

Ceded premiums . Ceded premiums represent the cost of our reinsurance during a fiscal period. We recognize the cost, excluding premiums ceded to Osprey, of our reinsurance program ratably over the twelve month term of the arrangement—June 1, 2013 through May 31, 2014.

Net premiums earned. Net premiums earned reflect gross premiums earned less ceded premiums during the fiscal period.

Retroactive reinsurance income . Retroactive reinsurance income represents the income, net of associated losses and loss adjustment expenses, arising from the retroactive reinsurance agreement we entered in connection with our assumption of approximately 39,000 policies from Citizens in June 2013. Under this retroactive reinsurance agreement, we realized income equal to the earned premiums, net of associated losses and loss adjustment expenses, from such polices for the period from January 1, 2013 through May 31, 2013 with no corresponding reinsurance costs. The earned premiums for the period from June 1, 2013 through June 27, 2013 are included in gross premiums written for the three months ended June 30, 2013. The retroactive reinsurance agreement, which was a key element of our decision to enter into an assumption transaction at the outset of hurricane season, is not typical of our assumption transactions with Citizens. The typical assumption transaction with Citizens provides for the assumption of unearned premiums as of the effective date of the transaction, and does not result in the transfer of earned premiums and losses and loss adjustment expenses for prior periods. We do not expect to enter into similar retroactive arrangements with Citizens in connection with future policy assumptions.

Net investment income. Net investment income represents interest earned from fixed maturity securities, short term securities and other investments, dividends on equity securities, and the gains or losses from the sale of investments

Other revenue . Other revenue represents rental income due under non-cancelable leases for space at our commercial property in Clearwater, Florida that we acquired in April 2013, and all policy and pay-plan fees. Florida law allows insurers to charge policyholders a $25 policy fee on each policy written; these fees are not subject to refund, and we recognize the income immediately when collected. We also charge pay-plan fees to policyholders that pay their premium in more than one installment and record the fees as income when collected.

Expenses

Losses and loss adjustment expenses . Losses and loss adjustment expenses reflect losses paid, expenses paid to resolve claims, such as fees paid to adjusters, attorneys and investigators, and changes in our reserves for unpaid losses and loss adjustment expenses during the fiscal period, in each case net of losses ceded to reinsurers. Our reserves for unpaid losses and loss adjustment expenses represent the estimated ultimate cost of resolving all reported claims plus all losses we incurred related to insured events that we assume have occurred as of the reporting date, but that policyholders have not yet reported to us (which are commonly referred to as incurred but not reported, or “IBNR”). We estimate our reserves for unpaid losses using individual case-based estimates for reported claims and actuarial estimates for IBNR losses. We continually review and adjust our estimated losses as necessary based on industry development trends, our evolving claims experience and new information obtained. If our unpaid losses and loss adjustment expenses are considered deficient or redundant, we increase or decrease the liability in the period in which we identify the difference and reflect the change in our current period results of operations.

Policy acquisition costs . Policy acquisition costs consist of the following items: (i) commissions paid to outside agents at the time of policy issuance, (ii) policy administration fees paid to a third-party administrator at the time of policy issuance, (iii) premium taxes and (iv) inspection fees. We recognize policy acquisition costs ratably over the term of the underlying policy. Until renewed, policies assumed from Citizens have no associated policy acquisition costs.

General and administrative expenses . General and administrative expenses include compensation and related benefits, professional fees, office lease and related expenses, information system expenses, corporate insurance, and other general and administrative costs.

Provision for income taxes . Provision for income taxes generally consists of income taxes payable by our subsidiaries that are taxed as corporations. On May 22, 2014, we converted from a limited liability company to a corporation. As a corporation, we are subject to typical corporate U.S. federal and state income tax rates which we expect to result in a statutory tax rate of approximately 37.6% under current tax law.

Ratios

Ceded premium ratio . Our ceded premium ratio represents ceded premiums as a percentage of gross premiums earned.

Gross loss ratio . Our gross loss ratio represents losses and loss adjustment expenses as a percentage of gross premiums earned.

Net loss ratio. Our net loss ratio represents losses and loss adjustment expenses as a percentage of net premiums earned.

Gross expense ratio . Our gross expense ratio represents policy acquisition costs and general and administrative expenses as a percentage of gross premiums earned.

Net expense ratio. Our net expense ratio represents policy acquisition costs and general and administrative expenses as a percentage of net premiums earned.

Combined ratios . Our combined ratio on a gross basis represents the sum of ceded premiums, losses and loss adjustment expenses, policy acquisition costs and general and administrative expenses as a percentage of gross premiums earned. Our combined ratio on a net basis represents the sum of losses and loss adjustment expenses, policy acquisition costs and general and administrative expenses as a percentage of net premiums earned.

The combined ratio is the key measure of underwriting performance traditionally used in the property and casualty industry. A combined ratio under 100% generally reflects profitable underwriting results. A combined ratio over 100% generally reflects unprofitable underwriting results.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined ratio on a gross basis is more relevant in assessing overall performance.

Results of Operations

The following table summarizes our results of operations for the three and six months ended June 30, 2014 and 2013 (in thousands, except per share amounts):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Operating Revenue
Gross premiums written	$	99,269		$	81,049		$	168,172		$	97,398
Increase in gross unearned premiums		(35,144	)		(53,009	)		(43,187	)		(49,033	)

Gross premiums earned		64,125			28,040			124,985			48,365
Premiums ceded		(19,830	)		(6,416	)		(38,454	)		(6,774	)

Net premiums earned		44,295			21,624			86,531			41,591

Net investment income		719			124			1,337			335
Retroactive reinsurance		—			26,072			—			26,072
Net realized gains (losses)		24			(46	)		(18	)		(48	)
Other revenue		1,501			827			2,567			993

Total revenue	$	46,539		$	48,601		$	90,417		$	68,943


Operating Expenses
Losses and loss adjustment expenses		19,244			7,870			39,831			13,148
Policy acquisition costs		6,384			866			10,857			982
Interest expense		—			6			—			11
General and administrative costs		5,801			5,582			12,798			9,567

Total operating expenses		31,429			14,324			63,486			23,708

Income before income taxes		15,110			34,277			26,931			45,235
Provision for income taxes		5,544			13,263			9,477			17,162

Net income	$	9,566		$	21,014		$	17,454		$	28,073

Ratios to Gross Premiums Earned:
Ceded premium ratio		30.9	%		22.9	%		30.8	%		14.0	%
Loss Ratio		30.0	%		28.1	%		31.9	%		27.2	%
Expense Ratio		19.0	%		23.0	%		18.9	%		21.8	%
Combined Ratio		79.9	%		73.9	%		81.6	%		63.0	%

Ratios to Net Premiums Earned:
Loss Ratio		43.4	%		36.4	%		46.0	%		31.6	%
Expense Ratio		27.5	%		29.8	%		27.3	%		25.4	%
Combined Ratio		71.0	%		66.2	%		73.4	%		57.0	%

Per Share Data:
Basic earnings per common share	$	0.43		$	1.38		$	0.91		$	2.16
Diluted earnings per common share	$	0.39		$	1.38		$	0.80		$	2.16

Comparison of the Three Months Ended June 30, 2014 to Three Months Ended June 30, 2013

Revenue

Gross premiums written

Gross premiums written increased from $81.0 million for the three months ended June 30, 2013 to $99.3 million for the three months ended June 30, 2014. The increase in gross premiums written was due to the renewal of a significant number of policies previously assumed from Citizens, the acquisition of policies from SSIC and the growing number of new voluntary policies written. Of our gross premiums written for the three months ended June 30, 2014, $71.1 million represents direct premiums written and $28.2 million represents assumed premiums written. Of the $71.1 million of direct premiums written, renewals of policies previously assumed from Citizens accounted for $62.4 million, while voluntary business accounted for $8.7 million. The assumed premiums written of $28.2 million were comprised of $29.3 million of premiums from the SSIC policy acquisition offset by a decrease of $1.1 million from Citizens policies assumed in previous quarters that were cancelled during the quarter. The $29.3 million of premium from SSIC represents unearned premium as of June 27, 2014, the date of the acquisition.

Gross premiums earned

Gross premiums earned increased from $28.0 million for the three months ended June 30, 2013 to $64.1 million for the three months ended June 30, 2014. Our policies in force as of June 30, 2014 and June 30, 2013 were approximately 171,000, and 89,000, respectively, and this increase had a favorable impact on our gross premiums earned. Approximately $600,000 of gross premiums earned during the quarter was attributable to the SSIC policies acquired on June 27, 2014.

Ceded premiums

Ceded premiums increased from $6.4 million for the three months ended June 30, 2013 to $19.8 million for the three months ended June 30, 2014. The increase in ceded premiums is primarily a result of the significant increase in the policies in force noted above. Additionally, prior to June 1, 2013, our reinsurance costs were significantly lower because we purchased reinsurance limited to non-hurricane related losses through May 31, 2013.

Net premiums earned

Net premiums earned increased from $21.6 million for the three months ended June 30, 2013 to $44.3 million for the three months ended June 30, 2014. The increase in net premiums earned in the comparable periods is primarily attributable to the increase in the number of policies in force during the three months ended June 30, 2014 as compared to the same period in 2013, partially offset by increased ceded earned premium.

Retroactive reinsurance income

Retroactive reinsurance income was $26.1 million for the three months ended June 30, 2013. In connection with our assumption of 39,000 policies in June 2013, we entered into a retroactive quota share reinsurance agreement with Citizens that resulted in our recognition of $26.1 million of retroactive reinsurance income, representing the earned premium, net of associated losses and loss adjustment expenses, from such policies for the period from January 1, 2013 through May 31, 2013. This should be considered a non-recurring transaction.

Net investment income

Net investment income, inclusive of net realized investment gains and losses, increased from $78,000 for the three months ended June 30, 2013 to $743,000 for the three months ended June 30, 2014. The increase in net investment income is due to the significant increase in invested assets from $66.0 million to $160.0 million at June 30, 2013 and June 30, 2014, respectively. The increase resulted primarily from policy growth.

Other revenue

Other revenue increased from $0.8 million for the three months ended June 30, 2013 to $1.5 million for the three months ended June 30, 2014. The increase in other revenue between the comparable periods is primarily attributable to the policy fees generated by our growing portfolio of new and renewed policies. Also, the rental income received pursuant to non-cancelable leases for our commercial property in Clearwater, Florida that we purchased in April 2013 contributed to the increase in other revenue.

Total revenue

Total revenue decreased from $48.6 million for the three months ended June 30, 2013 to $46.5 million for the three months ended June 30, 2014. The decrease in total revenue was due primarily from the non-recurring retroactive reinsurance income earned in 2013 offset by the growth in net premiums earned resulting from the significant increase in the number of policies in force throughout the three months ended June 30, 2014 as compared to the same period in the prior year.

Expenses

Losses and loss adjustment expenses

Losses and loss adjustment expenses increased from $7.9 million for the three months ended June 30, 2013 to $19.2 million for the three months ended June 30, 2014. The increase in losses and loss adjustment expenses resulted primarily from an increase in the number of policies in force between the respective periods as well as a modest increase in the loss ratio. Losses and loss adjustment expenses for the three months ended June 30, 2014 include losses paid of $12.4 million and a $6.8 million increase in unpaid losses and loss adjustment expenses, including the addition of $4.4 million of IBNR reserves. As of June 30, 2014, we reported $34.5 million in unpaid losses and loss adjustment expenses which included $19.9 million attributable to IBNR, or 58% of total reserves for unpaid losses and loss adjustment expenses.

Policy acquisition costs

Policy acquisition costs increased from $0.9 million for the three months ended June 30, 2013 to $6.4 million for the three months ended June 30, 2014. The increase is primarily attributable to the significant increase in new and renewal policies, which have associated commissions paid to outside agents at the time of policy issuance, policy administration fees paid to a third-party administrator at the time of policy issuance, premium taxes and inspection fees, none of which are associated with policies assumed from Citizens prior to their renewal.

General and administrative expenses

General and administrative expenses increased from $5.6 million for the three months ended June 30, 2013 to $5.8 million for the three months ended June 30, 2014. Second quarter 2013 included $2.2 million of operating expenses attributed to the non-recurring retroactive reinsurance income causing the previous year’s second quarter to be higher than normal. The increase in 2014 was due primarily to the growth in our infrastructure resulting in greater costs associated with our personnel, facilities and overall business activity.

Provision for income taxes

Provision for income taxes was $5.5 million and $13.3 million for the three months ended June 30, 2014 and 2013, respectively. Our effective tax rate for the three months ended June 30, 2014 and 2013 was 36.7% and 38.7%, respectively.

Net Income

Our results of operations for the three months ended June 30, 2014 reflect net income of $9.6 million, or $0.39 earnings per diluted common share, compared to net income of $21.0 million, or $1.38 earnings per diluted common share, for the three months ended June 30, 2013. Net income for the three months ended June 30, 2013 results included non-recurring retroactive reinsurance income of $26.1 million.

Ratios

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the ratios discussed below are more meaningful when viewed on a gross basis.

Ceded premium ratio

Our ceded premium ratio increased from 22.9% for the three months ended June 30, 2013 to 30.9% for the three months ended June 30, 2014, due primarily to the economic benefit gained in 2013 due to the lower reinsurance costs prior to the commencement of our annual catastrophe reinsurance program effective June 1, 2013.

Gross loss ratio

Our gross loss ratio increased modestly from 28.1% for the three months ended June 30, 2013 to 30.0% for the three months ended June 30, 2014.

Net loss ratio

Our net loss ratio increased from 36.4% for the three months ended June 30, 2013 to 43.4% for the three months ended June 30, 2014, primarily as a result of an increase in ceded premiums.

Gross expense ratio

Our gross expense ratio decreased from 23.0% for the three months ended June 30, 2013 to 19.0% for the three months ended June 30, 2014. This decrease is primarily due to the $2.2 million of operating expenses attributable to an assumption transaction in 2013.

Net expense ratio

Our net expense ratio decreased from 29.8% for the three months ended June 30, 2013 to 27.5% for the three months ended June 30, 2014.

Combined ratio

Our combined ratio on a gross basis increased from 73.9% for the three months ended June 30, 2013 to 79.9% for the three months ended June 30, 2014. Our combined ratio on a net basis increased from 66.2% for the three months ended June 30, 2013 to 71.0% for the three months ended June 30, 2014. The increase in our combined ratio, on both a gross and net basis, is due primarily to the economic benefit gained in 2013 due to the lower reinsurance costs prior to June, before the commencement of our annual catastrophe reinsurance program effective June 1, 2013.

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Revenue

Gross premiums written

Gross premiums written increased from $97.4 million for the six months ended June 30, 2013 to $168.2 million for the six months ended June 30, 2014. The increase in gross premiums written was due to the renewal of a significant number of policies previously assumed from Citizens, the acquisition of policies from SSIC and the growing number of new voluntary policies written. Of our gross premiums written for the six months ended June 30, 2014, $123.1 million represents direct premiums written and $45.0 million represents assumed premiums written. Of the $123.1 million of direct premiums written, renewals of policies previously assumed from Citizens accounted for $107.5 million, while voluntary business accounted for $15.6 million. The assumed premiums written of $45.0 million were comprised of $15.7 million of premiums assumed from Citizens and $29.3 million of premiums from the SSIC policy acquisition.

Gross premiums earned

Gross premiums earned increased from $48.4 million for the six months ended June 30, 2013 to $125.0 million for the six months ended June 30, 2014. Our policies in force as of June 30, 2013 and June 30, 2014 were approximately 89,000 and 171,000, respectively, and this increase had a favorable impact on our gross premiums earned.

Ceded premiums

Ceded premiums increased from $6.8 million for the six months ended June 30, 2013 to $38.5 million for the six months ended June 30, 2014. The increase in ceded premiums reflects the increase in policy count noted above, as well as the commencement of our annual catastrophe reinsurance program effective June 1, 2013. Prior to June 1, 2013, our reinsurance costs were significantly lower because we purchased reinsurance limited to non-hurricane related losses through May 31, 2013.

Net premiums earned

Net premiums earned increased from $41.6 million for the six months ended June 30, 2013 to $86.5 million for the six months ended June 30, 2014. The increase in net premiums earned in the comparable periods is primarily attributable to the increase in the number of policies in force during the six months ended June 30, 2014 as compared to the same period in 2013, partially offset by the lower ceded premiums earned.

Retroactive reinsurance income

Retroactive reinsurance income decreased from $26.1 million for the six months ended June 30, 2013. In connection with our assumption of 39,000 policies in June 2013, we entered into a retroactive quota share reinsurance agreement with Citizens that resulted in our recognition of $26.1 million of retroactive reinsurance income, representing the earned premium, net of associated losses and loss adjustment expenses, from such policies for the period from January 1, 2013 through May 31, 2013. This should be considered a non-recurring transaction.

Net investment income

Net investment income, inclusive of realized investment losses, increased from $0.3 million for the six months ended June 30, 2013 to $1.3 million for the six months ended June 30, 2014. The increase in net investment income is due to the significant increase in invested assets from $66.0 million to $160.0 million at June 30, 2013 and June 30, 2014, respectively. The increase resulted primarily from policy growth.

Other revenue

Other revenue increased from $1 million for the six months ended June 30, 2013 to $2.6 million for the six months ended June 30, 2014. The increase in other revenue between the comparable periods is primarily attributable to the policy fees generated by our growing portfolio of new and renewed policies. Also, the rental income received pursuant to non-cancelable leases for our commercial property in Clearwater, Florida purchased in April 2013 contributed to the increase.

Total revenue

Total revenue increased from $68.9 million for the six months ended June 30, 2013 to $90.4 million for the six months ended June 30, 2014. The increase in total revenue was due primarily to the growth in net premiums earned resulting from the significant increase in the number of policies in force throughout the six months ended June 30, 2014 as compared to the same period in the prior year, partially offset by the $26.1 million non-recurring retroactive reinsurance earned in 2013.

Expenses

Losses and loss adjustment expenses

Losses and loss adjustment expenses increased from $13.1 million for the six months ended June 30, 2013 to $39.8 million for the six months ended June 30, 2014. The increase in losses and loss adjustment expenses resulted primarily from an increase in the number of policies in force between the respective periods as well as being responsive to development trends during the six months ended June 30, 2014. Losses and loss adjustment expenses for the six months ended June 30, 2014 include losses paid of $23.9 million and a $15.9 million increase in unpaid losses and loss adjustment expenses, including the addition of $8.9 million of IBNR reserves. As of June 30, 2014, we reported $34.5 million in unpaid losses and loss adjustment expenses which included $19.9 million attributable to IBNR, or 58% of total reserves for unpaid losses and loss adjustment expenses.

Policy acquisition costs

Policy acquisition costs increased from $1 million for the six months ended June 30, 2013 to $10.9 million for the six months ended June 30, 2014. The increase is primarily attributable to the significant increase in new and renewal policies, which have associated commissions paid to outside agents at the time of policy issuance, policy administration fees paid to a third-party administrator at the time of policy issuance, premium taxes and inspection fees, none of which are associated with policies assumed from Citizens prior to their renewal.

General and administrative expenses

General and administrative expenses increased from $9.6 million for the six months ended June 30, 2013 to $12.8 million for the six months ended June 30, 2014. The increase was due primarily to the growth in our infrastructure resulting in greater costs associated with our personnel, facilities and overall business activity. Also contributing to the increase was approximately $1.1 million of expenses associated with our initial public offering that were paid in the first quarter of 2014. Also, for the six months ended June 30 2013, we incurred $2.2 million of operating expenses attributed to the non-recurring retroactive reinsurance income.

Provision for income taxes

Provision for income taxes was $9.5 million and $17.2 million for the six months ended June 30, 2014 and 2013, respectively. Our effective tax rate for the six months ended June 30, 2014 and 2013 was 35.2% and 37.9%, respectively.

Net Income

Our results of operations for the six months ended June 30, 2014 reflect net income of $17.5 million, or $0.80 earnings per diluted common share, compared to net income of $28.1 million, or $2.16 earnings per diluted common share, for the six months ended June 30, 2013. 2013 results included non-recurring retroactive reinsurance income of $26.1 million.

Ratios

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the ratios discussed below are more meaningful when viewed on a gross basis.

Ceded premium ratio

Our ceded premium ratio increased from 14.0% for the six months ended June 30, 2013 to 30.8% for the six months ended June 30, 2014. Prior to June 1, 2013, our reinsurance costs were significantly lower because we purchased reinsurance limited to non-hurricane related losses through May 31, 2013, due to the start-up position of our company in early 2013.

Gross loss ratio

Our gross loss ratio increased from 27.2% for the six months ended June 30, 2013 to 31.9% for the six months ended June 30, 2014, primarily as a result of the factors described above.

Net loss ratio

Our net loss ratio increased from 31.6% for the six months ended June 30, 2013 to 46.0% for the six months ended June 30, 2014, primarily as a result of an increase in ceded premiums in connection with the commencement of our annual catastrophe reinsurance program effective June 1, 2013.

Gross expense ratio

Our gross expense ratio decreased from 21.8% for the six months ended June 30, 2013 to 18.9% for the six months ended June 30, 2014. This decrease is primarily due to the $2.2 million of operating expenses attributable to an assumption transaction in 2013.

Net expense ratio

Our net expense ratio increased from 25.4% for the six months ended June 30, 2013 to 27.3% for the six months ended June 30, 2014 as a result of the increase in ceded premium in connection with the commencement of our annual catastrophe reinsurance program effective March 1, 2013.

Combined ratio

Our combined ratio on a gross basis increased from 63.0% for the six months ended June 30, 2013 to 81.6% for the six months ended June 30, 2014. Our combined ratio on a net basis increased from 57.0% for the six months ended June 30, 2013 to 73.4% for the six months ended June 30, 2014. The increase in our combined ratio, on both a gross and net basis, is due primarily to the economic benefit gained in 2013 from the lower reinsurance costs prior to June, before the commencement of our annual catastrophe reinsurance program effective June 1, 2013.

Liquidity and Capital Resources

As of June 30, 2014, we had $182.1 million of cash and cash equivalents, which primarily consisted of cash and money market accounts. While we intend to hold substantial cash balances during hurricane season to meet seasonal liquidity needs and the collateral requirements of Osprey Re Ltd., our captive reinsurance company, our cash balances were higher than needed at June 30, 2014, due to $101.2 million raised from the IPO, Private Placement and exercise of warrants which had not yet been invested as of June 30, 2014.

Prior to our IPO, our working capital requirements have been met primarily through private issuances of our equity. Equity issuances have resulted in an aggregate of 29,794,960 shares and 30,600 warrants outstanding as of June 30, 2014, reflecting total paid in capital of $184.0 million as of such date.

Our insurance subsidiary, Heritage P&C, requires liquidity and adequate capital to meet ongoing obligations to policyholders and claimants and to fund operating expenses. In addition, we attempt to maintain adequate levels of liquidity and surplus to manage any differences between the duration of our liabilities and invested assets. In the insurance industry, cash collected for premiums from policies written is invested, interest and dividends are earned thereon, and loss and loss adjustment expenses are paid out over a period of years. This period of time varies by the circumstances surrounding each claim. A substantial portion of our losses and loss adjustment expenses are fully settled and paid within 90 days of the claim receipt date. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses.

Osprey Re Ltd. is required to maintain a collateral trust account equal to the risk that it assumes from Heritage P&C, less amounts collateralized through a letter of credit. As of June 30, 2014, $30.0 million was held in Osprey’s trust account and an additional $5.0 million was collateralized with a letter of credit. At June 30, 2014, Osprey Re’s total reinsurance coverage provided to Heritage P&C was $35 million. As of July 1, 2014, Osprey Re Ltd. increased its coverage provided by an additional $20.0 million, in conjunction with the SSIC policy acquisition. In July, Osprey’s collateral trust fund was increased by $20.0 million to a total of $50.0 million.

We believe that we maintain sufficient liquidity to pay Heritage P&C’s claims and expenses, as well as to satisfy commitments in the event of unforeseen events such as reinsurer insolvencies, inadequate premium rates, or reserve deficiencies. We maintain a comprehensive reinsurance program at levels management considers adequate to diversify risk and safeguard our financial position.

Operating Activities

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Cash provided by operating activities increased from $6.5 million for the six months ended June 30, 2013 to $35.7 million for the six months ended June 30, 2014. The increase in cash provided by operating activities resulted from the significant increase in premiums associated with renewals of Citizens policies and voluntary policies. Renewal activity for the six months ended June 30, 2013 was associated with a significantly smaller number of policies eligible for renewal. Also contributing to the increase in cash provided by operating activities was the growth in the number of voluntary policies written compared to the same period in the prior year.

Investing Activities

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Net cash used in investing activities decreased from $64.0 million for the six months ended June 30, 2013 to $19.9 million for the six months ended June 30, 2014. The decrease in net cash used in investing activities was primarily attributable to the decision to hold larger cash balances during the six months ended June 30, 2014. Also contributing to the greater investment activity during the six months ended June 30, 2013 was our deployment of the proceeds from our initial capitalization that took place in 2012 and early 2013.

Financing Activities

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Net cash provided by financing activities increased from $33.3 million for the six months ended June 30, 2013 to $101.3 million for the six months ended June 30, 2014. The increase is due primarily to the completion of the IPO, Private Placement and exercise of warrants in May 2014.

Seasonality of our Business

Our insurance business is seasonal as hurricanes typically occur during the period from June 1 through November 30 each year. With our reinsurance program effective on June 1 each year, any variation in the cost of our reinsurance, whether due to changes to reinsurance rates or changes in the total insured value of our policy base will occur and be reflected in our financial results beginning June 1 of each year, subject to certain adjustments.

Off-Balance Sheet Arrangements

We obtained a $5.0 million irrevocable letter of credit from a financial institution to secure Osprey’s obligations arising from our reinsurance program. We collateralized this letter of credit facility with otherwise unencumbered real estate. The letter of credit terminates on May 31, 2015.

Critical Accounting Policies and Estimates

Our discussion and analysis of operating results and financial condition are based upon our financial statements. The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that materially affect our financial statements and involve difficult, subjective or complex judgments by management. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates.

We believe our critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements and that the judgments and estimates are reasonable. Our critical accounting policies and estimates are described in our audited consolidated financial statements and the related notes in our final prospectus filed pursuant to Rule 424 (b) under the Securities Act on May 27, 2014.

JOBS Act

We qualify as an “emerging growth company” under the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an emerging growth company we choose to rely on such exemptions, we may not be required to, among other things, (i) provide an auditor’s attestation report on our systems of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply until we no longer meet the requirements of being an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our investment portfolios at June 30, 2014 included fixed-maturity and equity securities, the purposes of which are not for trading or speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet policyholder obligations while minimizing market risk which is the potential economic loss from adverse fluctuations in securities’ prices. We consider many factors including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Investment securities are managed by a group of nationally recognized asset managers and are overseen by the investment committee appointed by our board of directors. Our investment portfolios are primarily exposed to interest rate risk, credit risk and equity price risk. We classify our fixed-maturity and equity securities as available-for-sale and report any unrealized gains or losses, net of deferred income taxes, as a component of other comprehensive income within our stockholders’ equity. As such, any material temporary changes in their fair value can adversely impact the carrying value of our stockholders’ equity.

Interest Rate Risk

Our fixed-maturity securities are sensitive to potential losses resulting from unfavorable changes in interest rates. We manage the risk by analyzing anticipated movement in interest rates and considering our future capital needs.

The following table illustrates the impact of hypothetical changes in interest rates to the fair value of our fixed-maturity securities at June 30, 2014 (in thousands):


Hypothetical Change in Interest rates	Estimated Fair Value After Change		Change In Estimated Fair Value			Percentage Increase (Decrease) in Estimated Fair Value
300 basis point increase	$	115,995	$	(17,422	)		(13.1	)%
200 basis point increase	$	121,802	$	(11,615	)		(8.7	)%
100 basis point increase	$	127,609	$	(5,808	)		(4.4	)%
100 basis point decrease	$	139,026	$	5,609			4.2	%
200 basis point decrease	$	143,157	$	9,740			7.3	%
300 basis point decrease	$	145,228	$	11,811			8.9	%

Credit Risk

Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuer of our fixed maturities. We mitigate this risk by investing in fixed-maturities that are generally investment grade and by diversifying our investment portfolio to avoid concentrations in any single issuer or market sector.

The following table presents the composition of our fixed-maturity portfolio by rating at June 30, 2014 (in thousands):


Comparable Rating	Amortized Cost		% of Total Amortized Cost			Estimated Fair Value		% of total Estimated Fair Value
A	$	21,909		16.58	%	$	22,142		16.60	%
A-		17,160		12.99	%		17,422		13.06	%
A+		15,044		11.39	%		15,150		11.36	%
AA		20,303		15.37	%		20,522		15.38	%
AA-		14,743		11.16	%		14,881		11.15	%
AA+		12,087		9.15	%		12,194		9.14	%
AAA		14,202		10.75	%		14,235		10.67	%
B+		48		0.04	%		48		0.04	%
BB		185		0.14	%		187		0.14	%
BB+		884		0.67	%		888		0.67	%
BBB		3,638		2.75	%		3,692		2.76	%
BBB-		577		0.43	%		580		0.43	%
BBB+		11,352		8.58	%		11,476		8.60	%

Total	$	132,132		100.00	%	$	133,417		100.00	%

Equity Price Risk

Our equity investment portfolio at June 30, 2014 consists of common stocks and redeemable and non-redeemable preferred stocks. We may incur potential losses due to adverse changes in equity security prices. We manage this risk primarily through industry and issuer diversification and asset allocation techniques.

The following table illustrates the composition of our equity portfolio at June 30, 2014 (in thousands):


	Estimated Fair Value		% of Total Estimated Fair Value
Stocks by sector:
Financial	$	2,006		11.44	%
Energy		9,968		56.83	%
Utility		—		0.0	%
Other		5,415		30.88	%

Subtotal		17,389		99.15	%

Mutual Funds and ETF by type:
Debt		—		0.0	%
Equity		149		0.85	%

Subtotal		149		0.85	%

Total	$	17,538		100.0	%

Foreign Currency Exchange Risk

At June 30, 2014, we did not have any material exposure to foreign currency related risk.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of June 30, 2014 due to the unremediated material weakness in our internal controls over financial reporting described below. Notwithstanding the identified material weakness, management believes the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

Changes in Internal Control over Financial Reporting

In connection with the preparation of our financial statements for the period ended December 31, 2012 and the year ended December 31, 2013, we identified material weaknesses in our internal control over financial reporting related to, among other things, accounting for stock based compensation, equity transactions and income taxes. With the oversight of senior management, we have taken steps to remediate the underlying causes of these material weaknesses, primarily through the development and implementation of formal policies, improved processes, as well as the hiring of additional finance personnel.

Except for the continued remediation efforts described herein, there has been no change in our internal controls over financial reporting during our most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, implementation of possible controls and procedures depends on management’s judgment in evaluating their benefits relative to costs.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is a party to claims and legal actions arising routinely in the ordinary course of our business. Although we cannot predict with certainty the ultimate resolution of the claims and lawsuits asserted against us, we do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect on our consolidated financial position results of operations or cash flow.

Item 1A. Risk Factors.

The risk factors disclosed in the section entitled “Risk Factors” in our Prospectus filed pursuant to Rule 424(b) under the Securities Act on May 27, 2014 set forth information relating to various risks and uncertainties that could materially adversely affect our business, financial condition and operating results. Those risk factors continue to be relevant to an understanding of our business, financial condition and operating results. No material changes have occurred with respect to those risk factors.

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

(a) Sales of Unregistered Securities

In the Private Placement, we sold 909,090 shares of our common stock to Ananke Ltd at a price of $11.00 per share. The sale of such shares was conducted in accordance with the Section 4(a)(2) of the Securities Act.

In connection with the IPO, warrants to purchase an aggregate of 7,685,700 shares were exercised by existing stockholders. The Company issued 3,827,550 shares in exchange for $22.5 million pursuant to cash exercise and 1,794,969 shares in connection with cashless exercise. As a result, an aggregate of 5,622,519 shares were issued in connection with the Warrant Exercise.

(b) Use of Proceeds from Initial Public Offering of Common Stock

On May 29, 2014 we completed the initial public offering of our common stock pursuant to a Registration Statement (File No. 333-195409), that was declared effective on May 22, 2014. Under the Registration Statement, we registered, issued and sold 6,900,000 shares of our common stock, including 900,000 shares pursuant to the underwriters’ over-allotment option, at a price to the public of $11.00 per share for an aggregate offering price of $75.9 million.

The managing underwriters for the offering were Citigroup Global Markets Inc., SunTrust Robinson Humphrey, Inc. and Sandler O’Neill & Partners LP.

We received net proceeds in the offering, including the exercise of the underwriter’s option, of approximately $69.0 million after deducting underwriting discounts of approximately $6.9 million. We did not make any payments of expenses in connection with the offering to directors, officers or persons owning ten percent or more of any class of our equity securities, or to their associates, or to our affiliates.

We used $25.0 million of the net proceeds from our initial public offering to fund collateralized reinsurance through Osprey, our reinsurance subsidiary, and the remainder to increase our statutory capital and surplus to enable us to write additional policies and to support the Company’s entry into the commercial residential line of business.

Working Capital Restrictions and Other Limitations on Payment of Dividends. Under Florida law, a Florida-domiciled insurer like Heritage P&C may not pay any dividend or distribute cash or other property to its stockholders except out of its available and accumulated surplus funds which are derived from realized net operating profits on its business and net realized capital gains. Additionally, Florida-domiciled insurers may not make dividend payments or distributions to stockholders without the prior approval of the insurance regulatory authority if the dividend or distribution would exceed the larger of:

1. the lesser of:

a. ten percent of capital surplus, or

b. net gain from operations; or

c. net income, not including realized capital gains, plus a two-year carryforward.

2. ten percent of capital surplus with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains, or

3. the lesser of:

a. ten percent of capital surplus, or

b. net investment income plus a three-year carryforward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains.

Alternatively, Heritage P&C may pay a dividend or distribution without the prior written approval of the insurance regulatory authority when:

1. the dividend is equal to or less than the greater of:

a. ten percent of the insurer’s surplus as to policyholders derived from realized net operating profits on its business and net realized capital gains, or

b. the insurer’s entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, and:

i. the insurer will have surplus as to policyholders equal to or exceeding 115% of the minimum required statutory surplus as to policyholders after the dividend or distribution is made;

ii. the insurer files a notice of the dividend or distribution with the insurance regulatory authority at least ten business days prior to the dividend payment or distribution; and

iii. the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory surplus as to policyholders.

Except as provided above, a Florida-domiciled insurer may only pay a dividend or make a distribution (i) subject to prior approval by the insurance regulatory authority, or (ii) 30 days after the insurance regulatory authority has received notice of intent to pay such dividend or distribution and has not disapproved it within such time. At June 30, 2014, we were in compliance with these requirements.

(c) Repurchases

During the six months ended June 30, 2014, we did not repurchase equity securities.

Item 6. Exhibits.

The information required by this Item 6 is set forth in the Index to Exhibits accompanying this quarterly report on Form 10-Q.

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.


	HERITAGE INSURANCE HOLDINGS, INC.

Date: August 6, 2014	By:	/s/ BRUCE LUCAS
		Bruce Lucas
		Chairman and Chief Executive Officer
		(Principal Executive Officer)

Date: August 6, 2014	By:	/s/ STEPHEN ROHDE
		Stephen Rohde
		Chief Financial Officer
		(Principal Financial Officer and Accounting Officer)

Index to Exhibits


Exhibit Number		Description

3.1		Certificate of Incorporation of Heritage Insurance Holdings, Inc.*

3.2		By-laws of Heritage Insurance Holdings, Inc.*

4.1		Form of Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No. 333-195409) filed on April 30, 2014)

4.2		Form of Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 (File No. 333-195409) filed on April 30, 2014)

10.1		Property Catastrophe Excess of Loss Reinsurance Contract, effective June 1, 2013, issued to Heritage Property & Casualty Insurance Company by the Subscribing Reinsurers*

10.2		Catastrophe Excess of Loss and Aggregate Reinsurance Contract, effective June 1, 2013, issued to Heritage Property & Casualty Insurance Company by the Subscribing Reinsurers*

10.3		Second Aggregate Catastrophic Excess of Loss Reinsurance Contract, effective June 1, 2013, issued to Heritage Property & Casualty Insurance Company by the Subscribing Reinsurers*

10.4		Second Catastrophe Excess of Loss and Aggregate Reinsurance Contract, effective June 1, 2013, issued to Heritage Property & Casualty Insurance Company by the Subscribing Reinsurers*

10.5		Underlying Property Catastrophe Excess of Loss Reinsurance Contract, effective June 1, 2013, issued to Heritage Property & Casualty Insurance Company by Osprey Re Ltd.*

10.6		Property Catastrophe Excess of Loss Reinsurance Contract, effective December 4, 2012, issued to Heritage Property & Casualty Insurance Company by the Subscribing Reinsurers*

10.7		Property Catastrophe Excess of Loss Reinsurance Contract, effective April 17, 2014, by and among Heritage Property & Casualty Insurance Company and Citrus Re Ltd. (incorporated by reference to Exhibit 10.30 to the Company’s Registration Statement on Form S-1 (File No. 333-195409) filed on April 30, 2014)

10.8		Property Catastrophe Excess of Loss Reinsurance Contract, effective April 24, 2014, by and among Heritage Property & Casualty Insurance Company and Citrus Re Ltd. (incorporated by reference to Exhibit 10.31 to the Company’s Registration Statement on Form S-1 (File No. 333-195409) filed on April 30, 2014)

10.9		Common Stock Purchase Agreement, dated May 9, 2014, by and between Heritage Insurance Holdings, LLC and Ananke Ltd. (incorporated by reference to Exhibit 10.32 to the Company’s Registration Statement on Form S-1 (File No. 333-195409) filed on May 16, 2014)

10.10		Insurance Policy Acquisition and Transition Agreement, dated as of June 13, 2014, by and among Heritage Property & Casualty Insurance Company, the Florida Department of Financial Services, as Receiver for Sunshine State Insurance Company, and the Florida Insurance Guaranty Association (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 19, 2014)



10.11+		$4,000,000 XS $2,000,000 XS $4,000,000 Underlying Property Catastrophe Excess of Loss Reinsurance Contract, effective June 1, 2014, between Heritage Property & Casualty Insurance Company and the Subscribing Reinsurers*

10.12+		$6,000,000 XS $9,000,000 Underlying Property Catastrophe Excess of Loss Reinsurance Contract, effective June 1, 2014, between Heritage Property & Casualty Insurance Company and the Subscribing Reinsurers*

10.13+		Multi-Year First & Second Property Catastrophe Excess of Loss Reinsurance Contract, effective June 1, 2014, between Heritage Property & Casualty Insurance Company and the Subscribing Reinsurers*

10.14+		First & Second Property Catastrophe Reinstatement Premium Protection Reinsurance Contract, effective June 1, 2014, between Heritage Property & Casualty Insurance Company and the Subscribing Reinsurers*

10.15+		Fourth Property Catastrophe Excess of Loss Reinsurance Contract, effective June 1, 2014, between Heritage Property & Casualty Insurance Company and the Subscribing Reinsurers*

10.16+		Fifth Property Catastrophe Excess of Loss Reinsurance Contract, effective June 1, 2014, between Heritage Property & Casualty Insurance Company and the Subscribing Reinsurers*

10.17+		Sixth Property Catastrophe Excess of Loss Reinsurance Contract, effective July 1, 2014, between Heritage Property & Casualty Insurance Company and the Subscribing Reinsurers*

10.18+		Reimbursement Contract, effective June 1, 2014, between Heritage Property & Casualty Insurance Company and the State Board of Administration of the State of Florida*

10.19+		Property Excess Per Risk Reinsurance Contract, effective June 27, 2014, between Heritage Property & Casualty Insurance Company and the Subscribing Reinsurers*

31.1		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

31.2		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

32.1		Certification of Chief Executive Officer pursuant to 18 U.SC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

32.2		Certification of Chief Financial Officer pursuant to 18 U.SC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

101.INS		XBRL Instance Document *

101.SCH		101. SCH XBRL Taxonomy Extension Schema. *

101.CAL		101. CAL XBRL Taxonomy Extension Calculation Linkbase. *

101.DEF		101. DEF XBRL Taxonomy Extension Definition Linkbase. *

101.LAB		101. LAB XBRL Taxonomy Extension Label Linkbase. *

101.PRE		101. PRE XBRL Taxonomy Extension Presentation Linkbase.*

+	Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment, and this exhibit has been filed separately with the SEC.

*	Filed herewith.

**	Furnished herewith.

Exhibit 3.1

CERTIFICATE OF INCORPORATION

HERITAGE INSURANCE HOLDINGS, INC.

I. Heritage Insurance Holdings, LLC was formed as a limited liability company organized under the Limited Liability Company Act of the State of Delaware.

II. The conversion (the “ Conversion ”) of Heritage Insurance Holdings, LLC to Heritage Insurance Holdings, Inc. pursuant to Section 265 of the General Corporation Law of the State of Delaware (the “ DGCL ”) and this Certificate of Incorporation (the “ Certificate of Incorporation ”) were approved and authorized in the manner provided for by the limited liability company operating agreement of Heritage Insurance Holdings, LLC.

Upon the filing of this Certificate of Incorporation and a certificate of conversion with respect to the Conversion with the office of the Secretary of State of the State of Delaware in accordance with Section 265(b) of the DGCL, the Conversion of Heritage Insurance Holdings, LLC to Heritage Insurance Holdings, Inc. shall be effective (the “ Effective Time ”) and the Certificate of Incorporation of Heritage Insurance Holdings, Inc. shall be as follows.

ARTICLE I

NAME

The name of the Corporation is Heritage Insurance Holdings, Inc. (the “ Corporation ”).

ARTICLE II

SOLE INCORPORATOR

The name and mailing address of the sole incorporator is:

ARTICLE III

REGISTERED OFFICE AND AGENT

The address of the Corporation’s registered office in the State of Delaware is The Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, Zip Code 19801. The name of its registered agent at such address is The Corporation Trust Company. The registered office and/or registered agent of the Corporation may be changed from time to time by action of the board of directors.

ARTICLE IV

PURPOSE

The purpose of the Corporation shall be to engage in any lawful act or activity for which corporations may be organized under the DGCL.

ARTICLE V

CAPITAL STOCK

SECTION 1. The aggregate number of shares of all classes of capital stock which the Corporation shall have the authority to issue is Fifty Five Million (55,000,000) shares, consisting of Five Million (5,000,000) shares of preferred stock, par value $0.0001 per share (the “ Preferred Stock ”), and Fifty Million (50,000,000) shares of common stock, par value $0.0001 per share (the “ Common Stock ”).

SECTION 2. The preferences, limitations, designations and relative rights of the shares of each class and the qualifications, limitations or restrictions thereof shall be as follows:

A. Exchange of Existing Common Units and Warrants .

1. Common Units . Upon the Effective Time, each of Heritage Insurance Holdings, LLC’s common units heretofore authorized, issued and outstanding shall be exchanged for one (1) share of Common Stock. Each certificate representing Heritage Insurance Holdings, LLC’s common units outstanding immediately prior to the Effective Time shall represent from and after the Effective Time only the number of shares of Common Stock equal to the number of units shown on the face of such certificate, and such shares of Common Stock shall have the rights specified herein.

2. Warrants . Upon the Effective Time, each warrant to purchase Heritage Insurance Holdings, LLC’s common units heretofore authorized, issued and outstanding shall be exchanged for a warrant to purchase shares of Common Stock. Each certificate representing a warrant to purchase Heritage Insurance Holdings, LLC’s common units outstanding immediately prior to the Effective Time shall represent from and after the Effective Time the right to purchase the number shares of Common Stock equal to the number of units that the exchanged Heritage Insurance Holdings, LLC warrant provided. The Common Stock issued upon exercise of such warrants shall have the rights specified herein.

B. Preferred Stock .

1. Authorization; Series; Provisions . The Board of Directors of the Corporation is hereby expressly authorized, subject to limitations prescribed by law and the provisions of this Article IV, to provide for the issuance of shares of the Preferred Stock in series, and by filing a certificate pursuant to the DGCL, to establish from time to time the number of shares to be included in each such series and to fix the designations, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The Preferred Stock may be issued from time to time in one or more series, the shares of each series to have such powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as are stated and expressed herein or in a resolution or resolutions providing for the issuance of such series, adopted by the Board of Directors.

2. Rank . All shares of Preferred Stock shall rank senior to the Common Stock both as to dividends and upon liquidation.

3. Reacquired Shares . Shares of Preferred Stock which shall be issued and thereafter acquired by the Corporation through purchase, redemption, exchange, conversion or otherwise shall return to the status of authorized but unissued Preferred Stock, undesignated as to series, unless otherwise provided in the resolution or resolutions of the Board of Directors.

C. Common Stock .

Except as shall otherwise be stated herein or as otherwise required by applicable law, all shares of Common Stock shall be identical in all respects and shall entitle the holders thereof to the same rights and privileges, subject to the same qualifications, limitations and restrictions. The Common Stock shall be subject to all of the rights, privileges, preferences and priorities of the Preferred Stock as set forth in the resolution or resolutions providing for the respective series of Preferred Stock.

1. Voting Rights . Except as shall otherwise be stated herein or as otherwise required by applicable law, holders of Common Stock shall be entitled to one vote per share on all matters to be voted on by the holders of Common Stock. Holders of Common Stock are not entitled to cumulative voting rights, and holders of Preferred Stock shall not be entitled to notice of any meeting of stockholders.

2. Dividends . Subject to the rights of each series of the Preferred Stock, dividends, or other distributions in cash, securities or other property of the Corporation may be declared and paid or set apart for payment upon the Common Stock by the Board of Directors from time to time out of any assets or funds of the Corporation legally available for the payment of dividends, and all holders of Common Stock shall be entitled to participate in such dividends ratably on a per share basis.

3. Liquidation . Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, and after the holders of the Preferred Stock of each series shall have been paid in full the amounts to which they respectively shall be entitled in preference to the Common Stock in accordance with the terms of any outstanding Preferred Stock and applicable law, the remaining net assets and funds of the Corporation shall be distributed pro rata to the holders of the Common Stock and the holders of any Preferred Stock, but only to the extent that the holders of any Preferred Stock shall be entitled to participate in such distributions in accordance with the terms of any outstanding Preferred Stock or applicable law. A consolidation or merger of the Corporation with or into another corporation or corporations or a sale, whether for cash, shares of stock, securities or properties, or any combination thereof, of all or substantially all of the assets of the Corporation shall not be deemed or construed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this paragraph.

4. No Preemptive Rights . No holder of Common Stock of the Corporation shall be entitled, as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class or series whatsoever or of securities convertible into stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration, or by way of dividend.

5. Ownership . The Corporation shall be entitled to treat the person in whose name any share of its stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation shall have notice thereof, except as expressly provided by applicable law.

ARTICLE VI

EXISTENCE

The Corporation is to have perpetual existence.

ARTICLE VII

BOARD OF DIRECTORS

The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, and the directors need not be elected by written ballot unless required by the By-laws of the Corporation. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to make, alter, amend, change, add to or repeal the By-laws of the Corporation.

ARTICLE VIII

NUMBER, ELECTION AND TERMS OF DIRECTORS

SECTION 1. Number of Directors . Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed in such manner as prescribed in the By-laws of the Corporation, or from time to time by action of a majority of the members of the Board of Directors then in office, but in no event shall such number of directors be less than three nor more than fifteen. Elections of members of the Board of Directors, other than those who may be elected by the holders of any series of Preferred Stock under specified circumstances, shall be held at the annual meeting of stockholders, and each member of the Board of Directors shall hold office until such director’s successor is elected and qualified, subject to such director’s earlier death, resignation, disqualification or removal.

SECTION 2. Stockholder Nominations and Introduction of Business . Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the By-laws of the Corporation.

SECTION 3. Newly Created Directorships and Vacancies . Subject to the rights of the holders of any series of Preferred Stock, and unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or

any vacancies in the Board of Directors resulting from death, resignation, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and any director so chosen shall hold office for a term expiring at the succeeding annual meeting of stockholders and until such director’s successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the entire Board of Directors shall shorten the term of any incumbent director.

SECTION 4. Removal . Subject to the rights of the holders of any series of Preferred Stock, any director, or the entire Board of Directors, may be removed, with or without cause, by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that this Section 4 of Article VII shall apply, in respect of the removal without cause of a director or directors elected by the holders of a class or series of stock pursuant to this Certificate, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as a whole.

SECTION 5. Rights and Powers . Except to the extent prohibited by law, the Board of Directors shall have the right (which, to the extent exercised, shall be exclusive) to establish the rights, powers, duties, rules and procedures that from time to time shall govern the Board of Directors and each of its members, including, without limitation, the vote required for any action by the Board of Directors, and that from time to time shall affect the directors’ power to manage the business and affairs of the Corporation; and no by-law shall be adopted by stockholders which shall impair or impede the implementation of the foregoing.

SECTION 6. By-laws . The Corporation may in its By-laws confer powers upon the Board of Directors in addition to the foregoing and in addition to the powers and authorities expressly conferred upon the Board of Directors by applicable law.

ARTICLE IX

BOOKS AND RECORDS

The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-laws of the Corporation. The Board of Directors shall from time to time decide whether and to what extent and at what times and under what conditions and requirements the accounts and books of the Corporation, or any of them, except the stock book, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any books or documents of the Corporation, except as conferred by the laws of the State of Delaware or as authorized by the Board of Directors.

ARTICLE X

STOCKHOLDER ACTION

Meetings of stockholders may be held within or without the State of Delaware as the By-laws of the Corporation may provide. Subject to the rights of the holders of any series of Preferred Stock, for so long as either the Corporation’s Common Stock is registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), or the Corporation is required to file periodic reports with the Securities and Exchange Commission pursuant to Section 15(d) of the Exchange Act with respect to the Corporation’s Common Stock,

(A) any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected in lieu thereof by any consent in writing by such stockholders unless the action to be effected by written consent of the stockholders and the taking of such action by written consent have been approved in advance by a resolution adopted by the Board of Directors, and (B) special meetings of stockholders of the Corporation may be called only by the Chairman of the Board of Directors, the Chief Executive Officer or the Secretary pursuant to a resolution adopted by a majority of the directors then in office, or by stockholders holding at least a majority of the issued and outstanding voting stock of the Corporation.

ARTICLE XI

STOCKHOLDER VOTE REQUIRED

Article VII, Article IX and this Article X of this Certificate and Sections 2, 11 and 13 of Article II, Sections 2, 3, 4 and 5 of Article III, Article V and Article VIII of the By-laws of the Corporation shall not be altered, amended or repealed by, and no provision inconsistent therewith shall be adopted by, the stockholders without the affirmative vote of the holders of at least a majority of the issued and outstanding voting stock of the Corporation entitled to vote generally for the election of directors represented at a meeting of stockholders at which a quorum is present (as provided in the By-laws of the Corporation).

ARTICLE XII

INDEMNIFICATION

SECTION 1. Each person who is or was a director or officer of the Corporation shall be indemnified by the Corporation to the fullest extent permitted from time to time by the DGCL as the same exists or may hereafter be amended (but, if permitted by applicable law, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) or any other applicable laws as presently or hereafter in effect. The indemnification rights and protections existing hereunder shall be a contract right and shall be provided to each person who is or was a director or officer of the Corporation at any time this Article XI is or was in effect, regardless of whether or not such person continues to serve in his or her capacity as a director or officer of the Corporation at the time such indemnification rights and protections are sought. The Corporation may, by action of the Board of Directors, provide indemnification to employees and agents (other than a director or officer) of the Corporation, to directors, officers, employees or agents of a subsidiary of the Corporation, and to each person serving as a director, officer, partner, member, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, at the request of the Corporation, with the same scope and effect as the foregoing indemnification of directors and officers of the Corporation. The Corporation shall be required to indemnify any person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors or is a proceeding to enforce such person’s claim to indemnification pursuant to the rights granted by this Certificate or otherwise by the Corporation. Without limiting the generality or the effect of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article XI. Any amendment or repeal of this Article XI shall not adversely affect any right or protection existing hereunder in respect of any act, omission, fact or circumstance occurring prior to such amendment or repeal.

SECTION 2. By action of its Board of Directors, notwithstanding any interest of the directors in the action, the Corporation may purchase and maintain insurance, in such amounts as the Board of Directors deems appropriate, to protect any director, officer, employee and agent of the Corporation, any director, officer, employee or agent of a subsidiary of the Corporation, and any person serving as a director, officer, partner, member, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) against any liability asserted against such person or incurred by such person in any such capacity or arising out of the person’s status as such (including, without limitation, expenses, judgments, fines and amounts paid in settlement) to the fullest extent permitted by the DGCL as it exists on the date hereof or as it may hereafter be amended, and whether or not the Corporation would have the power or would be required to indemnify any such person under the terms of any agreement or by-law or the DGCL. For purposes of this Article XI, “fines” shall include any excise taxes assessed on a person with respect to any employee benefit plan.

SECTION 3. If this Article XI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person entitled to indemnification under the first paragraph of this Article XI as to all expense, liability and loss (including attorneys’ fees and related disbursements, judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person and for which indemnification is available to such person pursuant to this Article XI to the fullest extent permitted by any applicable portion of this Article XI that shall not have been invalidated and to the fullest extent permitted by applicable law.

SECTION 4. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director, officer or employee of the Corporation existing at the time of such repeal or modification.

ARTICLE XIII

DIRECTOR LIABILITY

A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL or (4) for any transaction from which the director derived an improper personal benefit. Any amendment or repeal of this Article XII shall not adversely affect any right or protection of a director of the Corporation existing hereunder in respect of any act, omission, fact or circumstance occurring prior to such amendment or repeal.

If the DGCL shall be amended to authorize corporate action further eliminating or limiting the liability of directors, then a director of the Corporation, in addition to the circumstances in which he is not liable immediately prior to such amendment, shall be free of liability to the fullest extent permitted by the DGCL, as so amended.

ARTICLE XIV

BUSINESS COMBINATIONS

The Corporation expressly elects not to be governed by Section 203 of the DGCL.

ARTICLE XV

AMENDMENTS

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate in effect from time to time in the manner now or hereafter prescribed herein and by the laws of the State of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation.

[signature page follows]

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed on this 22 ^nd day of May, 2014

HERITAGE INSURANCE HOLDINGS, INC.

By: /s/ Bruce Lucas

Name: Bruce Lucas

Title: Sole Incorporator

Exhibit 3.2

BY-LAWS

HERITAGE INSURANCE HOLDINGS, INC.

a Delaware Corporation

ARTICLE I

OFFICES

Section 1 . Registered Office . The address of the registered office of Heritage Insurance Holdings, Inc. (the “Corporation”) in the State of Delaware is The Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, Zip Code 19801. The name of its registered agent at such address is The Corporation Trust Company. The registered office and/or registered agent of the Corporation may be changed from time to time by action of the Board of Directors.

Section 2 . Other Offices . The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1 . Place and Time of Meetings . An annual meeting of the stockholders shall be held each year for the purpose of electing directors and conducting such other proper business as may come before the meeting. Unless otherwise directed by the Board of Directors, annual meetings of stockholders shall be held on a date not later than the end of the sixth (6 ^th ) calendar month after the conclusion of the Corporation’s fiscal year, unless a legal holiday, then on the first preceding regular business day. At the annual meeting, stockholders shall elect directors and conduct such other business as properly may be brought before the meeting pursuant to Article II, Section 11 hereof.

Section 2 . Special Meetings . Special meetings of stockholders may be called for any purpose and may be held at such time and place, within or without the State of Delaware, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Such meetings may be called only by the Chairman of the Board of Directors, the Chief Executive Officer or the Secretary pursuant to a resolution adopted by a majority of the directors then in office, or by stockholders holding at least a majority of the issued and outstanding voting stock of the Corporation. The only matters that may be considered at any special meeting of the stockholders are the matters specified in the notice of the meeting.

Section 3 . Place of Meetings . The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting of the stockholders. If no designation is made, the place of meeting shall be the principal executive office of the Corporation.

Section 4 . Notice . Whenever stockholders are required or permitted to take action at a meeting, written or printed notice stating the place, date, time, and, in the case of special meetings, the purpose or purposes, of such meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. All such notices shall be delivered, either personally or by mail, by or at the direction of the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer or the Secretary, and if mailed, such notice shall be deemed to be delivered and deposited in the United States mail, postage prepaid, addressed to the stockholder at his, her or its address as the same appears on the records of the Corporation. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.

Section 5 . Stockholders List . The officer having charge of the stock ledger of the Corporation shall make, at least ten (10) days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or the principal executive office of the Corporation. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

Section 6 . Quorum . The holders of a majority of the outstanding shares of capital stock entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. Abstentions and broker non-votes are counted as present and entitled to vote for purposes of determining a quorum. If a quorum is not present, the holders of a majority of the shares present in person or represented by proxy at the meeting, and entitled to vote at the meeting, may adjourn the meeting to another time and/or place. When a specified item of business requires a vote by a class or series (if the Corporation shall then have outstanding shares of more than one class or series) voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum (as to such class or series) for the transaction of such item of business.

Section 7 . Adjourned Meetings . When a meeting is adjourned to another time and/or place, notice need not be given of the adjourned meeting if the time and/or place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days (30), or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 8 . Vote Required . When a quorum is present, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless (i) by express provisions of an applicable law or of the Certificate of Incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question, or (ii) the subject matter is the election of directors, in which case Section 2 of Article III hereof shall govern and control the approval of such subject matter, or the amendment of any provision listed in Article VIII, in which case Article VIII hereof shall govern and control the approval of such subject matter.

Section 9 . Voting Rights . Except as otherwise provided by the General Corporation Law of the State of Delaware (the “DGCL”) or by the Certificate of Incorporation of the Corporation or any amendments thereto and subject to Section 3 of Article VI hereof, every stockholder shall at every meeting of the stockholders be entitled to one (1) vote in person or by proxy for each share of common stock held by such stockholder.

Section 10 . Proxies . Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. Any proxy is suspended when the person executing the proxy is present at a meeting of stockholders and elects to vote, except that when such proxy is coupled with an interest and the fact of the interest appears on the face of the proxy, the agent named in the proxy shall have all voting and other rights referred to in the proxy, notwithstanding the presence of the person executing the proxy. At each meeting of the stockholders, and before any voting commences, all proxies filed at or before the meeting shall be submitted to and examined by the Secretary or a person designated by the Secretary, and no shares may be represented or voted under a proxy that has been found to be invalid or irregular.

Section 11 . Business Brought Before a Meeting .

(a) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (1) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (2) brought before the meeting by or at the direction of the Board of Directors, or (3) properly brought before the meeting by a stockholder who (i) was a stockholder of record at the time of giving of notice provided for in this By-Law and at the time of the meeting, (ii) is entitled to vote at the meeting and (iii) complies with the notice procedures and form requirements set forth in this By-Law as to such business; clause (3) shall be the exclusive means for a stockholder to submit business (other than matters properly brought under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and included in the Corporation’s notice of meeting) before a meeting of stockholders.

(b) For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of the 90th day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above.

(c) To be in proper form, a stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (1) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made (i) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, if any, (ii) (A) the class or series and number of shares of the Corporation which are, directly or indirectly, owned beneficially and of record by such stockholder and such beneficial owner, (B) any option, warrant, convertible security, stock appreciation right or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise (a “Derivative Instrument”) directly or indirectly owned beneficially by such stockholder and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation, (C) any proxy, contract, arrangement, understanding or relationship pursuant to which such stockholder has a right to vote any shares of any security of the Company, (D) any short interest in any security of the Company (for purposes of this By-Law a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (E) any rights to dividends on the shares of the Corporation owned beneficially by such stockholder that are separated or separable from the underlying shares of the Corporation, (F) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (G) any performance-related fees (other than an asset-based fee) that such stockholder is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice, including, without limitation, any such interests held by members of such stockholder’s immediate family sharing the same household (which information shall be

supplemented by such stockholder and beneficial owner, if any, not later than 10 days after the record date for the meeting to disclose such ownership as of the record date), and (iii) any other information relating to such stockholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; (2) as to the proposal the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest of such stockholder and beneficial owner, if any, in such business and (ii) a description of all agreements, arrangements and understandings between such stockholder and beneficial owner, if any, and any other person or persons (including their names) in connection with the proposal of such business by such stockholder. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 11 of Article II. The presiding officer of a meeting shall, if the facts warrant, determine that the business was not properly brought before the meeting in accordance with the provisions of this Section 11 of Article II; and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

(d) Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law; provided, however, that any references in these By-Laws to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the requirements applicable to proposals as to any other business to be considered pursuant to Section 11(a)(3) of this By-Law. Nothing in this By-Law shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of preferred stock if and to the extent provided for under law, the Certificate of Incorporation or these By-Laws.

Section 12 . Abstentions and Broker Non-Votes . With respect to the election of directors, abstentions and broker non-votes shall not be counted either as votes for or against the election of any director but shall be counted to determine whether a quorum is present. With respect to any other matter, except as otherwise required by law, an abstention shall be counted as a vote against such matter, a broker non-vote shall not be counted either as a vote for or against such matter, and both shall be counted to determine whether a quorum is present.

Section 13 . No Written Consent . Subject to the rights of the holders of any series of preferred stock, from and after the date on which the common stock of the Corporation is initially registered pursuant to the Exchange Act, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected in lieu thereof by any consent in writing by such stockholders unless the action to be effected by written consent of the stockholders and the taking of such action by written consent have been approved in advance by a resolution adopted by the Board of Directors.

ARTICLE III

DIRECTORS

Section 1 . General Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to such powers as are herein and in the Certificate of Incorporation expressly conferred upon it, the Board of Directors shall have and may exercise all the powers of the Corporation, subject to the provisions of the laws of Delaware, the Certificate of Incorporation and these By-Laws.

Section 2 . Number, Election and Term of Office . The number of directors which shall constitute the Board of Directors shall be such as from time to time shall be fixed by the Board of Directors in the manner as provided in these By-Laws and such number shall initially be five (5), but in no event shall such number of directors be less than three (3) nor more than fifteen (15). The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors; provided, that, whenever the holders of any class or series of capital stock of the Corporation are entitled to elect one or more directors pursuant to the provisions of the Certificate of Incorporation of the Corporation (including, but not limited to, for purposes of these By-Laws, pursuant to any duly authorized certificate of designation), such directors shall be elected by a plurality of the votes of such class or series present in person or represented by proxy at the meeting and entitled to vote in the election of such directors. The directors shall be elected in this manner at the annual meeting of the stockholders, except as provided in Section 4 of this Article III. Each director elected shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided.

Section 3 . Removal and Resignation . A director may be removed with or without cause by the holders of a majority of the outstanding shares entitled to vote generally in the election of directors, voting together as a single class; provided, however, that if the holders of any class or series of capital stock are entitled to elect one or more directors pursuant to the provisions of the Certificate of Incorporation of the Corporation, such director or directors so elected may be removed without cause only by the vote of the holders of a plurality of the votes of such class or series present in person or represented by proxy at the meeting and entitled to vote in the removal of such directors. Any director may resign at any time upon written notice to the Corporation.

Section 4 . Vacancies . Vacancies and newly created directorships resulting from any increase in the total number of directors established by the Board of Directors pursuant to Section 2 of this Article III may be filled only by the affirmative vote of the majority of the total number of directors then in office, though less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy resulting from an increase in the number of directors shall hold office for a term expiring at the succeeding annual meeting of stockholders and until such director’s successor shall have been duly elected and qualified. A director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor. Each director so chosen shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as herein

provided. Whenever holders of any class or classes of capital stock or series thereof are entitled by the provisions of the Certificate of Incorporation to elect one or more directors, vacancies of directorships pertaining to such class or classes or series may only be filled by the affirmative vote of the majority of the total number of directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If no such directors or director remains, then the vacancy or vacancies of directorships pertaining to such class or classes or series shall be filled by the affirmative vote of the majority of the total number of directors then in office, or by a sole remaining director.

Section 5 . Nominations .

(a) Only persons who are nominated in accordance with the procedures set forth in these By-Laws shall be eligible to serve as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (1) pursuant to the Corporation’s notice of the meeting, (2) by or at the direction of the Board of Directors or (3) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who (i) was a stockholder of record at the time of giving of notice provided for in this By-Law and at the time of the meeting, (ii) is entitled to vote at the meeting and (iii) complies with the notice procedures and form requirements set forth in this By-Law as to such nomination; clause (3) shall be the exclusive means for a stockholder to make nominations at meeting of stockholders.

(b) In order for a stockholder to nominate a person for election to the Board of Directors of the Corporation at a meeting of stockholders, such stockholder shall have delivered timely notice of such stockholder’s intent to make such nomination in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation (i) in the case of an annual meeting, not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of the 90th day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation, and (ii) in the case of a special meeting at which directors are to be elected, not later than the close of business on the 10th day following the earlier of the day on which notice of the date of the meeting was mailed or public disclosure of the meeting was made. In no event shall any adjournment or postponement of a meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above.

(c) To be in proper form, a stockholder’s notice to the Secretary shall set forth (i) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made, the information described in Section 11(c)(1) of Article II, and (ii) as to each person whom the stockholder proposes to nominate for election to the Board of Directors

(A) all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected) and (B) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K of the Exchange Act if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant. No person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 5 of Article III. The presiding officer of the meeting shall, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed by this Section 5 of Article III, and if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee.

(d) Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law; provided, however, that any references in these By-Laws to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the requirements applicable to nominations to be considered pursuant to Section 5(a)(3) of this By-Law. Nothing in this By-Law shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of preferred stock if and to the extent provided for under law, the Certificate of Incorporation or these By-Laws.

Section 6 . Annual Meetings . An annual meeting of the Board of Directors may be held without other notice at such time and at such place as shall, from time to time, be determined by resolution of the Board of Directors.

Section 7 . Other Meetings and Notice . Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors or, upon the written request of at least a majority of the directors then in office, by the Secretary of the Corporation on at least 24 hours notice to each director, either personally, by telephone, by mail or by electronic transmission.

Section 8 . Chairman of the Board; Quorum; Required Vote and Adjournment . The Board of Directors shall elect, by the affirmative vote of the majority of the total number of directors then in office, a Chairman of the Board, who shall preside at all meetings of the stockholders and the Board of Directors at which he or she is present. If the Chairman of the Board is not present at a meeting of the stockholders or the Board of Directors, the Chief Executive Officer (if the Chief Executive Officer is a director and is not also the Chairman of the Board) shall preside at such meeting, and, if the Chief Executive Officer is not present at such meeting, a majority of the directors present at such meeting shall elect one of their members to so preside. A majority of the total number of directors then in office shall constitute a quorum for the transaction of business. Unless by express provision of an applicable law, the Corporation’s Certificate of Incorporation or these By-Laws a different vote is required, the vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

Section 9 . Committees . The Board of Directors may, by resolution passed by a majority of the total number of directors then in office, designate one or more committees, each committee to consist of one or more of the directors of the Corporation, which to the extent provided in such resolution or these By-Laws shall have, and may exercise, the powers of the Board of Directors in the management and affairs of the Corporation, except as otherwise limited by law. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

Section 10 . Committee Rules . Each committee of the Board of Directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the Board of Directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum. Unless otherwise provided in such a resolution, in the event that a member and that member’s alternate, if alternates are designated by the Board of Directors as provided in Section 9 of this Article III, of such committee is or are absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member.

Section 11 . Communications Equipment . Members of the Board of Directors or any committee thereof may participate in and act at any meeting of such board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear and speak with each other, and participation in the meeting pursuant to this Section 11 of Article III shall constitute presence in person at the meeting.

Section 12 . Waiver of Notice and Presumption of Assent . Any member of the Board of Directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the Secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action.

Section 13 . Action by Written Consent . Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee.

ARTICLE IV

OFFICERS

Section 1 . Number . The officers of the Corporation shall be appointed by the Board of Directors and may consist of a Chairman of the Board, Chief Executive Officer, President, one or more Executive Vice Presidents or Vice-Presidents, a Chief Operating Officer, a Chief Financial Officer, a Secretary, a Treasurer and such other officers and assistant officers as may be deemed necessary or desirable by the Board of Directors. Any number of offices may be held by the same person. In its discretion, the Board of Directors may choose not to fill any office for any period as it may deem advisable; provided, however, that there shall always be at least (i) a chairman of the board, a vice-chairman of the board, a president or a vice president and (ii) a treasurer, a secretary, an assistant treasurer or an assistant secretary.

Section 2 . Election and Term of Office . The officers of the Corporation shall be appointed annually by the Board of Directors at its first meeting held after each annual meeting of stockholders or as soon thereafter as convenient. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided.

Section 3 . Removal . Any officer or agent appointed by the Board of Directors may be removed by the Board of Directors at its discretion, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.

Section 4 . Vacancies . Any vacancy occurring in any office because of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors.

Section 5 . Compensation . Compensation of all officers shall be fixed by the Board of Directors (or a committee thereof), and no officer shall be prevented from receiving such compensation by virtue of his or her also being a director of the Corporation.

Section 6 . Chairman of the Board . The Chairman of the Board shall preside at all meetings of the Board of Directors and stockholders and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or provided in these By-Laws. The Chairman of the Board is authorized to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.

Section 7 . Chief Executive Officer . The Chief Executive Officer shall have the powers and perform the duties incident to that position. Subject to the powers of the Board of Directors, he or she shall be in the general and active charge of the entire business and affairs of the Corporation, and shall be its chief policy-making officer. The Chief Executive Officer is authorized to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The Chief Executive Officer shall, in the absence or disability of the Chairman of the Board, act with all of the powers, perform all duties and be subject to all the restrictions of the Chairman of the Board. The Chief Executive Officer shall have such other powers and perform such other duties as may be prescribed by the Chairman of the Board or the Board of Directors or as may be provided in these By-Laws.

Section 8 . The President . The President of the Corporation shall, subject to the powers of the Board of Directors, the Chairman of the Board and the Chief Executive Officer, have general charge of the business, affairs and property of the Corporation, and control over its officers, agents and employees; and shall see that all orders and resolutions of the Board of Directors and the Chief Executive Officer are carried into effect. The President shall, in the absence or disability of the Chief Executive Officer, act with all of the powers and be subject to all the restrictions of the Chief Executive Officer. The President is authorized to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The President shall have such other powers and perform such other duties as may be prescribed by the Chairman of the Board, the Chief Executive Officer or the Board of Directors or as may be provided in these By-Laws.

Section 9 . Chief Operating Officer . The Chief Operating Officer of the Corporation shall, subject to the powers of the Board of Directors, the Chairman of the Board, the Chief Executive Officer and the President, have general and active management of the business of the Corporation; and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chief Operating Officer shall have such other powers and perform such other duties as may be prescribed by the Chairman of the Board, the Chief Executive Officer, the President or the Board of Directors or as may be provided in these By-Laws.

Section 10 . Chief Financial Officer . The Chief Financial Officer of the Corporation shall, under the direction of the Chairman of the Board, the Chief Executive Officer and the President, be responsible for all financial and accounting matters and for the direction of the offices of Treasurer and controller. The Chief Financial Officer shall have such other powers and perform such other duties as may be prescribed by the Chairman of the Board, the Chief Executive Officer, the President or the Board of Directors or as may be provided in these By-Laws.

Section 11 . Vice-Presidents . The Vice-President, or if there shall be more than one, the Vice-Presidents in the order determined by the Board of Directors, the Chairman of the Board or the Chief Executive Officer shall, in the absence or disability of the President, act with all of the powers and be subject to all the restrictions of the President. The Vice-Presidents shall also perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or these By-Laws may, from time to time, prescribe. The Vice-Presidents may also be designated as Executive Vice-Presidents or Senior Vice-Presidents, as the Board of Directors may, from time to time, prescribe.

Section 12 . The Secretary and Assistant Secretaries . The Secretary shall attend all meetings of the Board of Directors, all meetings of the committees thereof and all meetings of the stockholders and record all the proceedings of the meetings in a book or books to be kept for that purpose or shall ensure that his or her designee attends each such meeting to act in such capacity. Under the Chairman of the Board’s supervision, the Secretary shall give, or cause to be given, all notices required to be given by these By-Laws or by law; shall have such powers and perform such duties as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or these By-Laws may, from time to time, prescribe; and shall have custody of the corporate seal of the Corporation. The Secretary, or an Assistant Secretary, shall have authority to affix the corporate seal to any instrument requiring it, and when so affixed, it may be attested by his or her signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Assistant Secretary, or if there be more than one, any of the assistant secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or the Secretary may, from time to time, prescribe.

Section 13 . The Treasurer and Assistant Treasurer . The Treasurer shall have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; shall deposit all monies and other valuable effects in the name and to the credit of the Corporation as may be ordered by the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer or the Board of Directors; shall cause the funds of the Corporation to be disbursed when such disbursements have been duly

authorized, taking proper vouchers for such disbursements; and shall render to the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer and the Board of Directors, at its regular meeting or when the Board of Directors so requires, an account of the Corporation; shall have such powers and perform such duties as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or these By-Laws may, from time to time, prescribe. The Assistant Treasurer, or if there are more than one, the Assistant Treasurers in the order determined by the Board of Directors shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer. The Assistant Treasurers shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, Treasurer or these By-Laws may, from time to time, prescribe.

Section 14 . Other Officers, Assistant Officers and Agents . Officers, assistant officers and agents, if any, other than those whose duties are provided for in these By-Laws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the Board of Directors.

Section 15 . Absence or Disability of Officers . In the case of the absence or disability of any officer of the Corporation and of any person hereby authorized to act in such officer’s place during such officer’s absence or disability, the Board of Directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person selected by it.

ARTICLE V

INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS

Section 1 . Right to Indemnification . Each person who was or is made a party or is threatened to be made a party to or is otherwise involved (including involvement as a witness) in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she is or was a director, officer or employee of the Corporation or, while a director, officer or employee of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter, an “indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer or employee or in any other capacity while serving as a director, officer or employee, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee’s heirs, executors and administrators. The right to indemnification conferred in this Section 1 of Article V shall be a contract right and shall include the right to be

paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an “advance of expenses”); provided, however, that, if and to the extent that the DGCL requires, an advance of expenses incurred by an indemnitee in his or her capacity as a director, officer or employee (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under this Section 1 of Article V or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to agents of the Corporation with the same scope and effect as the foregoing indemnification of directors, officers and employees.

Section 2 . Procedure for Indemnification . Any indemnification of a director, officer or employee of the Corporation or advance of expenses under Section 1 of this Article V shall be made promptly, and in any event within forty-five (45) days (or, in the case of an advance of expenses, twenty (20) days), upon the written request of the director, officer or employee. If a determination by the Corporation that the director, officer or employee is entitled to indemnification pursuant to this Article V is required, and the Corporation fails to respond within sixty (60) days to a written request for indemnification, the Corporation shall be deemed to have approved the request. If the Corporation denies a written request for indemnification or advance of expenses, in whole or in part, or if payment in full pursuant to such request is not made within forty-five (45) days (or, in the case of an advance of expenses, twenty (20) days), the right to indemnification or advances as granted by this Article V shall be enforceable by the director, officer or employee in any court of competent jurisdiction. Such person’s costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of expenses where the undertaking required pursuant to Section 1 of this Article V, if any, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. The procedure for indemnification of agents for whom indemnification is provided pursuant to Section 1 of this Article V shall be the same procedure set forth in this Section 2 for directors, officers and employees, unless otherwise set forth in the action of the Board of Directors providing indemnification for such agent.

Section 3 . Service for Subsidiaries . Any person serving as a director, officer, employee or agent of a subsidiary of the Corporation shall be conclusively presumed to be serving in such capacity at the request of the Corporation.

Section 4 . Reliance . Persons who after the date of the adoption of this provision become or remain directors, officers or employees of the Corporation or who, while a director, officer or employee of the Corporation, become or remain a director, officer, employee or agent of a subsidiary of the Corporation, shall be conclusively presumed to have relied on the rights to indemnity, advance of expenses and other rights contained in this Article V in entering into or continuing such service. The rights to indemnification and to the advance of expenses conferred in this Article V shall apply to claims made against an indemnitee arising out of acts or omissions which occurred or occur both prior and subsequent to the adoption hereof.

Section 5 . Non-Exclusivity of Rights . The rights to indemnification and to the advance of expenses conferred in this Article V shall not be exclusive of any other right which any person may have or hereafter acquire under the Certificate of Incorporation or under any statute, By-Law, agreement, vote of stockholders or disinterested directors or otherwise.

Section 6 . Insurance . The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee or agent of the Corporation or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss asserted against him or her and incurred by him or her in any such capacity, whether or not the Corporation would have the power to indemnify such person against such expenses, liability or loss under the DGCL.

ARTICLE VI

CERTIFICATES OF STOCK

Section 1 . Form . The shares of stock of the Corporation may be represented by certificates or uncertificated, as determined by the Board of Directors. Notwithstanding the foregoing, each holder of uncertificated shares shall be entitled, upon request, to a certificate representing such shares. Every holder of stock in the Corporation represented by a certificate shall be entitled to have the certificate signed by, or in the name of, the Corporation by the Chairman of the Board, the President or a Vice-President and the Secretary, Treasurer or an Assistant Secretary or an Assistant Treasurer of the Corporation, certifying the number of shares owned by such holder in the Corporation. If such a certificate is countersigned (1) by a transfer agent or an assistant transfer agent other than the Corporation or its employee or (2) by a registrar, other than the Corporation or its employee, the signature of any such Chairman of the Board, President, Vice-President, Secretary, Treasurer or Assistant Secretary may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation whether because of death, resignation or otherwise before such certificate or certificates have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate

or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the Corporation. Shares of stock of the Corporation shall only be transferred on the books of the Corporation by the holder of record thereof or by such holder’s attorney duly authorized in writing, upon surrender to the Corporation of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization, and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates, and record the transaction on its books. The Board of Directors may appoint a bank, trust company or other entity organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both, in connection with the transfer of any class or series of securities of the Corporation.

Section 2 . Lost Certificates . The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates previously issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against the Corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate.

Section 3 . Fixing a Record Date for Stockholder Meetings . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is first given. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

Section 4 . Fixing a Record Date for Other Purposes . In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of capital stock, or for the purposes of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

Section 5 . Registered Stockholders . Prior to the surrender to the Corporation of the certificate or certificates for a share or shares of capital stock with a request to record the transfer of such share or shares, the Corporation may treat the registered owner as the person entitled to receive dividends, to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. The Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof.

ARTICLE VII

GENERAL PROVISIONS

Section 1 . Dividends . Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation of the Corporation, if any, may be declared by the Board of Directors at any regular or special meeting, in accordance with applicable law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation of the Corporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or any other purpose, and the directors may modify or abolish any such reserve in the manner in which it was created.

Section 2 . Checks, Drafts or Orders . All checks, drafts or other orders for the payment of money by or to the Corporation and all notes and other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner, as shall be determined by resolution of the Board of Directors or a duly authorized committee thereof.

Section 3 . Contracts . In addition to the powers otherwise granted to officers pursuant to Article IV hereof, the Board of Directors may authorize any officer or officers, or any agent or agents, of the Corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

Section 5 . Fiscal Year . The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors and initially shall be the annual period ending on December 31 of each year.

Section 6 . Corporate Seal . The Board of Directors may provide a corporate seal which shall have inscribed thereon the name of the Corporation and such other information as the Board of Directors may deem necessary or convenient. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

Section 7 . Voting Securities Owned By Corporation . Voting securities in any other corporation held by the Corporation shall be voted by the Chairman of the Board, the Chief Executive Officer, the President or a Vice-President, unless the Board of Directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution.

Section 8 . Inspection of Books and Records . Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation’s stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean any purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in the State of Delaware or at its principal executive office. The Corporation shall have a reasonable amount of time to respond to any such request.

Section 9 . Section Headings . Section headings in these By-Laws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein.

Section 10 . Inconsistent Provisions . In the event that any provision of these By-Laws is or becomes inconsistent with any provision of the Certificate of Incorporation of the Corporation, the DGCL or any other applicable law, the provision of these By-Laws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect.

ARTICLE VIII

AMENDMENTS

These By-Laws may be amended, altered, or repealed and new By-Laws adopted at any meeting of the Board of Directors by the affirmative vote of the majority of the total number of directors then in office. Sections 2, 11 and 13 of Article II, Sections 2, 3, 4, and 5 of Article III, Article V and this Article VIII of these By-Laws shall not be altered, amended or repealed by, and no provision inconsistent therewith shall be adopted by, the stockholders without the affirmative vote of the holders of a majority of the issued and outstanding voting stock of the Corporation entitled to vote generally for election of directors represented at a meeting of stockholders at which a quorum is present (as provided in these By-Laws).

Exhibit 10.1

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

issued to

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

St. Petersburg, Florida

including any and/or all companies that are or may hereafter become affiliated therewith

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS


	Page

ARTICLE 1 BUSINESS COVERED		3

ARTICLE 2 RETENTION AND LIMIT		3

ARTICLE 3 TERM		3

ARTICLE 4 SPECIAL TERMINATION		4

ARTICLE 5 TERRITORY		5

ARTICLE 6 EXCLUSIONS		5

ARTICLE 7 PREMIUM		7

ARTICLE 8 REINSTATEMENT		8

ARTICLE 9 FLORIDA HURRICANE CATASTROPHE FUND		8

ARTICLE 10 DEFINITIONS		9

ARTICLE 11 EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS		12

ARTICLE 12 NET RETAINED LIABILITY		13

ARTICLE 13 ORIGINAL CONDITIONS		13

ARTICLE 14 NO THIRD PARTY RIGHTS		13

ARTICLE 15 NOTICE OF LOSS AND LOSS SETTLEMENTS		13

ARTICLE 16 CURRENCY		14

ARTICLE 17 UNAUTHORIZED REINSURANCE		14

ARTICLE 18 TAXES		16

ARTICLE 19 ACCESS TO RECORDS		16

ARTICLE 20 CONFIDENTIALITY		17

ARTICLE 21 INDEMNIFICATION AND ERRORS AND OMISSIONS		17

ARTICLE 22 INSOLVENCY		18

ARTICLE 23 ARBITRATION		19

ARTICLE 24 SERVICE OF SUIT		20

ARTICLE 25 GOVERNING LAW		21

ARTICLE 26 ENTIRE AGREEMENT		21

ARTICLE 27 NON-WAIVER		21

ARTICLE 28 INTERMEDIARY		21

ARTICLE 29 MODE OF EXECUTION		21


Attachments

	Schedule A	25
	Pools, Associations and Syndicates Exclusion Clause	26
	Total Insured Value Exclusion Clause	29
	Mold Exclusion	30
	Nuclear Incident Exclusion Clause - Physical Damage – Reinsurance - U.S.A.	31
	Terrorism Exclusion (Property Treaty Reinsurance) N.M.A. 2930c	33
	Trust Agreement Requirements Clause	34

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(the “Contract”)

issued to

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

St. Petersburg, Florida

including any and/or all companies that are or may hereafter become affiliated therewith

(collectively, the “Company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED

IN THE INTERESTS AND LIABILITIES AGREEMENT(S)

ATTACHED TO AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Company in respect of the liability that may accrue to the Company as a result of loss or losses under Policies classified by the Company as Florida Personal Lines Property, in force at the inception of this Contract, or written or renewed during the term of this Contract by or on behalf of the Company, subject to the terms and conditions herein contained.

B.	Subject business shall include business assumed by the Company in connection with the depopulation of Policies from Citizens Property Insurance Corporation.

ARTICLE 2

RETENTION AND LIMIT

As respects each excess layer of reinsurance coverage provided by this Contract, the Company shall retain and be liable for the amount of Ultimate Net Loss, shown as “Company’s Retention” in Schedule A attached hereto, arising out of each Loss Occurrence. The Reinsurer shall then be liable, as respects each excess layer, for the amount by which the Company’s Ultimate Net Loss exceeds the applicable retention, but the liability of the Reinsurer under each excess layer shall not exceed the amount shown as “Reinsurer’s Per Occurrence Limit” in Schedule A attached hereto, as respects any one Loss Occurrence.

ARTICLE 3

TERM

This Contract shall take effect at 12:01 a.m., Eastern Standard Time, June 1, 2013, and shall remain in effect until 12:01 a.m., Eastern Standard Time, June 1, 2014, applying to Loss Occurrences commencing during the term of this Contract.

ARTICLE 4

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.

The Subscribing 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, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations.

The Subscribing Reinsurer’s policyholders’ surplus (or the equivalent under the Subscribing Reinsurer’s accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20% of the amount thereof at any date during the prior 12-month period (including the period prior to the inception of this Contract).

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

The Subscribing Reinsurer has retroceded its entire liability under this Contract without the Company’s prior written consent, except for retrocessions to members of the Subscribing Reinsurer’s holding company group.

The Subscribing Reinsurer has been assigned an A.M. Best’s rating of less than “A-” and/or an S&P rating of less than “BBB+.” However, as respects Underwriting Members of Lloyd’s, London, a Lloyd’s Market Rating of less than “A-” by A.M. Best and/or less than “BBB+” by S&P shall apply.

Termination shall be effected on a cut-off basis and the Reinsurer shall have no liability with respect to Loss Occurrences commencing after termination. The reinsurance premium due the Subscribing Reinsurer hereunder (including any minimum reinsurance premium) shall be prorated based on the period of the Subscribing Reinsurer’s participation hereon, and the Subscribing Reinsurer shall immediately return any excess reinsurance premium received. Reinstatement premium, if any, shall be calculated based on the Subscribing Reinsurer’s reinsurance premium earned during the period of the Subscribing Reinsurer’s participation hereon.

Additionally, in the event of any of the circumstances listed in paragraph A of this Article, the Company shall have the option to commute the Subscribing Reinsurer’s liability for losses on Policies covered by this Contract. In the event the Company and the Subscribing Reinsurer cannot agree on the commutation amount, they shall appoint an actuary and/or appraiser to assess such amount and shall share equally any expense of the actuary and/or appraiser. If the Company and the Subscribing Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Subscribing Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Subscribing Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties in respect of liability arising from the Subscribing Reinsurer’s participation under this Contract.

D.	The Company’s option to require commutation under paragraph C above shall survive the termination or expiration of this Contract.

ARTICLE 5

TERRITORY

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

ARTICLE 6

EXCLUSIONS

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

All excess of loss reinsurance assumed by the Company.

Reinsurance assumed by the Company under obligatory reinsurance agreements, except as respects business identified in paragraph B of the Business Covered Article, and agency reinsurance where the Policies involved are to be reunderwritten in accordance with the underwriting standards of the Company and reissued as Company Policies at the next anniversary or expiration date.

Financial guarantee and insolvency business.

Third party liability and medical payments business.

Losses excluded by the attached “Pools, Associations and Syndicates Exclusion Clause.”

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

Risks excluded under the provisions of the attached “Total Insured Value Exclusion Clause.”

All Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation and Credit business.

All Ocean Marine business.

10.

Fidelity, unless written as part of a multiple peril Policy.

11.

All aviation, aerospace and satellite business.

12.

All railroad business.

13.

All insurances on growing or standing crops.

14.

Flood and/or earthquake, when written as such.

15.

Difference in Conditions insurances and similar kinds of insurances, however styled, insofar as they may provide coverage for losses from the following causes:

Flood, surface water, waves, tidal water or tidal waves, overflow of streams or other bodies of water or spray from any of the foregoing, all whether wind-driven or not, except when covering property in transit; or

Earthquake, landslide, subsidence or other earth movement or volcanic eruption, except when covering property in transit.

16.

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

17.

Loss or damage caused by or resulting from war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority, but this exclusion shall not apply to loss or damage covered under a standard Policy with a standard War Exclusion Clause.

18.

Nuclear risks as defined in the attached “Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance (U.S.A.).”

19.

Loss arising from pollution or environment impairment.

20.

suppliers extension and/or contingent business interruption coverages are not subject to this exclusion, provided that these are not part of a transmitters’ or distributors’ Policy.

21.

Loss as excluded under the provisions of the attached “Terrorism Exclusion (Property Treaty Reinsurance) – N.M.A. 2930c.”

22.

Mold as defined in the attached “Mold Exclusion.”

23.

All assessments from Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund.

ARTICLE 7

PREMIUM

As respects each Excess Layer, the Company shall pay the Reinsurer a deposit premium in accordance with Schedule A attached hereto, in four installments of an amount, shown as “Quarterly Deposit Premium” for that excess layer in said Schedule A, on June 1 and September 1, 2013, and January 1 and March 1, 2014. The adjusted premium to be paid to the Reinsurer for the reinsurance provided under each Excess Layer shall be calculated at the rates set forth in Schedule A attached hereto, multiplied by the Company’s TIV with respect to the business covered hereunder, subject to the applicable minimum premium stated in Schedule A attached hereto.

Within 30 days following the expiration of this Contract, the Company shall furnish to the Reinsurer a statement of the TIV for the term of this Contract and calculate the reinsurance premium in accordance with paragraph A above. In the event that the Company’s TIV is greater than 105% of the TIV as of September 30, 2013, an additional premium shall be due and payable to the Reinsurer for the amount in excess of the deposit. In the event that the Company’s TIV is less than 95% of the TIV as of September 30, 2013, the Reinsurer shall immediately pay the Company the difference, subject to the minimum premiums for the term of this Contract as set forth in Schedule A attached hereto. In the event that the Company’s TIV is within 5% of the TIV as of September 30, 2013, the deposit premium for each Excess Layer shall be the final premium hereunder.

C.	“TIV (Total Insured Value)” means the Company’s in force liability on business subject hereto, as determined by the Company.

D.	For purposes of this Article, the “TIV as of September 30, 2013” is $20,925,086,908.

E.	The Company shall furnish the Reinsurer with such information as may be required by the Reinsurer for completion of its financial statements.

ARTICLE 8

REINSTATEMENT

Loss payments under any Excess Layer of this Contract shall reduce the limit of coverage afforded thereunder by the amounts paid, but the limit of coverage shall be reinstated from the time of the occurrence of the loss, and for each amount so reinstated, the Company agrees to pay, simultaneously with the Reinsurer’s loss payment, an additional premium calculated at pro rata of 100% of the Reinsurer’s premium for the Excess Layer for the term of this Contract, being pro rata only as to the fraction of the Reinsurer’s limit of liability hereunder (i.e., the fraction of the Reinsurer’s limit of liability for each Loss Occurrence as set forth for the Excess Layer in Schedule A attached hereto) so reinstated. Nevertheless, the Reinsurer’s liability under the Excess Layer shall not exceed the applicable limit in respect of any one Loss Occurrence, nor the applicable limit in respect of all Loss Occurrences commencing during the term of this Contract, as set forth in Schedule A attached hereto

B.	If at the time of a loss settlement hereon the reinsurance premium, as calculated in accordance with the Premium Article, is unknown, the above calculation of reinstatement premium shall be based upon the deposit premium, subject to adjustment when the reinsurance premium is finally established.

ARTICLE 9

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

The full reimbursement amount due from the FHCF for coverage under the Mandatory Layer and the additional coverage option available to Limited Apportionment Companies, based on statutory limits of coverage as of June 1, including any reimbursement pursuant to the Temporary Increase in Coverage Limit (TICL) shall be deemed recovered by the Company, whether or not actually received from the FHCF and whether or not reduced because of the FHCF’s inability to pay.

Any other FHCF recoveries shall be disregarded for purposes of determining Ultimate Net Loss subject to this Contract.

For purposes of allocating recoveries from the FHCF with respect to each Loss Occurrence, only amounts recoverable by applying the pay-out and retention multiples for the FHCF prior to any reduction in retention due to multiple Loss Occurrences in the same annual period shall be included in calculating the deduction from Ultimate Net Loss.

If the Company’s aggregate limit of FHCF reimbursement coverage is exhausted by losses from multiple Loss Occurrences, and the FHCF does not designate the portion of said limit allocable to each Loss Occurrence, the FHCF reimbursement received shall be allocated to each individual Loss Occurrence in the proportion that the Company’s losses in that Loss Occurrence bear to the Company’s total losses arising out of all Loss Occurrences that have exhausted the FHCF coverage.

For purposes of loss recoveries under this Contract prior to the final determination of the Company’s retention and limit under the FHCF, FHCF coverage shall be calculated using the Company’s “Projected Payout Multiple” under the FHCF. Upon determination of the Company’s retention and limit under the FHCF, losses will be adjusted, recognizing any adjustment to the “Projected Payout Multiple” caused by a change in the Aggregate Mandatory FHCF Premium but disregarding any change due to a decrease in the statutory limit.

C.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

ARTICLE 10

DEFINITIONS


A.		1.		“Ultimate Net Loss” means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 90% of any Extra Contractual Obligation and 90% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article.

Salvages and all recoveries (including amounts due from all reinsurances that 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.

All salvages, recoveries or payments recovered or received subsequent to loss settlement 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.

The Company shall be deemed to be “liable to pay” a loss when a judgment has been rendered that the Company does not plan to appeal, and/or the Company has obtained a release, and/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.	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to:

court costs;

costs of supersedeas and appeal bonds;

monitoring counsel expenses;

legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions;

post-judgment interest;

pre-judgment interest, unless included as part of an award or judgment;

a pro rata share of salaries and expenses of Company field employees, calculated in accordance with the time occupied in adjusting such loss, 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; and

subrogation, salvage and recovery expenses.

“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees, except as provided in subparagraph (7) above, and office and other overhead expenses.


C.		1.		“Loss Occurrence” means 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 that occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one “Loss Occurrence” shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term “Loss Occurrence” shall be further defined as follows:

As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 96 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.

individual losses that occur beyond such 96 consecutive hours during the continued occupation of an assured’s premises by strikers, provided such occupation commenced during the aforesaid period.

As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to above) and fire following directly occasioned by the earthquake, those earthquake losses and individual fire losses that commence during the period of 168 consecutive hours may be included in the Company’s “Loss Occurrence.”

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.”

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.

Only one period of consecutive hours shall apply with respect to one event, except that, as respects those “Loss Occurrences” referred to in subparagraph (1)(b) above, if the disaster, accident or loss occasioned by the event is of greater duration than 96 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.

Losses arising from a combination of two or more perils as a result of the same event shall be considered as having arisen from one “Loss Occurrence.” Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils, and no single “Loss Occurrence” shall encompass a time period greater than 168 consecutive hours.

Losses directly or indirectly occasioned by:

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, do not in and of themselves constitute an event unless arising out of one or more of the following perils: fire, lightning, explosion, aircraft or vehicle impact, falling objects, windstorm, hail, tornado, cyclone, hurricane, earthquake, volcano, tsunami, flood, freeze or weight of snow.

D.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.

ARTICLE 11

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

This Contract shall cover Extra Contractual Obligations, as provided in the definition of Ultimate Net Loss. “Extra Contractual Obligations” shall be defined as those liabilities not covered under any other provision of this Contract and that arise from the handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the Company to settle within the Policy limit, or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of any action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such action.

This Contract shall cover Loss in Excess of Policy Limits, as provided in the definition of Ultimate Net Loss. “Loss in Excess of Policy Limits” shall be defined as Loss in excess of the Policy limit, having been incurred because of, but not limited to, failure by 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 reinsured or in the preparation or prosecution of an appeal consequent upon such action.

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

D.	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy.

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

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

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

ARTICLE 12

NET RETAINED LIABILITY

A.	This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company).

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 that may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

ARTICLE 13

ORIGINAL CONDITIONS

All reinsurance under this Contract shall be subject to the same terms, conditions, waivers and interpretations, and to the same modifications and alterations as the respective Policies of the Company. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

ARTICLE 14

NO THIRD PARTY RIGHTS

This Contract is solely between the Company and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract except as may be expressly provided otherwise herein.

ARTICLE 15

NOTICE OF LOSS AND LOSS SETTLEMENTS

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

B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

As respects losses subject to this Contract, all loss settlements made by the Company, whether under strict Policy terms or by way of compromise, and any Extra Contractual Obligations and/or Loss in Excess of Policy Limits, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement immediately upon receipt of proof of loss.

ARTICLE 16

CURRENCY

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

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

ARTICLE 17

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.

The Company agrees, in respect of its Policies or bonds falling within the scope of this Contract, that when it files with its insurance regulatory authority, or sets up on its books liabilities as required by law, it shall forward to the Reinsurer a statement showing the proportion of such liabilities applicable to the Reinsurer. The “Reinsurer’s Obligations” shall be defined as follows:

unearned premium (if applicable);

known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto;

losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer;

losses incurred but not reported and Loss Adjustment Expense relating thereto as respects known Loss Occurrences only;

all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer.

The Reinsurer’s Obligations shall be funded by funds withheld, cash advances, Trust Agreement or a Letter of Credit (LOC). 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.

Obligations. Such LOC 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 (or such other time period as may be 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 LOC extended for any additional period.

The Reinsurer and the Company agree that any funding 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:

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

to make refund of any sum that is in excess of the actual amount required to pay the Reinsurer’s Obligations under this Contract (or in excess of 102% of the Reinsurer’s Obligations, if funding is provided by a Trust Agreement);

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. Any taxes payable on accrued interest shall be paid out of the assets in the account that are in excess of the Reinsurer’s Obligations (or in excess of 102% of the Reinsurer’s Obligations, if funding is provided by a Trust Agreement). If the assets are inadequate to pay taxes, any taxes due shall be paid or reimbursed by the Reinsurer;

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

If the amount drawn by the Company is in excess of the actual amount required for E(1) or E(3), or in the case of E(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.

G.	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.

H.	At annual intervals, or more frequently at the discretion of the Company, 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 LOC or other method of funding, in the following manner:

If the statement shows that the Reinsurer’s Obligations exceed the balance of the LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the statement, secure delivery to the Company of an amendment to the LOC increasing the amount of credit by the amount of such difference. Should another method of funding be used, the Reinsurer shall, within the time period outlined above, increase such funding by the amount of such difference.

If, however, the statement shows that the Reinsurer’s Obligations are less than the balance of the LOC (or that 102% of the Reinsurer’s Obligations are less than the trust account balance if funding is provided by a Trust Agreement), 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 LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess.

ARTICLE 18

TAXES

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

B.	1. Each 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 the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax.

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

ARTICLE 19

ACCESS TO RECORDS

The Reinsurer or its duly authorized representatives shall have the right to visit the offices of the Company to inspect, examine, audit, and verify any of the policy, accounting or claim files (“Records”) relating to business reinsured under this Contract during regular business hours after giving five working days’ prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company.

ARTICLE 20

CONFIDENTIALITY

The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (“Confidential Information”) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show:

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality;

were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality; or

were independently developed by the Reinsurer.

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, except:

when required by retrocessionaires subject to the business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same promptly and to use reasonable efforts to assist the Company in maintaining the confidentiality provided for in this Article.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 21

INDEMNIFICATION AND ERRORS AND OMISSIONS

A.	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to:

what shall constitute a claim or loss covered under any Policy;

the Company’s liability thereunder;

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

B.	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy.

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

ARTICLE 22

INSOLVENCY

If more than one reinsured company is referenced within the definition of “Company” in the Preamble to this Contract, this Article shall apply severally to each such company. Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary state’s laws shall prevail.

In the event of the insolvency of the Company, this reinsurance (or the portion of any risk or obligation assumed by the Reinsurer, if required by applicable law) shall be payable directly to the Company, or to its liquidator, receiver, conservator or statutory successor, either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

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

As to all reinsurance made, ceded, renewed or otherwise becoming effective under this Contract, the reinsurance shall be payable as set forth above by the Reinsurer to the Company or to its liquidator, receiver, conservator or statutory successor, (except as provided by Section 4118(a)(1)(A) of the New York Insurance Law, provided the conditions of 1114(c) of such law have been met, if New York law applies) or except (1) where the Contract specifically provides another payee in the event of the insolvency of the Company, or (2) where the Reinsurer, with the consent of the direct insured or insureds, 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. Then, and in that event only, the Company, with the prior approval of the certificate of assumption on New York risks by the Superintendent of Financial Services of the State of New York, or with the prior approval of such other regulatory authority as may be applicable, is entirely released from its obligation and the Reinsurer shall pay any loss directly to payees under such Policy.

ARTICLE 23

ARBITRATION

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

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

If the two arbitrators do not agree on a third arbitrator within 60 days of their appointment, the third arbitrator shall be chosen in accordance with the procedures for selecting the third arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society – U.S. (ARIAS). The arbitrators shall be persons knowledgeable about insurance and reinsurance who have no personal or financial interest in the result of the arbitration. If a member of the panel dies, becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue.

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

St. Petersburg, Florida, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate.

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

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

ARTICLE 24

SERVICE OF SUIT

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

This Article shall not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

In the event of the failure of the Reinsurer to perform its obligations hereunder, the 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 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 Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the 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 the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal.

Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another party specifically designated in the applicable Interests and Liabilities Agreement attached hereto. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit.

Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, 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 office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract, 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 25

GOVERNING LAW

This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, exclusive of conflict of law rules. However, with respect to credit for reinsurance, the rules of all applicable states shall apply.

ARTICLE 26

ENTIRE AGREEMENT

This Contract sets forth all of the duties and obligations between the Company and the Reinsurer and supersedes any and all prior or contemporaneous written agreements with respect to matters referred to in this Contract. This Contract may not be modified or changed except by an amendment to this Contract in writing signed by both parties.

ARTICLE 27

NON-WAIVER

The failure of the Company or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights contained in this Contract nor prevent either party from thereafter demanding full and complete compliance nor prevent either party from exercising such remedy in the future.

ARTICLE 28

INTERMEDIARY

Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including notices, statements, premiums, return premiums, commissions, taxes, losses, Loss Adjustment Expenses, salvages, and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through Guy Carpenter & Company, LLC, 3600 Minnesota Drive, Suite 400, Edina, Minnesota 55435-7902. Payments by the Company to the Intermediary shall be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed payment to the Company only to the extent that such payments are actually received by the Company.

ARTICLE 29

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;

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

B.	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.

IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s) this 18th day of June, in the year of 2013.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

including any and/or all companies that are or may hereafter become affiliated therewith

/s/ Authorized Signatory

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

SCHEDULE A

attached to and forming part of the

CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

Effective: June 1, 2013

issued to

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

St. Petersburg, Florida


	First Excess			Second Excess			Third Excess			Fourth Excess			Fifth Excess			Sixth Excess

Company’s Retention	$	9,000,000		$	20,000,000		$	40,000,000		$	70,000,000		$	103,000,000		$	130,000,000

Reinsurer’s Per Occurrence Limit	$	11,000,000		$	20,000,000		$	30,000,000		$	33,000,000		$	27,000,000		$	28,500,000

Reinsurer’s Annual Limit	$	22,000,000		$	40,000,000		$	60,000,000		$	66,000,000		$	54,000,000		$	57,000,000

Deposit Premium	$	4,455,000		$	6,700,000		$	7,950,000		$	6,930,000		$	4,117,500		$	2,707,500

Quarterly Deposit Premium	$	1,113,750		$	1,675,000		$	1,987,500		$	1,732,500		$	1,029,375		$	676,875

Minimum Premium	$	3,564,000		$	5,360,000		$	6,360,000		$	5,544,000		$	3,294,000		$	2,166,000

Premium Rate		0.021290	%		0.032019	%		0.037993	%		0.033118	%		0.019677	%		0.012939	%

POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE

Section A:

This Contract excludes:

All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, 1968 for the purpose of insuring property, whether on a country-wide basis or in respect of designated areas. This exclusion shall not apply to so-called Automobile Insurance Plans or other Pools formed to provide coverage for Automobile Physical Damage.

Section B:

This Contract excludes business written by the Company for the same perils, which is known at the time to be insured by, or in excess of underlying amounts placed in, any Pool, Association or Syndicate, whether by way of insurance or reinsurance, formed for the purpose of writing any of the following:

Oil, Gas or Petro-Chemical Plants

Oil or Gas Drilling Rigs and/or

Aviation Risks

2.	The exclusion under paragraph 1 of this Section B does not apply:

Where the Total Insured Value over all interests of the risk in question is less than $250,000,000.

To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis.

To Contingent Business Interruption, except when the Company is aware that the key location is known at the time to be insured in any Pool, Association or Syndicate named above, other than as provided for under subparagraph (a).

Section C:

1.	Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom:

So-called “Beach and Windstorm Plans” and so-called “Coastal Pools”;

All “FAIR Plan” and “Rural Risk Plan” business;

California Earthquake Authority (“CEA”) or any similar entity.

2.	However, this reinsurance does not include any increase in such liability resulting from:

The inability of any other participant in such Residual Market Mechanisms to meet its liability;

Any claim against a Residual Market Mechanism or any participant therein, including the Company, whether by way of subrogation or otherwise, brought by or on behalf of any insolvency fund (as defined in the Exclusions Article);

Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company;

The Company’s initial capital contribution to the CEA;

Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above.

The Company may include in Ultimate Net Loss for any Loss Occurrence covered hereunder only the liability attributable to that Loss Occurrence. If the relevant entity does not specify what portion of an assessment is attributable to each Loss Occurrence, the Company may include in Ultimate Net Loss in respect of each Loss Occurrence a percentage of the Company’s assessments from the relevant entity related to the calendar year in which the Loss Occurrence commenced, regardless of when assessed, such percentage to be determined by dividing the relevant entity’s losses arising from the Loss Occurrence by its total losses for the calendar year.

The Company will deduct from Ultimate Net Loss amounts received as recoupment of any assessment that has been included in the Ultimate Net Loss, provided the recoupment is directly allocable to the assessment (“itemized recoupment”). The Company shall use commercially reasonable efforts to recoup such assessment. Any amount received as an itemized recoupment of any assessment (whether under this Contract or any predecessor contract), and therefore deductible from Ultimate Net Loss, shall not be included in the subject premium of this Contract.

However, if a state levies assessments but does not allow itemized recoupment from policyholders, instead allowing the Company to file an overall increased rate, any such premium increased thereby shall not be deemed to be a recoupment that is deductible from Ultimate Net Loss. Any recoupment received as part of a general premium rate increase, not specifically itemized, shall be included as part of the subject premium of this Contract or a successor contract, as applicable.

NOTES: Wherever used herein the terms:


“Company”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.


“Agreement”		shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”		shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.

TOTAL INSURED VALUE EXCLUSION CLAUSE

It is the mutual intention of the parties to exclude risks, other than Offices, Hotels, Apartments, Hospitals, Educational Establishments and Public Utilities (except Railroad Schedules), and Builders Risks on the above classes, where at the time of cession, the Total Insured Value over all interests exceeds $250,000,000. However, the Company shall be protected hereunder, subject to the other terms and conditions of this Contract, if subsequent to cession being made, the Company becomes acquainted with the true facts of the case and discovers that the mutual intention has been inadvertently breached; on condition that the Company shall at the first opportunity, and certainly by next anniversary of the original Policy, exclude the risk in question.

It is agreed that this mutual intention does not apply to Contingent Business Interruption or to interests traditionally underwritten as Inland Marine or to Stock and/or Contents written on a blanket basis except where the Company is aware that the Total Insured Value of $250,000,000 is already exceeded for buildings, machinery, equipment and direct use and occupancy at the key location.

C.	It is understood and agreed that this Clause shall not apply hereunder where the Company writes 100% of the risk.

MOLD EXCLUSION

Loss or liability in any way or to any extent arising out of the actual or alleged presence or actual, alleged or threatened presence of fungi including, but not limited to, mold, mildew, mycotoxins, microbial volatile organic compounds or other “Microbial Contaminations”. This includes:

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

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

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

Losses resulting from the above causes do not in and of themselves constitute an event.

However, this exclusion shall not apply if the above causes of loss arise out of one or more of the perils otherwise covered under this Contract.

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -

REINSURANCE - U.S.A.

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

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

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

II.

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

III.

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

IV.

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

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

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

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

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

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

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

7.	Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note : Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

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

(b)

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

12/12/57

NMA 1119

NOTES: Wherever used herein the terms:


“Reassured”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Agreement”		shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”		shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.

TERRORISM EXCLUSION (PROPERTY TREATY REINSURANCE) N.M.A. 2930C

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

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

(i)	involves violence against one or more persons; or

(ii)	involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)	creates a risk to health or safety of the public or a section of the public; or

(v)	is designed to interfere with or to disrupt an electronic system.

This reinsurance agreement also excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in

controlling, preventing, suppressing, retaliating against, or responding to any act of terrorism.

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

NMA2930c

22/11/02

TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Stipulates that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash (United States legal tender), certificates of deposit (issued by a United States bank and payable in United States legal tender), and investments of the types permitted by the regulatory authorities having jurisdiction over the Company’s reserves, or any combination of the three, provided that the investments are issued by an institution that is not the parent, subsidiary or affiliate of either the Reinsurer or the Company;

Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the Company, or the trustee upon the direction of the Company, may whenever necessary negotiate these assets without consent or signature from the Reinsurer or any other entity;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Provides that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of cash in United States dollars, certificates of deposit issued by a United States financial institution as defined in California Insurance Code Section 922.7(a) and payable in United States dollars, and investments permitted by the California Insurance Code, or any combination of the above.

Provides that investments in or issued by an entity controlling, controlled by or under common control with either the grantor or the beneficiary of the trust shall not exceed 5% of total investments.

Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.

Exhibit 10.2

CATASTROPHE EXCESS OF LOSS AND AGGREGATE

REINSURANCE CONTRACT

issued to

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

ST. PETERSBURG, FLORIDA

including any and/or all companies that are or may hereafter become affiliated therewith

CATASTROPHE EXCESS OF LOSS AND AGGREGATE

REINSURANCE CONTRACT

TABLE OF CONTENTS


Article	Page

ARTICLE 1 BUSINESS COVERED		1

ARTICLE 2 RETENTION AND LIMIT		1

ARTICLE 3 TERM		2

ARTICLE 4 SPECIAL TERMINATION		3

ARTICLE 5 TERRITORY		4

ARTICLE 6 EXCLUSIONS		4

ARTICLE 7 PREMIUM		6

ARTICLE 8 FLORIDA HURRICANE CATASTROPHE FUND		6

ARTICLE 9 DEFINITIONS		7

ARTICLE 10 EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS		10

ARTICLE 11 NET RETAINED LIABILITY		11

ARTICLE 12 ORIGINAL CONDITIONS		11

ARTICLE 13 NO THIRD PARTY RIGHTS		11

ARTICLE 14 NOTICE OF LOSS AND LOSS SETTLEMENTS		12

ARTICLE 15 CURRENCY		12

ARTICLE 16 UNAUTHORIZED REINSURANCE		12

ARTICLE 17 TAXES		14

ARTICLE 18 ACCESS TO RECORDS		15

ARTICLE 19 CONFIDENTIALITY		15

ARTICLE 20 INDEMNIFICATION AND ERRORS AND OMISSIONS		16

ARTICLE 21 INSOLVENCY		16

ARTICLE 22 ARBITRATION		17

ARTICLE 23 SERVICE OF SUIT		18

ARTICLE 24 GOVERNING LAW		19

ARTICLE 25 ENTIRE AGREEMENT		19

ARTICLE 26 NON-WAIVER		20

ARTICLE 27 INTERMEDIARY		20

ARTICLE 28 MODE OF EXECUTION		20

Attachments

Pools, Associations and Syndicates Exclusion Clause

Total Insured Value Exclusion Clause

Mold Exclusion

Nuclear Incident Exclusion Clause - Physical Damage – Reinsurance - U.S.A.

CATASTROPHE EXCESS OF LOSS AND AGGREGATE

REINSURANCE CONTRACT

(the “Contract”)

issued to

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

St. Petersburg, Florida

including any and/or all companies that are or may hereafter become affiliated therewith

(collectively, the “Company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED

IN THE INTERESTS AND LIABILITIES AGREEMENT(S)

ATTACHED TO AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

B.	Subject business shall include business assumed by the Company in connection with the depopulation of Policies from Citizens Property Insurance Corporation.

ARTICLE 2

RETENTION AND LIMIT

A.	Coverage A :

The Reinsurer shall be liable in respect of the first Loss Occurrence, chronologically, for the Ultimate Net Loss over and above an Ultimate Net Loss of $9,000,000, subject to a limit of liability to the Reinsurer of $60,000,000.

In addition to reductions under the provisions of the Florida Hurricane Catastrophe Fund Article, amounts due under the Company’s other catastrophe reinsurance, excluding the Company’s Second Catastrophe Excess of Loss and Aggregate Reinsurance Contract, effective June 1, 2013, shall reduce the Ultimate Net Loss subject to this Coverage A, whether recoverable or not.

B.	Coverage B :

Subject to the provisions of subparagraph 2 below, the Reinsurer shall be liable in respect of each Loss Occurrence for the Ultimate Net Loss over and above an Ultimate Net Loss of $3,000,000 each Loss Occurrence, subject to a limit of liability to the Reinsurer of $6,000,000 each Loss Occurrence.

No recovery shall be made hereunder unless and until the Company has retained an annual aggregate deductible of $12,000,000 for Loss Occurrences commencing during the term of this Contract.

C.	Coverage C :

The Reinsurer shall be liable in respect of all Loss Occurrences commencing during the term of this Contract for the Ultimate Net Loss over and above an Ultimate Net Loss of $15,000,000, but not to exceed $60,000,000 as respects all such Loss Occurrences.

In addition to reductions under the provisions of the Florida Hurricane Catastrophe Fund Article and amounts due under the Company’s other catastrophe reinsurance, excluding the Company’s Second Catastrophe Excess of Loss and Aggregate Reinsurance Contract, effective June 1, 2013, amounts due under Coverage B above shall reduce the Ultimate Net Loss subject to this Coverage C, whether recoverable or not.

No recoveries shall be available under this Coverage C unless Ultimate Net Loss applicable hereto arises from at least two separate Loss Occurrences.

D.	Notwithstanding the above, the Reinsurer’s liability hereunder for Coverages A, B and C combined shall not exceed $60,000,000 in respect of all Loss Occurrences commencing during the term of this Contract.

ARTICLE 3

TERM

ARTICLE 4

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.

B.	In the event of such termination:

The reinsurance premium due the Subscribing Reinsurer hereunder shall be pro rated based on the period of the Subscribing Reinsurer’s participation hereon, and the Subscribing Reinsurer shall immediately return any excess reinsurance premium received.

Provided that there is no subject Ultimate Net Loss, as defined herein, resulting from any Loss Occurrence commencing prior to the effective date of termination,

the Subscribing Reinsurer shall have no further liability under this Contract. However, if there is subject Ultimate Net Loss resulting from any Loss Occurrence commencing prior to the effective date of termination, the Company’s retention and Reinsurer’s limit as set forth in the Retention and Limit Article shall be reduced pro rata, based on the period of the Subscribing Reinsurer’s participation hereon, as respects the Subscribing Reinsurer’s share.

ARTICLE 5

TERRITORY

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

ARTICLE 6

EXCLUSIONS

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

All excess of loss reinsurance assumed by the Company.

Financial guarantee and insolvency business.

Third party liability and medical payments business.

Losses excluded by the attached “Pools, Associations and Syndicates Exclusion Clause.”

Risks excluded under the provisions of the attached “Total Insured Value Exclusion Clause.”

All Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation and Credit business.

All Ocean Marine business.

10.

Fidelity, unless written as part of a multiple peril Policy.

11.

All aviation, aerospace and satellite business.

12.

All railroad business.

13.

All insurances on growing or standing crops.

14.

Flood and/or earthquake, when written as such.

15.

Difference in Conditions insurances and similar kinds of insurances, however styled, insofar as they may provide coverage for losses from the following causes:

Earthquake, landslide, subsidence or other earth movement or volcanic eruption, except when covering property in transit.

16.

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

17.

18.

Nuclear risks as defined in the attached “Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance (U.S.A.).”

19.

Loss arising from pollution or environment impairment.

20.

Losses in respect of overhead transmission and distribution lines and their supporting structures other than those on or within 150 meters (or 500 feet) of the insured premises. It is understood and agreed that public utilities extension and/or suppliers extension and/or contingent business interruption coverages are not subject to this exclusion, provided that these are not part of a transmitters’ or distributors’ Policy.

21.

Loss as excluded under the provisions of the attached “Terrorism Exclusion (Property Treaty Reinsurance) – N.M.A. 2930c.”

22.

Mold as defined in the attached “Mold Exclusion.”

23.

All assessments from Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund.

ARTICLE 7

PREMIUM

The Company shall pay the Reinsurer a deposit premium of $6,150,000 for the term of this Contract, to be paid in the amount of $1,537,500 on June 1 and September 1, 2013, and January 1 and March 1, 2014. The adjusted premium to be paid to the Reinsurer for the reinsurance provided hereunder shall be 0.029391% multiplied by the Company’s TIV with respect to the business covered hereunder, subject to a minimum premium of $4,920,000.

Within 30 days following the expiration of this Contract, the Company shall furnish to the Reinsurer a statement of the TIV for the term of this Contract and calculate the reinsurance premium in accordance with paragraph A above. In the event that the Company’s TIV is greater than 105% of the TIV as of September 30, 2013, an additional premium shall be due and payable to the Reinsurer for the amount in excess of the deposit. In the event that the Company’s TIV is less than 95% of the TIV as of September 30, 2013, the Reinsurer shall immediately pay the Company the difference, subject to the minimum premium for the term of this Contract as set forth above. In the event that the Company’s TIV is within 5% of the TIV as of September 30, 2013, the deposit premium for each Excess Layer shall be the final premium hereunder.

C.	“TIV (Total Insured Value)” means the Company’s in force liability on business subject hereto, as determined by the Company.

D.	For purposes of this Article, the “TIV as of September 30, 2013” is estimated to be $20,925,086,908.

E.	The Company shall furnish the Reinsurer with such information as may be required by the Reinsurer for completion of its financial statements.

ARTICLE 8

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

Any other FHCF recoveries shall be disregarded for purposes of determining Ultimate Net Loss subject to this Contract.

C.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

ARTICLE 9

DEFINITIONS


A.	1.	“Ultimate Net Loss” means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 90% of any Extra Contractual Obligation and 90% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article.

	2.	Salvages and all recoveries (including amounts due from all reinsurances that 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.

	3.	All salvages, recoveries or payments recovered or received subsequent to loss settlement 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.

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.	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to:

court costs;

costs of supersedeas and appeal bonds;

monitoring counsel expenses;

legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions;

post-judgment interest;

pre-judgment interest, unless included as part of an award or judgment;

subrogation, salvage and recovery expenses.

“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees, except as provided in subparagraph (7) above, and office and other overhead expenses.


C.		1.		“Loss Occurrence” means 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 that occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one “Loss Occurrence” shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term “Loss Occurrence” shall be further defined as follows:

As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 96 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 96 consecutive hours may be extended in respect of individual losses that occur beyond such 96 consecutive hours during the continued occupation of an assured’s premises by strikers, provided such occupation commenced during the aforesaid period.

Losses directly or indirectly occasioned by:

Loss of, alteration of, or damage to; or

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

D.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.

ARTICLE 10

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

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

D.	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy.

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

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

ARTICLE 11

NET RETAINED LIABILITY

A.	This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company).

ARTICLE 12

ORIGINAL CONDITIONS

ARTICLE 13

NO THIRD PARTY RIGHTS

ARTICLE 14

NOTICE OF LOSS AND LOSS SETTLEMENTS

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

B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

ARTICLE 15

CURRENCY

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

ARTICLE 16

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.

unearned premium (if applicable);

known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto;

losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer;

losses incurred but not reported and Loss Adjustment Expense relating thereto as respects known Loss Occurrences only;

all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer.

When funding by Trust Agreement, the Reinsurer shall ensure that the Trust Agreement complies with the provisions of the “Trust Agreement Requirements Clause” attached hereto. When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional LOC 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 Obligations. Such LOC 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 (or such other time period as may be 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 LOC extended for any additional period.

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

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

G.	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.

H.	At annual intervals, or more frequently at the discretion of the Company, 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 LOC or other method of funding, in the following manner:

ARTICLE 17

TAXES


B.		1.		Each 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 the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax.

ARTICLE 18

ACCESS TO RECORDS

ARTICLE 19

CONFIDENTIALITY

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality;

were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality; or

were independently developed by the Reinsurer.

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, except:

when required by retrocessionaires subject to the business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 20

INDEMNIFICATION AND ERRORS AND OMISSIONS

A.	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to:

what shall constitute a claim or loss covered under any Policy;

the Company’s liability thereunder;

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

B.	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy.

ARTICLE 21

INSOLVENCY

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

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

ARTICLE 22

ARBITRATION

B.	One arbitrator shall be chosen by each party and the two arbitrators shall then choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint

its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days’ prior notice by certified or registered mail of its intention to do so, may appoint the second arbitrator.

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

The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract, the arbitrators may at their discretion, consider underwriting and placement information provided by the Company to the Reinsurer, as well as any correspondence exchanged by the parties that is related to this Contract. The arbitration shall take place in St. Petersburg, Florida, or at such other place as the parties shall agree. The decision of any two arbitrators shall be in writing and shall be final and binding. The panel is empowered to grant interim relief as it may deem appropriate.

ARTICLE 23

SERVICE OF SUIT

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

ARTICLE 24

GOVERNING LAW

ARTICLE 25

ENTIRE AGREEMENT

ARTICLE 26

NON-WAIVER

ARTICLE 27

INTERMEDIARY

ARTICLE 28

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;

B.	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.

IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s) this 27th day of June, in the year of 2013.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

including any and/or all companies that are or may hereafter become affiliated therewith

/s/ Authorized Signatory

CATASTROPHE EXCESS OF LOSS AND AGGREGATE

REINSURANCE CONTRACT

POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE

Section A:

This Contract excludes:

All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

Section B:

Oil, Gas or Petro-Chemical Plants

Oil or Gas Drilling Rigs and/or

Aviation Risks

2.	The exclusion under paragraph 1 of this Section B does not apply:

Where the Total Insured Value over all interests of the risk in question is less than $250,000,000.

To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis.

Section C:

1.	Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom:

So-called “Beach and Windstorm Plans” and so-called “Coastal Pools”;

All “FAIR Plan” and “Rural Risk Plan” business;

California Earthquake Authority (“CEA”) or any similar entity.

2.	However, this reinsurance does not include any increase in such liability resulting from:

The inability of any other participant in such Residual Market Mechanisms to meet its liability;

Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company;

The Company’s initial capital contribution to the CEA;

Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above.

NOTES: Wherever used herein the terms:


“Company”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.



“Agreement”		shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”		shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.

TOTAL INSURED VALUE EXCLUSION CLAUSE

C.	It is understood and agreed that this Clause shall not apply hereunder where the Company writes 100% of the risk.

MOLD EXCLUSION

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

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

Losses resulting from the above causes do not in and of themselves constitute an event.

However, this exclusion shall not apply if the above causes of loss arise out of one or more of the perils otherwise covered under this Contract.

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -

REINSURANCE - U.S.A.

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

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.

IV.

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

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

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

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

7.	Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

(b)

12/12/57

NMA 1119

NOTES: Wherever used herein the terms:


“Reassured”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Agreement”		shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”		shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.

TERRORISM EXCLUSION (PROPERTY TREATY REINSURANCE) N.M.A. 2930C

(i)	involves violence against one or more persons; or

(ii)	involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)	creates a risk to health or safety of the public or a section of the public; or

(v)	is designed to interfere with or to disrupt an electronic system.

NMA2930c

22/11/02

TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.

Exhibit 10.3

SECOND AGGREGATE CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

(the “Contract”)

issued to

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

St. Petersburg, Florida

including any and/or all companies that are or may hereafter become affiliated therewith

(collectively, the “Company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED

IN THE INTERESTS AND LIABILITIES AGREEMENT(S)

ATTACHED TO AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

SECOND AGGREGATE CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

TABLE OF CONTENTS


		Page

ARTICLE 1	BUSINESS COVERED		1

ARTICLE 2	RETENTION AND LIMIT		1

ARTICLE 3	TERM		2

ARTICLE 4	SPECIAL TERMINATION		2

ARTICLE 5	TERRITORY		3

ARTICLE 6	EXCLUSIONS		3

ARTICLE 7	PREMIUM		5

ARTICLE 8	FLORIDA HURRICANE CATASTROPHE FUND		6

ARTICLE 9	DEFINITIONS		7

ARTICLE 10	EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS		10

ARTICLE 11	NET RETAINED LIABILITY		11

ARTICLE 12	ORIGINAL CONDITIONS		11

ARTICLE 13	NO THIRD PARTY RIGHTS		11

ARTICLE 14	NOTICE OF LOSS AND LOSS SETTLEMENTS		11

ARTICLE 15	CURRENCY		12

ARTICLE 16	UNAUTHORIZED REINSURANCE		12

ARTICLE 17	TAXES		14

ARTICLE 18	ACCESS TO RECORDS		14

ARTICLE 19	CONFIDENTIALITY		15

ARTICLE 20	INDEMNIFICATION AND ERRORS AND OMISSIONS		16

ARTICLE 21	INSOLVENCY		16

ARTICLE 22	ARBITRATION		17

ARTICLE 23	SERVICE OF SUIT		18

ARTICLE 24	GOVERNING LAW		19

ARTICLE 25	ENTIRE AGREEMENT		19

ARTICLE 26	NON-WAIVER		19

ARTICLE 27	INTERMEDIARY		20

ARTICLE 28	MODE OF EXECUTION		20


Attachments

		Pools, Associations and Syndicates Exclusion Clause
		Total Insured Value Exclusion Clause
		Mold Exclusion
		Nuclear Incident Exclusion Clause - Physical Damage – Reinsurance - U.S.A
		Terrorism Exclusion (Property Treaty Reinsurance) N.M.A. 2930c
		Trust Agreement Requirements Clause

ARTICLE 1

BUSINESS COVERED

B.	Subject business shall include business assumed by the Company in connection with the depopulation of Policies from Citizens Property Insurance Corporation.

ARTICLE 2

RETENTION AND LIMIT

A.	Coverage A:

In addition to reductions under the provisions of the Florida Hurricane Catastrophe Fund Article, amounts due under the Company’s other catastrophe reinsurance shall reduce the Ultimate Net Loss subject to this Coverage A, whether recoverable or not.

B.	Coverage B:

In addition to the retention in subparagraph 1 above, the Company shall retain $6,000,000 of aggregate excess losses (meaning the total of Ultimate Net Loss otherwise recoverable under this Coverage B) for Loss Occurrences commencing during the term of this Contract.

Recoveries under the Company’s Catastrophe Excess of Loss and Aggregate Reinsurance Contract, effective June 1, 2013, shall reduce the Ultimate Net Loss subject to this Coverage B, whether recoverable or not.

C.	Coverage C:

In addition to reductions under the provisions of the Florida Hurricane Catastrophe Fund Article and amounts due under the Company’s other catastrophe reinsurance, amounts due under Coverage B above and recoveries under aggregate reinsurance provided by the Company’s Catastrophe Excess of Loss and Aggregate Reinsurance Contract, effective June 1, 2013, shall reduce the Ultimate Net Loss subject to this Coverage C, whether recoverable or not.

No recoveries shall be available under this Coverage C unless Ultimate Net Loss applicable hereto arises from at least two separate Loss Occurrences.

D.	Notwithstanding the above, the Reinsurer’s liability hereunder for Coverages A, B and C combined shall not exceed $110,000,000 in respect of all Loss Occurrences commencing during the term of this Contract.

ARTICLE 3

TERM

ARTICLE 4

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.

B.	In the event of such termination:

Provided that there is no subject Ultimate Net Loss, as defined herein, resulting from any Loss Occurrence commencing prior to the effective date of termination, the Subscribing Reinsurer shall have no further liability under this Contract. However, if there is subject Ultimate Net Loss resulting from any Loss Occurrence commencing prior to the effective date of termination, the Company’s retention and Reinsurer’s limit as set forth in the Retention and Limit Article shall be reduced pro rata, based on the period of the Subscribing Reinsurer’s participation hereon, as respects the Subscribing Reinsurer’s share.

ARTICLE 5

TERRITORY

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

ARTICLE 6

EXCLUSIONS

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

All excess of loss reinsurance assumed by the Company.

Reinsurance assumed by the Company under obligatory reinsurance agreements, except as respects business identified in paragraph B of the Business Covered

Article, and agency reinsurance where the Policies involved are to be reunderwritten in accordance with the underwriting standards of the Company and reissued as Company Policies at the next anniversary or expiration date.

Financial guarantee and insolvency business.

Third party liability and medical payments business.

Losses excluded by the attached “Pools, Associations and Syndicates Exclusion Clause.”

Risks excluded under the provisions of the attached “Total Insured Value Exclusion Clause.”

All Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation and Credit business.

All Ocean Marine business.

10.

Fidelity, unless written as part of a multiple peril Policy.

11.

All aviation, aerospace and satellite business.

12.

All railroad business.

13.

All insurances on growing or standing crops.

14.

Flood and/or earthquake, when written as such.

15.

Difference in Conditions insurances and similar kinds of insurances, however styled, insofar as they may provide coverage for losses from the following causes:

Earthquake, landslide, subsidence or other earth movement or volcanic eruption, except when covering property in transit.

16.

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

17.

18.

Nuclear risks as defined in the attached “Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance (U.S.A.).”

19.

Loss arising from pollution or environment impairment.

20.

21.

Loss as excluded under the provisions of the attached “Terrorism Exclusion (Property Treaty Reinsurance) – N.M.A. 2930c.”

22.

Mold as defined in the attached “Mold Exclusion.”

23.

All assessments from Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund.

ARTICLE 7

PREMIUM

The Company shall pay the Reinsurer a deposit premium of $7,590,000 for the term of this Contract, to be paid in the amount of $1,897,500 on June 1 and September 1, 2013, and January 1 and March 1, 2014. The adjusted premium to be paid to the Reinsurer for the reinsurance provided hereunder shall be 0.036272% multiplied by the Company’s TIV with respect to the business covered hereunder, subject to a minimum premium of $7,590,000.

September 30, 2013, the Reinsurer shall immediately pay the Company the difference, subject to the minimum premium for the term of this Contract as set forth above. In the event that the Company’s TIV is within 5% of the TIV as of September 30, 2013, the deposit premium for each Excess Layer shall be the final premium hereunder.

C.	“TIV (Total Insured Value)” means the Company’s in force liability on business subject hereto, as determined by the Company.

D.	For purposes of this Article, the “TIV as of September 30, 2013” is estimated to be $20,925,086,908.

E.	The Company shall furnish the Reinsurer with such information as may be required by the Reinsurer for completion of its financial statements.

ARTICLE 8

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

Any other FHCF recoveries shall be disregarded for purposes of determining Ultimate Net Loss subject to this Contract.

C.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

ARTICLE 9

DEFINITIONS


A.		1.		“Ultimate Net Loss” means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 90% of any Extra Contractual Obligation and 90% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article.

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.	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to:

court costs;

costs of supersedeas and appeal bonds;

monitoring counsel expenses;

legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions;

post-judgment interest;

pre-judgment interest, unless included as part of an award or judgment;

subrogation, salvage and recovery expenses.

“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees, except as provided in subparagraph (7) above, and office and other overhead expenses.


C.		1.		“Loss Occurrence” means 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 that 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:

Losses directly or indirectly occasioned by:

Loss of, alteration of, or damage to; or

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

D.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.

ARTICLE 10

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

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

D.	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy.

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

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

ARTICLE 11

NET RETAINED LIABILITY

A.	This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company).

ARTICLE 12

ORIGINAL CONDITIONS

ARTICLE 13

NO THIRD PARTY RIGHTS

ARTICLE 14

NOTICE OF LOSS AND LOSS SETTLEMENTS

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

B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

ARTICLE 15

CURRENCY

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

ARTICLE 16

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.

unearned premium (if applicable);

known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto;

losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer;

losses incurred but not reported and Loss Adjustment Expense relating thereto as respects known Loss Occurrences only;

all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer.

and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves in an amount equal to the Reinsurer’s Obligations. Such LOC 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 (or such other time period as may be 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 LOC extended for any additional period.

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

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

G.	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.

H.	At annual intervals, or more frequently at the discretion of the Company, 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 LOC or other method of funding, in the following manner:

ARTICLE 17

TAXES


B.		1.		Each 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 the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax.

ARTICLE 18

ACCESS TO RECORDS

giving five working days’ prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company.

ARTICLE 19

CONFIDENTIALITY

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality;

were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality; or

were independently developed by the Reinsurer.

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, except:

when required by retrocessionaires subject to the business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 20

INDEMNIFICATION AND ERRORS AND OMISSIONS

A.	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to:

what shall constitute a claim or loss covered under any Policy;

the Company’s liability thereunder;

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

B.	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy.

ARTICLE 21

INSOLVENCY

expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

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

ARTICLE 22

ARBITRATION

becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue.

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

ARTICLE 23

SERVICE OF SUIT

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

by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the 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 the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal.

ARTICLE 24

GOVERNING LAW

ARTICLE 25

ENTIRE AGREEMENT

ARTICLE 26

NON-WAIVER

ARTICLE 27

INTERMEDIARY

ARTICLE 28

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;

B.	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.

IN WITNESS WHEREOF , the Company has caused this Contract to be executed by its duly authorized representative(s) this 27th day of June, in the year of 2013.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

including any and/or all companies that are or may hereafter become affiliated therewith

/s/ Authorized Signatory

SECOND CATASTROPHE EXCESS OF LOSS AND AGGREGATE

REINSURANCE CONTRACT

POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE

Section A:

This Contract excludes:

All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

Section B:

Oil, Gas or Petro-Chemical Plants

Oil or Gas Drilling Rigs and/or

Aviation Risks

2.	The exclusion under paragraph 1 of this Section B does not apply:

Where the Total Insured Value over all interests of the risk in question is less than $250,000,000.

To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis.

Section C:

Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom:

So-called “Beach and Windstorm Plans” and so-called “Coastal Pools”;

All “FAIR Plan” and “Rural Risk Plan” business;

California Earthquake Authority (“CEA”) or any similar entity.

However, this reinsurance does not include any increase in such liability resulting from:

The inability of any other participant in such Residual Market Mechanisms to meet its liability;

Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company;

The Company’s initial capital contribution to the CEA;

Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above.

However, if a state levies assessments but does not allow itemized recoupment from policyholders, instead allowing the Company to file an overall increased

rate, any such premium increased thereby shall not be deemed to be a recoupment that is deductible from Ultimate Net Loss. Any recoupment received as part of a general premium rate increase, not specifically itemized, shall be included as part of the subject premium of this Contract or a successor contract, as applicable.

NOTES: Wherever used herein the terms:



“Company”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Agreement”		shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”		shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.

TOTAL INSURED VALUE EXCLUSION CLAUSE

C.	It is understood and agreed that this Clause shall not apply hereunder where the Company writes 100% of the risk.

MOLD EXCLUSION

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

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

Losses resulting from the above causes do not in and of themselves constitute an event.

However, this exclusion shall not apply if the above causes of loss arise out of one or more of the perils otherwise covered under this Contract.

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -

REINSURANCE - U.S.A.

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

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.

IV.

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

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

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

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

7.	Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note : Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

(b)

12/12/57

NMA 1119

NOTES: Wherever used herein the terms:


“Company”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Agreement”		shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”		shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.

TERRORISM EXCLUSION (PROPERTY TREATY REINSURANCE) N.M.A. 2930C

(i)	involves violence against one or more persons; or

(ii)	involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)	creates a risk to health or safety of the public or a section of the public; or

(v)	is designed to interfere with or to disrupt an electronic system.

NMA2930c

22/11/02

TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.

Exhibit 10.4

SECOND CATASTROPHE EXCESS OF LOSS AND AGGREGATE

REINSURANCE CONTRACT

issued to

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

St. Petersburg, Florida

including any and/or all companies that are or may hereafter become affiliated therewith

TABLE OF CONTENTS


		Page

ARTICLE 1	BUSINESS COVERED		1

ARTICLE 2	RETENTION AND LIMIT A.		1

ARTICLE 3	TERM		2

ARTICLE 4	SPECIAL TERMINATION		3

ARTICLE 5	TERRITORY		4

ARTICLE 6	EXCLUSIONS		4

ARTICLE 7	PREMIUM		6

ARTICLE 8	FLORIDA HURRICANE CATASTROPHE FUND		6

ARTICLE 9	DEFINITIONS		7

ARTICLE 10	EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS		10

ARTICLE 11	NET RETAINED LIABILITY		11

ARTICLE 12	ORIGINAL CONDITIONS		11

ARTICLE 13	NO THIRD PARTY RIGHTS		12

ARTICLE 14	NOTICE OF LOSS AND LOSS SETTLEMENTS		12

ARTICLE 15	CURRENCY		12

ARTICLE 16	UNAUTHORIZED REINSURANCE		12

ARTICLE 17	TAXES		15

ARTICLE 18	ACCESS TO RECORDS		15

ARTICLE 19	CONFIDENTIALITY		15

ARTICLE 20	INDEMNIFICATION AND ERRORS AND OMISSIONS		16

ARTICLE 21	INSOLVENCY		16

ARTICLE 22	ARBITRATION		18

ARTICLE 23	SERVICE OF SUIT		19

ARTICLE 24	GOVERNING LAW		20

ARTICLE 25	ENTIRE AGREEMENT		20

ARTICLE 26	NON-WAIVER		20

ARTICLE 27	INTERMEDIARY		20

ARTICLE 28	MODE OF EXECUTION		20

SECOND CATASTROPHE EXCESS OF LOSS AND AGGREGATE

REINSURANCE CONTRACT

(the “Contract”)

issued to

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

St. Petersburg, Florida

including any and/or all companies that are or may hereafter become affiliated therewith (collectively, the “company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED

IN THE INTERESTS AND LIABILITIES AGREEMENT(S)

ATTACHED TO AND FORMING PART OF THIS CONTRACT

(the “Reinsurer ”)

ARTICLE 1

BUSINESS COVERED

B.	Subject business shall include business assumed by the Company in connection with the depopulation of Policies from Citizens Property Insurance Corporation.

ARTICLE 2

RETENTION AND LIMIT A.

A.	Coverage A :

B.	Coverage B :

No recovery shall be made hereunder unless and until the Company has retained an annual aggregate deductible of $12,000,000 for Loss Occurrences commencing during the term of this Contract.

C.	Coverage C :

No recoveries shall be available under this Coverage C unless Ultimate Net Loss applicable hereto arises from at least two separate Loss Occurrences.

D.	Notwithstanding the above, the Reinsurer’s liability hereunder for Coverages A, B and C combined shall not exceed $110,000,000 in respect of all Loss Occurrences commencing during the term of this Contract.

ARTICLE 3

TERM

ARTICLE 4

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.

B.	In the event of such termination:

ARTICLE 5

TERRITORY

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

ARTICLE 6

EXCLUSIONS

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

All excess of loss reinsurance assumed by the Company.

Financial guarantee and insolvency business.

Third party liability and medical payments business.

Losses excluded by the attached “Pools, Associations and Syndicates Exclusion Clause.”

Risks excluded under the provisions of the attached “Total Insured Value Exclusion Clause.”

All Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation and Credit business.

All Ocean Marine business.

10.

Fidelity, unless written as part of a multiple peril Policy.

11.

All aviation, aerospace and satellite business.

12.

All railroad business.

13.

All insurances on growing or standing crops.

14.

Flood and/or earthquake, when written as such.

15.

Difference in Conditions insurances and similar kinds of insurances, however styled, insofar as they may provide coverage for losses from the following causes:

Earthquake, landslide, subsidence or other earth movement or volcanic eruption, except when covering property in transit.

16.

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

17.

18.

Nuclear risks as defined in the attached “Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance (U.S.A.).”

19.

Loss arising from pollution or environment impairment.

20.

21.

Loss as excluded under the provisions of the attached “Terrorism Exclusion (Property Treaty Reinsurance) – N.M.A. 2930c.”

22.

Mold as defined in the attached “Mold Exclusion.”

23.

All assessments from Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund.

ARTICLE 7

PREMIUM

Within 30 days following the expiration of this Contract, the Company shall furnish to the Reinsurer a statement of the TIV for the term of this Contract and calculate the reinsurance premium in accordance with paragraph A above. In the event that the Company’s TIV is greater than 105% of the TIV as of September 30, 2013, an additional premium shall be due and payable to the Reinsurer for the amount in excess of the deposit. In the event that the Company’s TIV is less than 95% of the TIV as of September 30, 2013, the Reinsurer shall immediately pay the Company the difference, subject to the minimum premium for the term of this Contract as set forth above. In the event that the Company’s TIV is within 5% of the TIV as of September 30, 2013, the deposit premium for each Excess Layer shall be the final premium hereunder.

C.	“TIV (Total Insured Value)” means the Company’s in force liability on business subject hereto, as determined by the Company.

D.	For purposes of this Article, the “TIV as of September 30, 2013” is estimated to be $20,925,086,908.

E.	The Company shall furnish the Reinsurer with such information as may be required by the Reinsurer for completion of its financial statements.

ARTICLE 8

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

Limit (TICL) shall be deemed recovered by the Company, whether or not actually received from the FHCF and whether or not reduced because of the FHCF’s inability to pay.

Any other FHCF recoveries shall be disregarded for purposes of determining Ultimate Net Loss subject to this Contract.

C.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

ARTICLE 9

DEFINITIONS


A.		1.		“Ultimate Net Loss” means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 90% of any Extra Contractual Obligation and 90% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article.

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.	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to:

court costs;

costs of supersedeas and appeal bonds;

monitoring counsel expenses;

legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions;

post-judgment interest;

pre-judgment interest, unless included as part of an award or judgment;

subrogation, salvage and recovery expenses.

“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees, except as provided in subparagraph (7) above, and office and other overhead expenses.


C.		1.		“Loss Occurrence” means 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 that 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:

Losses directly or indirectly occasioned by:

Loss of, alteration of, or damage to; or

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

D.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.

ARTICLE 10

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

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

D.	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy.

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

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

ARTICLE 11

NET RETAINED LIABILITY

A.	This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company).

ARTICLE 12

ORIGINAL CONDITIONS

ARTICLE 13

NO THIRD PARTY RIGHTS

ARTICLE 14

NOTICE OF LOSS AND LOSS SETTLEMENTS

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

B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

ARTICLE 15

CURRENCY

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

ARTICLE 16

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.

unearned premium (if applicable);

known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto;

losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer;

losses incurred but not reported and Loss Adjustment Expense relating thereto as respects known Loss Occurrences only;

all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer.

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

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

G.	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.

H.	At annual intervals, or more frequently at the discretion of the Company, 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 LOC or other method of funding, in the following manner:

ARTICLE 17

TAXES


B.		1.		Each 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 the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax.

ARTICLE 18

ACCESS TO RECORDS

ARTICLE 19

CONFIDENTIALITY

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality;

were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality; or

were independently developed by the Reinsurer.

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, except:

when required by retrocessionaires subject to the business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 20

INDEMNIFICATION AND ERRORS AND OMISSIONS

A.	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to:

what shall constitute a claim or loss covered under any Policy;

the Company’s liability thereunder;

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

B.	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy.

ARTICLE 21

INSOLVENCY

A.	If more than one reinsured company is referenced within the definition of “Company” in the Preamble to this Contract, this Article shall apply severally to each such company.

Further, this Article and the laws of the domiciliary state shall apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary state’s laws shall prevail.

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

ARTICLE 22

ARBITRATION

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

ARTICLE 23

SERVICE OF SUIT

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

ARTICLE 24

GOVERNING LAW

ARTICLE 25

ENTIRE AGREEMENT

ARTICLE 26

NON-WAIVER

ARTICLE 27

INTERMEDIARY

ARTICLE 28

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;

B.	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.

IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s) this 27th day of June, in the year of 2013.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

including any and/or all companies that are or may hereafter become affiliated therewith

/s/ Authorized Signatory

SECOND CATASTROPHE EXCESS OF LOSS AND AGGREGATE

REINSURANCE CONTRACT

POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE

Section A:

This Contract excludes:

All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

Section B:

Oil, Gas or Petro-Chemical Plants

Oil or Gas Drilling Rigs and/or

Aviation Risks

2.	The exclusion under paragraph 1 of this Section B does not apply:

Where the Total Insured Value over all interests of the risk in question is less than $250,000,000.

To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis.

Section C:

1.	Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom:

So-called “Beach and Windstorm Plans” and so-called “Coastal Pools”;

All “FAIR Plan” and “Rural Risk Plan” business;

California Earthquake Authority (“CEA”) or any similar entity.

2.	However, this reinsurance does not include any increase in such liability resulting from:

The inability of any other participant in such Residual Market Mechanisms to meet its liability;

Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company;

The Company’s initial capital contribution to the CEA;

Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above.

NOTES: Wherever used herein the terms:


“Company”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Agreement”		shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”		shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.

TOTAL INSURED VALUE EXCLUSION CLAUSE

C.	It is understood and agreed that this Clause shall not apply hereunder where the Company writes 100% of the risk.

MOLD EXCLUSION

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

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

Losses resulting from the above causes do not in and of themselves constitute an event.

However, this exclusion shall not apply if the above causes of loss arise out of one or more of the perils otherwise covered under this Contract.

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -

REINSURANCE - U.S.A.

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

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.

IV.

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

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

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

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

7.	Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

(b)

12/12/57

NMA 1119

NOTES: Wherever used herein the terms:


“Reassured”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Agreement”		shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”		shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.

TERRORISM EXCLUSION (PROPERTY TREATY REINSURANCE) N.M.A. 2930C

(i)	involves violence against one or more persons; or

(ii)	involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)	creates a risk to health or safety of the public or a section of the public; or

(v)	is designed to interfere with or to disrupt an electronic system.

NMA2930c

22/11/02

TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.

Exhibit 10.5

UNDERLYING PROPERTY CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

issued to

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

St . P etersburg , Florida

including any and/or all companies that are or may hereafter become affiliated therewith

CATASTROPHE EXCESS OF LOSS AND AGGREGATE

REINSURANCE CONTRACT

TABLE OF CONTENTS


Article		Page

ARTICLE 1	BUSINESS COVERED		1

ARTICLE 2	RETENTION AND LIMIT		1

ARTICLE 3	TERM		1

ARTICLE 4	SPECIAL TERMINATION		1

ARTICLE 5	TERRITORY		3

ARTICLE 6	EXCLUSIONS		3

ARTICLE 7	PREMIUM		4

ARTICLE 8	DEFINITIONS		5

ARTICLE 9	EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS		7

ARTICLE 10	NET RETAINED LIABILITY		8

ARTICLE 11	ORIGINAL CONDITIONS		8

ARTICLE 12	NO THIRD PARTY RIGHTS		9

ARTICLE 13	NOTICE OF LOSS AND LOSS SETTLEMENTS		9

ARTICLE 14	CURRENCY		9

ARTICLE 15	OBLIGATIONS AND COLLATERAL RELEASE		9

ARTICLE 16	TAXES		12

ARTICLE 17	ACCESS TO RECORDS		12

ARTICLE 18	CONFIDENTIALITY		12

ARTICLE 19	INDEMNIFICATION AND ERRORS AND OMISSIONS		13

ARTICLE 20	INSOLVENCY		14

ARTICLE 21	ARBITRATION		15

ARTICLE 22	SERVICE OF SUIT		16

ARTICLE 23	GOVERNING LAW		17

ARTICLE 24	ENTIRE AGREEMENT		17

ARTICLE 25	NON-WAIVER		17

ARTICLE 26	MODE OF EXECUTION		17

Attachments

Pools, Associations and Syndicates Exclusion Clause

Total Insured Value Exclusion Clause

Mold Exclusion

Nuclear Incident Exclusion Clause - Physical Damage – Reinsurance - U.S.A.

Terrorism Exclusion (Property Treaty Reinsurance) N.M.A. 2930c

Trust Agreement Requirements Clause

UNDERLYING PROPERTY CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

(the “Contract”)

issued to

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

St. Petersburg, Florida

including any and/or all companies that are or may hereafter become affiliated therewith

(collectively, the “Company”)

OSPREYRE

(the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

ARTICLE 2

RETENTION AND LIMIT

The Reinsurer shall be liable in respect of each Loss Occurrence, for the Ultimate Net Loss over and above an initial Ultimate Net Loss of $6,000,000 each Loss Occurrence, subject to an aggregate limit of liability to the Reinsurer of $3,000,000 for all Loss Occurrences.

ARTICLE 3

TERM

ARTICLE 4

SPECIAL TERMINATION

A.	The Company may terminate the Reinsurer’s percentage share in this Contract at any time by giving written notice to the Reinsurer in the event of any of the following circumstances:

The Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Reinsurer to cease writing business, or the Reinsurer is placed under regulatory supervision.

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, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations.

The Reinsurer’s policyholders’ surplus (or the equivalent under the Reinsurer’s accounting system) as reported in such financial statements of the Reinsurer as designated by the Company, has been reduced by 20% of the amount thereof at any date during the prior 12-month period (including the period prior to the inception of this Contract).

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

The Reinsurer has retroceded its entire liability under this Contract without the Company’s prior written consent, except for retrocessions to members of the Reinsurer’s holding company group.

Termination shall be effected on a cut-off basis and the Reinsurer shall have no liability with respect to Loss Occurrences commencing after termination. The reinsurance premium due the Reinsurer hereunder shall be prorated based on the period of the Reinsurer’s participation hereon, and the Reinsurer shall immediately return any excess reinsurance premium received.

Additionally, in the event of any of the circumstances listed in paragraph A of this Article, the Company shall have the option to commute the Reinsurer’s liability for losses on Policies covered by this Contract. In the event the Company and the Reinsurer cannot agree on the commutation amount, they shall appoint an actuary and/or appraiser to assess such amount and shall share equally any expense of the actuary and/or appraiser. If the Company and the Reinsurer cannot agree on an actuary and/or appraiser, the Company and the Reinsurer each shall nominate three individuals, of whom the other shall decline two, and the final appointment shall be made by drawing lots. Payment by the Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties in respect of liability arising from the Reinsurer’s participation under this Contract.

D.	The Company’s option to require commutation under paragraph C above shall survive the termination or expiration of this Contract.

ARTICLE 5

TERRITORY

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

ARTICLE 6

EXCLUSIONS

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

All excess of loss reinsurance assumed by the Company.

Reinsurance assumed by the Company under obligatory reinsurance agreements, except agency reinsurance where the Policies involved are to be reunderwritten in accordance with the underwriting standards of the Company and reissued as Company Policies at the next anniversary or expiration date.

Financial guarantee and insolvency business.

Third party liability and medical payments business.

Losses excluded by the attached “Pools, Associations and Syndicates Exclusion Clause.”

Risks excluded under the provisions of the attached “Total Insured Value Exclusion Clause.”

All Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation and Credit business.

All Ocean Marine business.

10.

Fidelity, unless written as part of a multiple peril Policy.

11.

All aviation, aerospace and satellite business.

12.

All railroad business.

13.

All insurances on growing or standing crops.

14.

Flood and/or earthquake, when written as such.

15.

Difference in Conditions insurances and similar kinds of insurances, however styled, insofar as they may provide coverage for losses from the following causes:

Earthquake, landslide, subsidence or other earth movement or volcanic eruption, except when covering property in transit.

16.

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

17.

18.

Nuclear risks as defined in the attached “Nuclear Incident Exclusion Clause Physical Damage- Reinsurance (U.S.A.).”

19.

Loss arising from pollution or environment impairment.

20.

21.

Loss as excluded under the provisions of the attached “Tenorism Exclusion (Property Treaty Reinsurance)-N.M.A. 2930c.”

22.

Mold as defined in the attached “Mold Exclusion.”

23.

All assessments from Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund.

ARTICLE 7

PREMIUM

A.	The Company shall pay the Reinsurer a reinsurance premium of $1,470,000 for the term of this Contract, to be paid in full by June 1, 2013.

B.	The Company shall furnish the Reinsurer with such information as may be required by the Reinsurer for completion of its financial statements.

ARTICLE 8

DEFINITIONS


A.		1.		“Ultimate Net Loss” means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 90% of any Extra Contractual Obligation and 90% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article.

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.	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to:

court costs;

costs of supersedeas and appeal bonds;

monitoring counsel expenses;

legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions;

post judgment interest;

pre judgment interest, unless included as part of an award or judgment;

subrogation, salvage and recovery expenses.

“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees, except as provided in subparagraph (7) above, and office and other overhead expenses.


C.		1.		“Loss Occurrence” means 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 that 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:

Losses directly or indirectly occasioned by:

Loss of, alteration of, or damage to; or

D.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.

ARTICLE 9

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

A.	This Contract shall cover Extra Contractual Obligations, as provided in the definition of Ultimate Net Loss. “Extra Contractual Obligations” shall be defined as those liabilities

not covered under any other provision of this Contract and that arise from the handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the Company to settle within the Policy limit, or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of any action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such action.

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

D.	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy.

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

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

ARTICLE 10

NET RETAINED LIABILITY

This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company).

ARTICLE 11

ORIGINAL CONDITIONS

ARTICLE 12

NO THIRD PARTY RIGHTS

ARTICLE 13

NOTICE OF LOSS AND LOSS SETTLEMENTS

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

B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

ARTICLE 14

CURRENCY

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

ARTICLE 15

OBLIGATIONS AND COLLATERAL RELEASE


A.		1.		The Reinsurer agrees to establish a Trust Account for its Obligations (as defined herein) hereunder, pursuant to that certain Trust Agreement by and between the Reinsurer, the Company, and Bank of America dated as of the date hereof(the “Trust Agreement”). The Trust Account shall be funded pursuant to the provisions hereof. Collateral deposited in the Trust Account may be withdrawn on


				the terms set forth herein and in the Trust Agreement. Whatever method of Funding is chosen by the Reinsurer and agreed to by the Company, the Funding must comply at all times with the Florida Insurance Laws and Regulations in order for the Company to receive full statutory financial statement credit for the Reinsurer’s Obligations.

At any time after December 1, 2013, if the Company in its commercially reasonable judgment believes that no event has occurred that may result in a claim hereunder, the Company agrees to release the Assets held in the Trust Account to the Reinsurer as soon as practicable.

The term “Obligations” shall mean for so long as the Reinsurer remains liable under the terms of the Contract, 100% of the limit of the Reinsurer’s liability hereunder less any unpaid premium (net of brokerage and Federal Excise Tax as applicable) and amounts previously paid by the Reinsurer in respect of claims under this Contract.

If, at the expiration of this Contract, the Company, in its commercially reasonable judgment, believes that an event has occurred that may result in a claim hereunder, the Company and Reinsurer agree to maintain collateral in the Trust Account only to the extent necessary to pay the Reinsurer’s Obligations for its share of actual and possible claims for each such Loss Occurrence as determined by the following procedure:

If the parties hereto enter into a reinsurance agreement upon expiration of this Contract, for each such Loss Occurrence, the Ultimate Net Loss shall be determined as the aggregate of the following, as reflected on the books and records of the Company as of the Contract expiration date:

losses and Loss Adjustment Expense paid by the Company, but not recovered from the Reinsurer;

reserves for losses reported and outstanding;

reserves for losses incurred but not reported; and

reserves for Loss Adjustment Expense

If the parties hereto do not enter into a reinsurance agreement upon expiration of this Contract, the Ultimate Net Loss for each such Loss Occurrence (if not otherwise finally determined pursuant to the terms of this Contract) shall be deemed equal to the amount as determined in subparagraph (1) above measured as of the applicable determination date (as specified in Section D below), multiplied by a factor, based upon the number of months (with any partial month rounded up to the nearest whole month) which have elapsed on such determination date since expiration of the Contract, as follows:

From 0 to 12 months from expiration of the Contract, 150%, else; b. From 13 to 24 months from expiration of the Contract, 125%, else;

From 25 to 36 months from expiration of the Contract, 110%; and

From 37 to 67 months from expiration of the Contract, 100%.

As of 67 months after expiration of this Contract (the “Reporting Period”), the amount determined in subparagraph (1) above for such date shall be considered the definitive Ultimate Net Loss for each such Loss Occurrence for which and the Company and the Reinsurer agree to commute this Contract with final settlement on that basis.

The procedure for determining the amount of collateral required to pay the Reinsurer’s Obligations for its share of actual and possible claims, described in subparagraphs C(1) and C(2) above, shall be followed each and every time, in the opinion of the Company, there are materially new estimates regarding its losses, and each quarter-end, until all the Reinsurer’s Obligations have been extinguished or the Reporting Period is over, whichever is earlier. Furthermore, the information to be used for the determinations described in C(1) and C(2) above shall be as reflected on the Company’s official books and records. Furthermore if so requested by the Reinsurer, the Company shall provide the information listed in C(1) and (C)(2) above, broken down into subsections (a)-(d) and accompanied by a written explanation of its estimates within seven Business Days of such request.

The Company agrees to release from the Trust Account all collateral in excess of the amount required to pay the Reinsurer’s Obligations for its share of actual and possible claims, as determined by the above procedure, within seven Business Days of the date of such determination. “Business Day” shall be defined as a day (other than a Saturday or a Sunday) on which banks are open for commercial business in Hamilton, Bermuda, and in New York, New York, U.S.A.

In the event that collateral has been released from the Trust Account, but at a later date it is determined by the procedure above that such collateral should be present in the Trust Account, the Reinsurer shall, within 10 Business Days of such determination, deposit additional assets until the Trust Account balance is equal — to the amount of actual and possible claims; however, the Reinsurer shall never be liable to deposit assets in the Trust Account in excess of its Obligations as defined above. If the Trust Account is funded and maintained and the Trust Agreement is performed according to the terms and conditions of this Contract and the Trust Agreement, the Company agrees and acknowledges that there shall only be recourse to the Segregated Account assets, and in the event of the exhaustion of the Segregated Account assets there shall be no recourse by any party for any claims, payments, other expenses or fees whatsoever, howsoever arising pursuant to this Contract, to the assets which are allocated to any other segregated account of the Reinsurer or to the general account of the Reinsurer.

At the end of the Reporting Period, the Reinsurer’s Obligations for its share of all claims will be settled based on losses and Loss Adjustment Expense paid by the Company up to that point, and the case reserves for losses reported and outstanding plus reserves for Loss Adjustment Expense and losses incurred but not reported at that point, upon which the Company agrees to terminate the Trust Account, and all remaining security will be released and all liability under this Contract will be extinguished. The value of the outstanding losses, losses incurred but not reported and Loss Adjustment Expense shall be mutually agreed, or failing agreement, the final determination of all liabilities hereunder shall be referred to Arbitration. Following the above procedures, the Reinsurer and the Company agree to commute this Contract.

ARTICLE 16

TAXES


B.		1.		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 the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax.

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

ARTICLE 17

ACCESS TO RECORDS

ARTICLE 18

CONFIDENTIALITY

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality;

were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality; or

were independently developed by the Reinsurer.

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, except:

when required by retrocessionaires subject to the business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 19

INDEMNIFICATION AND ERRORS AND OMISSIONS

A.	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to:

what shall constitute a claim or loss covered under any Policy;

the Company’s liability thereunder;

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

B.	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy.

ARTICLE 20

INSOLVENCY

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. Then, and in that event only, the Company, with the prior approval of the certificate of assumption on New York risks by the Superintendent of Financial Services of the State of New York, or with the prior approval of such other regulatory authority as may be applicable, is entirely released from its obligation and the Reinsurer shall pay any loss directly to payees under such Policy.

ARTICLE 21

ARBITRATION

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

If the two arbitrators do not agree on a third arbitrator within 60 days of their appointment, the third arbitrator shall be chosen in accordance with the procedures for selecting the third arbitrator in force on the date the arbitration is demanded, established by the AIDA Reinsurance and Insurance Arbitration Society- U.S. (ARIAS). The arbitrators shall be persons knowledgeable about insurance and reinsurance who have no personal or financial interest in the result of the arbitration. If a member of the panel dies, becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue.

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

ARTICLE 22

SERVICE OF SUIT

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

D.	Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit.

ARTICLE 23

GOVERNING LAW

ARTICLE 24

ENTIRE AGREEMENT

ARTICLE 25

NON-WAIVER

ARTICLE 26

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;

B.	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.

IN WITNESS WHEREOF, the parties have caused this Contract to be executed by their duly authorized representative(s) this 1st day of June, in the year of 2013.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

including any and/or all companies that are or may hereafter become affiliated therewith

/s/ Authorized Signatory

UNDERLYING PROPERTY CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

And on this 1st day of June, in the year of 2013.

OSPREYRE

/s/ Authorized Signatory

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

UNDERLYING PROPERTY CATASTROPHE EXCESS OF LOSS

REINSURANCE CONTRACT

POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE

Section A:

This Contract excludes:

All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

Section B:

Oil, Gas or Petro-Chemical Plants

Oil or Gas Drilling Rigs and/or

Aviation Risks

2.	The exclusion under paragraph 1 of this Section B does not apply:

Where the Total Insured Value over all interests of the risk in question is less than $250,000,000.

To interests traditionally underwritten as Inland Marine and/or Stock and/or Contents written on a Blanket basis.

Section C:

1.	Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in Residual Market Mechanisms, including but not limited to the following, for all perils otherwise protected hereunder shall not be excluded herefrom:

So-called “Beach and Windstorm Plans” and so-called “Coastal Pools”;

All “FAIR Plan” and “Rural Risk Plan” business;

California Earthquake Authority (“CEA”) or any similar entity.

2.	However, this reinsurance does not include any increase in such liability resulting from:

The inability of any other participant in such Residual Market Mechanisms to meet its liability;

Any assessment or surcharge levied on the policyholder and therefore not a liability of the Company;

The Company’s initial capital contribution to the CEA;

Any assessments, other than interim and regular assessments, from a Residual Market Mechanism included in subparagraph 1(c) above.

NOTES: Wherever used herein the terms:


“Company”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Agreement”		shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”		shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.

TOTAL INSURED VALUE EXCLUSION CLAUSE

C.	It is understood and agreed that this Clause shall not apply hereunder where the Company writes 100% of the risk.

MOLD EXCLUSION

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

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

Losses resulting from the above causes do not in and of themselves constitute an event.

However, this exclusion shall not apply if the above causes of loss arise out of one or more of the perils otherwise covered under this Contract.

NUCLEAR INCIDENT EXCLUSION CLAUSE- PHYSICAL DAMAGE-

REINSURANCE- U.S.A.

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

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.

IV.

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

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

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

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

7.	Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note : Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

(b)

12/12/57

NMA 1119

NOTES: Wherever used herein the terms:


“Reassured”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Agreement”		shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”		shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsures or reinsurers.

TERRORISM EXCLUSION (PROPERTY TREATY REINSURANCE) N.M.A. 2930C

(i)	involves violence against one or more persons; or

(ii)	involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)	creates a risk to health or safety of the public or a section of the public; or

(v)	is designed to interfere with or to disrupt an electronic system.

NMA2930c

22111/02

TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Obligations and Collateral Release Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Obligations and Collateral Release Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.

Exhibit 10.6

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

issued to

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

St . P etersburg , Florida

including any and/or all companies that are or may hereafter become affiliated therewith

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS


Article		Page

ARTICLE 1	BUSINESS COVERED		1

ARTICLE 2	RETENTION AND LIMIT		1

ARTICLE 3	TERM		1

ARTICLE 4	SPECIAL TERMINATION		2

ARTICLE 5	TERRITORY		3

ARTICLE 6	EXCLUSIONS		3

ARTICLE 7	PREMIUM		5

ARTICLE 8	REINSTATEMENT		5

ARTICLE 9	FLORIDA HURRICANE CATASTROPHE FUND		5

ARTICLE 10	DEFINITIONS		6

ARTICLE 11	EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS		9

ARTICLE 12	NET RETAINED LIABILITY		10

ARTICLE 13	ORIGINAL CONDITIONS		10

ARTICLE 14	NO THIRD PARTY RIGHTS		11

ARTICLE 15	NOTICE OF LOSS AND LOSS SETTLEMENTS		11

ARTICLE 16	CURRENCY		11

ARTICLE 17	UNAUTHORIZED REINSURANCE		11

ARTICLE 18	TAXES		14

ARTICLE 19	ACCESS TO RECORDS		14

ARTICLE 20	CONFIDENTIALITY		14

ARTICLE 21	INDEMNIFICATION AND ERRORS AND OMISSIONS		15

ARTICLE 22	INSOLVENCY		15

ARTICLE 23	ARBITRATION		17

ARTICLE 24	SERVICE OF SUIT		18

ARTICLE 25	GOVERNING LAW		18

ARTICLE 26	ENTIRE AGREEMENT		19

ARTICLE 27	NON-WAIVER		19

ARTICLE 28	INTERMEDIARY		19

ARTICLE 29	MODE OF EXECUTION		19

Attachments

Nuclear Incident Exclusion Clause - Physical Damage – Reinsurance - U.S.A.

Trust Agreement Requirements Clause

Terrorism Exclusion (Property Treaty Reinsurance) N.M.A. 2930c

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(the “Contract”)

issued to

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

St. Petersburg, Florida

including any and/or all companies that are or may hereafter become affiliated therewith

(collectively, the “Company”)

THE SUBSCRIBING REINSURER(S) IDENTIFIED

IN THE INTERESTS AND LIABILITIES AGREEMENTS(S)

ATTACHED TO AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

ARTICLE 1

BUSINESS COVERED

ARTICLE 2

RETENTION AND LIMIT

The Reinsurer shall be liable in respect of each Loss Occurrence, for the Ultimate Net Loss over and above an initial Ultimate Net Loss of $2,000,000 each Loss Occurrence, subject to a limit of liability to the Reinsurer of $9,500,000 each Loss Occurrence.

ARTICLE 3

TERM

This Contract shall take effect on December 4, 2012, and shall remain in effect through May 31, 2013, both days inclusive, applying to Loss Occurrences commencing during the term of this Contract.

ARTICLE 4

SPECIAL TERMINATION

A.	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event of any of the following circumstances:

The Subscribing Reinsurer ceases underwriting operations.

A state insurance department or other legal authority orders the Subscribing Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under regulatory supervision.

D.	The Company’s option to require commutation under paragraph C above shall survive the termination or expiration of this Contract.

ARTICLE 5

TERRITORY

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

ARTICLE 6

EXCLUSIONS

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

All excess of loss reinsurance assumed by the Company.

Financial guarantee and insolvency business.

Third party liability and medical payments business.

Losses excluded by the attached “Pools, Associations and Syndicates Exclusion Clause.”

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.

Risks excluded under the provisions of the attached “Total Insured Value Exclusion Clause.”

All Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation and Credit business.

All Ocean Marine business.

10.

Fidelity, unless written as part of a multiple peril Policy.

11.

All aviation, aerospace and satellite business.

12.

All railroad business.

13.

All insurances on growing or standing crops.

14.

Flood and/or earthquake, when written as such.

15.

Difference in Conditions insurances and similar kinds of insurances, however styled, insofar as they may provide coverage for losses from the following causes:

Earthquake, landslide, subsidence or other earth movement or volcanic eruption, except when covering property in transit.

16.

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

17.

18.

Nuclear risks as defined in the attached “Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance (U.S.A.).”

19.

Loss arising from pollution or environment impairment.

20.

Losses in respect of overhead transmission and distribution lines and their supporting structures other than those on or within 150 meters (or 500 feet) of the

insured premises. It is understood and agreed that public utilities extension and/or suppliers extension and/or contingent business interruption coverages are not subject to this exclusion, provided that these are not part of a transmitters’ or distributors’ Policy.

21.

Loss as excluded under the provisions of the attached “Terrorism Exclusion (Property Treaty Reinsurance) – N.M.A. 2930c.”

22.

Mold as defined in the attached “Mold Exclusion.”

23.

All assessments from Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund.

ARTICLE 7

PREMIUM

A.	The Company shall pay the Reinsurer a reinsurance premium of $712,500 for the term of this Contract, to be paid in the amount of $356,250 on January 1 and April 1, 2013.

B.	The Company shall furnish the Reinsurer with such information as may be required by the Reinsurer for completion of its financial statements.

ARTICLE 8

REINSTATEMENT

Loss payments under this Contract shall reduce the limit of coverage afforded by the amounts paid, but the limit of coverage shall be reinstated from the time of the occurrence of the loss, and for each amount so reinstated, the Company agrees to pay, simultaneously with the Reinsurer’s loss payment, an additional premium calculated at pro rata of 100% of the Reinsurer’s premium for the term of this Contract, being pro rata only as to the fraction of the Reinsurer’s limit of liability hereunder (i.e., the fraction of $9,500,000) so reinstated. Nevertheless, the Reinsurer’s liability hereunder shall not exceed $9,500,000 in respect of any one Loss Occurrence, and shall not exceed $19,000,000 in respect of all Loss Occurrences during the term of this Contract.

ARTICLE 9

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

Limit (TICL) shall be deemed recovered by the Company, whether or not actually received from the FHCF and whether or not reduced because of the FHCF’s inability to pay.

Any other FHCF recoveries shall be disregarded for purposes of determining Ultimate Net Loss subject to this Contract.

C.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

ARTICLE 10

DEFINITIONS


A.		1.		“Ultimate Net Loss” means the actual loss paid by the Company or which the Company becomes liable to pay, such loss to include Loss Adjustment Expense, 90% of any Extra Contractual Obligation and 90% of any Loss in Excess of Policy Limits as defined in the Extra Contractual Obligations/Excess of Policy Limits Article.

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.	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to:

court costs;

costs of supersedeas and appeal bonds;

monitoring counsel expenses;

legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions;

post-judgment interest;

pre-judgment interest, unless included as part of an award or judgment;

subrogation, salvage and recovery expenses.

“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees, except as provided in subparagraph (7) above, and office and other overhead expenses.


C.		1.		“Loss Occurrence” means 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 that occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one “Loss Occurrence” shall be limited


				to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term “Loss Occurrence” shall be further defined as follows:

As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to above) and fire following directly occasioned by the earthquake, only those earthquake losses and individual fire losses that commence during the period of 168 consecutive hours may be included in the Company’s “Loss Occurrence.”

Losses directly or indirectly occasioned by:

Loss of, alteration of, or damage to; or

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

D.	“Gross Net Earned Premium Income” means gross earned premium of the Company for the classes of business reinsured hereunder, less the earned portion of premiums ceded by the Company for reinsurance that inures to the benefit of this Contract.

E.	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.

ARTICLE 11

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

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

D.	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy.

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

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

ARTICLE 12

NET RETAINED LIABILITY

A.	This Contract applies only to that portion of any loss that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company).

ARTICLE 13

ORIGINAL CONDITIONS

ARTICLE 14

NO THIRD PARTY RIGHTS

ARTICLE 15

NOTICE OF LOSS AND LOSS SETTLEMENTS

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

B.	The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses.

ARTICLE 16

CURRENCY

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

ARTICLE 17

UNAUTHORIZED REINSURANCE

A.	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.

unearned premium (if applicable);

known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto;

losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer;

losses incurred but not reported and Loss Adjustment Expense relating thereto as respects known Loss Occurrences only;

all other amounts for which the Company cannot take credit on its financial statements unless funding is provided by the Reinsurer.

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

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

G.	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.

H.	At annual intervals, or more frequently at the discretion of the Company, 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 LOC or other method of funding, in the following manner:

ARTICLE 18

TAXES


B.		1.		Each 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 the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax.

ARTICLE 19

ACCESS TO RECORDS

ARTICLE 20

CONFIDENTIALITY

are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

have been rightfully received from a third person without obligation of confidentiality;

were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality; or

were independently developed by the Reinsurer.

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, except:

when required by retrocessionaires subject to the business ceded to this Contract;

when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or

when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

D.	The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 21

INDEMNIFICATION AND ERRORS AND OMISSIONS

A.	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the obligations of the Company under any Policy. The Company shall be the sole judge as to:

what shall constitute a claim or loss covered under any Policy;

the Company’s liability thereunder;

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

B.	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any Policy.

ARTICLE 22

INSOLVENCY

A.	If more than one reinsured company is referenced within the definition of “Company” in the Preamble to this Contract, this Article shall apply severally to each such company.

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

ARTICLE 23

ARBITRATION

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

ARTICLE 24

SERVICE OF SUIT

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

ARTICLE 25

GOVERNING LAW

ARTICLE 26

ENTIRE AGREEMENT

ARTICLE 27

NON-WAIVER

ARTICLE 28

INTERMEDIARY

ARTICLE 29

MODE OF EXECUTION

A.	This Contract may be executed by:

an original written ink signature of paper documents;

an exchange of facsimile copies showing the original written ink signature of paper documents;

B.	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.

IN WITNESS WHEREOF , the Company has caused this Contract to be executed by its duly authorized representative(s) this 24th day of January, in the year of 2013.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

including any and/or all companies that are or may hereafter become affiliated therewith

/s/ Authorized Signatory

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE -

REINSURANCE - U.S.A.

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

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.

IV.

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

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

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

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

7.	Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note : Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

(b)

12/12/57

NMA 1119

NOTES: Wherever used herein the terms:


“Reassured”		shall be understood to mean “Company”, “Reinsured”, “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Agreement”		shall be understood to mean “Agreement”, “Contract”, “Policy” or whatever other term is used to designate the attached reinsurance document.


“Reinsurers”		shall be understood to mean “Reinsurers”, “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsures or reinsurers.

TRUST AGREEMENT REQUIREMENTS CLAUSE

A.	Except as provided in paragraph B of this Clause, if the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer to establish a trust account for the benefit of the Company, and specifies what the Trust Agreement is to cover;

Requires that all settlements of account between the Company and the Reinsurer be made in cash or its equivalent; and

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the Company or the Reinsurer.

B.	If a ceding insurer is domiciled in California and the Reinsurer satisfies its funding obligations under the Unauthorized Reinsurance Article by providing a Trust Agreement, the Reinsurer shall ensure that the Trust Agreement:

Requires the Reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, whenever necessary, negotiate these assets without consent or signature from the Reinsurer or any other entity.

Provides that assets in the trust account shall be withdrawn only as permitted in this Contract, without diminution because of the insolvency of the ceding insurer or the Reinsurer.

C.	If there are multiple ceding insurers that collectively comprise the Company, “regulatory authorities” as referenced in subparagraph A(2) above, shall mean the individual ceding insurer’s domestic regulator.

TERRORISM EXCLUSION (PROPERTY TREATY REINSURANCE) N.M.A. 2930C

(i)	involves violence against one or more persons; or

(ii)	involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)	creates a risk to health or safety of the public or a section of the public; or

(v)	is designed to interfere with or to disrupt an electronic system.

NMA2930c

22/11/02

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Exhibit 10.11

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

$4,000,000 XS $2,000,000 XS $4,000,000 UNDERLYING

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

*[***]: Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS


ARTICLE		PAGE
I	BUSINESS COVERED		1
II	TERM		1
III	SPECIAL TERMINATION AND OTHER REMEDIES		2
IV	DEFINITIONS		5
	Declaratory Judgment Expense		5
	Extra Contractual Obligations/Loss in Excess of Policy Limits		5
	Loss Adjustment Expense		6
	Loss Occurrence		6
	Policy		7
	Renewed		7
	Ultimate Net Loss		8
V	TERRITORY		8
VI	EXCLUSIONS		8
VII	SPECIAL ACCEPTANCES		10
VIII	COVERAGE		10
IX	REINSURANCE PREMIUM		10
X	OTHER REINSURANCE		11
XI	NET RETAINED LINES		11
XII	NOTICE OF LOSS AND LOSS SETTLEMENTS		11
XIII	LATE PAYMENTS		12
XIV	SALVAGE AND SUBROGATION		12
XV	DELAYS, OMISSIONS, OR ERRORS		13
XVI	LIABILITY OF THE REINSURER		13
XVII	ENTIRE AGREEMENT		13
XVIII	OFFSET		14
XIX	CURRENCY		14
XX	TAXES		14
XXI	FEDERAL EXCISE TAX		14
XXII	OBLIGATIONS AND COLLATERAL RELEASE		15
XXIII	THIRD PARTY RIGHTS		17
XXIV	REINSURANCE ALLOCATION		18
XXV	SEVERABILITY		18

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.


XXVI	SANCTIONS	18
XXVII	GOVERNING LAW	19
XXVIII	ACCESS TO RECORDS	19
XXIX	CONFIDENTIALITY	20
XXX	INSOLVENCY	21
XXXI	ARBITRATION	22
XXXII	SERVICE OF SUIT	23
XXXIII	MODE OF EXECUTION	24
	Schedule A
	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance - U.S.A.
	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance - Canada
	Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) (Worldwide Excluding U.S.A. And Canada)
	Pools, Associations & Syndicates Exclusion Clause
	Mold Exclusion

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

$4,000,000 XS $2,000,000 XS $4,000,000 UNDERLYING

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(the “Contract”)

between

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may

hereafter come under the ownership, management and/or control of 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 Company’s liability under its Policies classified by the Company as Property business, subject to the terms, conditions, and limitations set forth herein and in Schedule A attached to and forming part of this Contract.

B.	Subject business shall include business assumed by the Company in connection with the depopulation of Policies from Citizens Property Insurance Corporation.

ARTICLE II

TERM

A.	This Contract shall apply to all Loss Occurrences during the term extending from 12:01 a.m., Eastern Standard Time, June 1, 2014, to 12:01 a.m., Eastern Standard Time, June 1, 2015, on Policies effective at the inception of, or written or Renewed with an effective date during, said term.

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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	Notwithstanding the expiration or termination of the Reinsurer’s participation hereon, the provisions of this Contract shall continue to apply to all obligations and liabilities of the parties incurred hereunder until all such obligations and liabilities are fully performed and discharged.

ARTICLE III

SPECIAL TERMINATION AND OTHER REMEDIES

The Company may terminate the share of the Reinsurer and/or exercise any other provisions provided hereunder as respects said Reinsurer at any time, either during the term or after the expiration of this Contract, upon said Reinsurer’s experiencing one or more Special Termination Event(s). A “Special Termination Event” shall be deemed to have occurred in the event of any of the following circumstances:

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

The Reinsurer has voluntarily ceased assuming new and renewal reinsurance business for the lines of business covered hereunder;

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;

For any period not exceeding 12 months, which commences no earlier than 12 months prior to the inception of this Contract, the Reinsurer’s policyholders’ surplus (or total stamp capacity by managing agent as respects Lloyd’s of London syndicates), as reported in the financial statements of the Reinsurer, has been reduced by 20%;

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

The Reinsurer’s A.M. Best’s Financial Strength Rating has been assigned or downgraded below “A-”;

The Reinsurer’s Standard and Poor’s Financial Strength Rating has been assigned or downgraded below “BBB+” or, as respects Lloyd’s of London, the Standard and Poor’s Rating of the Lloyd’s Market has been assigned or downgraded below “BBB+”;

The Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The Reinsurer has transferred its claims-paying authority under this Contract to an unaffiliated entity or in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity without the Company’s prior written consent. Notwithstanding the foregoing, the transfer of claims-paying authority or administration to a third party, where the Reinsurer maintains control over claims settlement decisions, shall not constitute a transfer of its claims-paying authority for purposes of this subparagraph; or

10.

The Reinsurer, directly or through the actions of a parent company or an affiliated entity, has invoked any U.S. or foreign statute, legislation, or jurisprudence that purports to enable the Reinsurer to require the Company to settle its claims liabilities, including but not limited to any estimated or undetermined claims liabilities under this Contract, on an accelerated basis. This does not include any attempt to enforce a settlement of claims liabilities under a commutation process to which the parties have agreed.

Unless it is prohibited by law from doing so, immediately upon the Reinsurer’s knowledge of a Special Termination Event, the Reinsurer must notify the Company of such event in writing, by electronic mail, certified mail, or a nationally or internationally recognized delivery service.

B.	Where a Special Termination Event has taken place and after giving the Reinsurer prior written notice by electronic mail, certified mail, or by a nationally or internationally recognized delivery service, the Company may invoke any one or a combination of the following:

The Company may terminate or reduce the Reinsurer’s share hereunder effective at any time following the Reinsurer’s receipt of the written notice. In such event, the entire liability of the Reinsurer for Loss Occurrences subsequent to the date of termination shall cease concurrently with the date of termination. Upon such termination, the Reinsurer shall refund to the Company the unearned portion of the reinsurance premium paid to it hereon (calculated on a pro rata expiration basis) and any minimum premium hereon shall be waived.

The Company may require that the Reinsurer commute all present and future liabilities under this Contract in return for a full and final release of all such liabilities. If the Company and Reinsurer cannot agree on the capitalized value of the Reinsurer’s liabilities, they shall appoint an independent actuary. If the Company and Reinsurer cannot agree on an actuary, the Company and the Reinsurer shall each nominate three individuals, of whom the other shall decline two, and the final decision shall be made by drawing lots. All the actuaries selected shall be disinterested in the outcome of the commutation and shall be Fellows of the Casualty Actuarial Society. The decision in writing of the appointed actuary, when filed with the parties hereto, shall be final and binding on both parties. The expense of the actuary and of the actuarial calculation shall be equally divided between the two parties. Said actuarial calculation shall take place in a location chosen by the Company. This commutation option is available to the Company at any time there remain any outstanding liabilities of the Reinsurer.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	The Company may revoke its notice hereunder, prior to the date of termination, without prejudice to reinstitute later if it so chooses.

D.	The Company, at its sole option, may classify the Reinsurer as a “Run-off Reinsurer,” where said Reinsurer experiences one or more of the Special Termination Events set forth in subparagraphs 1, 2, 3, 8, and 9 under paragraph A above.

Notwithstanding any other provision of this Contract, in the event that a Reinsurer becomes classified by the Company as a Run-off Reinsurer at any time, the Company may elect, by giving written notice to the Run-off Reinsurer at any time thereafter, that all or any of the following shall apply to the Run-off Reinsurer’s share hereunder:

The interest penalty specified in the LATE PAYMENTS ARTICLE shall be increased by 0.5% for each 30 days that the payment is past due, subject to a maximum increase of 7.0%.

In the event that either party demands arbitration of a dispute between the Company and the Run-off Reinsurer, and the amount in dispute is less than $500,000, unless the arbitration notice includes a demand for rescission of this Contract, notwithstanding the terms of the ARBITRATION ARTICLE, the dispute shall be resolved by a sole arbitrator and the following procedures shall apply:

The sole arbitrator shall be chosen by mutual agreement of the parties within 15 business days after the demand for arbitration. If the parties have not chosen an arbitrator within the 15 business days after receipt of the arbitration notice, the arbitrator shall be chosen in accordance with the Neutral Selection Procedure modified for a single arbitrator, established by the AIDA Reinsurance and Insurance Arbitration Society – U.S. (ARIAS) and in force on the date the arbitration is demanded. The nominated arbitrator must be available to read any written submissions and hear testimony within 60 days of being chosen.

Within 10 business days after the arbitrator has been appointed, the parties shall be notified of deadlines for the submission of briefs and documentary evidence, as determined by the arbitrator. There shall be no discovery or hearing unless the parties agree to engage in limited discovery and/or a hearing. Also, the arbitrator can determine, without the consent of the parties, that a limited hearing is necessary.

The arbitrator shall render a decision within 10 business days after the later of the date on which briefs are submitted or the end of the limited hearing. The decision of the arbitrator shall be in writing and shall be final and binding on both parties.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

E.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.

ARTICLE IV

DEFINITIONS

The terms set forth below, wherever they appear in this Contract and regardless of whether they appear in a singular or plural form, shall have the meanings given herein:

A.	Declaratory Judgment Expense

“Declaratory Judgment Expense” 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 giving rise to the declaratory judgment action.

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

Extra Contractual Obligations

“Extra Contractual Obligations” shall mean those liabilities not covered under any other provision of this Contract, including any punitive, exemplary, compensatory, or consequential damages, which arise from the handling of any claim on business covered hereunder; such liabilities arising because of, but not limited to, the following: failure to settle within the Policy limit, or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement, in preparation of the defense, in the trial of any action against its insured, reinsured, its insured’s or reinsured’s assignee or a third party claimant, or in the preparation or prosecution of an appeal consequent upon such action.

Loss in Excess of Policy Limits

“Loss in Excess of Policy Limits” shall mean amounts paid or damages payable by the Company in excess of the Policy limit as a result of alleged or actual negligence, fraud, or bad faith in failing to settle, and/or rejecting a settlement within the Policy limit, in the preparation of the defense, in the trial of any action against its insured, reinsured, its insured’s or reinsured’s assignee or a third party claimant, or in the preparation or prosecution of an appeal consequent upon such action. Loss in Excess of Policy Limits is any amount for which the Company would have been contractually liable to pay had it not been for the limits of the reinsured Policy.

Coverage for Extra Contractual Obligations loss and/or Loss in Excess of Policy Limits shall not apply when such loss has been incurred due to an adjudicated finding of 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Any Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

C.	Loss Adjustment Expense

“Loss Adjustment Expense” 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, monitoring counsel 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 salaries and expenses of employees, other than 4) above, and office and other overhead expenses.

D.	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:

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 120 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.

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 96 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 96 consecutive hours may be extended in respect of individual losses which occur beyond such 96 consecutive hours during the continued occupation of an assured’s premises by strikers, provided such occupation commenced during the aforesaid period.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

As regards “freeze,” only individual losses directly occasioned by collapse, breakage of glass, and water damage (including but not limited to those caused by freezing and/or melting of ice, snow or sleet, or ice damming on a structure, or bursting of frozen pipes and tanks) may be included in the Company’s “Loss Occurrence.”

Except for those “Loss Occurrences” referred to in subparagraph 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, except for those loss occurrences referred to in subparagraph a above where only one such period of 120 consecutive hours will apply with respect to one event, regardless of the duration of the event.

However, as respects those “Loss Occurrences” referred to in subparagraph b above, if the disaster, accident, or loss occasioned by the event is of greater duration than 96 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.

No individual losses occasioned by an event that would be covered by 96 hours or 120 hours clauses may be included in any “Loss Occurrence” claimed under the 168 hours provision.

Policy

“Policy” shall mean the Company’s binders, policies, and contracts, whether written or oral, providing insurance or reinsurance on the business covered under this Contract.

Renewed

“Renewed” shall include those Policies issued for more than one year (if any), as of their next annual anniversary or annual installment date.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

G.	Ultimate Net Loss

“Ultimate Net Loss” shall mean the amount of any settlement, award, or judgment paid by the Company or for which the Company has become liable to pay, including 1) Loss Adjustment Expense, 2) any pre-judgment interest that is included as part of an award or judgment, and 3) 90% of Loss in Excess of Policy Limits, 90% of Extra Contractual Obligations, after making deductions for all recoveries, salvages, and subrogations, which are actually recovered, and all claims on inuring reinsurance, whether 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. In the event a verdict or judgment is reduced by an appeal or a settlement, subsequent to the entry of the judgment, however, resulting in an ultimate saving on such verdict or judgment, or a judgment is reversed outright, the loss expense incurred in securing such final reduction or reversal shall be prorated between the Reinsurers and the Company in the proportion that each benefits from such reduction or reversal. 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

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

ARTICLE VI

EXCLUSIONS

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

Liability assumed by the Company under any form of treaty reinsurance; however, all excess of loss reinsurance, business covered in accordance with paragraph B of the BUSINESS COVERED ARTICLE, 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 shall not be excluded hereunder.

All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund, or other arrangement, howsoever denominated, established, or governed, that 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.

Loss caused directly or indirectly by war, whether or not declared, civil war, insurrection, rebellion, or revolution, or any act or condition incidental to any of the foregoing. This exclusion shall not apply to any Policy that contains a standard war exclusion.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Financial Guarantee coverage and/or similar coverage, however styled.

Loss or liability excluded by the Nuclear Incident Exclusion Clauses – Physical Damage – Reinsurance and Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) (Worldwide excluding U.S.A. & Canada) attached to this Contract.

Loss or liability excluded by the Pools, Associations, and Syndicates Exclusion Clause attached to this Contract.

Mold as defined in the Mold Exclusion attached to this Contract.

Flood and/or earthquake, when written as such.

Loss as excluded under the provisions of the Terrorism Exclusion (Property Treaty Reinsurance) – N.M.A. 2930c attached to this Contract.

10.

All assessments from Citizens Property Insurance Corporation.

The exclusions enumerated in paragraph A above (except for subparagraphs 3 and 5) shall not apply when they are merely incidental to the main operations or exposures of the insured, provided such main operations or exposures are also covered by the Company and are not themselves excluded from the scope of this Contract. The Company shall be the sole judge of what is “incidental.”

If the Company is inadvertently bound or is unknowingly exposed (due to error, automatic provisions of policy coverage, or as imposed by law) on a risk otherwise excluded in paragraph A above (except for subparagraphs 3 and 5), such exclusion shall be waived. The duration of said waiver shall not extend beyond the time that notice of such coverage has been received by a responsible underwriting authority of the Company plus the minimum time thereafter for the Company to terminate such coverage or Policy.

D.	If the Company is required to accept an assigned risk, which conflicts with one or more of the exclusions set forth in paragraph A above (except for subparagraphs 3 and 5), this reinsurance shall apply, but up to the limit required by the applicable statute or regulatory authority.

Should any judicial or regulatory entity having jurisdiction invalidate any exclusion in or expand coverage of the Company’s Policy that is also the subject of one or more of the exclusions set forth in paragraph A above (except for subparagraphs 3 and 5), then a loss for which the Company is liable because of such invalidation or expansion of coverage shall not be excluded hereunder.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE VII

SPECIAL ACCEPTANCES

Business that is not within the scope of this Contract may be submitted to the Reinsurer for special acceptance hereunder and such business, if accepted by the Reinsurer, shall be subject to all terms, conditions, and limitations of this Contract, except as modified by the special acceptance. Should denial of a request for special acceptance not be received from the Reinsurer within three business days of the Reinsurer’s receipt of said request, the special acceptance shall be deemed automatically agreed.

Any special acceptance business covered under the reinsurance contract being replaced by this Contract shall be automatically covered hereunder. Furthermore, should the Reinsurer become a party to this Contract subsequent to the acceptance of any business not normally covered hereunder, it shall automatically accept same as being part of this Contract.

ARTICLE VIII

COVERAGE

As respects the reinsurance coverage provided by this Contract, the Company shall retain and be liable for the first amount of Ultimate Net Loss, shown as “Company’s Retention” in Schedule A attached hereto, arising out of each Loss Occurrence. The Reinsurer shall then be liable for the amount by which such Ultimate Net Loss exceeds the Company’s Retention. The liability of the Reinsurer under this Contract shall not exceed the amount, shown as “Reinsurer’s Limit, Each Loss Occurrence,” as respects any one Loss Occurrence, nor shall it exceed the amount shown as “Reinsurer’s Limit, All Loss Occurrences,” in Schedule A attached hereto, in respect of all Loss Occurrences.

B.	In addition to the Company’s Retention set forth in Schedule A attached hereto, the Company shall retain the amount of Ultimate Net Loss, shown as “Annual Aggregate Retention” in Schedule A attached hereto, otherwise recoverable hereunder.

ARTICLE IX

REINSURANCE PREMIUM

A.	For the term of this Contract, there will be a reinsurance premium of $[***], payable in full by June 1, 2014.

B.	The Company shall furnish the Reinsurer with such other information as may be required by the Reinsurer for completion of its National Association of Insurance Commissioners interim and/or annual statements.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE X

OTHER REINSURANCE

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

B.	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 XI

NET RETAINED LINES

This Contract applies only to that portion of any Policy that the Company retains net for its own account (prior to deduction of any underlying reinsurance) 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 that the Company retains net for its own account shall be included.

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 that may have become due from such reinsurers, whether such inability arises from the insolvency of such other reinsurers or otherwise.

ARTICLE XII

NOTICE OF LOSS AND LOSS SETTLEMENTS

The Company shall advise the Reinsurer of all claims or losses that, in the opinion of the Company, may result in a claim hereunder. Furthermore, the Company shall notify the Reinsurer of all subsequent developments to any claims and losses that, in the opinion of the Company, may materially affect the position of the Reinsurer. Inadvertent omission in dispatching any notices shall in no way affect the obligations of the Reinsurer under this Contract, provided the Company informs the Reinsurer of such omission promptly upon discovery.

B.	The Company alone and at its full discretion shall adjust, settle, or compromise all claims and losses.

All loss settlements made by the Company that are within the terms and conditions of this Contract shall be binding upon the Reinsurer. Upon receipt of evidence of the amount paid or to be paid, the Reinsurer agrees to pay within 5 days of its receipt of such evidence or allow, as the case may be, its share of each such amount.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XIII

LATE PAYMENTS

(The provisions of this Article shall not be implemented unless specifically invoked by the Company in writing.)

In the event that any amount due the Company is not received by the payment due date, the Company may, by notifying the Reinsurer in writing, require the Reinsurer to pay, and the Reinsurer agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows:

The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

1/365ths of a rate equal to the 90-day Treasury Bill rate as published in The Wall Street Journal on the first business day following the date a remittance becomes due plus 300 basis points; times

The amount past due, including accrued interest.

The Reinsurer shall also pay any and all costs and expenses, including reasonable attorney’s fees, incurred in connection with the collection and enforcement of the Reinsurer’s payment obligations hereunder.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties has been received by the Company.

B.	The establishment of the payment due date shall, for purposes of this Article, be determined in accordance with the applicable Article of this Contract.

For purposes of interest calculation only, amounts due hereunder shall be deemed paid upon receipt by the Company. The validity of any claim or payment may be contested under the provisions of this Contract. If the Reinsurer prevails in an arbitration, or any other proceeding, there shall be no interest penalty due. Otherwise, any interest shall be calculated and due as outlined above. Furthermore, if the Reinsurer pays any claim hereunder that it is contesting and prevails in such action, the Company shall return such payment plus pay interest on same, at a rate calculated as per the provisions of paragraph A, above; however, such calculation is to begin from the actual date of remittance of funds from the Reinsurer through the date the funds are returned.

ARTICLE XIV

SALVAGE AND SUBROGATION

The Company, at its sole discretion, may enforce its right to salvage and/or subrogation and may prosecute all claims arising out of such right. Should the Company refuse or neglect to enforce this right, the Reinsurer is hereby empowered and authorized to institute appropriate action in the name of the Company.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The expense incurred by the Company in pursuing any such recovery shall be borne by each party in proportion to its benefit (if any) from the recovery. If the recovery expense exceeds the amount recovered, the amount recovered (if any) shall be applied to the reimbursement of recovery expense incurred by the Company and the remaining expense shall be included in Ultimate Net Loss.

Notwithstanding anything to the contrary in this Contract, if the Reinsurer initiates an action to secure salvage and/or subrogation in the name of the Company, and there is no such recovery, or if the amount recovered is insufficient to cover the expenses incurred in pursuing salvage and/or subrogation, the Reinsurer initiating such action shall be responsible for such excess expense. Furthermore, said Reinsurer shall be responsible for any damages to the Company, including reimbursement of any compensatory and/or punitive damages resulting from the action.

ARTICLE XV

DELAYS, OMISSIONS, OR ERRORS

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

ARTICLE XVI

LIABILITY OF THE REINSURER

All reinsurances for which the Reinsurer shall be liable by virtue of this Contract shall be subject in all respects to the same terms, conditions, interpretations, and waivers and to the same modifications, alterations, and cancellations, as the respective Policies to which such reinsurances relate, the true intent of the parties to this Contract being that the Reinsurer shall follow the fortunes of the Company. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

ARTICLE XVII

ENTIRE AGREEMENT

This Contract shall constitute the entire agreement between the parties with respect to the business being reinsured hereunder and no understandings exist between the parties other than those expressed in this Contract. Any change or modification to this Contract shall be null and void unless made by amendment to this Contract and signed by both parties. This Article shall not be construed as limiting in any way the admissibility, in the context of an arbitration or any other legal proceeding, of evidence regarding the formation, interpretation, purpose, or intent of this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XVIII

OFFSET

The Company 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; however, in the event of the insolvency of any party hereto, offset shall be in accordance with applicable law.

ARTICLE XIX

CURRENCY

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

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

ARTICLE XX

TAXES

The Company shall pay applicable taxes (except Federal Excise Tax, if any) on premiums reported to the Reinsurer under this Contract.

ARTICLE XXI

FEDERAL EXCISE TAX

The Reinsurer has agreed to allow the applicable percentage of the premium payable hereon (as imposed under the Internal Revenue Code) for the purpose of paying Federal Excise Tax to the extent such premium is subject to such tax. Should the Reinsurer claim exempt status from Federal Excise Tax, it shall provide to the Company, upon its request, proof that the exempt status adequately satisfies the rules as imposed under the Internal Revenue Code and any other applicable U.S. government authority.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

B.	In the event of any return premium becoming due hereunder, the Reinsurer shall deduct the applicable percentage from the return premium payable hereon and the Company or its agent shall recover such tax from the United States Government.

C.	As respects premiums ceded to the Reinsurer under this Contract, the Reinsurer agrees to indemnify the Company for any liability, expense, interest, or penalty it may incur by reason of the Reinsurer’s breach of this Article.

ARTICLE XXII

OBLIGATIONS AND COLLATERAL RELEASE

The Reinsurer agrees to establish a Trust Account for its Obligations (as defined herein) hereunder, pursuant to that certain Trust Agreement by and between the Reinsurer, the Company, and Bank of America dated as of the date hereof (the “Trust Agreement”). The Trust Account shall be funded pursuant to the provisions hereof. Collateral deposited in the Trust Account may be withdrawn on the terms set forth herein and in the Trust Agreement. The method of funding, the terms and provisions of any such Trust Account, and the quality of assets in any Trust Account must be acceptable to the Company and must meet the requirements of each applicable insurance regulatory authority having jurisdiction over the Company’s reserves. In the event a provision of any such funding instrument jeopardizes the Company’s ability to obtain full credit for reinsurance, such provision shall be void and shall be amended to comply with applicable credit for reinsurance requirements. The Reinsurer shall provide funding and/or any adjustments thereto in time for the Company to meet the requirements of each applicable insurance regulatory authority having jurisdiction over the Company’s reserves, provided that the Company sends the report of Reinsurer’s Obligations at least 15 days prior to the date such funding is required.

B.	At any time after December 1, 2014, if the Company in its commercially reasonable judgment believes that no event has occurred that may result in a claim hereunder, the Company agrees to release the Assets held in the Trust Account to the Reinsurer as soon as practicable.

The term “Obligations” shall mean for so long as the Reinsurer remains liable under the terms of the Contract, 100% of the Reinsurer’s Limit, All Loss Occurrences, as set forth on Schedule A attached hereto, less any unpaid premium (net of brokerage and Federal Excise Tax as applicable) and amounts previously paid by the Reinsurer in respect of claims under this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

losses and Loss Adjustment Expense paid by the Company, but not recovered from the Reinsurer;

reserves for losses reported and outstanding;

reserves for losses incurred but not reported; and

reserves for Loss Adjustment Expense

If the parties hereto do not enter into a reinsurance agreement upon expiration of this Contract, the Ultimate Net Loss for each such Loss Occurrence (if not otherwise finally determined pursuant to the terms of this Contract) shall be deemed equal to the amount as determined in subparagraph (1) above measured as of the applicable determination date (as specified in Section E below), multiplied by a factor, based upon the number of months (with any partial month rounded up to the nearest whole month) which have elapsed on such determination date since expiration of the Contract, as follows:

From 0 to 12 months from expiration of the Contract, 150%, else;

From 13 to 24 months from expiration of the Contract, 125%, else;

From 25 to 36 months from expiration of the Contract, 110%; and

From 37 to 67 months from expiration of the Contract, 100%.

The procedure for determining the amount of collateral required to pay the Reinsurer’s Obligations for its share of actual and possible claims, described in subparagraphs D(1) and D(2) above, shall be followed each and every time, in the opinion of the Company, there are materially new estimates regarding its losses, and each quarter-end, until all the Reinsurer’s Obligations have been extinguished or the Reporting Period is over, whichever is earlier. Furthermore, the information to be used for the determinations described in D(1) and D(2) above shall be as reflected on the Company’s official books and records. Furthermore if so requested by the Reinsurer, the Company shall provide the information listed in D(1) and D(2) above, broken down into subsections (a)-(d) and accompanied by a written explanation of its estimates within seven Business Days of such request.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

In the event that collateral has been released from the Trust Account, but at a later date it is determined by the procedure above that such collateral should be present in the Trust Account, the Reinsurer shall, within 10 Business Days of such determination, deposit additional assets until the Trust Account balance is equal to the amount of actual and possible claims; however, the Reinsurer shall never be liable to deposit assets in the Trust Account in excess of its Obligations as defined above. If the Trust Account is funded and maintained and the Trust Agreement is performed according to the terms and conditions of this Contract and the Trust Agreement, the Company agrees and acknowledges that there shall only be recourse to the Segregated Account assets, and in the event of the exhaustion of the Segregated Account assets there shall be no recourse by any party for any claims, payments, other expenses or fees whatsoever, howsoever arising pursuant to this Contract, to the assets which are allocated to any other segregated account of the Reinsurer or to the general account of the Reinsurer.

ARTICLE XXIII

THIRD PARTY RIGHTS

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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXIV

REINSURANCE ALLOCATION

A.	While having no effect on the settlements or liabilities of the parties to this Contract, it is established that:

If an Occurrence covered under this Contract involves multiple member companies, the Company shall allocate the Reinsurer’s limit of liability for the Occurrence to each member company involved, proportionately, based on the percentage that the affected member company’s loss bears to the total of all losses contributing to that Occurrence; and

With respect to reinsurance premium due to the Reinsurer hereunder, each member company shall be responsible for its proportionate share of the reinsurance premium. The deposit premium, minimum premium, and final reinsurance premium, as determined under the terms of this Contract, shall be apportioned to each member company by the Company in the same proportion that each member company’s subject premium bears to the total subject premium.

B.	Records of these allocations shall be maintained in sufficient detail to identify both the Reinsurer’s loss obligations allocated to each member company and each member company’s share of premium allocation.

ARTICLE XXV

SEVERABILITY

If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations, or public policy of any jurisdiction, 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

SANCTIONS

Notwithstanding any other provision in this Contract to the contrary, if at any time should any receipt or payment of funds or any other contemplated transaction under this Contract constitute an actual or potential violation of any economic sanction or money laundering statute, regulation or order which is applicable to either the Company or the Reinsurer, the party who becomes aware of the actual or potential violation shall immediately notify the other party of the actual or potential violation and the reasons therefor. Solely with respect to such receipt, payment or other transaction, the obligation of the parties under this Contract shall be suspended until such time as the Company or the Reinsurer are authorized by applicable law, regulation, or license to perform under this Contract. For the avoidance of doubt, the obligations of the parties under this Contract shall remain in effect with respect to the receipt or payment of funds or any other contemplated transaction which would not constitute a violation of any economic sanction or money laundering law, regulation or order.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXVII

GOVERNING LAW

This Contract shall be governed as to performance, administration, and interpretation by the laws of the State of Florida, exclusive of that state’s rules with respect to conflicts of law. However, with respect to credit for reinsurance, the rules of all applicable states shall apply.

ARTICLE XXVIII

ACCESS TO RECORDS

The Reinsurer or its designated representative(s) approved by the Company, upon providing reasonable advance notice to the Company, shall have access at the offices of the Company or at a location to be mutually agreed, at a time to be mutually agreed, to inspect the Company’s underwriting, accounting, or claim files pertaining to the subject matter of this Contract. The Company shall determine the manner in which files shall be accessed by the Reinsurer. The Reinsurer may, at its own expense, reasonably request copies of such files and agrees to pay the Company’s reasonable costs (including staff expense and other overhead costs) incurred in procuring such copies.

The Reinsurer or its designated representative(s) shall not have access to Protected Records related to a claim ceded to this Contract; however, the Reinsurer shall be permitted to have access to those Protected Records described in subparagraph F.2 of this Article after the Company’s final settlement or final adjudication of such underlying claim. If Protected Records are withheld, the Company shall advise the Reinsurer accordingly and the Company shall take reasonable steps to provide the Reinsurer with sufficient information to determine its liability hereunder. Further, the Reinsurer or its designated representative(s) shall not have access to any communications with any other reinsurer supporting the Company in respect of business subject to this Contract and shall not have access to Protected Records relating to any dispute between the Company and the Reinsurer.

C.	If any undisputed amounts are overdue from the Reinsurer to the Company, the Reinsurer shall have access to such records only upon payment of all such overdue amounts.

Upon completion of the audit, the Reinsurer and its representative(s) shall consult with the Company promptly and in good faith, no later than 30 days after the completion of the audit unless otherwise agreed, with respect to any and all questions or issues raised by the audit. If, as a result of the Reinsurer’s inspection of the Company’s files, any claim is denied, contested, or disputed, the Reinsurer shall promptly provide the Company with a summary of any reports or analysis completed by the Reinsurer’s personnel or by any third party on behalf of the Reinsurer outlining the findings of the inspection and identifying the reasons for contesting or disputing the subject claim.

E.	Nothing in this Article requires the Company to maintain or to make available any document for longer than the period required by the Company’s document retention policies and procedures or the period required by applicable statute or regulation, whichever is greater.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

F.	“Protected Records” are defined as communications, files, records, documents, or books:

Deemed by the Company to concern Trade Secrets of the Company (Trade Secrets shall have the meaning provided in Section 1839 of the United States Economic Espionage Act of 1996); or

Deemed by the Company to be subject to attorney-client privilege or work product rule protection; or

Concerning individual private information that as a matter of law cannot be disclosed by the Company.

ARTICLE XXIX

CONFIDENTIALITY

The Reinsurer hereby acknowledges that the documents, information, and data provided to the Reinsurer by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, inspection pursuant to the ACCESS TO RECORDS ARTICLE, or any other information relating to this Contract (“Confidential Information”) are proprietary and confidential to the Company.

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies, except when:

Required by retrocessionaires subject to the business ceded to this Contract; or

Required by state regulators performing an audit of the Reinsurer’s records and/or financial condition; or

Required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

C.	Further, the Reinsurer agrees not to use any Confidential Information for any purpose not permitted by this Contract or not related to the performance of their obligations or enforcement of their rights under this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

E.	The provisions of this Article shall extend to the officers, directors, and employees of the Reinsurer and its affiliates, who have received Confidential Information in accordance with this Contract, and shall be binding upon their successors and assigns.

ARTICLE XXX

INSOLVENCY

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 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 that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

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

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 otherwise provided by Section 4118(a) (relating to Fidelity and Surety Risks) and Section 1114(c) (relating to physical damage) of the Insurance Law of New York 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. Then, and in that event only, the Company, with the prior approval by the Superintendent of Insurance of the State of New York of the Certificate of Assumption on New York risks, is entirely released from its obligation and the Reinsurers shall pay any loss directly to payees under such policies.

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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

In the event of the insolvency of any company or companies covered hereunder, the laws of the applicable domiciliary state(s) shall apply. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company or companies covered hereunder, that domiciliary state’s laws shall prevail.

ARTICLE XXXI

ARBITRATION

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 validity thereof, whether arising before or after the expiry or termination of the Contract, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall 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.

Notwithstanding the provisions of the foregoing paragraph, the Company shall have the option to either litigate or arbitrate any dispute in which the Reinsurer makes any allegation of misrepresentation, non-disclosure, concealment, fraud or bad faith and/or where the Reinsurer has experienced a Special Termination Event, as defined in the SPECIAL TERMINATION AND OTHER REMEDIES ARTICLE.

One arbitrator shall be appointed by each party. If the responding party fails to appoint its arbitrator within 30 days after its receipt of the claimant party’s notice requesting arbitration, the claimant party, after 10 days’ notice by certified mail or reputable courier as provided above of its intention to do so, may appoint the second arbitrator.

The two arbitrators shall, before instituting the hearing, appoint an impartial third arbitrator who shall preside at the hearing. Should the two arbitrators fail to choose the third arbitrator within 30 days of the appointment of the second arbitrator, the parties shall appoint the third arbitrator pursuant to the AIDA Reinsurance and Insurance Arbitration Society – U.S. (ARIAS) Umpire Selection Procedure. All arbitrators shall be disinterested active or former senior executives of insurance or reinsurance companies or Underwriters at Lloyd’s, London. In the event of the resignation or death of any arbitrator, a replacement shall be appointed in the same manner as the resigning or deceased arbitrator was appointed and the newly constituted panel shall take all necessary and/or reasonable measures to continue the arbitration proceedings without additional delay.

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 Clearwater, Florida, 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 Florida. 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

If more than one 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 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 Reinsurers constituting the one party; provided, however, that nothing therein shall impair the rights of such Reinsurers to assert several, rather than joint defenses or claims, nor be construed as changing the liability of the Reinsurers under the terms of this Contract from several to joint.

Each party shall bear the expense of the arbitrator selected by or for it 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.

ARTICLE XXXII

SERVICE OF SUIT

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

In the event of the failure of the Reinsurer to perform its obligations under this Contract, the 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 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 Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the 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. The validity and/or enforceability of any arbitration award or judgment obtained in the United States shall not be contested by the Reinsurer in any jurisdiction outside of the United States.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Service of process in such suit may be made upon the law firm of Mendes and Mount, 750 Seventh Avenue, New York, NY 10019, the law firm of Foley & Lardner LLP, 555 California Street, Suite 1700, San Francisco, California 94104-1520, or another party specifically designated by the Reinsurer in its Interests and Liabilities Agreement attached hereto.

Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his/her 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.

D.	The individual named in paragraph C shall be deemed the Reinsurer’s agent for the service of process:

where the address designated in, or pursuant to paragraph B is invalid; or

to the extent necessary to bring this Contract into conformity with the applicable law of a state with jurisdiction over the Company.

ARTICLE XXXIII

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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

Signed this 17 day of July, 2014.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY


By		/s/ Stephen Rohde
		Printed Name Stephen Rohde
		Title CFO

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

SCHEDULE A

$4,000,000 XS $2,000,000 XS $4,000,000 UNDERLYING

PROPERTY CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

Effective: June 1, 2014

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may hereafter come under the ownership, management and/or control of the Company


Company’s Retention	$	2,000,000
Reinsurer’s Limit, Each Loss Occurrence	$	4,000,000
Reinsurer’s Limit, All Loss Occurrences	$	4,000,000
Annual Aggregate Retention	$	4,000,000
Reinstatements		Nil

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

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

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

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

II.

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

III.

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

IV.

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

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

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

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

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

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

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

7)	Reassured to be sole judge of what constitutes:

substantial quantities, and

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:

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

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

12/12/57

N.M.A. 1119

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE – CANADA

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.

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:

(a)

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

(b)

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

(c)

Installations for fabricating complete fuel elements or for processing substantial quantities of radioactive materials, and for reprocessing, salvaging, chemically separating, storing or disposing of spent nuclear fuel or waste materials, or

(d)

Installations other than those listed in (c) above using substantial quantities of radioactive isotopes or other products of nuclear fission.

Without in any way restricting the operation of paragraphs 1 and 2 of this clause, this 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 the said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused.

Without in any way restricting the operation of paragraphs 1, 2, and 3 of this clause, 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)	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.

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

7)	Reinsured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

8)	Without in any way restricting the operation of paragraphs 1, 2, 3, and 4 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 caused:

(a)

by any nuclear incident as defined in pursuant to the Nuclear Liability Act or any other nuclear liability act, law or statute, or any law amendatory thereof or nuclear explosion, except for ensuing loss or damage which results directly from fire, lightning or explosion of natural, coal or manufactured gas;

(b)

by contamination by radioactive material.

NOTE:

Without in any way restricting the operation of paragraphs 1, 2, 3 and 4 of this clause, paragraph 8 of this clause shall only apply to all original contracts of the Reinsured whether new, renewal or replacement which become effective on or after December 31, 1992.

01/04/96

N.M.A. 1980a

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1994)(WORLDWIDE EXCLUDING U.S.A. AND CANADA)

This agreement shall exclude Nuclear Energy Risks whether such risks are written directly and/or by way of reinsurance and/or via Pools and/or Associations.

For all purposes of this agreement Nuclear Energy Risks shall mean all first party and/or third party insurances or reinsurances (other than Workers’ Compensation and Employers’ Liability) in respect of:

I	All Property on the site of a nuclear power station.

Nuclear Reactors, reactor buildings and plant and equipment therein on any site other than a nuclear power station.

II	All Property , on any site (including but not limited to the sites referred to in (I) above) used or having been used for:

(a)

The generation of nuclear energy; or

(b)

The Production, Use or Storage of Nuclear Material.

III	Any other Property eligible for insurance by the relevant local Nuclear Insurance Pool and/or Association but only to the extent of the requirements of that local Pool and/or Association.

IV	The supply of goods and services to any of the sites described in I to III above, unless such insurances or reinsurances shall exclude the perils of irradiation and contamination by Nuclear Material .

Except as undernoted, Nuclear Energy Risks shall not include:

(i)	Any insurance or reinsurance in respect of the construction or erection or installation or replacement or repair or maintenance or decommissioning of Property as described in I to III above (including contractors’ plant and equipment);

(ii)	Any Machinery Breakdown or other Engineering insurance or reinsurance not coming within the scope of I above;

Provided always that such insurance or reinsurance shall exclude the perils of irradiation and contamination by Nuclear Material.

However, the above exemption shall not extend to:

1.	The provision of any insurance or reinsurance whatsoever in respect of:

(a)

Nuclear Material ;

(b)

Any Property in the High Radioactivity Zone or Area of any Nuclear Installation as from the introduction of Nuclear Material or—for reactor installations—as from fuel loading or first criticality where so agreed with the relevant local Nuclear Insurance Pool and/or Association.

2.	The provision of any insurance or reinsurance for the undernoted perils:

•

Fire, lightning, explosion;

•

Earthquake;

•

Aircraft and other aerial devices or articles dropped therefrom;

•

Irradiation and radioactive contamination;

•

Any other peril insured by the relevant local Nuclear Insurance Pool and/or Association;

in respect of any other Property not specified in 1 above which directly involves the Production, Use or Storage of Nuclear Material as from the introduction of Nuclear Material into such Property .

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Definitions

“Nuclear Material” means:

(i)	Nuclear fuel, other than natural uranium and depleted uranium, capable of producing energy by a self-sustaining chain process of nuclear fission outside a Nuclear Reactor , either alone or in combination with some other material; and

(ii)	Radioactive Products or Waste .

“Radioactive Products or Waste” means any radioactive material produced in, or any material made radioactive by exposure to the radiation incidental to the production or utilisation of nuclear fuel, but does not include radioisotopes which have reached the final stage of fabrication so as to be usable for any scientific, medical, agricultural, commercial or industrial purpose.

“Nuclear Installation” means:

(i)	Any Nuclear Reactor ;

(ii)	Any factory using nuclear fuel for the production of Nuclear Material , or any factory for the processing of Nuclear Material , including any factory for the reprocessing of irradiated nuclear fuel; and

(iii)

Any facility where Nuclear Material is stored, other than storage incidental to the carriage of such material.

“Nuclear Reactor” means any structure containing nuclear fuel in such an arrangement that a self-sustaining chain process of nuclear fission can occur therein without an additional source of neutrons.

“Production, Use or Storage of Nuclear Material” means the production, manufacture, enrichment, conditioning, processing, reprocessing, use, storage, handling and disposal of Nuclear Material .

“Property” shall mean all land, buildings, structures, plant, equipment, vehicles, contents (including but not limited to liquids and gases) and all materials of whatever description whether fixed or not.

“High Radioactivity Zone or Area” means:

(i)	For nuclear power stations and Nuclear Reactors , the vessel or structure which immediately contains the core (including its supports and shrouding) and all the contents thereof, the fuel elements, the control rods and the irradiated fuel store; and

(ii)	For non-reactor Nuclear Installations, any area where the level of radioactivity requires the provision of a biological shield.

10/3/94

N.M.A. 1975(a)

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE

SECTION A:

EXCLUDING:

(a)

All Business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

(b)

Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, 1968 for the purpose of insuring Property whether on a country-wide basis or in respect of designated areas. This exclusion shall not apply to so-called Automobile Insurance Plans or other Pools formed to provide coverage for Automobile Physical Damage.

SECTION B:

EXCLUDING:

Business written by the Company for the same perils, which is known at the time to be insured by, or in excess of underlying amounts placed in, any Pools, Associations, or Syndicates, whether by way of insurance or reinsurance, formed for the purpose of writing any of the following:

Oil, Gas or Petro-Chemical Plants,

Oil or Gas Drilling Rigs,

Aviation Risks.

SECTION B does not apply:

(a)

Where the Total Insured Value over all interests of the risk in question is less than $[***].

(b)

To interests traditionally underwritten as Inland Marine or Stock and/or Contents written on a Blanket basis.

(c)

(d)

To risks as follows:

Offices, Hotels, Apartments, Hospitals, Educational Establishments, Public Utilities (other than Railroad Schedules) and Builder’s Risks on the classes of risks specified in this subsection (d) only.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Where this Clause attaches to catastrophe excesses, the following Section C is added:

SECTION C:

NEVERTHELESS the Reinsurer specifically agrees that liability accruing to the Company from its participation in residual market mechanisms including but not limited to:

(l)

The following so-called “Coastal Pools”:

ALABAMA INSURANCE UNDERWRITING ASSOCIATION

MISSISSIPPI WINDSTORM UNDERWRITING ASSOCIATION

NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION

SOUTH CAROLINA WINDSTORM AND HAIL UNDERWRITING ASSOCIATION

TEXAS WINDSTORM INSURANCE ASSOCIATION

AND

(2)

All “FAIR Plan” and “Rural Risk Plan” business

AND

(3)	The Louisiana Citizens Property Insurance Corporation and the California Earthquake Authority (CEA)

for all perils otherwise protected hereunder shall not be excluded, except, however, that this reinsurance does not include any increase in such liability resulting from:

(i)

The inability of any other participant in such “Coastal Pool” and/or “FAIR Plan” and/or “Rural Risk Plan” and/or Residual Market Mechanisms to meet its liability.

(ii)

Any claim against such “Coastal Pool” and/or “FAIR Plan” and/or “Rural Risk Plan” and/or Residual Market Mechanisms, or any participant therein, including the Company, whether by way of subrogation or otherwise, brought by or on behalf of any Insolvency Fund (as defined in the Insolvency Fund Exclusion Clause incorporated in this Contract).

The Company will deduct from the Ultimate Net Loss any payments or credits received as recoupment of any assessment that has been included in the Ultimate Net Loss. The Company will recoup such assessment where it is commercially practicable or allowable to do so.

SECTION D:

Notwithstanding Section C above, in respect of the CEA, where an assessment is made against the Company by the CEA, the Company may include in the Ultimate Net Loss only that assessment directly attributable to each separate loss occurrence covered hereunder. The Company’s initial capital contribution to the CEA shall not be included in the Ultimate Net Loss. Any assessments for accounting years subsequent to that in which the loss occurrence commenced may not be included in the Ultimate Net Loss hereunder.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

MOLD EXCLUSION

This Contract does not apply to loss or liability in any way or to any extent arising out of the actual or alleged presence or actual, alleged or threatened presence of fungi including, but not limited to, mold, mildew, mycotoxins, microbial volatile organic compounds or other “microbial contamination.” This includes:

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

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

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

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

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

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TERRORISM EXCLUSION (PROPERTY TREATY REINSURANCE) N.M.A. 2930C

(i)	involves violence against one or more persons; or

(ii)	involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)	creates a risk to health or safety of the public or a section of the public; or

(v)	is designed to interfere with or to disrupt an electronic system.

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

NMA2930c

22/11/02

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Exhibit 10.12

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

$6,000,000 XS $9,000,000 UNDERLYING PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS


ARTICLE		PAGE
I	BUSINESS COVERED		1
II	TERM		1
III	SPECIAL TERMINATION AND OTHER REMEDIES		2
IV	DEFINITIONS		5
	Declaratory Judgment Expense		5
	Extra Contractual Obligations/Loss in Excess of Policy Limits		5
	Loss Adjustment Expense		6
	Loss Occurrence		6
	Policy		7
	Renewed		7
	Ultimate Net Loss		8
V	TERRITORY		8
VI	EXCLUSIONS		8
VII	SPECIAL ACCEPTANCES		10
VIII	COVERAGE		10
IX	REINSURANCE PREMIUM		10
X	OTHER REINSURANCE		11
XI	NET RETAINED LINES		11
XII	NOTICE OF LOSS AND LOSS SETTLEMENTS		11
XIII	LATE PAYMENTS		12
XIV	SALVAGE AND SUBROGATION		12
XV	DELAYS, OMISSIONS, OR ERRORS		13
XVI	LIABILITY OF THE REINSURER		13
XVII	ENTIRE AGREEMENT		13
XVIII	OFFSET		14
XIX	CURRENCY		14
XX	TAXES		14
XXI	FEDERAL EXCISE TAX		14
XXII	OBLIGATIONS AND COLLATERAL RELEASE		15
XXIII	THIRD PARTY RIGHTS		17
XXIV	REINSURANCE ALLOCATION		18
XXV	SEVERABILITY		18

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.


XXVI	SANCTIONS	18
XXVII	GOVERNING LAW	19
XXVIII	ACCESS TO RECORDS	19
XXIX	CONFIDENTIALITY	20
XXX	INSOLVENCY	21
XXXI	ARBITRATION	22
XXXII	SERVICE OF SUIT	23
XXXIII	MODE OF EXECUTION	24
	Schedule A
	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance - U.S.A.
	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance - Canada
	Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) (Worldwide Excluding U.S.A. And Canada)
	Pools, Associations & Syndicates Exclusion Clause
	Mold Exclusion

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

$6,000,000 XS $9,000,000 UNDERLYING PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

(the “Contract”)

between

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may

hereafter come under the ownership, management and/or control of 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 Company’s liability under its Policies classified by the Company as Property business, subject to the terms, conditions, and limitations set forth herein and in Schedule A attached to and forming part of this Contract.

B.	Subject business shall include business assumed by the Company in connection with the depopulation of Policies from Citizens Property Insurance Corporation.

ARTICLE II

TERM

A.	This Contract shall apply to all Loss Occurrences during the term extending from 12:01 a.m., Eastern Standard Time, June 1, 2014, to 12:01 a.m., Eastern Standard Time, June 1, 2015, on Policies effective at the inception of, or written or Renewed with an effective date during, said term.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	Notwithstanding the expiration or termination of the Reinsurer’s participation hereon, the provisions of this Contract shall continue to apply to all obligations and liabilities of the parties incurred hereunder until all such obligations and liabilities are fully performed and discharged.

ARTICLE III

SPECIAL TERMINATION AND OTHER REMEDIES

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

The Reinsurer has voluntarily ceased assuming new and renewal reinsurance business for the lines of business covered hereunder;

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;

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

The Reinsurer’s A.M. Best’s Financial Strength Rating has been assigned or downgraded below “A-”;

The Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

10.

B.	Where a Special Termination Event has taken place and after giving the Reinsurer prior written notice by electronic mail, certified mail, or by a nationally or internationally recognized delivery service, the Company may invoke any one or a combination of the following:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	The Company may revoke its notice hereunder, prior to the date of termination, without prejudice to reinstitute later if it so chooses.

D.	The Company, at its sole option, may classify the Reinsurer as a “Run-off Reinsurer,” where said Reinsurer experiences one or more of the Special Termination Events set forth in subparagraphs 1, 2, 3, 8, and 9 under paragraph A above.

The interest penalty specified in the LATE PAYMENTS ARTICLE shall be increased by 0.5% for each 30 days that the payment is past due, subject to a maximum increase of 7.0%.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

E.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.

ARTICLE IV

DEFINITIONS

The terms set forth below, wherever they appear in this Contract and regardless of whether they appear in a singular or plural form, shall have the meanings given herein:

A.	Declaratory Judgment Expense

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

Extra Contractual Obligations

Loss in Excess of Policy Limits

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Any Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

C.	Loss Adjustment Expense

D.	Loss Occurrence

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 120 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

No individual losses occasioned by an event that would be covered by 96 hours or 120 hours clauses may be included in any “Loss Occurrence” claimed under the 168 hours provision.

Policy

“Policy” shall mean the Company’s binders, policies, and contracts, whether written or oral, providing insurance or reinsurance on the business covered under this Contract.

Renewed

“Renewed” shall include those Policies issued for more than one year (if any), as of their next annual anniversary or annual installment date.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

G.	Ultimate Net Loss

ARTICLE V

TERRITORY

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

ARTICLE VI

EXCLUSIONS

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

All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund, or other arrangement, howsoever denominated, established, or governed, that 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Financial Guarantee coverage and/or similar coverage, however styled.

Loss or liability excluded by the Pools, Associations, and Syndicates Exclusion Clause attached to this Contract.

Mold as defined in the Mold Exclusion attached to this Contract.

Flood and/or earthquake, when written as such.

Loss as excluded under the provisions of the Terrorism Exclusion (Property Treaty Reinsurance) – N.M.A. 2930c attached to this Contract.

10.

All assessments from Citizens Property Insurance Corporation.

D.	If the Company is required to accept an assigned risk, which conflicts with one or more of the exclusions set forth in paragraph A above (except for subparagraphs 3 and 5), this reinsurance shall apply, but up to the limit required by the applicable statute or regulatory authority.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE VII

SPECIAL ACCEPTANCES

ARTICLE VIII

COVERAGE

ARTICLE IX

REINSURANCE PREMIUM

A.	For the term of this Contract, there will be a reinsurance premium of $[***], payable in full by June 1, 2014.

B.	The Company shall furnish the Reinsurer with such other information as may be required by the Reinsurer for completion of its National Association of Insurance Commissioners interim and/or annual statements.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE X

OTHER REINSURANCE

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

B.	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 XI

NET RETAINED LINES

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 that may have become due from such reinsurers, whether such inability arises from the insolvency of such other reinsurers or otherwise.

ARTICLE XII

NOTICE OF LOSS AND LOSS SETTLEMENTS

B.	The Company alone and at its full discretion shall adjust, settle, or compromise all claims and losses.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XIII

LATE PAYMENTS

(The provisions of this Article shall not be implemented unless specifically invoked by the Company in writing.)

The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

1/365ths of a rate equal to the 90-day Treasury Bill rate as published in The Wall Street Journal on the first business day following the date a remittance becomes due plus 300 basis points; times

The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties has been received by the Company.

B.	The establishment of the payment due date shall, for purposes of this Article, be determined in accordance with the applicable Article of this Contract.

ARTICLE XIV

SALVAGE AND SUBROGATION

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XV

DELAYS, OMISSIONS, OR ERRORS

ARTICLE XVI

LIABILITY OF THE REINSURER

ARTICLE XVII

ENTIRE AGREEMENT

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XVIII

OFFSET

ARTICLE XIX

CURRENCY

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

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

ARTICLE XX

TAXES

The Company shall pay applicable taxes (except Federal Excise Tax, if any) on premiums reported to the Reinsurer under this Contract.

ARTICLE XXI

FEDERAL EXCISE TAX

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

B.	In the event of any return premium becoming due hereunder, the Reinsurer shall deduct the applicable percentage from the return premium payable hereon and the Company or its agent shall recover such tax from the United States Government.

C.	As respects premiums ceded to the Reinsurer under this Contract, the Reinsurer agrees to indemnify the Company for any liability, expense, interest, or penalty it may incur by reason of the Reinsurer’s breach of this Article.

ARTICLE XXII

OBLIGATIONS AND COLLATERAL RELEASE

B.	At any time after December 1, 2014, if the Company in its commercially reasonable judgment believes that no event has occurred that may result in a claim hereunder, the Company agrees to release the Assets held in the Trust Account to the Reinsurer as soon as practicable.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

losses and Loss Adjustment Expense paid by the Company, but not recovered from the Reinsurer;

reserves for losses reported and outstanding;

reserves for losses incurred but not reported; and

reserves for Loss Adjustment Expense

If the parties hereto do not enter into a reinsurance agreement upon expiration of this Contract, the Ultimate Net Loss for each such Loss Occurrence (if not otherwise finally determined pursuant to the terms of this Contract) shall be deemed equal to the amount as determined in subparagraph (1) above measured as of the applicable determination date (as specified in Section E below), multiplied by a factor, based upon the number of months (with any partial month rounded up to the nearest whole month) which have elapsed on such determination date since expiration of the Contract, as follows:

From 0 to 12 months from expiration of the Contract, 150%, else;

From 13 to 24 months from expiration of the Contract, 125%, else;

From 25 to 36 months from expiration of the Contract, 110%; and

From 37 to 67 months from expiration of the Contract, 100%.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

In the event that collateral has been released from the Trust Account, but at a later date it is determined by the procedure above that such collateral should be present in the Trust Account, the Reinsurer shall, within 10 Business Days of such determination, deposit additional assets until the Trust Account balance is equal to the amount of actual and possible claims; however, the Reinsurer shall never be liable to deposit assets in the Trust Account in excess of its Obligations as defined above. If the Trust Account is funded and maintained and the Trust Agreement is performed according to the terms and conditions of this Contract and the Trust Agreement, the Company agrees and acknowledges that there shall only be recourse to the Segregated Account assets, and in the event of the exhaustion of the Segregated Account assets there shall be no recourse by any party for any claims, payments, other expenses or fees whatsoever, howsoever arising pursuant to this Contract, to the assets which are allocated to any other segregated account of the Reinsurer or to the general account of the Reinsurer.

ARTICLE XXIII

THIRD PARTY RIGHTS

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXIV

REINSURANCE ALLOCATION

A.	While having no effect on the settlements or liabilities of the parties to this Contract, it is established that:

B.	Records of these allocations shall be maintained in sufficient detail to identify both the Reinsurer’s loss obligations allocated to each member company and each member company’s share of premium allocation.

ARTICLE XXV

SEVERABILITY

ARTICLE XXVI

SANCTIONS

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXVII

GOVERNING LAW

ARTICLE XXVIII

ACCESS TO RECORDS

C.	If any undisputed amounts are overdue from the Reinsurer to the Company, the Reinsurer shall have access to such records only upon payment of all such overdue amounts.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

E.	Nothing in this Article requires the Company to maintain or to make available any document for longer than the period required by the Company’s document retention policies and procedures or the period required by applicable statute or regulation, whichever is greater.

F.	“Protected Records” are defined as communications, files, records, documents, or books:

Deemed by the Company to concern Trade Secrets of the Company (Trade Secrets shall have the meaning provided in Section 1839 of the United States Economic Espionage Act of 1996); or

Deemed by the Company to be subject to attorney-client privilege or work product rule protection; or

Concerning individual private information that as a matter of law cannot be disclosed by the Company.

ARTICLE XXIX

CONFIDENTIALITY

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies, except when:

Required by retrocessionaires subject to the business ceded to this Contract; or

Required by state regulators performing an audit of the Reinsurer’s records and/or financial condition; or

Required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

C.	Further, the Reinsurer agrees not to use any Confidential Information for any purpose not permitted by this Contract or not related to the performance of their obligations or enforcement of their rights under this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

E.	The provisions of this Article shall extend to the officers, directors, and employees of the Reinsurer and its affiliates, who have received Confidential Information in accordance with this Contract, and shall be binding upon their successors and assigns.

ARTICLE XXX

INSOLVENCY

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

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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 XXXI

ARBITRATION

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXXII

SERVICE OF SUIT

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by the 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. The validity and/or enforceability of any arbitration award or judgment obtained in the United States shall not be contested by the Reinsurer in any jurisdiction outside of the United States.

Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his/her 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.

D.	The individual named in paragraph C shall be deemed the Reinsurer’s agent for the service of process:

where the address designated in, or pursuant to paragraph B is invalid; or

to the extent necessary to bring this Contract into conformity with the applicable law of a state with jurisdiction over the Company.

ARTICLE XXXIII

MODE OF EXECUTION

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

Signed this 17 day of July, 2014.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY


By		/s/ Stephen Rohde
		Printed Name Stephen Rohde
		Title CFO

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

SCHEDULE A

$6,000,000 XS $9,000,000 UNDERLYING PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

Effective: June 1, 2014

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may hereafter come under the ownership, management and/or control of the Company


Company’s Retention	$	6,000,000
Reinsurer’s Limit, Each Loss Occurrence	$	9,000,000
Reinsurer’s Limit, All Loss Occurrences	$	9,000,000
Reinstatements		Nil

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

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

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.

IV.

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

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

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

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

7)	Reassured to be sole judge of what constitutes:

substantial quantities, and

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:

12/12/57

N.M.A. 1119

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE – CANADA

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.

(a)

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

(b)

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

(c)

(d)

Installations other than those listed in (c) above using substantial quantities of radioactive isotopes or other products of nuclear fission.

(a)

where the Reinsured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

where the said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused.

5)	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.

7)	Reinsured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

8)	Without in any way restricting the operation of paragraphs 1, 2, 3, and 4 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 caused:

(a)

(b)

by contamination by radioactive material.

NOTE:

01/04/96

N.M.A. 1980a

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1994) (WORLDWIDE EXCLUDING U.S.A. AND CANADA)

This agreement shall exclude Nuclear Energy Risks whether such risks are written directly and/or by way of reinsurance and/or via Pools and/or Associations.

I	All Property on the site of a nuclear power station.

Nuclear Reactors, reactor buildings and plant and equipment therein on any site other than a nuclear power station.

II	All Property , on any site (including but not limited to the sites referred to in (I) above) used or having been used for:

(a)

The generation of nuclear energy; or

(b)

The Production, Use or Storage of Nuclear Material.

III	Any other Property eligible for insurance by the relevant local Nuclear Insurance Pool and/or Association but only to the extent of the requirements of that local Pool and/or Association.

IV	The supply of goods and services to any of the sites described in I to III above, unless such insurances or reinsurances shall exclude the perils of irradiation and contamination by Nuclear Material.

Except as undernoted, Nuclear Energy Risks shall not include:

(i)	Any insurance or reinsurance in respect of the construction or erection or installation or replacement or repair or maintenance or decommissioning of Property as described in I to III above (including contractors’ plant and equipment);

(ii)	Any Machinery Breakdown or other Engineering insurance or reinsurance not coming within the scope of I above;

Provided always that such insurance or reinsurance shall exclude the perils of irradiation and contamination by Nuclear Material.

However, the above exemption shall not extend to:

1.	The provision of any insurance or reinsurance whatsoever in respect of:

(a)

Nuclear Material ;

(b)

2.	The provision of any insurance or reinsurance for the undernoted perils:

•

Fire, lightning, explosion;

•

Earthquake;

•

Aircraft and other aerial devices or articles dropped therefrom;

•

Irradiation and radioactive contamination;

•

Any other peril insured by the relevant local Nuclear Insurance Pool and/or Association;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Definitions

“Nuclear Material” means:

(i)	Nuclear fuel, other than natural uranium and depleted uranium, capable of producing energy by a self-sustaining chain process of nuclear fission outside a Nuclear Reactor , either alone or in combination with some other material; and

(ii)	Radioactive Products or Waste.

“Nuclear Installation” means:

(i)	Any Nuclear Reactor ;

(ii)	Any factory using nuclear fuel for the production of Nuclear Material , or any factory for the processing of Nuclear Material , including any factory for the reprocessing of irradiated nuclear fuel; and

(iii)

Any facility where Nuclear Material is stored, other than storage incidental to the carriage of such material.

“High Radioactivity Zone or Area” means:

(i)	For nuclear power stations and Nuclear Reactors , the vessel or structure which immediately contains the core (including its supports and shrouding) and all the contents thereof, the fuel elements, the control rods and the irradiated fuel store; and

(ii)	For non-reactor Nuclear Installations, any area where the level of radioactivity requires the provision of a biological shield.

10/3/94

N.M.A. 1975(a)

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE

SECTION A:

EXCLUDING:

(a)

All Business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

(b)

SECTION B:

EXCLUDING:

Oil, Gas or Petro-Chemical Plants,

Oil or Gas Drilling Rigs,

Aviation Risks.

SECTION B does not apply:

(a)

Where the Total Insured Value over all interests of the risk in question is less than $[***].

(b)

To interests traditionally underwritten as Inland Marine or Stock and/or Contents written on a Blanket basis.

(c)

(d)

To risks as follows:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Where this Clause attaches to catastrophe excesses, the following Section C is added:

SECTION C:

NEVERTHELESS the Reinsurer specifically agrees that liability accruing to the Company from its participation in residual market mechanisms including but not limited to:

(l)

The following so-called “Coastal Pools”:

ALABAMA INSURANCE UNDERWRITING ASSOCIATION

MISSISSIPPI WINDSTORM UNDERWRITING ASSOCIATION

NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION

SOUTH CAROLINA WINDSTORM AND HAIL UNDERWRITING ASSOCIATION

TEXAS WINDSTORM INSURANCE ASSOCIATION

AND

(2)

All “FAIR Plan” and “Rural Risk Plan” business

AND

(3)	The Louisiana Citizens Property Insurance Corporation and the California Earthquake Authority (CEA)

for all perils otherwise protected hereunder shall not be excluded, except, however, that this reinsurance does not include any increase in such liability resulting from:

(i)

The inability of any other participant in such “Coastal Pool” and/or “FAIR Plan” and/or “Rural Risk Plan” and/or Residual Market Mechanisms to meet its liability.

(ii)

SECTION D:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

MOLD EXCLUSION

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

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

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

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

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TERRORISM EXCLUSION (PROPERTY TREATY REINSURANCE) N.M.A. 2930C

(i)	involves violence against one or more persons; or

(ii)	involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)	creates a risk to health or safety of the public or a section of the public; or

(v)	is designed to interfere with or to disrupt an electronic system.

NMA2930c

22/11/02

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Exhibit 10.13

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

MULTI-YEAR FIRST & SECOND PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS


ARTICLE		PAGE
I	BUSINESS COVERED		1
II	TERM		1
III	SPECIAL TERMINATION AND OTHER REMEDIES		2
IV	DEFINITIONS		6
	Contract Year		6
	Declaratory Judgment Expense		6
	Extra Contractual Obligations/Loss in Excess of Policy Limits		6
	Loss Adjustment Expense		7
	Loss Occurrence		7
	Policy		8
	Renewed		8
	Ultimate Net Loss		9
V	TERRITORY		9
VI	EXCLUSIONS		9
VII	SPECIAL ACCEPTANCES		11
VIII	COVERAGE		11
IX	REINSTATEMENT		12
X	REINSURANCE PREMIUM		13
XI	FLORIDA HURRICANE CATASTROPHE FUND		16
XII	OTHER REINSURANCE		17
XIII	NET RETAINED LINES		17
XIV	NOTICE OF LOSS AND LOSS SETTLEMENTS		18
XV	LATE PAYMENTS		18
XVI	SALVAGE AND SUBROGATION		19
XVII	DELAYS, OMISSIONS, OR ERRORS		20
XVIII	LIABILITY OF THE REINSURER		20
XIX	ENTIRE AGREEMENT		20
XX	OFFSET		20
XXI	CURRENCY		21
XXII	TAXES		21
XXIII	FEDERAL EXCISE TAX		21
XXIV	RESERVES AND FUNDING		21

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.


XXV	THIRD PARTY RIGHTS	24
XXVI	REINSURANCE ALLOCATION	24
XXVII	SEVERABILITY	25
XXVIII	SANCTIONS	25
XXIX	GOVERNING LAW	25
XXX	ACCESS TO RECORDS	26
XXXI	CONFIDENTIALITY	27
XXXII	INSOLVENCY	27
XXXIII	ARBITRATION	28
XXXIV	SERVICE OF SUIT	30
XXXV	MODE OF EXECUTION	31
XXXVI	INTERMEDIARY	31
	Schedule A
	Schedule B
	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance - U.S.A.
	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance - Canada
	Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) (Worldwide Excluding U.S.A. And Canada)
	Pools, Associations & Syndicates Exclusion Clause
	Mold Exclusion

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

MULTI-YEAR FIRST & SECOND PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

(the “Contract”)

between

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may

hereafter come under the ownership, management and/or control of 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 Company’s liability under its Policies classified by the Company as Property business, subject to the terms, conditions, and limitations set forth herein and in Schedules A and B attached to and forming part of this Contract.

B.	Subject business shall include business assumed by the Company in connection with the depopulation of Policies from Citizens Property Insurance Corporation.

ARTICLE II

TERM

A.	This Contract shall apply to all Loss Occurrences during the term extending from 12:01 a.m., Eastern Standard Time, June 1, 2014, to 12:01 a.m., Eastern Standard Time, June 1, 2016, on Policies effective at the inception of, or written or Renewed with an effective date during, said term.

B.	In the event a Loss Occurrence covered hereunder is in progress at the end of any Contract Year, the entire loss arising out of the Loss Occurrence shall be charged to the Contract Year in which the Loss Occurrence commenced, subject to the other terms and conditions of this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

D.	Notwithstanding the expiration or termination of the Reinsurer’s participation hereon, the provisions of this Contract shall continue to apply to all obligations and liabilities of the parties incurred hereunder until all such obligations and liabilities are fully performed and discharged.

ARTICLE III

SPECIAL TERMINATION AND OTHER REMEDIES

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

The Reinsurer has voluntarily ceased assuming new and renewal reinsurance business for the lines of business covered hereunder;

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;

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

The Reinsurer’s A.M. Best’s Financial Strength Rating has been assigned or downgraded below “A-”;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent;

10.

B.	Where a Special Termination Event has taken place and after giving the Reinsurer prior written notice by electronic mail, certified mail, or by a nationally or internationally recognized delivery service, the Company may invoke any one or a combination of the following:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

such amounts already funded pursuant to the provisions of the RESERVES AND FUNDING ARTICLE) to the Company by means of one of the methods of funding described in the RESERVES AND FUNDING ARTICLE. The Company and the Reinsurer may mutually agree on alternative methods of funding or the use of a combination of methods. The Company may draw upon such funding in accordance with the provisions of the RESERVES AND FUNDING ARTICLE. Within 60 days following each subsequent calendar quarter, the Company may prepare and forward to the Reinsurer a statement of the Reinsurer’s current funding obligation under this subparagraph. Where such amount exceeds the balance of funding already rendered by the Reinsurer, the Reinsurer shall, within 30 days of its receipt of such statement, increase the amount of funding available to the current, reported level. If, however, the statement shows that the Reinsurer’s current funding obligation is less than the balance of funding as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess funding by making the appropriate adjustment. This funding option is available to the Company at any time there remain any outstanding liabilities of the Reinsurer.

C.	The Company may revoke its notice hereunder, prior to the date of termination, without prejudice to reinstitute later if it so chooses.

D.	The Company, at its sole option, may classify the Reinsurer as a “Run-off Reinsurer,” where said Reinsurer experiences one or more of the Special Termination Events set forth in subparagraphs 1, 2, 3, 8, and 9 under paragraph A above.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

be later than 90 days from the date of transmittal by the intermediary of the initial billing for each such payment, the Run-off Reinsurer shall be estopped from denying such claim and must pay within 10 days following transmittal to the Run-off Reinsurer of written notification of such payments. For purposes of this subparagraph, a Reinsurer shall be deemed to be active if it is not a Run-off Reinsurer.

The interest penalty specified in the LATE PAYMENTS ARTICLE shall be increased by 0.5% for each 30 days that the payment is past due, subject to a maximum increase of 7.0%.

E.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE IV

DEFINITIONS

The terms set forth below, wherever they appear in this Contract and regardless of whether they appear in a singular or plural form, shall have the meanings given herein:

A.	Contract Year

“Contract Year” as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, June 1, 2014 to 12:01 a.m., Eastern Standard Time, June 1, 2015, and the respective 12-month period (or portion thereof) thereafter that this Contract continues in force.

B.	Declaratory Judgment Expense

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

Extra Contractual Obligations

Loss in Excess of Policy Limits

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Any Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

D.	Loss Adjustment Expense

E.	Loss Occurrence

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 120 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

No individual losses occasioned by an event that would be covered by 96 hours or 120 hours clauses may be included in any “Loss Occurrence” claimed under the 168 hours provision.

Policy

“Policy” shall mean the Company’s binders, policies, and contracts, whether written or oral, providing insurance or reinsurance on the business covered under this Contract.

Renewed

“Renewed” shall include those Policies issued for more than one year (if any), as of their next annual anniversary or annual installment date.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

H.	Ultimate Net Loss

ARTICLE V

TERRITORY

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

ARTICLE VI

EXCLUSIONS

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

All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund, or other arrangement, howsoever denominated, established, or governed, that 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Financial Guarantee coverage and/or similar coverage, however styled.

Loss or liability excluded by the Pools, Associations, and Syndicates Exclusion Clause attached to this Contract.

Mold as defined in the Mold Exclusion attached to this Contract.

Flood and/or earthquake, when written as such.

Loss as excluded under the provisions of the Terrorism Exclusion (Property Treaty Reinsurance) – N.M.A. 2930c attached to this Contract.

10.

All assessments from Citizens Property Insurance Corporation.

D.	If the Company is required to accept an assigned risk, which conflicts with one or more of the exclusions set forth in paragraph A above (except for subparagraphs 3 and 5), this reinsurance shall apply, but up to the limit required by the applicable statute or regulatory authority.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE VII

SPECIAL ACCEPTANCES

If Subscribing Reinsurers under each excess layer with total percentage shares in the interests and liabilities of the Reinsurer of 51% or greater for that excess layer agree to a special acceptance, such special acceptance shall be binding on all Subscribing Reinsurers with respect to their respective shares for that excess layer. If such percentage agreement is not achieved, such special acceptance shall be made to the excess layer only with respect to the interests and liabilities of each Subscribing Reinsurer for that excess layer that agrees to the special acceptance.

ARTICLE VIII

COVERAGE

As respects each excess layer of reinsurance coverage provided by this Contract with respect to the Contract Year beginning June 1, 2014, the Company shall retain and be liable for the first amount of Ultimate Net Loss, shown as “Company’s Retention” for that excess layer in Schedule A attached hereto, arising out of each Loss Occurrence. The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such Ultimate Net Loss exceeds the Company’s applicable retention. The liability of the Reinsurer under each excess layer shall not exceed the amount, shown as “Reinsurer’s Limit, Each Loss Occurrence,” as respects any one Loss Occurrence which commenced during the Contract Year beginning June 1, 2014, nor shall it exceed the amount shown as “Reinsurer’s Limit, All Loss Occurrences,” for each excess layer in Schedule A attached hereto, in respect of all Loss Occurrences that commenced during the Contract Year beginning June 1, 2014.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

As respects each excess layer of reinsurance coverage provided by this Contract with respect to the Contract Year beginning June 1, 2015, the Company’s retention as respects each excess layer shall be determined using the methodology described in paragraph C below and the Company shall retain and be liable for that first amount of Ultimate Net Loss, so determined, for that excess layer in Schedule B attached hereto, arising out of each Loss Occurrence. The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such Ultimate Net Loss exceeds the Company’s applicable retention as determined using the methodology described in paragraph C below. The liability of the Reinsurer under each excess layer, as respects any one Loss Occurrence which commenced during the Contract Year beginning June 1, 2015, shall not exceed 100% of the amount determined using the methodology described in paragraph C below. The liability of the Reinsurer under each excess layer, as respects all Loss Occurrences which commenced during the Contract Year beginning June 1, 2015, shall not exceed 200% of the Reinsurer’s limit of liability as respects any one Loss Occurrence, which shall be determined using the methodology described in paragraph C below.

C.	As respects the Contract Year beginning June 1, 2015, the Company’s retention and the Reinsurer’s limit of liability shall be set to a dollar amount equal to a Net Probability.

Prior to the inception of the Contract Year beginning June 1, 2015, but no later than the immediately preceding May 1, the Company shall project its PML exposures to August 31, 2015. Based on the projected PML exposures and corresponding model result, the Company’s retentions and the Reinsurer’s limits of liability hereunder for the Contract Year shall be a dollar amount set at a Net Probability.

“Net Probability” as used herein shall mean the Company’s all states projected August 31 AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss model result, including secondary uncertainty, standard hurricane frequencies and loss amplification, being the corresponding “Company Retention Probability” in Schedule B or “Reinsurer’s Limit Probability” in Schedule B, as applicable.

Notwithstanding the foregoing, as respects the Contract Year beginning June 1, 2015, the Company shall have the option to increase or decrease the Company’s retention by up to 20% of the Company’s retention as determined in accordance with paragraph C above. In addition, the Company shall have the option to increase or decrease the Reinsurer’s limit of liability by up to 20% of the Reinsurer’s limit of liability determined in accordance with paragraph C.

ARTICLE IX

REINSTATEMENT

A.	As respects each Contract Year and in the event all or any portion of the reinsurance under any excess layer of reinsurance coverage provided by this Contract is exhausted by loss, the amount so exhausted shall be reinstated immediately from the time the Loss Occurrence commences hereon.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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:

The percentage of the Reinsurer limit for that excess layer, as stated in Schedules A and B attached hereto, exhausted for the Loss Occurrence.

The reinsurance premium for that excess layer paid or payable for the corresponding Contract Year.

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

Notwithstanding anything stated herein, the liability of the Reinsurer under any excess layer of reinsurance coverage provided by this Contract shall not exceed 100% of the “Reinsurer’s Limit, Each Loss Occurrence” for that excess layer, as set forth in Schedules A and B attached hereto, in respect of any one Loss Occurrence during the applicable Contract Year, and shall be further limited to 100% of the “Reinsurer’s Limit, All Loss Occurrences” for that excess layer, as set forth in Schedules A and B attached hereto, in respect of all losses occurring during the applicable Contract Year.

ARTICLE X

REINSURANCE PREMIUM

A.	Contract Year beginning June 1, 2014

As respects the Contract Year beginning June 1, 2014, the Company shall pay the Reinsurer a deposit premium for each excess layer equal to the “Annual Deposit Premium” for each excess layer, as identified in Schedule A attached hereto, in four equal installments of the amount, shown as “Quarterly Deposit Premium” in Schedule A attached hereto, for each excess layer, on July 1, 2014, October 1, 2014, January 1, 2015, and April 1 of 2015.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

event the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2014 is less than [***]% or greater than [***]% of the original estimate as set forth in paragraph A.4 of this Article then the additional premium due the Reinsurer or return premium due the Company, as respects the Contract Year beginning June 1, 2014, which shall be determined by the following:

If the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2014 is greater than [***]% of the original estimate as set forth in paragraph A.4 of this Article, the additional premium due the Reinsurer shall be determined by multiplying the “Rate on PML,” as set forth in Schedule A attached hereto and as respects this paragraph A.2.a, times the difference between [***]% of the original estimate as outlined in paragraph A.4 of this Article and the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2014.

If the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2014 is less than [***]% of the original estimate as set forth in paragraph A.4 of this Article, the return premium due the Company shall be determined by multiplying the “Rate on PML,” as set forth in Schedule A attached hereto and as respects this paragraph A.2.b, times the difference between the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2014 and [***]% of the original estimate as set forth in paragraph A.4 of this Article, subject to the “Minimum Premium” for each excess layer as stated in Schedule A attached hereto.

The average of the 100-year and 25-year Hurricane return times are calculated based on AIR (Clasic/2 v.15.0). Hurricane Models including secondary uncertainty, standard hurricane frequencies and loss amplification.

The average 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane PML is estimated at $[***] as of August 31, 2014.

Within 60 days after the expiration or termination of the Contract Year beginning June 1, 2014, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with paragraph A.2 of this Article. Any additional premium due the Reinsurer, less amounts previously paid as deposits or otherwise, shall be remitted with said report. Any return premium due the Company, that is in excess of the Company’s premium obligations hereunder, shall be returned by the Reinsurer within 30 days of its receipt of said report.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

B.	Contract Year beginning June 1, 2015

As respects the Contract Year beginning June 1, 2015, the Company shall pay the Reinsurer a deposit premium for each excess layer equal to the “Calculated Deposit Premium” for each excess layer, as identified in Schedule B attached hereto, in four equal installments of the amount, shown as “Deposit Premium Installments” in Schedule B attached hereto, for each excess layer, on July 1, 2015, October 1, 2015, January 1, 2016, and April 1 of 2016.

The “Calculated Deposit Premium” for the Contract Year beginning June 1, 2015 shall be calculated based on the corresponding “2014 Margin,” stated in Schedule B, and the projected August 31, 2015 Average Annual Loss for the layer as follows:

Projected August 31, 2015 Average Annual Loss; divided by

100% minus the “2014 Margin”, stated in Schedule B.

The “2014 Margin” is calculated as (a) the result of (i) the “Annual Deposit Premium” stated in Schedule A, less (ii) the Average Annual Loss; divided by (b) the “Annual Deposit Premium.”

The “Average Annual Loss” shall be all simulated events and the probability of their occurrence generated from AIR (Clasic/2 v15.0) Hurricane Model, including secondary uncertainty, standard hurricane frequencies and demand surge that exceed a give return period or loss threshold, net of the FHCF and any other reinsurance inuring to the benefit of this Contract which is in force at the inception of the Contract Year beginning June 1, 2015.

Notwithstanding the foregoing, in the event the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2015 for subject business is greater than or equal to [***]% and less than or equal to [***]% of the estimate set forth in paragraph B.5 of this Article, there shall be no additional premium due the Reinsurer or return premium due the Company as respects the Contract Year beginning June 1, 2015. However, in the event the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2015 is less than [***]% or greater than [***]% of the estimate set forth in paragraph B.5 of this Article then the additional premium due the Reinsurer or return premium due the Company, as respects the Contract Year beginning June 1, 2015, which shall be determined by the following:

If the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2015 is greater than [***]% of the original estimate as set forth in paragraph B.5 of this Article, the additional premium due the Reinsurer shall be determined by multiplying the “Rate on PML,” calculated by dividing the Calculated Deposit Premium by estimate set forth in paragraph B.5 of this Article, times the difference between [***]% of the original estimate as set forth in paragraph B.5 of this Article and the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2015.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

If the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2015 is less than [***]% of the original estimate as set forth in paragraph B.5 of this Article, the return premium due the Company shall be determined by multiplying the “Rate on PML,” calculated by dividing the Calculated Deposit Premium by estimate set forth in paragraph B.5 of this Article, times the difference between the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2015 and [***]% of the original estimate as set forth in paragraph B.5 of this Article, subject to the “Minimum Premium” for each excess layer as stated in Schedule B attached hereto.

Prior to the inception of the Contract Year beginning June 1, 2015, but no later than the immediately preceding May 1, the Company shall estimate its average 100-year and 25-year AIR (Clasic/2 v.15.0) as of August 31, 2015.

Within 60 days after the expiration or termination of the Contract Year beginning June 1, 2015, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with paragraph B.3 of this Article. Any additional premium due the Reinsurer, less amounts previously paid as deposits or otherwise, shall be remitted with said report. Any return premium due the Company, that is in excess of the Company’s premium obligations hereunder, shall be returned by the Reinsurer within 30 days of its receipt of said report.

ARTICLE XI

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

The full reimbursement amount due from the FHCF for coverage under the Mandatory Layer, based on statutory limits of coverage as of June 1, shall be deemed recovered by the Company, whether or not actually received from the FHCF and whether or not reduced because of the FHCF’s inability to pay.

Any other FHCF recoveries shall be disregarded for purposes of determining Ultimate Net Loss subject to this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

If the Company’s aggregate limit of FHCF reimbursement coverage is exhausted from Loss Occurrences commencing during the term of this Contract, and the FHCF does not designate the portion of said limit allocable to each Loss Occurrence, the total FHCF reimbursement received shall be allocated to each individual Loss Occurrence in the proportion that the Company’s losses in that Loss Occurrence bear to the Company’s total losses arising out of all Loss Occurrences to which the reimbursement applies.

C.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

ARTICLE XII

OTHER REINSURANCE

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

B.	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 XIII

NET RETAINED LINES

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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 that may have become due from such reinsurers, whether such inability arises from the insolvency of such other reinsurers or otherwise.

ARTICLE XIV

NOTICE OF LOSS AND LOSS SETTLEMENTS

B.	The Company alone and at its full discretion shall adjust, settle, or compromise all claims and losses.

ARTICLE XV

LATE PAYMENTS

(The provisions of this Article shall not be implemented unless specifically invoked by the Company in writing.)

In the event that any amount due the Company is not received by the intermediary hereunder by the payment due date, the Company may, by notifying the intermediary in writing, require the Reinsurer to pay, and the Reinsurer agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows:

The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

1/365ths of a rate equal to the 90-day Treasury Bill rate as published in The Wall Street Journal on the first business day following the date a remittance becomes due plus 300 basis points; times

The amount past due, including accrued interest.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties has been received by the intermediary.

B.	The establishment of the payment due date shall, for purposes of this Article, be determined in accordance with the applicable Article of this Contract.

For purposes of interest calculation only, amounts due hereunder shall be deemed paid upon receipt by the intermediary. The validity of any claim or payment may be contested under the provisions of this Contract. If the Reinsurer prevails in an arbitration, or any other proceeding, there shall be no interest penalty due. Otherwise, any interest shall be calculated and due as outlined above. Furthermore, if the Reinsurer pays any claim hereunder that it is contesting and prevails in such action, the Company shall return such payment plus pay interest on same, at a rate calculated as per the provisions of paragraph A, above; however, such calculation is to begin from the actual date of remittance of funds from the Reinsurer through the date the funds are returned.

ARTICLE XVI

SALVAGE AND SUBROGATION

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XVII

DELAYS, OMISSIONS, OR ERRORS

ARTICLE XVIII

LIABILITY OF THE REINSURER

ARTICLE XIX

ENTIRE AGREEMENT

ARTICLE XX

OFFSET

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXI

CURRENCY

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 XXII

TAXES

The Company shall pay applicable taxes (except Federal Excise Tax, if any) on premiums reported to the Reinsurer under this Contract.

ARTICLE XXIII

FEDERAL EXCISE TAX

B.	In the event of any return premium becoming due hereunder, the Reinsurer shall deduct the applicable percentage from the return premium payable hereon and the Company or its agent shall recover such tax from the United States Government.

C.	As respects premiums ceded to the Reinsurer under this Contract, the Reinsurer agrees to indemnify the Company for any liability, expense, interest, or penalty it may incur by reason of the Reinsurer’s breach of this Article.

ARTICLE XXIV

RESERVES AND FUNDING

A.	The Reinsurer shall provide funding under the terms of this Article only if the Company is denied statutory credit for reinsurance ceded to that Reinsurer pursuant to the credit for reinsurance law or regulations of the regulatory authority having jurisdiction over the Company’s reserves.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

As regards Policies issued by the Company coming within the scope of this Contract, the Company agrees that, when it files with the insurance regulatory authority or sets up on its books reserves for liabilities which it is required by law to set up, it shall forward to the Reinsurer a report showing the proportion of such reserves which is applicable to the Reinsurer. The Reinsurer shall fund 100% of its portion of such reserves in respect of:

Loss and loss expense paid by the Company but not recovered from the Reinsurer;

Known outstanding losses that have been reported to the Reinsurer and loss expense relating thereto;

Reserves for loss and loss expense incurred but not reported;

Unearned premium (if applicable);

Other amounts recoverable reported in Schedule F of the Company’s NAIC Statement;

as shown in the report prepared by the Company (hereinafter referred to as “Reinsurer’s Obligations”). The Reinsurer’s Obligations shall be funded by funds withheld, cash advances, escrow accounts for the benefit on the Company, Letters of Credit (“LOC”), Trust Account, or a combination thereof. The Reinsurer shall have the option of determining the method of funding, subject always to the provision that (a) the method of funding and (b) the terms and provisions of any such LOC or Trust Account and (c) the quality of assets in any Trust Account are all acceptable to the Company and also meet the requirements of each applicable insurance regulatory authority having jurisdiction over the Company’s reserves. In the event a provision of any such funding instrument jeopardizes the Company’s ability to obtain full credit for reinsurance, such provision shall be void and shall be amended to comply with applicable credit for reinsurance requirements. The Reinsurer shall provide funding and/or any adjustments thereto in time for the Company to meet the requirements of each applicable insurance regulatory authority having jurisdiction over the Company’s reserves, provided that the Company sends the report of Reinsurer’s Obligations at least 15 days prior to the date such funding is required.

C.	Deferral of funding that may be permitted for a certified reinsurer in the event of a catastrophe shall not apply to any Reinsurer under this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

less than one year and shall include an “evergreen clause,” which automatically extends the term for at least one additional year at each expiration date unless 60 days (or such other time period as may be required by the applicable insurance regulatory authorities) prior to any expiration date the issuing bank notifies the Company by certified or registered mail that the issuing bank elects not to consider the LOC extended for any additional period.

The Reinsurer and Company agree that any funding 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:

To reimburse the Company for the Reinsurer’s share of unearned premium on Policies reinsured hereunder on account of cancellations of such Policies;

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;

To make refund of any sum which is in excess of the actual amount required to pay the Reinsurer’s Obligations under this Contract (or in excess of 102% of Reinsurer’s Obligations, if funding is provided by a Trust Account);

To fund an account with the Company for the Reinsurer’s Obligations if such LOC is under notice of non-renewal or not replaced by the Reinsurer within 10 days prior to its expiration. 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;

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 funding provided by the Reinsurer is in excess of the actual amount required for subparagraph 1, 2, or 4 or, in the case of subparagraph 5, 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.

F.	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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

G.	At annual intervals, or more frequently but never more frequently than quarterly, the Company shall prepare a specific report of the Reinsurer’s Obligations, for the sole purpose of amending the LOC or other method of funding, in the following manner:

If the report shows that the Reinsurer’s Obligations exceed the available balance of the funds withheld and/or cash advances and/or escrow accounts and/or LOC and/or Trust Account as of the report date, the Reinsurer shall, within 30 days after receipt of notice of such excess, make an adjustment to increase the available balance of funds withheld and/or cash advances and/or LOC and/or Trust Account by the amount of such excess.

If, however, the report shows that the Reinsurer’s Obligations are less than the available balance of the funds withheld and/or cash advances and/or escrow accounts and/or LOC and/or 102% of the balance of the Trust Account if funding is provided by Trust Account, as of the report date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess funding by making or allowing an adjustment to the funds withheld and/or cash advances and/or escrow accounts and/or LOC and/or Trust Account.

H.	Should the Reinsurer be in breach of its obligations under this Article, notwithstanding anything to the contrary elsewhere in this Contract, the Company may seek relief in respect of said breach from any court having competent jurisdiction over the parties hereto.

ARTICLE XXV

THIRD PARTY RIGHTS

ARTICLE XXVI

REINSURANCE ALLOCATION

A.	While having no effect on the settlements or liabilities of the parties to this Contract, it is established that:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

B.	Records of these allocations shall be maintained in sufficient detail to identify both the Reinsurer’s loss obligations allocated to each member company and each member company’s share of premium allocation.

ARTICLE XXVII

SEVERABILITY

ARTICLE XXVIII

SANCTIONS

ARTICLE XXIX

GOVERNING LAW

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXX

ACCESS TO RECORDS

C.	If any undisputed amounts are overdue from the Reinsurer to the Company, the Reinsurer shall have access to such records only upon payment of all such overdue amounts.

E.	Nothing in this Article requires the Company to maintain or to make available any document for longer than the period required by the Company’s document retention policies and procedures or the period required by applicable statute or regulation, whichever is greater.

F.	“Protected Records” are defined as communications, files, records, documents, or books:

Deemed by the Company to concern Trade Secrets of the Company (Trade Secrets shall have the meaning provided in Section 1839 of the United States Economic Espionage Act of 1996); or

Deemed by the Company to be subject to attorney-client privilege or work product rule protection; or

Concerning individual private information that as a matter of law cannot be disclosed by the Company.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXXI

CONFIDENTIALITY

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies, except when:

Required by retrocessionaires subject to the business ceded to this Contract; or

Required by state regulators performing an audit of the Reinsurer’s records and/or financial condition; or

Required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

C.	Further, the Reinsurer agrees not to use any Confidential Information for any purpose not permitted by this Contract or not related to the performance of their obligations or enforcement of their rights under this Contract.

E.	The provisions of this Article shall extend to the officers, directors, and employees of the Reinsurer and its affiliates, who have received Confidential Information in accordance with this Contract, and shall be binding upon their successors and assigns.

ARTICLE XXXII

INSOLVENCY

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

claim against the Company, indicating the Policy 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 that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

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

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 XXXIII

ARBITRATION

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXXIV

SERVICE OF SUIT

Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his/her 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

D.	The individual named in paragraph C shall be deemed the Reinsurer’s agent for the service of process:

where the address designated in, or pursuant to paragraph B is invalid; or

to the extent necessary to bring this Contract into conformity with the applicable law of a state with jurisdiction over the Company.

ARTICLE XXXV

MODE OF EXECUTION

ARTICLE XXXVI

INTERMEDIARY

Willis Re Inc., 7760 France Avenue South, Suite 450, Minneapolis, Minnesota 55435 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, McLeansville, North Carolina 27301-9528. 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

Signed this 4th day of June, 2014.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY


By		/s/ Richard A. Widdicombe

Printed Name		Richard A. Widdicombe

Title		President

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

SCHEDULE A

MULTI-YEAR FIRST & SECOND PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

Effective: June 1, 2014

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may hereafter come under the ownership, management and/or control of the Company


	First Excess 109797001-14			Second Excess 109798001-14
Company’s Retention	$	15,000,000		$	65,000,000
Reinsurer’s Limit, Each Loss Occurrence	$	50,000,000		$	135,000,000
Reinsurer’s Limit, All Loss Occurrences	$	100,000,000		$	270,000,000
Annual Deposit Premium	$	[***	]	$	[***	]
Quarterly Deposit Premium	$	[***	]	$	[***	]
Minimum Premium	$	[***	]	$	[***	]
Rate on PML		[***	]%		[***	]%
Reinstatements		1 @ 100% as to time, pro rata as to amount			1 @ 100% as to time, pro rata as to amount

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

SCHEDULE B

MULTI-YEAR FIRST & SECOND PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

Effective: June 1, 2014

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may hereafter come under the ownership, management and/or control of the Company


	First Excess 109797001-14		Second Excess 109798001-14
Company’s Retention Probability		[***]%		[***]%
Reinsurer’s Limit Probability		[***]%		[***]%
Reinsurer’s Limit, Each Loss Occurrence		To be determined		To be determined
Reinsurer’s Limit, All Loss Occurrences		200% of Reinsurer’s Limit, Each Loss Occurrence		200% of Reinsurer’s Limit, Each Loss Occurrence
Calculated Deposit Premium		To be determined		To be determined
Deposit Premium Installments (25% of Calculated Deposit Premium)		To be determined		To be determined
Minimum Premium (80% of Calculated Deposit Premium)		To be determined		To be determined
Rate on PML		To be determined		To be determined
2014 Margin		[***]%		[***]%
Reinstatements		1 @ 100% as to time, pro rata as to amount		1 @ 100% as to time, pro rata as to amount

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

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

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.

IV.

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

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

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

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

7)	Reassured to be sole judge of what constitutes:

substantial quantities, and

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:

12/12/57

N.M.A. 1119

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE – CANADA

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.

(a)

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

(b)

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

(c)

(d)

Installations other than those listed in (c) above using substantial quantities of radioactive isotopes or other products of nuclear fission.

(a)

where the Reinsured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

where the said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused.

5)	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.

7)	Reinsured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

8)	Without in any way restricting the operation of paragraphs 1, 2, 3, and 4 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 caused:

(a)

(b)

by contamination by radioactive material.

NOTE:

01/04/96

N.M.A. 1980a

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1994)

(WORLDWIDE EXCLUDING U.S.A. AND CANADA)

This agreement shall exclude Nuclear Energy Risks whether such risks are written directly and/or by way of reinsurance and/or via Pools and/or Associations.

I	All Property on the site of a nuclear power station.

Nuclear Reactors, reactor buildings and plant and equipment therein on any site other than a nuclear power station.

II	All Property , on any site (including but not limited to the sites referred to in (I) above) used or having been used for:

(a)

The generation of nuclear energy; or

(b)

The Production, Use or Storage of Nuclear Material.

III	Any other Property eligible for insurance by the relevant local Nuclear Insurance Pool and/or Association but only to the extent of the requirements of that local Pool and/or Association.

IV	The supply of goods and services to any of the sites described in I to III above, unless such insurances or reinsurances shall exclude the perils of irradiation and contamination by Nuclear Material .

Except as undernoted, Nuclear Energy Risks shall not include:

(i)	Any insurance or reinsurance in respect of the construction or erection or installation or replacement or repair or maintenance or decommissioning of Property as described in I to III above (including contractors’ plant and equipment);

(ii)	Any Machinery Breakdown or other Engineering insurance or reinsurance not coming within the scope of I above;

Provided always that such insurance or reinsurance shall exclude the perils of irradiation and contamination by Nuclear Material.

However, the above exemption shall not extend to:

1.	The provision of any insurance or reinsurance whatsoever in respect of:

(a)

Nuclear Material ;

(b)

2.	The provision of any insurance or reinsurance for the undernoted perils:

•

Fire, lightning, explosion;

•

Earthquake;

•

Aircraft and other aerial devices or articles dropped therefrom;

•

Irradiation and radioactive contamination;

•

Any other peril insured by the relevant local Nuclear Insurance Pool and/or Association;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Definitions

“Nuclear Material” means:

(i)	Nuclear fuel, other than natural uranium and depleted uranium, capable of producing energy by a self-sustaining chain process of nuclear fission outside a Nuclear Reactor , either alone or in combination with some other material; and

(ii)	Radioactive Products or Waste.

“Nuclear Installation” means:

(i)	Any Nuclear Reactor ;

(ii)	Any factory using nuclear fuel for the production of Nuclear Material , or any factory for the processing of Nuclear Material , including any factory for the reprocessing of irradiated nuclear fuel; and

(iii)

Any facility where Nuclear Material is stored, other than storage incidental to the carriage of such material.

“High Radioactivity Zone or Area” means:

(i)	For nuclear power stations and Nuclear Reactors , the vessel or structure which immediately contains the core (including its supports and shrouding) and all the contents thereof, the fuel elements, the control rods and the irradiated fuel store; and

(ii)	For non-reactor Nuclear Installations, any area where the level of radioactivity requires the provision of a biological shield.

10/3/94

N.M.A. 1975(a)

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE

SECTION A:

EXCLUDING:

(a)

All Business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

(b)

SECTION B:

EXCLUDING:

Oil, Gas or Petro-Chemical Plants,

Oil or Gas Drilling Rigs,

Aviation Risks.

SECTION B does not apply:

(a)

Where the Total Insured Value over all interests of the risk in question is less than $[***].

(b)

To interests traditionally underwritten as Inland Marine or Stock and/or Contents written on a Blanket basis.

(c)

(d)

To risks as follows:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Where this Clause attaches to catastrophe excesses, the following Section C is added:

SECTION C:

NEVERTHELESS the Reinsurer specifically agrees that liability accruing to the Company from its participation in residual market mechanisms including but not limited to:

(l)

The following so-called “Coastal Pools”:

ALABAMA INSURANCE UNDERWRITING ASSOCIATION

MISSISSIPPI WINDSTORM UNDERWRITING ASSOCIATION

NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION

SOUTH CAROLINA WINDSTORM AND HAIL UNDERWRITING ASSOCIATION

TEXAS WINDSTORM INSURANCE ASSOCIATION

AND

(2)

All “FAIR Plan” and “Rural Risk Plan” business

AND

(3)	The Louisiana Citizens Property Insurance Corporation and the California Earthquake Authority (CEA)

for all perils otherwise protected hereunder shall not be excluded, except, however, that this reinsurance does not include any increase in such liability resulting from:

(i)

The inability of any other participant in such “Coastal Pool” and/or “FAIR Plan” and/or “Rural Risk Plan” and/or Residual Market Mechanisms to meet its liability.

(ii)

SECTION D:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

MOLD EXCLUSION

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

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

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

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

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TERRORISM EXCLUSION (PROPERTY TREATY REINSURANCE) N.M.A. 2930C

(i)	involves violence against one or more persons; or

(ii)	involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)	creates a risk to health or safety of the public or a section of the public; or

(v)	is designed to interfere with or to disrupt an electronic system.

NMA2930c

22/11/02

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Exhibit 10.14

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

FIRST & SECOND PROPERTY CATASTROPHE

REINSTATEMENT PREMIUM PROTECTION

REINSURANCE CONTRACT

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS


ARTICLE		P AGE
I	BUSINESS COVERED		1

II	TERM		1

III	SPECIAL TERMINATION AND OTHER REMEDIES		2

IV	CONCURRENCY OF CONDITIONS		5

V	COVERAGE		6

VI	REINSURANCE PREMIUM		6

VII	NOTICE OF LOSS AND LOSS SETTLEMENTS		7

VIII	LATE PAYMENTS		7

IX	DELAYS, OMISSIONS, OR ERRORS		8

X	ENTIRE AGREEMENT		8

XI	OFFSET		8

XII	CURRENCY		8

XIII	TAXES		9

XIV	FEDERAL EXCISE TAX		9

XV	THIRD PARTY RIGHTS		9

XVI	SEVERABILITY		10

XVII	SANCTIONS		10

XVIII	GOVERNING LAW		10

XIX	ACCESS TO RECORDS		10

XX	CONFIDENTIALITY		12

XXI	INSOLVENCY		12

XXII	ARBITRATION		14

XXIII	SERVICE OF SUIT		15

XXIV	MODE OF EXECUTION		16

XXV	INTERMEDIARY		16

	Schedule A

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

FIRST & SECOND PROPERTY CATASTROPHE

REINSTATEMENT PREMIUM PROTECTION

REINSURANCE CONTRACT

(the “Contract”)

between

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may hereafter come under the ownership, management and/or control of 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 reinstatement premiums paid or payable by the Company under its Underlying Reinsurance Contract, as hereinafter defined.

ARTICLE II

TERM

A.	This Contract shall apply to all Loss Occurrences during the term extending from 12:01 a.m., Eastern Standard Time, June 1, 2014, to 12:01 a.m., Eastern Standard Time, June 1, 2015, on Policies effective at the inception of, or written or Renewed with an effective date during, said term.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	Notwithstanding the expiration or termination of the Reinsurer’s participation hereon, the provisions of this Contract shall continue to apply to all obligations and liabilities of the parties incurred hereunder until all such obligations and liabilities are fully performed and discharged.

ARTICLE III

SPECIAL TERMINATION AND OTHER REMEDIES

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

The Reinsurer has voluntarily ceased assuming new and renewal reinsurance business for the lines of business covered hereunder;

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;

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

The Reinsurer’s A.M. Best’s Financial Strength Rating has been assigned or downgraded below “A-”;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent;

10.

B.	Where a Special Termination Event has taken place and after giving the Reinsurer prior written notice by electronic mail, certified mail, or by a nationally or internationally recognized delivery service, the Company may invoke any one or a combination of the following:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

the parties hereto, shall be final and binding on both parties. The expense of the actuary and of the actuarial calculation shall be equally divided between the two parties. Said actuarial calculation shall take place in a location chosen by the Company. This commutation option is available to the Company at any time there remain any outstanding liabilities of the Reinsurer.

C.	The Company may revoke its notice hereunder, prior to the date of termination, without prejudice to reinstitute later if it so chooses.

D.	The Company, at its sole option, may classify the Reinsurer as a “Run-off Reinsurer,” where said Reinsurer experiences one or more of the Special Termination Events set forth in subparagraphs 1, 2, 3, 8, and 9 under paragraph A above.

If payment of any claim has been received from the Reinsurers constituting at least 70% of the interests and liabilities of all the Reinsurers that participated on this Contract and are active as of the due date, it being understood that said date shall not be later than 90 days from the date of transmittal by the intermediary of the initial billing for each such payment, the Run-off Reinsurer shall be estopped from denying such claim and must pay within 10 days following transmittal to the Run-off Reinsurer of written notification of such payments. For purposes of this subparagraph, a Reinsurer shall be deemed to be active if it is not a Run-off Reinsurer.

The interest penalty specified in the LATE PAYMENTS ARTICLE shall be increased by 0.5% for each 30 days that the payment is past due, subject to a maximum increase of 7.0%.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

E.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.

ARTICLE IV

CONCURRENCY OF CONDITIONS

It is agreed that this Contract will follow the terms, conditions, exclusions, definitions, warranties and settlements of the Company under the First Contract Year of the Company’s Multi-Year First and Second Property Catastrophe Excess of Loss Reinsurance Contract (Willis Re #109797001-8001-14, hereinafter the “Underlying Reinsurance Contract”), which is in effect for the period 12:01 a.m., Eastern Standard Time, June 1, 2014, to 12:01 a.m., Eastern Standard Time, June 1, 2016, and which are not inconsistent with the provisions of this Contract.

The Company will advise the Reinsurer of any material changes in the Underlying Reinsurance Contract, which may affect the liability of the Reinsurer under this Contract. Upon receipt and execution by the Company, the Company will forward to the Reinsurer copies of the Company’s contract wording for the Underlying Reinsurance Contract referenced herein.

C.	“First Contract Year” as used herein shall mean the period from 12:01 a.m., Eastern Standard Time, June 1, 2014 to 12:01 a.m., Eastern Standard Time, June 1, 2015.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE V

COVERAGE

The Reinsurer shall pay the Company’s reinstatement premium which may become due under the Underlying Reinsurance Contract, detailed as follows:

$50,000,000 excess of $15,000,000 Ultimate Net Loss, each Loss Occurrence. One full reinstatement, with an obligatory additional premium calculated at 100% as to time and pro rata as to amount; and

$135,000,000 excess of $65,000,000 Ultimate Net Loss, each Loss Occurrence. One full reinstatement, with an obligatory additional premium calculated at 100% as to time and pro rata as to amount.

ARTICLE VI

REINSURANCE PREMIUM

A.	The Company shall pay the Reinsurer a “Deposit Premium” for each Reinstatement Layer as specified in Schedule A attached hereto. The Deposit Premium shall be paid in four installments on July 1, 2014, October 1, 2014, January 1, 2015, and April 1 of 2015.

B.	The Company shall pay to the Reinsurer a reinsurance premium for the coverage provided hereunder, such reinsurance premium to be calculated as follows:

“Reinstatement Factor” for each Reinstatement Layer as specified in Schedule A attached hereto.

“Final Adjusted Rate-On-Line” for each layer. “Final Adjusted Rate-On-Line” shall be the adjusted Underlying Reinsurance Contract premium paid by the Company divided by the Underlying Reinsurance Contract’s limit(s) of liability.

Adjusted Underlying Reinsurance Contract premium paid by the Company.

The dollar amount resulting from the multiplication of 1, 2 and 3 above shall equal the reinsurance premium hereunder this Contract.

Within 60 days after the expiration or termination of this Contract, the Company shall provide a report to the Reinsurer setting forth the reinsurance premium due hereunder, computed in accordance with paragraph B. In the event the reinsurance premium due hereunder is more than the Deposit Premium, any additional premium due the Reinsurer shall accompany the report. In the event the reinsurance premium due hereunder is less than the Deposit Premium, the Reinsurer shall return the amount of excess within 30 days of its receipt of said report.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE VII

NOTICE OF LOSS AND LOSS SETTLEMENTS

The Company shall advise the Reinsurers promptly of any amount reinstated under the Underlying Reinsurance Contract and of all subsequent developments pertaining thereto that may materially affect them as well. Inadvertent omission in dispatching the aforementioned notices shall in no way affect the obligation of the Reinsurers under this Contract, provided the Company informs the Reinsurers of such omission promptly upon discovery.

Amounts falling to the share of the Reinsurers hereunder as a result of the reinstatement of all or any portion of the reinsurance under the Underlying Reinsurance Contract shall be payable by the Reinsurers immediately upon being furnished by the Company with reasonable evidence of the premium paid or to be paid for such reinstatement.

ARTICLE VIII

LATE PAYMENTS

(The provisions of this Article shall not be implemented unless specifically invoked by the Company in writing.)

The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

1/365ths of a rate equal to the 90-day Treasury Bill rate as published in The Wall Street Journal on the first business day following the date a remittance becomes due plus 300 basis points; times

The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties has been received by the intermediary.

B.	The establishment of the payment due date shall, for purposes of this Article, be determined in accordance with the applicable Article of this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

calculated and due as outlined above. Furthermore, if the Reinsurer pays any claim hereunder that it is contesting and prevails in such action, the Company shall return such payment plus pay interest on same, at a rate calculated as per the provisions of paragraph A, above; however, such calculation is to begin from the actual date of remittance of funds from the Reinsurer through the date the funds are returned.

ARTICLE IX

DELAYS, OMISSIONS, OR ERRORS

ARTICLE X

ENTIRE AGREEMENT

ARTICLE XI

OFFSET

ARTICLE XII

CURRENCY

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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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 XIII

TAXES

The Company shall pay applicable taxes (except Federal Excise Tax, if any) on premiums reported to the Reinsurer under this Contract.

ARTICLE XIV

FEDERAL EXCISE TAX

B.	In the event of any return premium becoming due hereunder, the Reinsurer shall deduct the applicable percentage from the return premium payable hereon and the Company or its agent shall recover such tax from the United States Government.

C.	As respects premiums ceded to the Reinsurer under this Contract, the Reinsurer agrees to indemnify the Company for any liability, expense, interest, or penalty it may incur by reason of the Reinsurer’s breach of this Article.

ARTICLE XV

THIRD PARTY RIGHTS

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XVI

SEVERABILITY

ARTICLE XVII

SANCTIONS

ARTICLE XVIII

GOVERNING LAW

ARTICLE XIX

ACCESS TO RECORDS

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	If any undisputed amounts are overdue from the Reinsurer to the Company, the Reinsurer shall have access to such records only upon payment of all such overdue amounts.

E.	Nothing in this Article requires the Company to maintain or to make available any document for longer than the period required by the Company’s document retention policies and procedures or the period required by applicable statute or regulation, whichever is greater.

F.	“Protected Records” are defined as communications, files, records, documents, or books:

Deemed by the Company to concern Trade Secrets of the Company (Trade Secrets shall have the meaning provided in Section 1839 of the United States Economic Espionage Act of 1996); or

Deemed by the Company to be subject to attorney-client privilege or work product rule protection; or

Concerning individual private information that as a matter of law cannot be disclosed by the Company.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XX

CONFIDENTIALITY

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies, except when:

Required by retrocessionaires subject to the business ceded to this Contract; or

Required by state regulators performing an audit of the Reinsurer’s records and/or financial condition; or

Required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

C.	Further, the Reinsurer agrees not to use any Confidential Information for any purpose not permitted by this Contract or not related to the performance of their obligations or enforcement of their rights under this Contract.

E.	The provisions of this Article shall extend to the officers, directors, and employees of the Reinsurer and its affiliates, who have received Confidential Information in accordance with this Contract, and shall be binding upon their successors and assigns.

ARTICLE XXI

INSOLVENCY

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company, indicating the Policy 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 that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

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

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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXII

ARBITRATION

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXIII

SERVICE OF SUIT

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his/her 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.

D.	The individual named in paragraph C shall be deemed the Reinsurer’s agent for the service of process:

where the address designated in, or pursuant to paragraph B is invalid; or

to the extent necessary to bring this Contract into conformity with the applicable law of a state with jurisdiction over the Company.

ARTICLE XXIV

MODE OF EXECUTION

ARTICLE XXV

INTERMEDIARY

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

Signed this 4 day of June, 2014.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY


By		/s/ Richard A. Widdicombe
Printed Name Richard A. Widdicombe
Title President

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

SCHEDULE A

FIRST & SECOND PROPERTY CATASTROPHE

REINSTATEMENT PREMIUM PROTECTION

REINSURANCE CONTRACT

Effective: June 1, 2014

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may hereafter come under the ownership, management and/or control of the Company


	First Reinstatement Layer 109800001-14		Second Reinstatement Layer 109799001-14
Underlying Reinsurance Contract:
Reinsurer’s Limit, Each Loss Occurrence		$50,000,000		$135,000,000
Deposit Premium		$[***]		$[***]
Minimum Premium		$[***]		$[***]
Reinstatement Premium Protection:
Reinstatement Factor		0.995		0.991
Deposit Premium		$[***]		$[***]
Quarterly Installment		$[***]		$[***]

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Exhibit 10.15

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

FOURTH PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS


ARTICLE		PAGE
I	BUSINESS COVERED		1

II	TERM		1

III	SPECIAL TERMINATION AND OTHER REMEDIES		2

IV	DEFINITIONS		5

	Declaratory Judgment Expense		5

	Extra Contractual Obligations/Loss in Excess of Policy Limits		5

	Loss Adjustment Expense		6

	Loss Occurrence		6

	Policy		7

	Renewed		7

	Ultimate Net Loss		8

V	TERRITORY		8

VI	EXCLUSIONS		8

VII	SPECIAL ACCEPTANCES		10

VIII	COVERAGE		10

IX	REINSURANCE PREMIUM		10

X	FLORIDA HURRICANE CATASTROPHE FUND		11

XI	OTHER REINSURANCE		11

XII	NET RETAINED LINES		12

XIII	NOTICE OF LOSS AND LOSS SETTLEMENTS		12

XIV	LATE PAYMENTS		13

XV	SALVAGE AND SUBROGATION		14

XVI	DELAYS, OMISSIONS, OR ERRORS		14

XVII	LIABILITY OF THE REINSURER		14

XVIII	ENTIRE AGREEMENT		15

XIX	OFFSET		15

XX	CURRENCY		15

XXI	TAXES		15

XXII	FEDERAL EXCISE TAX		16

XXIII	OBLIGATIONS AND COLLATERAL RELEASE		16

XXIV	THIRD PARTY RIGHTS		19

XXV	REINSURANCE ALLOCATION		19

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.



XXVI	SEVERABILITY	19

XXVII	SANCTIONS	20

XXVIII	GOVERNING LAW	20

XXIX	ACCESS TO RECORDS	20

XXX	CONFIDENTIALITY	21

XXXI	INSOLVENCY	22

XXXII	ARBITRATION	23

XXXIII	SERVICE OF SUIT	25

XXXIV	MODE OF EXECUTION	26

	Schedule A

	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance - U.S.A.
	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance - Canada
	Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) (Worldwide Excluding U.S.A. And Canada)

	Pools, Associations & Syndicates Exclusion Clause

	Mold Exclusion

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

FOURTH PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

(the “Contract”)

between

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida including any and/or all of the subsidiary or affiliate companies that are now or may hereafter come under the ownership, management and/or control of 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 Company’s liability under its Policies classified by the Company as Property business, subject to the terms, conditions, and limitations set forth herein and in Schedule A attached to and forming part of this Contract.

B.	Subject business shall include business assumed by the Company in connection with the depopulation of Policies from Citizens Property Insurance Corporation.

ARTICLE II

TERM

A.	This Contract shall apply to all Loss Occurrences during the term extending from 12:01 a.m., Eastern Standard Time, June 1, 2014, to 12:01 a.m., Eastern Standard Time, June 1, 2015, on Policies effective at the inception of, or written or Renewed with an effective date during, said term.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	Notwithstanding the expiration or termination of the Reinsurer’s participation hereon, the provisions of this Contract shall continue to apply to all obligations and liabilities of the parties incurred hereunder until all such obligations and liabilities are fully performed and discharged.

ARTICLE III

SPECIAL TERMINATION AND OTHER REMEDIES

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

The Reinsurer has voluntarily ceased assuming new and renewal reinsurance business for the lines of business covered hereunder;

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;

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

The Reinsurer’s A.M. Best’s Financial Strength Rating has been assigned or downgraded below “A-”;

The Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

10.

B.	Where a Special Termination Event has taken place and after giving the Reinsurer prior written notice by electronic mail, certified mail, or by a nationally or internationally recognized delivery service, the Company may invoke any one or a combination of the following:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	The Company may revoke its notice hereunder, prior to the date of termination, without prejudice to reinstitute later if it so chooses.

D.	The Company, at its sole option, may classify the Reinsurer as a “Run-off Reinsurer,” where said Reinsurer experiences one or more of the Special Termination Events set forth in subparagraphs 1, 2, 3, 8, and 9 under paragraph A above.

The interest penalty specified in the LATE PAYMENTS ARTICLE shall be increased by 0.5% for each 30 days that the payment is past due, subject to a maximum increase of 7.0%.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

E.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.

ARTICLE IV

DEFINITIONS

The terms set forth below, wherever they appear in this Contract and regardless of whether they appear in a singular or plural form, shall have the meanings given herein:

A.	Declaratory Judgment Expense

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

Extra Contractual Obligations

Loss in Excess of Policy Limits

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Any Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

C.	Loss Adjustment Expense

D.	Loss Occurrence

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 120 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

No individual losses occasioned by an event that would be covered by 96 hours or 120 hours clauses may be included in any “Loss Occurrence” claimed under the 168 hours provision.

Policy

“Policy” shall mean the Company’s binders, policies, and contracts, whether written or oral, providing insurance or reinsurance on the business covered under this Contract.

Renewed

“Renewed” shall include those Policies issued for more than one year (if any), as of their next annual anniversary or annual installment date.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

G.	Ultimate Net Loss

ARTICLE V

TERRITORY

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

ARTICLE VI

EXCLUSIONS

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

All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund, or other arrangement, howsoever denominated, established, or governed, that 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Financial Guarantee coverage and/or similar coverage, however styled.

Loss or liability excluded by the Pools, Associations, and Syndicates Exclusion Clause attached to this Contract.

Mold as defined in the Mold Exclusion attached to this Contract.

Flood and/or earthquake, when written as such.

Loss as excluded under the provisions of the Terrorism Exclusion (Property Treaty Reinsurance) – N.M.A. 2930c attached to this Contract.

10.

All assessments from Citizens Property Insurance Corporation.

D.	If the Company is required to accept an assigned risk, which conflicts with one or more of the exclusions set forth in paragraph A above (except for subparagraphs 3 and 5), this reinsurance shall apply, but up to the limit required by the applicable statute or regulatory authority.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE VII

SPECIAL ACCEPTANCES

ARTICLE VIII

COVERAGE

ARTICLE IX

REINSURANCE PREMIUM

A.	For the term of this Contract, there will be a reinsurance premium of $[***], payable in full by June 1, 2014.

B.	The Company shall furnish the Reinsurer with such other information as may be required by the Reinsurer for completion of its National Association of Insurance Commissioners interim and/or annual statements.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE X

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

Any other FHCF recoveries shall be disregarded for purposes of determining Ultimate Net Loss subject to this Contract.

C.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

ARTICLE XI

OTHER REINSURANCE

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

B.	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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XII

NET RETAINED LINES

B.	The Company shall purchase, the layers of reinsurance shown below, which shall inure to the benefit of the reinsurance coverage provided under this Contract.

The Property Catastrophe Excess of Loss Reinsurance Agreement (reference number 708852386) placed with Citrus Re Ltd.

The Property Catastrophe Excess of Loss Reinsurance Agreement (reference number 709101428) placed with Citrus Re Ltd.

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 that may have become due from such reinsurers, whether such inability arises from the insolvency of such other reinsurers or otherwise.

ARTICLE XIII

NOTICE OF LOSS AND LOSS SETTLEMENTS

B.	The Company alone and at its full discretion shall adjust, settle, or compromise all claims and losses.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XIV

LATE PAYMENTS

(The provisions of this Article shall not be implemented unless specifically invoked by the Company in writing.)

The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

1/365ths of a rate equal to the 90-day Treasury Bill rate as published in The Wall Street Journal on the first business day following the date a remittance becomes due plus 300 basis points; times

The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties has been received by the Company.

B.	The establishment of the payment due date shall, for purposes of this Article, be determined in accordance with the applicable Article of this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XV

SALVAGE AND SUBROGATION

ARTICLE XVI

DELAYS, OMISSIONS, OR ERRORS

ARTICLE XVII

LIABILITY OF THE REINSURER

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XVIII

ENTIRE AGREEMENT

ARTICLE XIX

OFFSET

ARTICLE XX

CURRENCY

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 XXI

TAXES

The Company shall pay applicable taxes (except Federal Excise Tax, if any) on premiums reported to the Reinsurer under this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXII

FEDERAL EXCISE TAX

B.	In the event of any return premium becoming due hereunder, the Reinsurer shall deduct the applicable percentage from the return premium payable hereon and the Company or its agent shall recover such tax from the United States Government.

C.	As respects premiums ceded to the Reinsurer under this Contract, the Reinsurer agrees to indemnify the Company for any liability, expense, interest, or penalty it may incur by reason of the Reinsurer’s breach of this Article.

ARTICLE XXIII

OBLIGATIONS AND COLLATERAL RELEASE

B.	At any time after December 1, 2014, if the Company in its commercially reasonable judgment believes that no event has occurred that may result in a claim hereunder, the Company agrees to release the Assets held in the Trust Account to the Reinsurer as soon as practicable.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

losses and Loss Adjustment Expense paid by the Company, but not recovered from the Reinsurer;

reserves for losses reported and outstanding;

reserves for losses incurred but not reported; and

reserves for Loss Adjustment Expense

If the parties hereto do not enter into a reinsurance agreement upon expiration of this Contract, the Ultimate Net Loss for each such Loss Occurrence (if not otherwise finally determined pursuant to the terms of this Contract) shall be deemed equal to the amount as determined in subparagraph (1) above measured as of the applicable determination date (as specified in Section E below), multiplied by a factor, based upon the number of months (with any partial month rounded up to the nearest whole month) which have elapsed on such determination date since expiration of the Contract, as follows:

From 0 to 12 months from expiration of the Contract, 150%, else;

From 13 to 24 months from expiration of the Contract, 125%, else;

From 25 to 36 months from expiration of the Contract, 110%; and

From 37 to 67 months from expiration of the Contract, 100%.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

In the event that collateral has been released from the Trust Account, but at a later date it is determined by the procedure above that such collateral should be present in the Trust Account, the Reinsurer shall, within 10 Business Days of such determination, deposit additional assets until the Trust Account balance is equal to the amount of actual and possible claims; however, the Reinsurer shall never be liable to deposit assets in the Trust Account in excess of its Obligations as defined above. If the Trust Account is funded and maintained and the Trust Agreement is performed according to the terms and conditions of this Contract and the Trust Agreement, the Company agrees and acknowledges that there shall only be recourse to the Segregated Account assets, and in the event of the exhaustion of the Segregated Account assets there shall be no recourse by any party for any claims, payments, other expenses or fees whatsoever, howsoever arising pursuant to this Contract, to the assets which are allocated to any other segregated account of the Reinsurer or to the general account of the Reinsurer.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXIV

THIRD PARTY RIGHTS

ARTICLE XXV

REINSURANCE ALLOCATION

A.	While having no effect on the settlements or liabilities of the parties to this Contract, it is established that:

B.	Records of these allocations shall be maintained in sufficient detail to identify both the Reinsurer’s loss obligations allocated to each member company and each member company’s share of premium allocation.

ARTICLE XXVI

SEVERABILITY

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXVII

SANCTIONS

ARTICLE XXVIII

GOVERNING LAW

ARTICLE XXIX

ACCESS TO RECORDS

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	If any undisputed amounts are overdue from the Reinsurer to the Company, the Reinsurer shall have access to such records only upon payment of all such overdue amounts.

E.	Nothing in this Article requires the Company to maintain or to make available any document for longer than the period required by the Company’s document retention policies and procedures or the period required by applicable statute or regulation, whichever is greater.

F.	“Protected Records” are defined as communications, files, records, documents, or books:

Deemed by the Company to concern Trade Secrets of the Company (Trade Secrets shall have the meaning provided in Section 1839 of the United States Economic Espionage Act of 1996); or

Deemed by the Company to be subject to attorney-client privilege or work product rule protection; or

Concerning individual private information that as a matter of law cannot be disclosed by the Company.

ARTICLE XXX

CONFIDENTIALITY

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies, except when:

Required by retrocessionaires subject to the business ceded to this Contract; or

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Required by state regulators performing an audit of the Reinsurer’s records and/or financial condition; or

Required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

C.	Further, the Reinsurer agrees not to use any Confidential Information for any purpose not permitted by this Contract or not related to the performance of their obligations or enforcement of their rights under this Contract.

E.	The provisions of this Article shall extend to the officers, directors, and employees of the Reinsurer and its affiliates, who have received Confidential Information in accordance with this Contract, and shall be binding upon their successors and assigns.

ARTICLE XXXI

INSOLVENCY

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

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 XXXII

ARBITRATION

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXXIII

SERVICE OF SUIT

Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his/her 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.

D.	The individual named in paragraph C shall be deemed the Reinsurer’s agent for the service of process:

where the address designated in, or pursuant to paragraph B is invalid; or

to the extent necessary to bring this Contract into conformity with the applicable law of a state with jurisdiction over the Company.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXXIV

MODE OF EXECUTION

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

Signed this 17 day of July, 2014.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY


By		/s/ Stephen Rodhe
Printed Name Stephen Rohde
Title CFO

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

SCHEDULE A

FOURTH PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

Effective: June 1, 2014

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may hereafter come under the ownership, management and/or control of the Company


Company’s Retention	$	200,000,000
Reinsurer’s Limit, Each Loss Occurrence	$	25,000,000
Reinsurer’s Limit, All Loss Occurrences	$	25,000,000
Reinstatements		Nil

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

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

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.

IV.

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

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

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

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

7)	Reassured to be sole judge of what constitutes:

substantial quantities, and

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:

12/12/57

N.M.A. 1119

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE – CANADA

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.

(a)

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

(b)

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

(c)

(d)

Installations other than those listed in (c) above using substantial quantities of radioactive isotopes or other products of nuclear fission.

(a)

where the Reinsured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

where the said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused.

5)	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.

7)	Reinsured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

8)	Without in any way restricting the operation of paragraphs 1, 2, 3, and 4 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 caused:

(a)

(b)

by contamination by radioactive material.

NOTE:

01/04/96

N.M.A. 1980a

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1994) (WORLDWIDE EXCLUDING U.S.A. AND CANADA)

This agreement shall exclude Nuclear Energy Risks whether such risks are written directly and/or by way of reinsurance and/or via Pools and/or Associations.

I	All Property on the site of a nuclear power station.

Nuclear Reactors, reactor buildings and plant and equipment therein on any site other than a nuclear power station.

II	All Property , on any site (including but not limited to the sites referred to in (I) above) used or having been used for:

(a)

The generation of nuclear energy; or

(b)

The Production, Use or Storage of Nuclear Material.

III	Any other Property eligible for insurance by the relevant local Nuclear Insurance Pool and/or Association but only to the extent of the requirements of that local Pool and/or Association.

IV	The supply of goods and services to any of the sites described in I to III above, unless such insurances or reinsurances shall exclude the perils of irradiation and contamination by Nuclear Material .

Except

as undernoted, Nuclear Energy Risks shall not include:

(i)	Any insurance or reinsurance in respect of the construction or erection or installation or replacement or repair or maintenance or decommissioning of Property as described in I to III above (including contractors’ plant and equipment);

(ii)	Any Machinery Breakdown or other Engineering insurance or reinsurance not coming within the scope of I above;

Provided always that such insurance or reinsurance shall exclude the perils of irradiation and contamination by Nuclear Material.

However,

the above exemption shall not extend to:

1.	The provision of any insurance or reinsurance whatsoever in respect of:

(a)

Nuclear Material ;

(b)

2.	The provision of any insurance or reinsurance for the undernoted perils:

•

Fire, lightning, explosion;

•

Earthquake;

•

Aircraft and other aerial devices or articles dropped therefrom;

•

Irradiation and radioactive contamination;

•

Any other peril insured by the relevant local Nuclear Insurance Pool and/or Association;

Heritage Property & Casualty Insurance Company

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Definitions

“Nuclear

Material” means:

(i)	Nuclear fuel, other than natural uranium and depleted uranium, capable of producing energy by a self-sustaining chain process of nuclear fission outside a Nuclear Reactor , either alone or in combination with some other material; and

(ii)	Radioactive Products or Waste.

“Nuclear

Installation” means:

(i)	Any Nuclear Reactor ;

(ii)	Any factory using nuclear fuel for the production of Nuclear Material , or any factory for the processing of Nuclear Material , including any factory for the reprocessing of irradiated nuclear fuel; and

(iii)

Any facility where Nuclear Material is stored, other than storage incidental to the carriage of such material.

“High

Radioactivity Zone or Area” means:

(i)	For nuclear power stations and Nuclear Reactors , the vessel or structure which immediately contains the core (including its supports and shrouding) and all the contents thereof, the fuel elements, the control rods and the irradiated fuel store; and

(ii)	For non-reactor Nuclear Installations, any area where the level of radioactivity requires the provision of a biological shield.

10/3/94

N.M.A. 1975(a)

Heritage Property & Casualty Insurance Company

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE

SECTION A:

EXCLUDING:

(a)

All Business derived directly or indirectly from any Pool, Association or

Syndicate which maintains its own reinsurance facilities.

(b)

SECTION B:

EXCLUDING:

Oil, Gas or Petro-Chemical Plants,

Oil or Gas Drilling Rigs,

Aviation Risks.

SECTION

B does not apply:

(a)

Where the Total Insured Value over all interests of the risk in question is less than $[***].

(b)

To interests traditionally underwritten as Inland Marine or Stock and/or Contents written on a Blanket basis.

(c)

(d)

To risks as follows:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Where this Clause attaches to catastrophe excesses, the following Section C is added:

SECTION C:

NEVERTHELESS the Reinsurer specifically agrees that liability accruing to the Company from its participation in residual market mechanisms including but not limited to:

(l)

The following so-called “Coastal Pools”:

ALABAMA INSURANCE UNDERWRITING ASSOCIATION

MISSISSIPPI WINDSTORM UNDERWRITING ASSOCIATION

NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION

SOUTH CAROLINA WINDSTORM AND HAIL UNDERWRITING

ASSOCIATION

TEXAS WINDSTORM INSURANCE ASSOCIATION

AND

(2)

All “FAIR Plan” and “Rural Risk Plan” business

AND

(3)	The Louisiana Citizens Property Insurance Corporation and the California Earthquake Authority (CEA)

for all perils otherwise protected hereunder shall not be excluded, except, however, that this reinsurance does not include any increase in such liability resulting from:

(i)

The inability of any other participant in such “Coastal Pool” and/or “FAIR Plan”

and/or “Rural Risk Plan” and/or Residual Market Mechanisms to meet its liability.

(ii)

SECTION D:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

MOLD EXCLUSION

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

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

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

Fire, lightning, explosion, aircraft or vehicle impact, falling objects,

windstorm, hail, tornado, cyclone, hurricane, earthquake, volcano,

tsunami, flood, freeze or weight of snow.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TERRORISM EXCLUSION (PROPERTY TREATY REINSURANCE) N.M.A. 2930C

(i)	involves violence against one or more persons; or

(ii)	involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)	creates a risk to health or safety of the public or a section of the public; or

(v)	is designed to interfere with or to disrupt an electronic system.

NMA2930c

22/11/02

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Exhibit 10.16

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

FIFTH PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS


ARTICLE		PAGE
I	BUSINESS COVERED		1

II	TERM		1

III	SPECIAL TERMINATION AND OTHER REMEDIES		2

IV	DEFINITIONS		5

	Declaratory Judgment Expense		5

	Extra Contractual Obligations/Loss in Excess of Policy Limits		6

	Loss Adjustment Expense		6

	Loss Occurrence		7

	Policy		8

	Renewed		8

	Ultimate Net Loss		8

V	TERRITORY		9

VI	EXCLUSIONS		9

VII	SPECIAL ACCEPTANCES		10

VIII	COVERAGE		11

IX	REINSURANCE PREMIUM		11

X	FLORIDA HURRICANE CATASTROPHE FUND		12

XI	OTHER REINSURANCE		13

XII	NET RETAINED LINES		13

XIII	NOTICE OF LOSS AND LOSS SETTLEMENTS		14

XIV	LATE PAYMENTS		15

XV	SALVAGE AND SUBROGATION		16

XVI	DELAYS, OMISSIONS, OR ERRORS		16

XVII	LIABILITY OF THE REINSURER		17

XVIII	ENTIRE AGREEMENT		17

XIX	OFFSET		17

XX	CURRENCY		17

XXI	TAXES		18

XXII	FEDERAL EXCISE TAX		18

XXIII	RESERVES AND FUNDING		18

XXIV	THIRD PARTY RIGHTS		21

XXV	REINSURANCE ALLOCATION		21

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.



XXVI	SEVERABILITY	21

XXVII	SANCTIONS	22

XXVIII	GOVERNING LAW	22

XXIX	ACCESS TO RECORDS	22

XXX	CONFIDENTIALITY	23

XXXI	INSOLVENCY	24

XXXII	ARBITRATION	25

XXXIII	SERVICE OF SUIT	27

XXXIV	MODE OF EXECUTION	28

XXXV	INTERMEDIARY	28

	Schedule A

	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance - U.S.A.

	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance – Canada

	Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) (Worldwide Excluding U.S.A. And Canada)

	Pools, Associations & Syndicates Exclusion Clause

	Mold Exclusion

	Terrorism Exclusion (Property Treaty Reinsurance) N.M.A. 2930C

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

FIFTH PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

(the “Contract”)

between

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may hereafter come under the ownership, management and/or control of 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 Company’s liability under its Policies classified by the Company as Property business, subject to the terms, conditions, and limitations set forth herein and in Schedule A attached to and forming part of this Contract.

B.	Subject business shall include business assumed by the Company in connection with the depopulation of Policies from Citizens Property Insurance Corporation.

ARTICLE II

TERM

A.	This Contract shall apply to all Loss Occurrences during the term extending from 12:01 a.m., Eastern Standard Time, June 1, 2014, to 12:01 a.m., Eastern Standard Time, June 1, 2015, on Policies effective at the inception of, or written or Renewed with an effective date during, said term.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	Notwithstanding the expiration or termination of the Reinsurer’s participation hereon, the provisions of this Contract shall continue to apply to all obligations and liabilities of the parties incurred hereunder until all such obligations and liabilities are fully performed and discharged.

ARTICLE III

SPECIAL TERMINATION AND OTHER REMEDIES

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

The Reinsurer has voluntarily ceased assuming new and renewal reinsurance business for the lines of business covered hereunder;

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;

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

The Reinsurer’s A.M. Best’s Financial Strength Rating has been assigned or downgraded below “A-”;

The Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

10.

B.	Where a Special Termination Event has taken place and after giving the Reinsurer prior written notice by electronic mail, certified mail, or by a nationally or internationally recognized delivery service, the Company may invoke any one or a combination of the following:

The Company may require the Reinsurer to fund its share of outstanding loss and Loss Adjustment Expense reserves, reserves for losses and Loss Adjustment Expense incurred but not reported to the Company (IBNR as determined by the Company), and any other balances or financial obligations. Within 30 days of the Company’s written request to fund, the Reinsurer shall render the requested funding (less any such amounts already funded pursuant to the provisions of the RESERVES AND FUNDING ARTICLE) to the Company by means of one of the methods of funding described in the RESERVES AND FUNDING ARTICLE. The Company and the Reinsurer may mutually agree on alternative methods of funding or the use of a combination of methods. The Company may draw upon such funding in accordance with the provisions of the RESERVES AND FUNDING ARTICLE. Within 60 days following each subsequent calendar quarter, the Company may prepare and forward

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

to the Reinsurer a statement of the Reinsurer’s current funding obligation under this subparagraph. Where such amount exceeds the balance of funding already rendered by the Reinsurer, the Reinsurer shall, within 30 days of its receipt of such statement, increase the amount of funding available to the current, reported level. If, however, the statement shows that the Reinsurer’s current funding obligation is less than the balance of funding as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess funding by making the appropriate adjustment. This funding option is available to the Company at any time there remain any outstanding liabilities of the Reinsurer.

C.	The Company may revoke its notice hereunder, prior to the date of termination, without prejudice to reinstitute later if it so chooses.

D.	The Company, at its sole option, may classify the Reinsurer as a “Run-off Reinsurer,” where said Reinsurer experiences one or more of the Special Termination Events set forth in subparagraphs 1, 2, 3, 8, and 9 under paragraph A above.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The interest penalty specified in the LATE PAYMENTS ARTICLE shall be increased by 0.5% for each 30 days that the payment is past due, subject to a maximum increase of 7.0%.

E.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.

ARTICLE IV

DEFINITIONS

The terms set forth below, wherever they appear in this Contract and regardless of whether they appear in a singular or plural form, shall have the meanings given herein:

A.	Declaratory Judgment Expense

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

Extra Contractual Obligations

Loss in Excess of Policy Limits

Any Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

C.	Loss Adjustment Expense

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

counsel 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 salaries and expenses of employees, other than 4) above, and office and other overhead expenses.

D.	Loss Occurrence

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 120 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

No individual losses occasioned by an event that would be covered by 96 hours or 120 hours clauses may be included in any “Loss Occurrence” claimed under the 168 hours provision.

Policy

“Policy” shall mean the Company’s binders, policies, and contracts, whether written or oral, providing insurance or reinsurance on the business covered under this Contract.

Renewed

“Renewed” shall include those Policies issued for more than one year (if any), as of their next annual anniversary or annual installment date.

H.	Ultimate Net Loss

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE V

TERRITORY

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

ARTICLE VI

EXCLUSIONS

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

All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund, or other arrangement, howsoever denominated, established, or governed, that 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.

Financial Guarantee coverage and/or similar coverage, however styled.

Loss or liability excluded by the Pools, Associations, and Syndicates Exclusion Clause attached to this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Mold as defined in the Mold Exclusion attached to this Contract.

Flood and/or earthquake, when written as such.

Loss as excluded under the provisions of the Terrorism Exclusion (Property Treaty Reinsurance) – N.M.A. 2930c attached to this Contract.

10.

All assessments from Citizens Property Insurance Corporation.

D.	If the Company is required to accept an assigned risk, which conflicts with one or more of the exclusions set forth in paragraph A above (except for subparagraphs 3 and 5), this reinsurance shall apply, but up to the limit required by the applicable statute or regulatory authority.

ARTICLE VII

SPECIAL ACCEPTANCES

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE VIII

COVERAGE

As respects the excess top & drop layer of reinsurance coverage provided by this Contract, the Company shall retain and be liable for the first amount of Ultimate Net Loss, shown as “Company’s Retention” for the excess top & drop layer in Schedule A attached hereto, arising out of each Loss Occurrence. The Reinsurer shall then be liable, as respects the excess top & drop layer, for the amount by which such Ultimate Net Loss exceeds the Company’s retention, but the liability of the Reinsurer under the excess top & drop layer shall not exceed the amount, shown as “Reinsurer’s Per Occurrence Limit,” as respects any one Loss Occurrence, nor shall it exceed the amount shown as “Reinsurer’s Term Limit,” for the excess top & drop layer in Schedule A attached hereto.

ARTICLE IX

REINSURANCE PREMIUM

The Company shall pay the Reinsurer a deposit premium for the excess top & drop layer equal to the “Annual Deposit Premium” for the excess top & drop layer, as identified in Schedule A attached hereto, in four equal installments of the amount, shown as “Quarterly Deposit Premium” in Schedule A attached hereto, for the excess top & drop layer, on July 1, 2014, October 1, 2014, January 1, 2015, and April 1 of 2015.

Notwithstanding the foregoing, in the event the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2014 for subject business is greater than or equal to [***]% and less than or equal to [***]% of the original estimate, there shall be no additional premium due the Reinsurer or return premium due the Company. However, in the event the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2014 is less than [***]% or greater than [***]% of the original estimate then the additional premium due the Reinsurer or return premium due the Company shall be determined by the following:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

If the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2014 is greater than [***]% of the original estimate as outlined in paragraph D of this Article, the additional premium due the Reinsurer shall be determined by multiplying the “Rate on PML,” as stated in Schedule A attached hereto, times the difference between [***]% of the original estimate as outlined in paragraph D of this Article and the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2014.

If the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2014 is less than [***]% of the original estimate as outlined in paragraph D of this Article, the return premium due the Company shall be determined by multiplying the “Rate on PML,” as stated in Schedule A attached hereto, times the difference between the Company’s average of the 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane Probable Maximum Loss on August 31, 2014 and [***]% of the original estimate as outlined in paragraph D of this Article, subject to the “Minimum Premium” for the excess top & drop layer as stated in Schedule A attached hereto.

C.	The average of the 100-year and 25-year Hurricane return times are calculated based on AIR (Clasic/2 v.15.0). Hurricane Models including secondary uncertainty, standard hurricane frequencies and loss amplification.

D.	The average 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane PML is estimated at $[***] as of August 31, 2014.

Within 60 days after the expiration or termination of this Contract, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with paragraph B of this Article. Any additional premium due the Reinsurer, less amounts previously paid as deposits or otherwise, shall be remitted with said report. Any return premium due the Company, that is in excess of the Company’s premium obligations hereunder, shall be returned by the Reinsurer within 30 days of its receipt of said report.

ARTICLE X

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Any other FHCF recoveries shall be disregarded for purposes of determining Ultimate Net Loss subject to this Contract.

C.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

ARTICLE XI

OTHER REINSURANCE

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

B.	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 XII

NET RETAINED LINES

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

B.	The Company shall purchase, or shall be deemed to have purchased, the layers of reinsurance shown below, which shall inure to the benefit of the reinsurance coverage provided under this Contract, whether collectible or not.

100% of $7,000,000 excess of $2,000,000 Ultimate Net Loss, each Loss Occurrence, with no reinstatement, and placed at 100%.

100% of $6,000,000 excess of $9,000,000 Ultimate Net Loss, each Loss Occurrence, with no reinstatement, and placed at 100%.

$50,000,000 excess of $15,000,000 Ultimate Net Loss, each Loss Occurrence, with 1 full reinstatement, and placed at 100%.

$135,000,000 excess of $65,000,000 Ultimate Net Loss, each Loss Occurrence, with 1 full reinstatement, and placed at 100%.

$150,000,000 excess of $200,000,000 Ultimate Net Loss, each Loss Occurrence, with no reinstatement, and placed at 100%.

$100,000,000 excess of $350,000,000 Ultimate Net Loss, each Loss Occurrence, with no reinstatement, and placed at 50%.

$25,000,000 excess of $350,000,000 Ultimate Net Loss, each Loss Occurrence, with no reinstatement, and placed at 100%.

$4,000,000 excess of $2,000,000 Ultimate Net Loss, each Loss Occurrence, in excess of an annual aggregate deductible of the first $4,000,000 of Ultimate Net Loss otherwise recoverable, with no reinstatements, and placed at 100%.

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 that may have become due from such reinsurers, whether such inability arises from the insolvency of such other reinsurers or otherwise.

ARTICLE XIII

NOTICE OF LOSS AND LOSS SETTLEMENTS

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

B.	The Company alone and at its full discretion shall adjust, settle, or compromise all claims and losses.

ARTICLE XIV

LATE PAYMENTS

(The provisions of this Article shall not be implemented unless specifically invoked by the Company in writing.)

The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

1/365ths of a rate equal to the 90-day Treasury Bill rate as published in The Wall Street Journal on the first business day following the date a remittance becomes due plus 300 basis points; times

The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties has been received by the intermediary.

B.	The establishment of the payment due date shall, for purposes of this Article, be determined in accordance with the applicable Article of this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XV

SALVAGE AND SUBROGATION

ARTICLE XVI

DELAYS, OMISSIONS, OR ERRORS

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XVII

LIABILITY OF THE REINSURER

ARTICLE XVIII

ENTIRE AGREEMENT

ARTICLE XIX

OFFSET

ARTICLE XX

CURRENCY

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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXI

TAXES

The Company shall pay applicable taxes (except Federal Excise Tax, if any) on premiums reported to the Reinsurer under this Contract.

ARTICLE XXII

FEDERAL EXCISE TAX

B.	In the event of any return premium becoming due hereunder, the Reinsurer shall deduct the applicable percentage from the return premium payable hereon and the Company or its agent shall recover such tax from the United States Government.

C.	As respects premiums ceded to the Reinsurer under this Contract, the Reinsurer agrees to indemnify the Company for any liability, expense, interest, or penalty it may incur by reason of the Reinsurer’s breach of this Article.

ARTICLE XXIII

RESERVES AND FUNDING

A.	The Reinsurer shall provide funding under the terms of this Article only if the Company is denied statutory credit for reinsurance ceded to that Reinsurer pursuant to the credit for reinsurance law or regulations of the regulatory authority having jurisdiction over the Company’s reserves.

Loss and loss expense paid by the Company but not recovered from the Reinsurer;

Known outstanding losses that have been reported to the Reinsurer and loss expense relating thereto;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Reserves for loss and loss expense incurred but not reported;

Unearned premium (if applicable);

Other amounts recoverable reported in Schedule F of the Company’s NAIC Statement;

C.	Deferral of funding that may be permitted for a certified reinsurer in the event of a catastrophe shall not apply to any Reinsurer under this Contract.

When funding in whole or in part by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional LOC dated on or before December 31 of the year in which the request is made (on or before the last day of the calendar quarter for any quarterly adjustment), issued by a member of the Federal Reserve System or any bank approved for use by the NAIC Securities Valuation Office, and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves. Such LOC shall be issued for a period of not less than one year and shall include an “evergreen clause,” which automatically extends the term for at least one additional year at each expiration date unless 60 days (or such other time period as may be required by the applicable insurance regulatory authorities) prior to any expiration date the issuing bank notifies the Company by certified or registered mail that the issuing bank elects not to consider the LOC extended for any additional period.

To reimburse the Company for the Reinsurer’s share of unearned premium on Policies reinsured hereunder on account of cancellations of such Policies;

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;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

To pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

F.	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.

G.	At annual intervals, or more frequently but never more frequently than quarterly, the Company shall prepare a specific report of the Reinsurer’s Obligations, for the sole purpose of amending the LOC or other method of funding, in the following manner:

H.	Should the Reinsurer be in breach of its obligations under this Article, notwithstanding anything to the contrary elsewhere in this Contract, the Company may seek relief in respect of said breach from any court having competent jurisdiction over the parties hereto.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXIV

THIRD PARTY RIGHTS

ARTICLE XXV

REINSURANCE ALLOCATION

A.	While having no effect on the settlements or liabilities of the parties to this Contract, it is established that:

B.	Records of these allocations shall be maintained in sufficient detail to identify both the Reinsurer’s loss obligations allocated to each member company and each member company’s share of premium allocation.

ARTICLE XXVI

SEVERABILITY

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXVII

SANCTIONS

ARTICLE XXVIII

GOVERNING LAW

ARTICLE XXIX

ACCESS TO RECORDS

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	If any undisputed amounts are overdue from the Reinsurer to the Company, the Reinsurer shall have access to such records only upon payment of all such overdue amounts.

E.	Nothing in this Article requires the Company to maintain or to make available any document for longer than the period required by the Company’s document retention policies and procedures or the period required by applicable statute or regulation, whichever is greater.

F.	“Protected Records” are defined as communications, files, records, documents, or books:

Deemed by the Company to concern Trade Secrets of the Company (Trade Secrets shall have the meaning provided in Section 1839 of the United States Economic Espionage Act of 1996); or

Deemed by the Company to be subject to attorney-client privilege or work product rule protection; or

Concerning individual private information that as a matter of law cannot be disclosed by the Company.

ARTICLE XXX

CONFIDENTIALITY

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies, except when:

Required by retrocessionaires subject to the business ceded to this Contract; or

Required by state regulators performing an audit of the Reinsurer’s records and/or financial condition; or

Required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

C.	Further, the Reinsurer agrees not to use any Confidential Information for any purpose not permitted by this Contract or not related to the performance of their obligations or enforcement of their rights under this Contract.

E.	The provisions of this Article shall extend to the officers, directors, and employees of the Reinsurer and its affiliates, who have received Confidential Information in accordance with this Contract, and shall be binding upon their successors and assigns.

ARTICLE XXXI

INSOLVENCY

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

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 XXXII

ARBITRATION

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXXIII

SERVICE OF SUIT

Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his/her 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.

D.	The individual named in paragraph C shall be deemed the Reinsurer’s agent for the service of process:

where the address designated in, or pursuant to paragraph B is invalid; or

to the extent necessary to bring this Contract into conformity with the applicable law of a state with jurisdiction over the Company.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXXIV

MODE OF EXECUTION

ARTICLE XXXV

INTERMEDIARY

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

Signed this 3 day of June, 2014.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY


By		/s/ Richard A. Widdicombe
Printed Name Richard A. Widdicombe
Title President

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

SCHEDULE A

FIFTH PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

Effective: June 1, 2014

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may hereafter come under the ownership, management and/or control of the Company


	Fifth Excess
	Top & Drop Layer
	109795001-14
Company’s Retention	$	2,000,000
Reinsurer’s Per Occurrence Limit	$	55,000,000
Reinsurer’s Term Limit	$	55,000,000
Rate on PML		[***]	%
Annual Deposit Premium	$	[***]
Quarterly Deposit Premium	$	[***]
Minimum Premium	$	[***]

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

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

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.

IV.

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

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

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

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

7)	Reassured to be sole judge of what constitutes:

substantial quantities, and

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:

12/12/57

N.M.A. 1119

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE – CANADA

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.

(a)

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

(b)

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

(c)

(d)

Installations other than those listed in (c) above using substantial quantities of radioactive isotopes or other products of nuclear fission.

(a)

where the Reinsured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

where the said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused.

5)	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.

7)	Reinsured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

8)	Without in any way restricting the operation of paragraphs 1, 2, 3, and 4 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 caused:

(a)

(b)

by contamination by radioactive material.

NOTE:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1994) (WORLDWIDE EXCLUDING U.S.A. AND CANADA)

This agreement shall exclude Nuclear Energy Risks whether such risks are written directly and/or by way of reinsurance and/or via Pools and/or Associations.

I	All Property on the site of a nuclear power station.

Nuclear Reactors, reactor buildings and plant and equipment therein on any site other than a nuclear power station.

II	All Property , on any site (including but not limited to the sites referred to in (I) above) used or having been used for:

(a)

The generation of nuclear energy; or

(b)

The Production, Use or Storage of Nuclear Material.

III	Any other Property eligible for insurance by the relevant local Nuclear Insurance Pool and/or Association but only to the extent of the requirements of that local Pool and/or Association.

IV	The supply of goods and services to any of the sites described in I to III above, unless such insurances or reinsurances shall exclude the perils of irradiation and contamination by Nuclear Material.

Except as undernoted, Nuclear Energy Risks shall not include:

(i)	Any insurance or reinsurance in respect of the construction or erection or installation or replacement or repair or maintenance or decommissioning of Property as described in I to III above (including contractors’ plant and equipment);

(ii) Any Machinery Breakdown or other Engineering insurance or reinsurance not coming within the scope of I above;

Provided always that such insurance or reinsurance shall exclude the perils of irradiation and contamination by Nuclear Material.

However, the above exemption shall not extend to:

1.	The provision of any insurance or reinsurance whatsoever in respect of:

(a)

Nuclear Material ;

(b)

2.	The provision of any insurance or reinsurance for the undernoted perils:

•

Fire, lightning, explosion;

•

Earthquake;

•

Aircraft and other aerial devices or articles dropped therefrom;

•

Irradiation and radioactive contamination;

•

Any other peril insured by the relevant local Nuclear Insurance Pool and/or Association;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Definitions

“Nuclear Material” means:

(i)	Nuclear fuel, other than natural uranium and depleted uranium, capable of producing energy by a self-sustaining chain process of nuclear fission outside a Nuclear Reactor , either alone or in combination with some other material; and

(ii)	Radioactive Products or Waste.

“Nuclear Installation” means:

(i)	Any Nuclear Reactor ;

(ii)	Any factory using nuclear fuel for the production of Nuclear Material , or any factory for the processing of Nuclear Material , including any factory for the reprocessing of irradiated nuclear fuel; and

(iii)

Any facility where Nuclear Material is stored, other than storage incidental to the carriage of such material.

“High Radioactivity Zone or Area” means:

(i)	For nuclear power stations and Nuclear Reactors , the vessel or structure which immediately contains the core (including its supports and shrouding) and all the contents thereof, the fuel elements, the control rods and the irradiated fuel store; and

(ii)	For non-reactor Nuclear Installations, any area where the level of radioactivity requires the provision of a biological shield.

10/3/94

N.M.A. 1975(a)

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE

SECTION A:

EXCLUDING:

(a)

All Business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

(b)

SECTION B:

EXCLUDING:

Oil, Gas or Petro-Chemical Plants,

Oil or Gas Drilling Rigs,

Aviation Risks.

SECTION B does not apply:

(a)

Where the Total Insured Value over all interests of the risk in question is less than $[***].

(b)

To interests traditionally underwritten as Inland Marine or Stock and/or Contents written on a Blanket basis.

(c)

(d)

To risks as follows:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Where this Clause attaches to catastrophe excesses, the following Section C is added:

SECTION C:

NEVERTHELESS the Reinsurer specifically agrees that liability accruing to the Company from its participation in residual market mechanisms including but not limited to:

(l)

The following so-called “Coastal Pools”:

ALABAMA INSURANCE UNDERWRITING ASSOCIATION

MISSISSIPPI WINDSTORM UNDERWRITING ASSOCIATION

NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION

SOUTH CAROLINA WINDSTORM AND HAIL UNDERWRITING

ASSOCIATION

TEXAS WINDSTORM INSURANCE ASSOCIATION

AND

(2)

All “FAIR Plan” and “Rural Risk Plan” business

AND

(3)	The Louisiana Citizens Property Insurance Corporation and the California Earthquake Authority (CEA)

for all perils otherwise protected hereunder shall not be excluded, except, however, that this reinsurance does not include any increase in such liability resulting from:

(i)

The inability of any other participant in such “Coastal Pool” and/or “FAIR Plan” and/or “Rural Risk Plan” and/or Residual Market Mechanisms to meet its liability.

(ii)

SECTION D:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

MOLD EXCLUSION

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

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

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

Fire, lightning, explosion, aircraft or vehicle impact, falling objects,

windstorm, hail, tornado, cyclone, hurricane, earthquake, volcano,

tsunami, flood, freeze or weight of snow.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TERRORISM EXCLUSION (PROPERTY TREATY REINSURANCE) N.M.A. 2930C

(i)	involves violence against one or more persons; or

(ii)	involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)	creates a risk to health or safety of the public or a section of the public; or

(v)	is designed to interfere with or to disrupt an electronic system.

NMA2930c

22/11/02

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Exhibit 10.17

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

SIXTH PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS


ARTICLE		PAGE
I	BUSINESS COVERED	1
II	TERM	1
III	SPECIAL TERMINATION AND OTHER REMEDIES	2
IV	DEFINITIONS	5
	Declaratory Judgment Expense	5
	Extra Contractual Obligations/Loss in Excess of Policy Limits	6
	Loss Adjustment Expense	6
	Loss Occurrence	7
	Policy	8
	Renewed	8
	Ultimate Net Loss	8
V	TERRITORY	9
VI	EXCLUSIONS	9
VII	SPECIAL ACCEPTANCES	10
VIII	COVERAGE	11
IX	REINSURANCE PREMIUM	11
X	FLORIDA HURRICANE CATASTROPHE FUND	12
XI	OTHER REINSURANCE	13
XII	NET RETAINED LINES	14
XIII	NOTICE OF LOSS AND LOSS SETTLEMENTS	15
XIV	LATE PAYMENTS	15
XV	SALVAGE AND SUBROGATION	16
XVI	DELAYS, OMISSIONS, OR ERRORS	17
XVII	LIABILITY OF THE REINSURER	17
XVIII	ENTIRE AGREEMENT	17
XIX	OFFSET	17
XX	CURRENCY	18
XXI	TAXES	18
XXII	FEDERAL EXCISE TAX	18
XXIII	RESERVES AND FUNDING	18
XXIV	THIRD PARTY RIGHTS	21
XXV	REINSURANCE ALLOCATION	21

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.


XXVI	SEVERABILITY	22
XXVII	SANCTIONS	22
XXVIII	GOVERNING LAW	22
XXIX	ACCESS TO RECORDS	23
XXX	CONFIDENTIALITY	24
XXXI	INSOLVENCY	25
XXXII	ARBITRATION	26
XXXIII	SERVICE OF SUIT	27
XXXIV	MODE OF EXECUTION	28
XXXV	INTERMEDIARY	28
	Schedule A
	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance - U.S.A.
	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance – Canada
	Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994) (Worldwide Excluding U.S.A. And Canada)
	Pools, Associations & Syndicates Exclusion Clause
	Mold Exclusion
	Terrorism Exclusion (Property Treaty Reinsurance) N.M.A. 2930c

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

SIXTH PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

(the “Contract”)

between

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may

hereafter come under the ownership, management and/or control of 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 Company’s liability under its Policies classified by the Company as Property business, subject to the terms, conditions, and limitations set forth herein and in Schedule A attached to and forming part of this Contract.

B.	Subject business shall include business assumed by the Company in connection with the depopulation of Policies from Citizens Property Insurance Corporation.

ARTICLE II

TERM

A.	This Contract shall apply to all Loss Occurrences during the term extending from 12:01 a.m., Eastern Standard Time, July 1, 2014, to 12:01 a.m., Eastern Standard Time, June 1, 2015, on Policies effective at the inception of, or written or Renewed with an effective date during, said term.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	Notwithstanding the expiration or termination of the Reinsurer’s participation hereon, the provisions of this Contract shall continue to apply to all obligations and liabilities of the parties incurred hereunder until all such obligations and liabilities are fully performed and discharged.

ARTICLE III

SPECIAL TERMINATION AND OTHER REMEDIES

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

The Reinsurer has voluntarily ceased assuming new and renewal reinsurance business for the lines of business covered hereunder;

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;

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

The Reinsurer’s A.M. Best’s Financial Strength Rating has been assigned or downgraded below “A-”;

The Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

10.

B.	Where a Special Termination Event has taken place and after giving the Reinsurer prior written notice by electronic mail, certified mail, or by a nationally or internationally recognized delivery service, the Company may invoke any one or a combination of the following:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	The Company may revoke its notice hereunder, prior to the date of termination, without prejudice to reinstitute later if it so chooses.

D.	The Company, at its sole option, may classify the Reinsurer as a “Run-off Reinsurer,” where said Reinsurer experiences one or more of the Special Termination Events set forth in subparagraphs 1, 2, 3, 8, and 9 under paragraph A above.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The interest penalty specified in the LATE PAYMENTS ARTICLE shall be increased by 0.5% for each 30 days that the payment is past due, subject to a maximum increase of 7.0%.

E.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.

ARTICLE IV

DEFINITIONS

The terms set forth below, wherever they appear in this Contract and regardless of whether they appear in a singular or plural form, shall have the meanings given herein:

A.	Declaratory Judgment Expense

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

Extra Contractual Obligations

Loss in Excess of Policy Limits

Any Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

C.	Loss Adjustment Expense

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

D.	Loss Occurrence

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 120 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

No individual losses occasioned by an event that would be covered by 96 hours or 120 hours clauses may be included in any “Loss Occurrence” claimed under the 168 hours provision.

Policy

“Policy” shall mean the Company’s binders, policies, and contracts, whether written or oral, providing insurance or reinsurance on the business covered under this Contract.

Renewed

“Renewed” shall include those Policies issued for more than one year (if any), as of their next annual anniversary or annual installment date.

H.	Ultimate Net Loss

“Ultimate Net Loss” shall mean the amount of any settlement, award, or judgment paid by the Company or for which the Company has become liable to pay, including 1) any pre-judgment interest that is included as part of an award or judgment, 2) 90% of Loss in Excess of Policy Limits, 90% of Extra Contractual Obligations, and 3) an allowance for Loss Adjustment Expense equal to 6% of the sum of the indemnity loss and the amounts set forth in 1) and 2) above, after making deductions for all recoveries, salvages, and subrogations, which are actually recovered, and all claims on inuring reinsurance, whether 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. In the event a verdict or judgment is reduced by an appeal or a settlement, subsequent to the entry of the judgment, however, resulting in an ultimate saving on such verdict or judgment, or a judgment is reversed outright, the loss expense incurred in securing such final reduction or reversal shall be prorated between the

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Reinsurers and the Company in the proportion that each benefits from such reduction or reversal. 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

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

ARTICLE VI

EXCLUSIONS

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

All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund, or other arrangement, howsoever denominated, established, or governed, that 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.

Financial Guarantee coverage and/or similar coverage, however styled.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Loss or liability excluded by the Pools, Associations, and Syndicates Exclusion Clause attached to this Contract.

Mold as defined in the Mold Exclusion attached to this Contract.

Flood and/or earthquake, when written as such.

Loss as excluded under the provisions of the Terrorism Exclusion (Property Treaty Reinsurance) – N.M.A. 2930c attached to this Contract.

10.

All assessments from Citizens Property Insurance Corporation.

D.	If the Company is required to accept an assigned risk, which conflicts with one or more of the exclusions set forth in paragraph A above (except for subparagraphs 3 and 5), this reinsurance shall apply, but up to the limit required by the applicable statute or regulatory authority.

ARTICLE VII

SPECIAL ACCEPTANCES

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE VIII

COVERAGE

ARTICLE IX

REINSURANCE PREMIUM

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	The average of the 100-year and 25-year Hurricane return times are calculated based on AIR (Clasic/2 v.15.0). Hurricane Models including secondary uncertainty, standard hurricane frequencies and loss amplification.

D.	The average 100-year and 25-year AIR (Clasic/2 v.15.0) Hurricane PML is estimated at $[***] as of August 31, 2014.

ARTICLE X

FLORIDA HURRICANE CATASTROPHE FUND

A.	As respects Loss Occurrences subject to this Contract, any loss reimbursement recoverable by the Company under the Florida Hurricane Catastrophe Fund (FHCF), shall be deducted in determining Ultimate Net Loss under this Contract, subject to the following:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Any other FHCF recoveries shall be disregarded for purposes of determining Ultimate Net Loss subject to this Contract.

C.	Any FHCF reimbursement premiums paid by the Company for FHCF layers that inure to the benefit of this Contract shall be deemed to be premiums paid for inuring reinsurance.

ARTICLE XI

OTHER REINSURANCE

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

B.	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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XII

NET RETAINED LINES

B.	The Company shall purchase, the layers of reinsurance shown below, which shall inure to the benefit of the reinsurance coverage provided under this Contract.

100% of $7,000,000 excess of $2,000,000 Ultimate Net Loss, each Loss Occurrence, with no reinstatement, and placed at 100%.

$6,000,000 xs $9,000,000 Underlying Property Catastrophe Excess of Loss Reinsurance Contract placed with Osprey Re Ltd.

$4,000,000 xs $2,000,000 xs $4,000,000 Underlying Property Catastrophe Excess of Loss Reinsurance Contract placed with Osprey Re Ltd.

The Multi-Year First & Second Property Catastrophe Excess of Loss Reinsurance Contract (Willis reference number 109797001/109798001-14).

The Property Catastrophe Excess of Loss Reinsurance Agreement (reference number 708852386) placed with Citrus Re Ltd.

The Property Catastrophe Excess of Loss Reinsurance Agreement (reference number 709101428) placed with Citrus Re Ltd.

The Property Catastrophe Excess of Loss Reinsurance Contract (Willis reference number 109904001-14).

The Fourth Property Catastrophe Excess of Loss Reinsurance Contract placed with Osprey Re Ltd.

The Fifth Property Catastrophe Excess of Loss Reinsurance Contract (Willis reference number 109795001-14).

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 that may have become due from such reinsurers, whether such inability arises from the insolvency of such other reinsurers or otherwise.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XIII

NOTICE OF LOSS AND LOSS SETTLEMENTS

B.	The Company alone and at its full discretion shall adjust, settle, or compromise all claims and losses.

ARTICLE XIV

LATE PAYMENTS

(The provisions of this Article shall not be implemented unless specifically invoked by the Company in writing.)

The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

1/365ths of a rate equal to the 90-day Treasury Bill rate as published in The Wall Street Journal on the first business day following the date a remittance becomes due plus 300 basis points; times

The amount past due, including accrued interest.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties has been received by the intermediary.

B.	The establishment of the payment due date shall, for purposes of this Article, be determined in accordance with the applicable Article of this Contract.

ARTICLE XV

SALVAGE AND SUBROGATION

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XVI

DELAYS, OMISSIONS, OR ERRORS

ARTICLE XVII

LIABILITY OF THE REINSURER

ARTICLE XVIII

ENTIRE AGREEMENT

ARTICLE XIX

OFFSET

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XX

CURRENCY

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 XXI

TAXES

The Company shall pay applicable taxes (except Federal Excise Tax, if any) on premiums reported to the Reinsurer under this Contract.

ARTICLE XXII

FEDERAL EXCISE TAX

B.	In the event of any return premium becoming due hereunder, the Reinsurer shall deduct the applicable percentage from the return premium payable hereon and the Company or its agent shall recover such tax from the United States Government.

C.	As respects premiums ceded to the Reinsurer under this Contract, the Reinsurer agrees to indemnify the Company for any liability, expense, interest, or penalty it may incur by reason of the Reinsurer’s breach of this Article.

ARTICLE XXIII

RESERVES AND FUNDING

A.	The Reinsurer shall provide funding under the terms of this Article only if the Company is denied statutory credit for reinsurance ceded to that Reinsurer pursuant to the credit for reinsurance law or regulations of the regulatory authority having jurisdiction over the Company’s reserves.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Loss and loss expense paid by the Company but not recovered from the Reinsurer;

Known outstanding losses that have been reported to the Reinsurer and loss expense relating thereto;

Reserves for loss and loss expense incurred but not reported;

Unearned premium (if applicable);

Other amounts recoverable reported in Schedule F of the Company’s NAIC Statement;

C.	Deferral of funding that may be permitted for a certified reinsurer in the event of a catastrophe shall not apply to any Reinsurer under this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

To reimburse the Company for the Reinsurer’s share of unearned premium on Policies reinsured hereunder on account of cancellations of such Policies;

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;

To pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

F.	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.

G.	At annual intervals, or more frequently but never more frequently than quarterly, the Company shall prepare a specific report of the Reinsurer’s Obligations, for the sole purpose of amending the LOC or other method of funding, in the following manner:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

H.	Should the Reinsurer be in breach of its obligations under this Article, notwithstanding anything to the contrary elsewhere in this Contract, the Company may seek relief in respect of said breach from any court having competent jurisdiction over the parties hereto.

ARTICLE XXIV

THIRD PARTY RIGHTS

ARTICLE XXV

REINSURANCE ALLOCATION

A.	While having no effect on the settlements or liabilities of the parties to this Contract, it is established that:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

B.	Records of these allocations shall be maintained in sufficient detail to identify both the Reinsurer’s loss obligations allocated to each member company and each member company’s share of premium allocation.

ARTICLE XXVI

SEVERABILITY

ARTICLE XXVII

SANCTIONS

ARTICLE XXVIII

GOVERNING LAW

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXIX

ACCESS TO RECORDS

C.	If any undisputed amounts are overdue from the Reinsurer to the Company, the Reinsurer shall have access to such records only upon payment of all such overdue amounts.

E.	Nothing in this Article requires the Company to maintain or to make available any document for longer than the period required by the Company’s document retention policies and procedures or the period required by applicable statute or regulation, whichever is greater.

F.	“Protected Records” are defined as communications, files, records, documents, or books:

Deemed by the Company to concern Trade Secrets of the Company (Trade Secrets shall have the meaning provided in Section 1839 of the United States Economic Espionage Act of 1996); or

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Deemed by the Company to be subject to attorney-client privilege or work product rule protection; or

Concerning individual private information that as a matter of law cannot be disclosed by the Company.

ARTICLE XXX

CONFIDENTIALITY

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies, except when:

Required by retrocessionaires subject to the business ceded to this Contract; or

Required by state regulators performing an audit of the Reinsurer’s records and/or financial condition; or

Required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

C.	Further, the Reinsurer agrees not to use any Confidential Information for any purpose not permitted by this Contract or not related to the performance of their obligations or enforcement of their rights under this Contract.

E.	The provisions of this Article shall extend to the officers, directors, and employees of the Reinsurer and its affiliates, who have received Confidential Information in accordance with this Contract, and shall be binding upon their successors and assigns.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXXI

INSOLVENCY

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

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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXXII

ARBITRATION

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXXIII

SERVICE OF SUIT

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his/her 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.

D.	The individual named in paragraph C shall be deemed the Reinsurer’s agent for the service of process:

where the address designated in, or pursuant to paragraph B is invalid; or

to the extent necessary to bring this Contract into conformity with the applicable law of a state with jurisdiction over the Company.

ARTICLE XXXIV

MODE OF EXECUTION

ARTICLE XXXV

INTERMEDIARY

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Road, Suite 300, McLeansville, North Carolina 27301-9528. 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 1st day of August, 2014.


HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

By	/s/ Richard A. Widdicombe

Printed Name		Richard A. Widdicombe

Title	President

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

SCHEDULE A

SIXTH PROPERTY CATASTROPHE

EXCESS OF LOSS REINSURANCE CONTRACT

Effective: July 1, 2014

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may hereafter come under the ownership, management and/or control of the Company


	Sixth Excess
	Top & Drop Layer
	109895001-14
Company’s Retention	$	2,000,000
Reinsurer’s Per Occurrence Limit	$	50,000,000
Reinsurer’s Term Limit	$	50,000,000
Rate on PML		[***]	%
Annual Deposit Premium	$	[***]
Quarterly Deposit Premium	$	[***]
Minimum Premium	$	[***]

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

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

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.

IV.

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

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

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

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

7)	Reassured to be sole judge of what constitutes:

substantial quantities, and

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:

12/12/57

N.M.A. 1119

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE – CANADA

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.

(a)

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

(b)

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

(c)

(d)

Installations other than those listed in (c) above using substantial quantities of radioactive isotopes or other products of nuclear fission.

(a)

where the Reinsured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

where the said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused.

5)	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.

7)	Reinsured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

8)	Without in any way restricting the operation of paragraphs 1, 2, 3, and 4 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 caused:

(a)

(b)

by contamination by radioactive material.

NOTE:

01/04/96

N.M.A. 1980a

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1994)

(WORLDWIDE EXCLUDING U.S.A. AND CANADA)

This agreement shall exclude Nuclear Energy Risks whether such risks are written directly and/or by way of reinsurance and/or via Pools and/or Associations.

I	All Property on the site of a nuclear power station.

Nuclear Reactors, reactor buildings and plant and equipment therein on any site other than a nuclear power station.

II	All Property , on any site (including but not limited to the sites referred to in (I) above) used or having been used for:

(a)

The generation of nuclear energy; or

(b)

The Production, Use or Storage of Nuclear Material.

III	Any other Property eligible for insurance by the relevant local Nuclear Insurance Pool and/or Association but only to the extent of the requirements of that local Pool and/or Association.

IV	The supply of goods and services to any of the sites described in I to III above, unless such insurances or reinsurances shall exclude the perils of irradiation and contamination by Nuclear Material.

Except as undernoted, Nuclear Energy Risks shall not include:

(i)	Any insurance or reinsurance in respect of the construction or erection or installation or replacement or repair or maintenance or decommissioning of Property as described in I to III above (including contractors’ plant and equipment);

(ii)	Any Machinery Breakdown or other Engineering insurance or reinsurance not coming within the scope of I above;

Provided always that such insurance or reinsurance shall exclude the perils of irradiation and contamination by Nuclear Material.

However, the above exemption shall not extend to:

1.	The provision of any insurance or reinsurance whatsoever in respect of:

(a)

Nuclear Material ;

(b)

2.	The provision of any insurance or reinsurance for the undernoted perils:

•

Fire, lightning, explosion;

•

Earthquake;

•

Aircraft and other aerial devices or articles dropped therefrom;

•

Irradiation and radioactive contamination;

•

Any other peril insured by the relevant local Nuclear Insurance Pool and/or Association;

in respect of any other Property not specified in 1 above which directly involves the Production , Use or Storage of Nuclear Material as from the introduction of Nuclear Material into such Property .

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Definitions

“Nuclear Material” means:

(i)	Nuclear fuel, other than natural uranium and depleted uranium, capable of producing energy by a self-sustaining chain process of nuclear fission outside a Nuclear Reactor , either alone or in combination with some other material; and

(ii)	Radioactive Products or Waste.

“Nuclear Installation” means:

(i)	Any Nuclear Reactor ;

(ii)	Any factory using nuclear fuel for the production of Nuclear Material , or any factory for the processing of Nuclear Material , including any factory for the reprocessing of irradiated nuclear fuel; and

(iii)

Any facility where Nuclear Material is stored, other than storage incidental to the carriage of such material.

“High Radioactivity Zone or Area” means:

(i)	For nuclear power stations and Nuclear Reactors , the vessel or structure which immediately contains the core (including its supports and shrouding) and all the contents thereof, the fuel elements, the control rods and the irradiated fuel store; and

(ii)	For non-reactor Nuclear Installations, any area where the level of radioactivity requires the provision of a biological shield.

10/3/94

N.M.A. 1975a

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE

SECTION A:

EXCLUDING:

(a)

All Business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

(b)

SECTION B:

EXCLUDING:

Oil, Gas or Petro-Chemical Plants,

Oil or Gas Drilling Rigs,

Aviation Risks.

SECTION B does not apply:

(a)

Where the Total Insured Value over all interests of the risk in question is less than $[***].

(b)

To interests traditionally underwritten as Inland Marine or Stock and/or Contents written on a Blanket basis.

(c)

(d)

To risks as follows:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Where this Clause attaches to catastrophe excesses, the following Section C is added:

SECTION C:

NEVERTHELESS the Reinsurer specifically agrees that liability accruing to the Company from its participation in residual market mechanisms including but not limited to:

(l)

The following so-called “Coastal Pools”:

ALABAMA INSURANCE UNDERWRITING ASSOCIATION

MISSISSIPPI WINDSTORM UNDERWRITING ASSOCIATION

NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION

SOUTH CAROLINA WINDSTORM AND HAIL UNDERWRITING ASSOCIATION

TEXAS WINDSTORM INSURANCE ASSOCIATION

AND

(2)

All “FAIR Plan” and “Rural Risk Plan” business

AND

(3)	The Louisiana Citizens Property Insurance Corporation and the California Earthquake Authority (CEA)

for all perils otherwise protected hereunder shall not be excluded, except, however, that this reinsurance does not include any increase in such liability resulting from:

(i)

The inability of any other participant in such “Coastal Pool” and/or “FAIR Plan” and/or “Rural Risk Plan” and/or Residual Market Mechanisms to meet its liability.

(ii)

SECTION D:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

MOLD EXCLUSION

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

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

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

Fire, lightning, explosion, aircraft or vehicle impact, falling objects,

windstorm, hail, tornado, cyclone, hurricane, earthquake, volcano,

tsunami, flood, freeze or weight of snow.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TERRORISM EXCLUSION (PROPERTY TREATY REINSURANCE) N.M.A. 2930C

(i)	involves violence against one or more persons; or

(ii)	involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)	creates a risk to health or safety of the public or a section of the public; or

(v)	is designed to interfere with or to disrupt an electronic system.

NMA2930c

22/11/02

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Exhibit 10.18

REIMBURSEMENT CONTRACT

Effective: June 1, 2014

(Contract)

between

HERITAGE PROPERTY AND CASUALTY INSURANCE COMPANY

(Company)

NAIC # 14407

and

THE STATE BOARD OF ADMINISTRATION OF THE STATE OF FLORIDA (SBA)

WHICH ADMINISTERS THE FLORIDA HURRICANE CATASTROPHE FUND (FHCF)

PREAMBLE

The Legislature of the State of Florida has enacted Section 215.555, Florida Statutes (Statute), which directs the SBA to administer the FHCF. This Contract, consisting of the principal document entitled Reimbursement Contract, addressing the mandatory FHCF coverage, and Addenda, is subject to the Statute and to any administrative rule adopted pursuant thereto, and is not intended to be in conflict therewith. All provisions in the principal document are equally applicable to each Addendum unless specifically superseded by one of the Addenda.

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

ARTICLE I—SCOPE OF AGREEMENT

As a condition precedent to the SBA’s obligations under this Contract, the Company, an Authorized Insurer or an entity writing Covered Policies under Section 627.351, Florida Statutes, in the State of Florida, shall report to the SBA in a specified format the business it writes which is described in this Contract as Covered Policies.

The terms of this Contract shall determine the rights and obligations of the parties. This Contract provides reimbursement to the Company under certain circumstances, as described herein, and does not provide or extend insurance or reinsurance coverage to any person, firm, corporation or other entity. The SBA shall reimburse the Company for its Ultimate Net Loss on Covered Policies, which were in force and in effect at the time of the Covered Event causing the loss, in excess of the Company’s Retention as a result of each Loss Occurrence commencing during the Contract Year, to the extent funds are available, all as hereinafter defined.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE II—PARTIES TO THE CONTRACT

This Contract is solely between the Company and the SBA which administers the FHCF. In no instance shall any insured of the Company or any claimant against an insured of the Company, or any other third party, have any rights under this Contract, except as provided in Article XIV. The SBA will only disburse funds to the Company, except as provided for in Article XIV of this Contract. The Company shall not, without the prior approval of the Office of Insurance Regulation, sell, assign, or transfer to any third party, in return for a fee or other consideration any sums the FHCF pays under this Contract or the right to receive such sums.

ARTICLE III—TERM

This Contract shall apply to Loss Occurrences which commence during the period from 12:00:01 a.m., Eastern Time, June 1, 2014, to 12:00 midnight, Eastern Time, May 31, 2015 (Contract Year).

The Company must designate a coverage level, make the required selections, and return this fully executed Contract (two originals) to the FHCF Administrator so that the Contract is received by the FHCF Administrator no later than 5 p.m., Central Time, March 1, 2014. Failure to do so may result in a referral to the Office of Insurance Regulation within the Department of Financial Services for administrative action. Furthermore, the Company’s coverage level under this Contract will be deemed as follows:

(1)

For Companies that are a member of a National Association of Insurance Commissioners (NAIC) group, the same coverage level selected by the other Companies of the same NAIC group shall be deemed. If executed Contracts for none of the members of an NAIC group have been received by the FHCF Administrator, the coverage level from the prior Contract Year shall be deemed.

(2)	For Companies that are not a member of an NAIC group under which other Companies are active participants in the FHCF, the coverage level from the prior Contract Year shall be deemed.

(3)	For New Participants, as that term is defined in Article V(21), that are a member of an NAIC group, the same coverage level selected by the other Companies of the same NAIC group shall be deemed.

(4)

For New Participants that are not a member of an NAIC group under which other Companies are active participants in the FHCF, the 45%, 75% or 90% coverage levels may be selected providing that the FHCF Administrator receives executed Contracts within 30 calendar days of the effective date of the first Covered Policy, otherwise, the 45% coverage level shall be deemed.

Pursuant to the terms of this Contract, the SBA shall not be liable for Loss Occurrences which commence after the effective time and date of expiration or termination. Should this Contract expire or terminate while a Loss Occurrence covered hereunder is in progress, the SBA shall be responsible for such Loss Occurrence in progress in the same manner and to the same extent it would have been responsible had the Contract expired the day following the conclusion of the Loss Occurrence in progress.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE IV—LIABILITY OF THE FHCF

(1)

The SBA shall reimburse the Company, with respect to each Loss Occurrence commencing during the Contract Year for the “Reimbursement Percentage” elected, this percentage times the amount of Ultimate Net Loss paid by the Company in excess of the Company’s Retention, as adjusted pursuant to Article V(28), plus 5% of the reimbursed losses for Loss Adjustment Expense Reimbursement.

(2)	The Reimbursement Percentage will be 45% or 75% or 90%, at the Company’s option as elected under Article XVIII.

(3)	The aggregate liability of the FHCF with respect to all Reimbursement Contracts covering this Contract Year shall not exceed the limit set forth under Section 215.555(4)(c)1., Florida Statutes. For specifics regarding loss reimbursement calculations, see section (3)(c) of Article X herein.

(4)

Upon the occurrence of a Covered Event, the SBA shall evaluate the potential losses to the FHCF and the FHCF’s capacity at the time of the event. The initial Projected Payout Multiple used to reimburse the Company for its losses shall not exceed the Projected Payout Multiple as calculated based on the capacity needed to provide the FHCF’s mandatory coverage. If it appears that the Estimated Claims-Paying Capacity may be exceeded, the SBA shall reduce the projected payout factors or multiples for determining each participating insurer’s projected payout uniformly among all insurers to reflect the Estimated Claims-Paying Capacity.

(5)	Reimbursement amounts shall not be reduced by reinsurance paid or payable to the Company from other sources.

(6)

After the end of the calendar year, the SBA shall notify insurers of the estimated Borrowing Capacity and the Balance of the Fund as of December 31. In May and October of each year, the SBA shall publish in the Florida Administrative Weekly a statement of the FHCF’s estimated Borrowing Capacity, Estimated Claims-Paying Capacity, and the projected Balance of the Fund as of December 31.

(7)

The obligation of the SBA with respect to all Contracts covering a particular Contract Year shall not exceed the Balance of the Fund as of December 31 of that Contract Year, together with the maximum amount the SBA is able to raise through the issuance of revenue bonds or through other means available to the SBA under Section 215.555, Florida Statutes, up to the limit in accordance with Section 215.555(4)(c)1., Florida Statutes. The obligations and the liability of the SBA are more fully described in Rule 19-8.013, Florida Administrative Code (F.A.C.).

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE V—DEFINITIONS

(1)	Actual Claims-Paying Capacity of the FHCF

This term means the sum of the Balance of the Fund as of December 31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the amount the SBA is able to raise through the issuance of revenue bonds, or through other means available by law to the SBA, up to the limit in accordance with Section 215.555(4)(c)1. and (6), Florida Statutes.

(2)	Actuarially Indicated

This term means, with respect to Premiums paid by Companies for reimbursement provided by the FHCF, an amount determined in accordance with the definition provided in Section 215.555(2)(a), Florida Statutes.

(3)	Additional Living Expense (ALE)

ALE losses covered by the FHCF are not to exceed 40 percent of the insured value of a Residential Structure or its contents based on the coverage provided in the policy. Fair rental value, loss of rents, or business interruption losses are not covered by the FHCF.

(4)	Administrator

This term means the entity with which the SBA contracts to perform administrative tasks associated with the operations of the FHCF. The Administrator is Paragon Strategic Solutions Inc., 8200 Tower, 5600 West 831-d Street, Suite 1100, Minneapolis, Minnesota 55437. The telephone number is (800) 689-3863, and the facsimile number is (800) 264-0492.

(5)	Authorized Insurer

This term is defined in Section 624.09(1), Florida Statutes.

(6)	Borrowing Capacity

This term means the amount of funds which are able to be raised by the issuance of revenue bonds or through other financing mechanisms, less bond issuance expenses and reserves.

(7)	Citizens Property Insurance Corporation (Citizens)

This term means the entity formed under Section 627.351(6), Florida Statutes, and refers to both Citizens Property Insurance Corporation Coastal Account and Citizens Property Insurance Corporation Personal Lines and Commercial Lines Accounts.

(8)	Contract

This term means this Reimbursement Contract for the current Contract Year.

(9)	Covered Event

This term means any one storm declared to be a hurricane by the National Hurricane Center which causes insured losses in Florida. A Covered Event begins when a hurricane causes damage in Florida while it is a hurricane and continues throughout any subsequent downgrades in storm status by the National Hurricane Center regardless of whether the hurricane makes landfall. Any storm, including a tropical storm, which does not become a hurricane is not a Covered Event.

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(10)	Covered Policy or Covered Policies

(a)

Covered Policy, as defined in Section 215.555(2)(c), Florida Statutes, is further clarified to mean only that portion of a binder, policy or contract of insurance that insures real or personal property located in the State of Florida to the extent such policy insures a Residential Structure, as defined in definition (27) herein, or the contents of a Residential Structure, located in the State of Florida.

(b)

Due to the specialized nature of the definition of Covered Policies, Covered Policies are not limited to only one line of business in the Company’s annual statement required to be filed by Section 624.424, Florida Statutes. Instead, Covered Policies are found in several lines of business on the Company’s annual statement. Covered Policies will at a minimum be reported in the Company’s statutory annual statement as:

Fire

Allied Lines

Farmowners Multiple Peril

Homeowners Multiple Peril

Commercial Multiple Peril (non liability portion, covering condominiums and apartments)

Inland Marine

Note that where particular insurance exposures, e.g., mobile homes, are reported on an annual statement is not dispositive of whether or not the exposure is a Covered Policy.

(c)

This definition applies only to the first-party property section of a policy pertaining strictly to the structure, its contents, appurtenant structures, or ALE coverage.

(d)

Covered Policy also includes any collateral protection insurance policy covering personal residences which protects both the borrower’s and the lender’s financial interest, in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowner’s policy, if such policy can be accurately reported as required in Section 215.555(5), Florida Statutes. A Company will be deemed to be able to accurately report data if the required data, as specified in the Premium Formula adopted in Section 215.555(5), Florida Statutes, is available.

(e)

See Article VI of this Contract for specific exclusions.

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(11)	Deductible Buy-Back Policies

This term means a specific policy that provides coverage to a policyholder for some portion of the policyholder’s deductible under a policy issued by another insurer.

(12)	Estimated Claims-Paying Capacity of the FHCF

This term means the sum of the projected Balance of the Fund as of December 31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the most recent estimate of the Borrowing Capacity of the FHCF, determined pursuant to Section 215.555(4)(c), Florida Statutes.

(13)	Excess Policies

This term, for the purposes of this Contract, means a policy that provides insurance protection for large commercial property risks and that provides a layer of coverage above a primary layer (which is insured by a different insurer) that acts much the same as a very large deductible.

(14)	Florida Department of Financial Services (Department)

This term means the Florida regulatory agency, created pursuant to Section 20.121, Florida Statutes, which is charged with regulating the Florida insurance market and administering the Florida Insurance Code.

(15)	Florida Insurance Code

This term means those chapters identified in Section 624.01, Florida Statutes, which are designated as the Florida Insurance Code.

(16)	Formula or the Premium Formula

This term means the Formula approved by the SBA for the purpose of determining the Actuarially Indicated Premium to be paid to the FHCF. The Premium Formula is defined as an approach or methodology which leads to the creation of premium rates. The resulting rates are therefore incorporated as part of the Premium Formula. The Formula, shall, pursuant to Section 215.555(5)(b), Florida Statutes, include a cash build-up factor in the amount specified therein.

(17)	Fund Balance or Balance of the Fund as of December 31

These terms mean the amount of assets available to pay claims, not including any bonding proceeds, resulting from Covered Events which occurred during the Contract Year.

(18)	Insurer Group

For purposes of the coverage option election in Section 215.555(4)(b), Florida Statutes, Insurer Group means the group designation assigned by the National Association of Insurance Commissioners (NAIC) for purposes of filing consolidated financial statements. A Company is a member of a group as designated by the NAIC until such Company is assigned another group designation or is no longer a member of a group recognized by the NAIC.

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(19)	Loss Occurrence

This term means the sum of individual insured Losses incurred under Covered Policies resulting from the same Covered Event. “Losses” means all incurred losses under Covered Policies, including Additional Living Expenses not to exceed 40 percent of the insured value of a Residential Structure or its contents and amounts paid as fees on behalf of or inuring to the benefit of a policyholder, and excludes allocated or unallocated Loss Adjustment Expenses.

(20)	Loss Adjustment Expense Reimbursement

(a)

Loss Adjustment Expense Reimbursement shall be 5% of the reimbursed losses under this Contract as provided in Article IV, pursuant to Section 215.555(4)(b)1., Florida Statutes.

(b)

To the extent that loss reimbursements are limited to the Payout Multiple applied to each Company, the 5% Loss Adjustment Expense is included in the total Payout Multiple applied to each Company.

(21)	New Participant(s)

This term means all Companies which begin writing Covered Policies on or after the beginning of the Contract Year. A Company that removes exposure from either Citizens entity, as that term is defined in (7) above, pursuant to an assumption agreement effective on or after June 1 and had written no other Covered Policies before June 1 is also considered a New Participant.

(22)	Office of Insurance Regulation

This term means that office within the Department of Financial Services and which was created in Section 20.121(3), Florida Statutes.

(23)	Payout Multiple

This term means the multiple as calculated in accordance with Section 215.555(4)(c), Florida Statutes, which is derived by dividing the single season Claims-Paying Capacity of the FHCF by the total aggregate industry Reimbursement Premium for the FHCF for the Contract Year billed as of December 31 of the Contract Year. The final Payout Multiple is determined once Reimbursement Premiums have been billed as of December 31 and the amount of bond proceeds has been determined.

(24)	Premium

This term means the same as Reimbursement Premium.

(25)	Projected Payout Multiple

The Projected Payout Multiple is used to calculate a Company’s projected payout pursuant to Section 215.555(4)(d)2., Florida Statutes. The Projected Payout Multiple is derived by dividing the estimated single season Claims-Paying Capacity of the FHCF by the estimated total aggregate industry Reimbursement Premium for the FHCF for the Contract Year. The Company’s Reimbursement Premium as paid to the SBA for the Contract Year is multiplied by the Projected Payout Multiple to estimate the Company’s coverage from the FHCF for the Contract Year.

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(26)	Reimbursement Premium

This term means the Premium determined by multiplying each $1,000 of insured value reported by the Company in accordance with Section 215.555(5)(b), Florida Statutes, by the rate as derived from the Premium Formula, as described in Rule 19-8.028, F.A.C.

(27)	Residential Structures

This term means units or buildings used for dwelling or habitational occupancies, including the primary structure and appurtenant structures insured under the same policy and any other structures covered under endorsements associated with a policy covering a residential structure. Covered Residential Structures do not include any structures listed under Article VI herein or structures used solely for non-residential purposes.

(28)	Retention

The Company’s Retention means the amount of hurricane losses under Covered Policies which must be incurred by the Company before it is eligible for reimbursement from the FHCF.

(a)

When the Company experiences covered losses from one or two Covered Events during the Contract Year, the Company’s full Retention shall be applied to each of the Covered Events.

(b)

When the Company experiences covered losses from more than two Covered Events during the Contract Year, the Company’s full Retention shall be applied to each of the two Covered Events causing the largest covered losses for the Company. For each other Covered Event resulting in covered losses, the Company’s Retention shall be reduced to one-third of its full Retention and applied to all other Covered Events.

All reimbursement of covered losses for each Covered Event shall be based on the Company’s full Retention until December 31 of the Contract Year. Adjustments to reflect a reduction to one-third of the full Retention shall be made on or after December 31 of the Contract Year provided the Company reports its losses as specified in this Contract.

Adjustments to the Company’s Retention shall be based upon its paid and outstanding losses as reported on the Company’s Proof of Loss Reports but shall not include incurred but not reported losses. The Company’s Proof of Loss Reports shall be used to determine which Covered Events constitute the Company’s two largest Covered Events, and the reduction to one-third of the full Retention shall be applied to all other Covered Events

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for the Contract Year. After this initial determination, any subsequent adjustments shall be made by the SBA only if the quarterly loss reports reveal that loss development patterns have resulted in a change in the order of Covered Events entitled to the reduction to one-third of the full Retention.

(c)

The Company’s full Retention is established in accordance with the provisions of Section 215.555(2)(e), Florida Statutes, and shall be determined by multiplying the Retention Multiple by the Company’s Reimbursement Premium for the Contract Year.

(d)

Once the Company’s limit of coverage has been exhausted, the Company will not be entitled to further reimbursements.

(29)	Retention Multiple

(a)

The Retention Multiple is applied to the Company’s Reimbursement Premium to determine the Company’s Retention. The Retention Multiple for the 2014/2015 Contract Year shall be equal to $[***] billion, adjusted based upon the reported exposure for the 2012/2013 Contract Year to reflect the percentage growth in exposure to the FHCF since 2004, divided by the estimated total industry Reimbursement Premium at the 90% reimbursement percentage level for the Contract Year as determined by the SBA.

(b)

The Retention Multiple as determined under (29)(a) above shall be adjusted to reflect the reimbursement percentage elected by the Company under this Contract as follows:

If the Company elects a 90% reimbursement percentage, the adjusted Retention Multiple is 100% of the amount determined under (29)(a) above;

If the Company elects a 75% reimbursement percentage, the adjusted Retention Multiple is 120% of the amount determined under (29)(a) above; or

If the Company elects a 45% reimbursement percentage, the adjusted Retention Multiple is 200% of the amount determined under (29)(a) above.

(30)	Ultimate Net Loss

(a)

This term means all Losses of the Company under Covered Policies in force at the time of a Covered Event, as defined under (9) above, prior to the application of the Company’s FHCF Retention, as defined under (28) above, and reimbursement percentage, and excluding loss adjustment expense and any exclusions under Article VI herein, arising from each Loss Occurrence during the Contract Year, provided, however, that the Company’s Ultimate Net Loss shall be determined in accordance with the deductible level written under the policy sustaining the loss.

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(b)

Salvages and all other recoveries, excluding reinsurance recoveries, shall be first deducted from such loss to arrive at the amount of liability attaching hereunder.

(c)

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

(d)

Nothing in this clause shall be construed to mean that losses under this Contract are not recoverable until the Company’s Ultimate Net Loss has been ascertained.

(e)

The SBA shall be subrogated to the rights of the Company to the extent of its reimbursement of the Company. The Company agrees to assist and cooperate with the SBA in all respects as regards such subrogation. The Company further agrees to undertake such actions as may be necessary to enforce its rights of salvage and subrogation, and its rights, if any, against other insurers as respects any claim, loss, or payment arising out of a Covered Event.

ARTICLE VI— EXCLUSIONS

This Contract does not provide reimbursement for:

(1)	Any losses not defined as being within the scope of a Covered Policy.

(2)	Any policy which excludes wind or hurricane coverage.

(3)	Any Excess Policy or Deductible Buy-Back Policy that requires individual ratemaking, as determined by the FHCF.

(4)	(a) Any policy for Residential Structures, as defined in Article V(27) herein, that provides a layer of coverage underneath an Excess Policy, as defined in Article V(13) herein, issued by a different insurer; or

(b)

Any other policy providing a layer of windstorm or hurricane coverage for a particular structure above or below a layer of windstorm or hurricane coverage under a separate policy issued by a different insurer, or any other circumstance in which two or more insurers provide primary windstorm or hurricane coverage for a single structure using separate policy forms.

(c)

The exclusions in this subsection do not apply to primary quota share policies written by Citizens Property Insurance Corporation under Section 627.351(6)(c)2., Florida Statutes.

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(5)	Any liability of the Company attributable to losses for fair rental value, loss of rent or rental income, or business interruption.

(6)	Any collateral protection policy that does not meet the definition of Covered Policy as defined in Article V(10)(d) herein.

(7)	Any reinsurance assumed by the Company.

(8)	Any exposure for hotels, motels, timeshares, shelters, camps, retreats, and any other rental property used solely for commercial purposes.

(9)	Any exposure for homeowner associations if no habitational structures are insured under the policy.

(10)	Any exposure for homes and condominium structures or units that are non-owner occupied and rented for six (6) or more rental periods by different parties during the course of a twelve (12) month period.

(11)	Commercial healthcare facilities and nursing homes; however, a nursing home which is an integral part of a retirement community consisting primarily of habitational structures that are not nursing homes will not be subject to this exclusion.

(12)	Any exposure under commercial policies covering only appurtenant structures or structures that do not function as a habitational structure (e.g., a policy covering only the pool of an apartment complex).

(13)	Policies covering only Additional Living Expense.

(14)	Any exposure for barns or barns with apartments.

(15)	Any exposure for builders risk coverage or new Residential Structures still under construction.

(16)	Any exposure for recreational vehicles, golf carts, or boats (including boat related equipment) requiring licensing and written on a separate policy or endorsement.

(17)

Any liability of the Company for extra contractual obligations or liabilities in excess of original policy limits. This exclusion includes, but is not limited to, amounts paid as bad faith awards, punitive damages awards, or other court-imposed fines, sanctions, or penalties; or other amounts in excess of the coverage limits under the Covered Policy.

(18)

Any losses paid in excess of a policy’s hurricane limit in force at the time of each Covered Event, including individual coverage limits (i.e., building, appurtenant structures, contents, and additional living expense), or other amounts paid as the result of a voluntary expansion of coverage by the insurer, including, but not limited to, a waiver of an applicable deductible. This exclusion includes overpayments of a specific individual coverage limit even if total payments under the policy are within the aggregate policy limit.

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BY HERITAGE INSURANCE HOLDINGS, INC.

(19)

Any losses paid under a policy for Additional Living Expense, written as a time element coverage, in excess of the Additional Living Expense exposure reported for that policy under the Data Call for the applicable Contract Year (unless policy limits have changed effective after June 30 of the Contract Year).

(20)	Any losses for which the Company’s claims files do not adequately support. Claim file support shall be deemed adequate if in compliance with the Records Retention Requirements outlined on the Form FHCF-L1B (Proof of Loss Report) applicable to the Contract Year.

(21)	Any exposure for, or amounts paid to reimburse a policyholder for, condominium association loss assessments or under similar coverages for contractual liabilities.

(22)	Losses in excess of the sum of the Balance of the Fund as of December 31 of the Contract Year and the amount the SBA is able to raise through the issuance of revenue bonds or by the use of other financing mechanisms, up to the limit pursuant to Section 215.555(4)(c), Florida Statutes.

(23)	Any liability assumed by the Company from Pools, Associations, and Syndicates. Exception: Covered Policies assumed from Citizens under the terms and conditions of an executed assumption agreement between the Authorized Insurer and Citizens are covered by this Contract.

(24)	All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund.

(25)

“Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

(26)

Property losses that are proximately caused by any peril other than a Covered Event, including, but not limited to, fire, theft, flood or rising water, or windstorm that does not constitute a Covered Event, or any liability of the Company for loss or damage caused by or resulting from nuclear reaction, nuclear radiation, or radioactive contamination from any cause, whether direct or indirect, proximate or remote, and regardless of any other cause or event contributing concurrently or in any other sequence to the loss.

(27)	The FHCF does not provide coverage for water damage which is generally excluded under property insurance contracts and has been defined to mean flood, surface water, waves, tidal water, overflow of a body of water, storm surge, or spray from any of these, whether or not driven by wind.

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BY HERITAGE INSURANCE HOLDINGS, INC.

(28)	Policies and endorsements predominantly covering Specialized Fine Arts Risks or collectible types of property meeting the following requirements:

(a)

A policy or endorsement covering Specialized Fine Arts Risks and not covering any Residential Structure and/or contents thereof (other than such specialized fine arts items covered in the Specialized Fine Arts policy or endorsement) if it meets the description in subparagraph 1 and if all the conditions in subparagraphs 2. through 4. immediately below are met.

For purposes of this exemption, a Specialized Fine Arts Risk policy or endorsement is a policy or endorsement that:

Insures works of art, of rarity, or of historic value, such as paintings, works on paper, etchings, art glass windows, pictures, statuary, sculptures, tapestries, antique furniture, antique silver, antique rugs, rare books or manuscripts, jewelry, or other similar items;

Charges a minimum premium of $500;

Insures scheduled items valued, in the aggregate, at no less than $100,000; and

Requires an investment by the insured in loss control measures to protect the Specialized Fine Arts Risks being insured.

The insurer must perform a periodic and thorough specialized inspection and must provide a specialized loss prevention service designed to prevent or minimize loss.

The structure and its fine arts contents must be provided with satisfactory watchman or alarm service or its equivalent where necessary.

The insurer must maintain a force of trained and competent loss prevention specialists, who perform the following tasks:

Make loss prevention surveys of each Specialized Fine Arts Risk;

Make available a specialized loss prevention service for the purpose of providing consultation regarding hazards to the fine arts being insured;

Confirm through periodic inspections that loss prevention devices are properly maintained;

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Investigate reported losses; and

Confer with the policyholder and confirm through periodic and unannounced inspections that recommended safety and loss control improvements are actually made.

(b)

Any individual policy written to solely cover personal property, scheduled or written under a blanket limit, with a policy limit equal to or exceeding $500,000 and which predominantly covers one or more classes of collectible types of property shall be exempt from coverage under the Fund. Generally such classes of collectible property have unusually high values due to their investible, artistic, or unique intrinsic nature. Additionally, such exempt policy may also include coverage for incidental items of personal property that may also be scheduled although such property may not be considered as a collectible. The predominant class of property covered under such excluded policy represents an unusually high exposure value and such policy is intended to provide coverage for a class or classes of property that is not typical for the contents coverage under residential property insurance policies. In many cases property may be located at various locations either in or outside the state of Florida or the location of the property may change from time to time. The investment nature of such property distinguishes this type of exposure from the typical contents associated with a Covered Policy.

(29)	Any losses under liability coverages.

ARTICLE VII— MANAGEMENT OF CLAIMS AND LOSSES

The Company shall investigate and settle or defend all claims and losses. All payments of claims or losses by the Company within the terms and limits of the appropriate coverage parts of Covered Policies shall be binding on the SBA, subject to the terms of this Contract, including the provisions in Article XIII relating to inspection of records and examinations.

ARTICLE VIII— LOSS REIMBURSEMENT ADJUSTMENTS

(1)	Offsets

The SBA reserves the right to offset amounts payable to the SBA from the Company, including amounts payable under any Contract Year and the Company’s full Premium for the current Contract Year (regardless of installment due dates), against any reimbursement or advance amounts, or amounts agreed to in a commutation agreement, which are due and payable to the Company from the SBA as a result of the liability of the SBA.

(2)	Reimbursement Adjustments

Section 215.555(4)(d) and (e), Florida Statutes, provides the SBA with the right to seek the return of excess loss reimbursements which have been paid to the Company along with interest thereon. Excess loss reimbursements are those payments made to the Company by the SBA that

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are in excess of the Company’s coverage under the Contract Year. Excess loss reimbursements may result from adjustments to the Projected Payout Multiple or the Payout Multiple, incorrect exposure (Data Call) submissions or resubmissions, incorrect calculations of Reimbursement Premiums or Retentions, incorrect Proof of Loss Reports, incorrect calculation of reinsurance recoveries, or subsequent readjustment of policyholder claims, including subrogation and salvage, or any combination of the foregoing. The Company will be sent an invoice showing the due date for adjustments along with the interest due thereon through the due date. The applicable interest rate for interest credits, and for interest charges for adjustments beyond the Company’s control, will be the average rate earned by the SBA for the FHCF for the first four months of the Contract Year. The applicable interest rate for interest charges on excess loss reimbursements due to adjustments resulting from incorrect exposure submissions or Proof of Loss Reports will accrue at this rate plus 5%. All interest will continue to accrue if not paid by the due date.

ARTICLE IX— REIMBURSEMENT PREMIUM

(1)	The Company shall, in a timely manner, pay the SBA its Reimbursement Premium for the Contract Year. The Reimbursement Premium for the Contract Year shall be calculated in accordance with Section 215.555, Florida Statutes, with any rules promulgated thereunder, and with Article X(2).

(2)

The Company’s Reimbursement Premium is based on its June 30 exposure in accordance with Article X, except as provided for New Participants under Article X, and is not adjusted to reflect an increase or decrease in exposure for Covered Policies effective after June 30 nor is the Reimbursement Premium adjusted when the Company cancels policies or is liquidated or otherwise changes its business status (merger, acquisition, or termination) or stops writing new business (continues in business with its policies in a runoff mode). Similarly, new business written after June 30 will not increase or decrease the Company’s FHCF Reimbursement Premium or impact its FHCF coverage. FHCF Reimbursement Premiums are required of all companies based on their writing Covered Policies in Florida as of June 30, and each company’s FHCF coverage as based on the definition in Section 215.555(2)(m), Florida Statutes, shall exist for the entirety of the Contract Year regardless of exposure changes, except as provided for New Participants under Article X.

(3)

Since the calculation of the Actuarially Indicated Premium assumes that the Companies will pay their Reimbursement Premiums timely, interest charges will accrue under the following circumstances. A Company may choose to estimate its own Premium installments. However, if the Company’s estimation is less than the provisional Premium billed, an interest charge will accrue on the difference between the estimated Premium and the final Premium. If a Company estimates its first installment, the Administrator shall bill that estimated Premium as the second installment as well, which will be considered as an estimate by the Company. No interest will accrue regarding any provisional Premium if paid as billed by the FHCF’s Administrator, except in the case of an estimated second installment as set forth in this Article. Also, if a Company makes an estimation that is higher than the provisional Premium billed but is less than the final Premium, interest will not accrue. If the Premium payment is not received from a

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Company when it is due, an interest charge will accrue on a daily basis until the payment is received. Interest will also accrue on Premiums resulting from submissions or resubmissions finalized after December 1 of the Contract Year. An interest credit will be applied for any Premium which is overpaid as either an estimate or as a provisional Premium. Interest shall not be credited past December 1 of the Contract Year. The applicable interest rate for interest credits will be the average rate earned by the SBA for the FHCF for the first four months of the Contract Year. The applicable interest rate for interest charges will accrue at this rate plus 5%.

ARTICLE X—REPORTS AND REMITTANCES

(1)	Exposures

(a)

If the Company writes Covered Policies before June 1 of the Contract Year, the Company shall report to the SBA, unless otherwise provided in Rule 19-8.029, F.A.C., no later than the statutorily required date of September 1 of the Contract Year, by ZIP Code or other limited geographical area as specified by the SBA, its insured values under Covered Policies as of June 30 of the Contract Year as outlined in the annual reporting of insured values form, FHCFD 1 A (Data Call) adopted for the Contract Year under Rule 19-8.029, F.A.C., and other data or information in the format specified by the SBA.

(b)

If the Company first begins writing Covered Policies on or after June 1 but prior to December 1 of the Contract Year, the Company shall report to the SBA, no later than February 1 of the Contract Year, by ZIP Code or other limited geographical area as specified by the SBA, its insured values under Covered Policies as of November 30 of the Contract Year as outlined in the Supplemental Instructions for New Participants section of the Data Call adopted for the Contract Year under Rule 19-8.029, F.A.C., and other data or information in the format specified by the SBA.

(c)

If the Company first begins writing Covered Policies on December 1 through and including May 31 of the Contract Year, the Company shall not report its exposure data for the Contract Year to the SBA.

(d)

The requirement that a report is due on a certain date means that the report shall be received by the SBA no later than 4 p.m. Eastern Time on the due date. If the applicable due date is a Saturday, Sunday or legal holiday, then the actual due date will be the day immediately following the applicable due date which is not a Saturday, Sunday or legal holiday. For purposes of the timeliness of the submission, neither the United States Postal Service postmark nor a postage meter date is in any way determinative. Reports sent to the FHCF Administrator in Minneapolis, Minnesota, will be returned to the sender. Reports not in the physical possession of the SBA by 4 p.m., Eastern Time, on the applicable due date are late.

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(2)	Reimbursement Premium

(a)

If the Company writes Covered Policies before June 1 of the Contract Year, the Company shall pay the FHCF its Reimbursement Premium in installments due on or before August 1, October 1, and December 1 of the Contract Year in amounts to be determined by the FHCF. However, if the Company’s Reimbursement Premium for the prior Contract Year was less than $5,000, the Company’s full provisional Reimbursement Premium, in an amount equal to the Reimbursement Premium paid in the prior year, shall be due in full on or before August 1 of the Contract Year. The Company will be invoiced for amounts due, if any, beyond the provisional Reimbursement Premium payment, on or before December 1 of the Contract Year.

(b)

If the Company is under administrative supervision, or if any control or oversight of the Company has been transferred through any legal or regulatory action to a state regulator or court appointed receiver or rehabilitator (referred to in the aggregate as “state action”):

The full annual provisional Reimbursement Premium as billed and any outstanding balances will be due and payable on August 1, or the date that such State action occurs after August 1 of the Contract Year.

Failure by such Company to pay the full annual provisional Reimbursement Premium as specified in 1. above by the applicable due date(s) shall result in the 45% coverage level being deemed for the complete Contract Year regardless of the level selected for the Company through the execution of this Contract and regardless of whether a hurricane event occurred or triggered coverage.

The provisions required in 1. and 2. above will not apply when the state regulator, receiver, or rehabilitator provides a letter of assurance to the FHCF that the Company will have the resources and will pay the full Reimbursement Premium for the coverage level selected through the execution of this Contract.

When control or oversight has been transferred, in whole or in part, through a legal or regulatory action, the controlling management of the Company shall specify by August 1 or as soon thereafter as possible (but not to exceed two weeks after any regulatory or legal action) in a letter to the FHCF as to the Company’s intentions to either pay the full FHCF Reimbursement Premium as specified in 1. above, to default to the 45% coverage being deemed as specified in 2. above, or to provide the assurances as specified in 3. above.

(c)

A New Participant that first begins writing Covered Policies on or after June 1 but prior to December 1 of the Contract Year shall pay the FHCF a provisional Reimbursement Premium of $1,000 upon execution of this Contract. The Administrator shall calculate the Company’s actual Reimbursement Premium for

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the period based on its actual exposure as of November 30 of the Contract Year, as reported on or before February 1 of the Contract Year. To recognize that New Participants have limited exposure during this period, the actual Premium as determined by processing the Company’s exposure data shall then be divided in half, the provisional Premium shall be credited, and the resulting amount shall be the total Premium due for the Company for the remainder of the Contract Year. However, if that amount is less than $1,000, then the Company shall pay $1,000. The Premium payment is due no later than April 1 of the Contract Year. The Company’s Retention and coverage will be determined based on the total Premium due as calculated above.

(d)

A New Participant that first begins writing Covered Policies on or after December 1 through and including May 31 of the Contract Year shall pay the FHCF a Reimbursement Premium of $1,000 upon execution of this Contract.

(e)

The requirement that the Reimbursement Premium is due on a certain date means that the Premium shall be in the physical possession of the FHCF no later than 2 p.m., Eastern Time, on the due date applicable to the particular installment. If remitted by check to the FHCF’s Post Office Box, the check shall be physically in the Post Office Box 100822, Atlanta, GA 303840822, as set out on the invoice sent to the Company. If remitted by check by hand delivery, the check shall be physically on the premises of the FHCF’s bank in College Park, Georgia, as set out on the invoice sent to the Company. If remitted electronically, the wire transfer shall have been completed to the FHCF’s account at its bank in Tampa, Florida, as set out on the invoice sent to the Company. If the applicable due date is a Saturday, Sunday or legal holiday, then the actual due date will be the day immediately following the applicable due date which is not a Saturday, Sunday or legal holiday. For purposes of the timeliness of the remittance, neither the United States Postal Service postmark nor a postage meter date is in any way determinative. Premium checks sent to the SBA in Tallahassee, Florida, or to the FHCF’s Administrator in Minneapolis, Minnesota, will be returned to the sender. Reimbursement Premiums not in the physical possession of the FHCF by 2 p.m., Eastern Time, on the applicable due date are late.

(f)

Except as required by Section 215.555(7)(c), Florida Statutes, or as described in the following sentence, Reimbursement Premiums, together with earnings thereon, received in a given Contract Year will be used only to pay for losses attributable to Covered Events occurring in that Contract Year or for losses attributable to Covered Events in subsequent Contract Years and will not be used to pay for past losses or for debt service on revenue bonds. Pursuant to Section 215.555(6)(a)1., Florida Statutes, Reimbursement Premiums and earnings thereon may be used for payments relating to revenue bonds in the event emergency assessments are insufficient. If Reimbursement Premiums or earnings thereon are used for debt service on revenue bonds, then the amount of the Reimbursement Premiums or earnings thereon so used shall be returned, without interest, to the Fund when emergency assessments or other legally available funds remain available after making payment relating to the revenue bonds and any other purposes for which emergency assessments were levied.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

(3)	Claims and Losses

(a)

In General

Claims and losses resulting from Loss Occurrences commencing during the Contract Year shall be reported by the Company and reimbursed by the FHCF as provided herein and in accordance with the Statute, this Contract, and any rules adopted pursuant to the Statute. For a Company participating in a quota share primary insurance agreement(s) with Citizens Property Insurance Corporation Coastal Account, Citizens and the Company shall report only their respective portion of losses under the quota share primary insurance agreement(s). Pursuant to Section 215.555(4)(c), Florida Statutes, the SBA is obligated to pay for losses not to exceed the Actual Claims-Paying Capacity of the FHCF, up to the limit in accordance with Section 215.555(4)(c)1., Florida Statutes, for any one Contract Year.

If the Company is in non-compliance with Section 215.555, Florida Statutes for any Contract Year, including deadlines for sending in Contracts, addenda or attachments to Contracts, Data Call submissions or resubmissions, loss reports, or in responding to SBA exam requirements, the SBA reserves the right to withhold any payments or advances until such time the Company becomes compliant.

(b)

Loss Reports

At the direction of the SBA, the Company shall report its projected Ultimate Net Loss from each Loss Occurrence to provide information to the SBA in determining any potential liability for possible reimbursable losses under the Contract on the Interim Loss Report, Form FHCF-L1A, adopted for the Contract Year under Rule 19-8.029, F.A.C. Interim Loss Reports (including subsequent Interim Loss Reports if required by the SBA) will be due in no less than fourteen days from the date of the notice from the SBA that such a report is required.

FHCF loss reimbursements will be issued based on Ultimate Net Loss information reported by the Company on the Proof of Loss Report, Form FHCF-L1B, adopted for the Contract Year under Rule 19-8.029, F.A.C.

To qualify for reimbursement, the Proof of Loss Report must have the original signatures of two executive officers authorized by the Company to sign the report.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The Company must also submit a detailed claims listing (as outlined on the Proof of Loss Report) at the same time it submits its first Proof of Loss Report for a specific Covered Event that qualifies the Company for reimbursement under that Covered Event, and should be prepared to supply a detailed claims listing for any subsequent Proof of Loss Report upon request.

While a Company may submit a Proof of Loss Report requesting reimbursement at any time following a Loss Occurrence, all Companies shall submit a mandatory Proof of Loss Report for each Loss Occurrence no earlier than December 1 and no later than December 31 of the Contract Year during which the Covered Event(s) occurs using the most current data available, regardless of the amount of Ultimate Net Loss or the amount of loss reimbursements or advances already received. Reports may be faxed only if the Company does not qualify for a reimbursement.

For the Proof of Loss Reports due by December 31 of the Contract Year, and the required subsequent quarterly and annual reports required under subparagraphs 3. and 4. below, the Company shall submit its Proof of Loss Reports by each quarter-end or year-end using the most current data available. However, the date of such data shall not be more than sixty days prior to the applicable quarter-end or year-end date.

Updated Proof of Loss Reports for each Loss Occurrence are due quarterly thereafter until all claims and losses resulting from a Loss Occurrence are fully discharged including any adjustments to such losses due to salvage or other recoveries, or the Company has received its full coverage under the Contract Year in which the Loss Occurrence(s) occurred. Guidelines follow:

Quarterly Proof of Loss Reports are due by March 31 from an insurer whose losses exceed, or are expected to exceed, 50% of its FHCF Retention for a specific Loss Occurrence(s).

Quarterly Proof of Loss Reports are due by June 30 from an insurer whose losses exceed, or are expected to exceed, 75% of its FHCF Retention for a specific Loss Occurrence(s).

Quarterly Proof of Loss Reports are due by September 30 and quarterly thereafter from an insurer whose losses exceed, or are expected to exceed, its FHCF Retention for a specific Loss Occurrence(s).

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

If the Company’s Retention must be recalculated as the result of an exposure resubmission, and if the recalculated Retention changes the FHCF’s reimbursement obligations, then the Company shall submit additional Proof of Loss Reports for recalculation of the FHCF’s obligations.

Annually after December 31 of the Contract Year, all Companies shall submit a mandatory year-end Proof of Loss Report for each Loss Occurrence, as applicable, using the most current data available, accompanied by a detailed claims listing (as outlined on the Proof of Loss Report). This Proof of Loss Report shall be filed no earlier than December 1 and no later than December 31 of each year and shall continue until the earlier of the commutation process described in (3)(d) below or until all claims and losses resulting from the Loss Occurrence are fully discharged including any adjustments to such losses due to salvage or other recoveries.

The SBA, except as noted below, will determine and pay, within 30 days or as soon as practicable after receiving Proof of Loss Reports, the reimbursement amount due based on losses paid by the Company to date and adjustments to this amount based on subsequent quarterly information. The adjustments to reimbursement amounts shall require the SBA to pay, or the Company to return, amounts reflecting the most recent determination of losses. a. The SBA shall have the right to consult with all relevant regulatory agencies to seek all relevant information, and shall consider any other factors deemed relevant, prior to the issuance of reimbursements.

The SBA shall require commercial self-insurance funds established under Section 624.462, Florida Statutes, to submit contractor receipts to support paid losses reported on a Proof of Loss Report, and the SBA may hire an independent consultant to confirm losses, prior to the issuance of reimbursements.

The SBA shall have the right to conduct a claims examination prior to the issuance of any advances or reimbursements submitted by Companies that have been placed under regulatory supervision by a State or where control has been transferred through any legal or regulatory proceeding to a state regulator or court appointed receiver or rehabilitator.

All Proof of Loss Reports received will be compared with the FHCF’s exposure data to establish the facial reasonableness of the reports. The SBA may also review the results of current and prior Contract Year exposure and loss examinations to determine the reasonableness of the reported losses. Except as noted in paragraph 4. above, Companies meeting these tests for reasonableness will be scheduled for reimbursement. Companies not meeting these tests for reasonableness will be handled on a case-by-case basis and will be contacted to provide specific information regarding their individual book of business. The

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

discovery of errors in a Company’s reported exposure under the Data Call may require a resubmission of the current Contract Year Data Call which, as the Data Call impacts the Company’s Premium, Retention, and coverage for the Contract Year, will be required before the Company’s request for reimbursement or an advance will be fully processed by the Administrator.

(c)

Loss Reimbursement Calculations

In general, the Company’s paid Ultimate Net Losses must exceed its full FHCF Retention for a specific Covered Event before any reimbursement is payable from the FHCF for that Covered Event. As described in Article V(28)(b), Retention adjustments will be made on or after December 31 of the Contract Year. No interest is payable on additional payments to the Company due to this type of Retention adjustment. Each Company sustaining reimbursable losses will receive the amount of reimbursement due under the Contract up to the amount of the Company’s payout. If more than one Covered Event occurs in any one Contract Year, any reimbursements due from the FHCF shall take into account the Company’s Retention for each Covered Event. However, the Company’s reimbursements from the FHCF for all Covered Events occurring during the Contract Year shall not exceed, in aggregate, the Projected Payout Multiple or Payout Multiple, as applicable, times the individual Company’s Reimbursement Premium for the Contract Year.

In determining reimbursements under this Contract, the SBA shall reimburse each of the Companies, including entities created pursuant to Section 627.351(6), Florida Statutes, for the amount (if any) of reimbursement due under the individual Company’s Contract, but not to exceed for all Loss Occurrences, an amount equal to the Projected Payout Multiple or the Payout Multiple, as applicable, times the individual Company’s Reimbursement Premium for the Contract Year.

Reserve established. When a Covered Event occurs in a subsequent Contract Year when reimbursable losses are still being paid for a Covered Event in a previous Contract Year, the SBA will establish a reserve for the outstanding reimbursable losses for the previous Contract Year, based on the length of time the losses have been outstanding, the amount of losses already paid, the percentage of incurred losses still unpaid, and any other factors specific to the loss development of the Covered Events involved.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

(d)

Commutation

Not less than 36 months or more than 60 months after the end of the Contract Year, the Company shall file a final Proof of Loss Report(s), with the exception of Companies having no reportable losses as described in paragraph (3)(d)l.a. below. Otherwise, the final Proof of Loss Report(s) is required as specified in paragraph (3)(d)l.b. below. The Company and SBA may mutually agree to initiate commutation after 36 months and prior to 60 months after the end of the Contract Year. The commutation negotiations shall begin at the later of 60 months after the end of the Contract Year or upon completion of the FHCF loss examination for the Company and the resolution of all outstanding examination issues.

If the Company’s most recently submitted Proof of Loss Report(s) indicate that it has no losses resulting from a Loss Occurrence(s) during the Contract Year, the SBA shall after 36 months request that the Company execute a final commutation agreement. The final commutation agreement shall constitute a complete and final release of all obligations of the SBA with respect to all claims and losses. If the Company chooses not to execute a final commutation agreement, the SBA shall be released from all obligations 60 months following the end of the Contract Year if no Proof of Loss Report(s) indicating reimbursable losses have been filed and the commutation shall be deemed concluded. However during this time, if the Company determines that it does have losses to report for FHCF reimbursement, the Company must submit an updated Proof of Loss Report(s) prior to the end of 60 months after the Contract Year and the Company shall be required to follow the commutation provisions and time frames otherwise specified in this section.

If the Company has submitted a Proof of Loss Report(s) indicating that it does have losses resulting from a Loss Occurrence(s) during the Contract Year, the SBA may require the Company to submit within 30 days an updated, current Proof of Loss Report(s) for each Loss Occurrence during the Contract Year. The Proof of Loss Report(s) must include all paid losses as well as all outstanding losses and incurred but not reported losses, which are not finally settled and which may be reimbursable losses under this Contract, and must be accompanied by supporting documentation (at a minimum an adjuster’s summary report or equivalent details) and a copy of a written opinion on the present value of the outstanding losses and incurred but not reported losses by the Company’s certifying actuary. Failure of the Company to provide an updated current Proof of Loss Report(s), supporting documentation, and an opinion by the date requested by the SBA may result in referral to the Office of Insurance Regulation for a violation of the Contract. Increases in reported paid, outstanding, or incurred but not reported losses on original or corrected Proof of Loss Report filings received later than 60 months after the end of the Contract Year shall not be eligible for reimbursement or commutation.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Determining the present value of outstanding claims and losses.

If the Company exceeds or expects to exceed its Retention, the Company and the SBA or their respective representatives shall attempt, by mutual agreement, to agree upon the present value of all outstanding claims and losses, both reported and incurred but not reported, resulting from Loss Occurrences during the Contract Year. Payment by the SBA of its portion of any amount or amounts so mutually agreed and certified by the Company’s certifying actuary shall constitute a complete and final release of the SBA in respect of all claims and losses, both reported and unreported, under this Contract.

If agreement on present value cannot be reached within 90 days of the FHCF’s receipt of the final Proof of Loss Report(s) and supporting documentation, the Company and the SBA may mutually appoint an actuary, adjuster, or appraiser to investigate and determine such claims or losses. If both parties then agree, the SBA shall pay its portion of the amount so determined to be the present value of such claims or losses.

If the parties fail to agree, then any difference shall be settled by a panel of three actuaries, as provided in this paragraph.

One actuary shall be chosen by each party, and the third actuary shall be chosen by those two actuaries. If either party does not appoint an actuary within 30 days, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of an independent third actuary within 30 days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots.

ii.

All of the actuaries shall be regularly engaged in the valuation of property claims and losses and shall be members of the Casualty Actuarial Society and of the American Academy of Actuaries.

iii.

None of the actuaries shall be under the control of either party to this Contract.

iv.

Each party shall submit its case to the panel in writing on the 30th day after the appointment of the third actuary. Following the submission of the case to the panel, the parties are prohibited from providing any further information or other communication except at the request of the panel. Such responses to requests from the panel must be in writing and simultaneously provided to the other party and all members of the panel, except that the panel may require the response to be provided in a meeting or teleconference attended by both parties and all members of the panel.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The decision in writing of any two actuaries, when filed with the parties hereto, shall be final and binding on both parties.

The reasonable and customary expense of the actuaries and of the commutation (as a result of b. and c. above) shall be equally divided between the two parties. Said commutation shall take place in Tallahassee, Florida, unless some other place is mutually agreed upon by the Company and the SBA.

(4)	Advances

(a)

In accordance with Section 215.555(4)(e), Florida Statutes, the SBA may make advances for loss reimbursements as defined herein, at market interest rates, to the Company in accordance with Section 215.555(4)(e), Florida Statutes. An advance is an early reimbursement which allows the Company to continue to pay claims in a timely manner. Advances will be made based on the Company’s paid and reported outstanding losses for Covered Policies (excluding all incurred but not reported [IBNR] losses) as reported on a Proof of Loss Report, and shall include Loss Adjustment Expense Reimbursement as calculated by the FHCF. In order to be eligible for an advance, the Company must submit its exposure data for the Contract Year as required under paragraph (1) of this Article. Except as noted below, advances, if approved, will be made as soon as practicable after the SBA receives a written request, signed by two officers of the Company, for an advance of a specific amount and any other information required for the specific type of advance under subparagraphs (c) and (e) below. All reimbursements due to a Company shall be offset against any amount of outstanding advances plus the interest due thereon.

(b)

For advances or excess advances, which are advances that are in excess of the amount to which the Company is entitled, the market interest rate shall be the prime rate as published in the Wall Street Journal on the first business day of the Contract Year. This rate will be adjusted annually on the first business day of each subsequent Contract Year, regardless of whether the Company executes subsequent Contracts. In addition to the prime rate, an additional 5% interest charge will apply on excess advances. All interest charged will commence on the date the SBA issues a check for an advance and will cease on the date upon which the FHCF has received the Company’s Proof of Loss Report(s) for the Covered Event(s) for which the Company qualifies for reimbursement(s). If such reimbursement(s) are less than the amount of outstanding advance(s) issued to the

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Company, interest will continue to accrue on the outstanding balance of the advance(s) until subsequent Proof of Loss Reports qualify the Company for reimbursement under any Covered Event equal to or exceeding the amount of any outstanding advance(s). Interest shall be billed on a periodic basis. If it is determined that the Company received funds in excess of those to which it was entitled, the interest as to those sums will not cease on the date of the receipt of the Proof of Loss Report but will continue until the Company reimburses the FHCF for the overpayment.

(c)

If the Company has an outstanding advance balance as of December 31 of this or any other Contract Year, the Company is required to have an actuary certify outstanding and incurred but not reported losses as reported on the applicable December Proof of Loss Report.

(d)

The specific type of advances enumerated in Section 215.555, Florida Statutes, follow.

Advances to Companies to prevent insolvency, as defined under Article XIV of this Contract.

Section 215.555(4)(e)1., Florida Statutes, provides that the SBA shall advance to the Company amounts necessary to maintain the solvency of the Company, up to 50 percent of the SBA’s estimate of the reimbursement due to the Company.

In addition to the requirements outlined in subparagraph (4)(a) above, the requirements for an advance to a Company to prevent insolvency are that the Company demonstrates it is likely to qualify for reimbursement and that the immediate receipt of moneys from the SBA is likely to prevent the Company from becoming insolvent, and the Company provides the following information:

Current assets;

ii.

Current liabilities other than liabilities due to the Covered Event;

iii.

Current surplus as to policyholders;

iv.

Estimate of other expected liabilities not due to the Covered Event; and

Amount of reinsurance available to pay claims for the Covered Event under other reinsurance treaties.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The SBA’s final decision regarding an application for an advance to prevent insolvency shall be based on whether or not, considering the totality of the circumstances, including the SBA’s obligations to provide reimbursement for all Covered Events occurring during the Contract Year, granting an advance is essential to allowing the entity to continue to pay additional claims for a Covered Event in a timely manner.

Advances to entities created pursuant to Section 627.351(6), Florida Statutes.

Section 215.555(4)(e)2., Florida Statutes, provides that the SBA may advance to an entity created pursuant to Section 627.351(6), Florida Statutes, up to 90% of the lesser of the SBA’s estimate of the reimbursement due or the entity’s share of the actual aggregate Reimbursement Premium for that Contract Year, multiplied by the current available liquid assets of the FHCF.

In addition to the requirements outlined in subparagraph (4)(a) above, the requirements for an advance to entities created pursuant to Section 627.351(6), Florida Statutes, are that the entity must demonstrate to the SBA that the advance is essential to allow the entity to pay claims for a Covered Event.

Advances to limited apportionment companies.

Section 215.555(4)(e)3., Florida Statutes, provides that the SBA may advance the amount of estimated reimbursement payable to limited apportionment companies.

(e)

In determining whether or not to grant an advance and the amount of an advance, the SBA:

Shall determine whether its assets available for the payment of obligations are sufficient and sufficiently liquid to fulfill its obligations to other Companies prior to granting an advance;

Shall review and consider all the information submitted by such Companies;

Shall review such Companies’ compliance with all requirements of Section 215.555, Florida Statutes;

Shall consult with all relevant regulatory agencies to seek all relevant information;

Shall review the damage caused by the Covered Event and when that Covered Event occurred;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Shall consider whether the Company has substantially exhausted amounts previously advanced;

Shall consider any other factors deemed relevant; and

Shall require commercial self-insurance funds established under section 624.462, Florida Statutes, to submit a copy of written estimates of expenses in support of the amount of advance requested.

(f)

Any amount advanced by the SBA shall be used by the Company only to pay claims of its policyholders for the Covered Event or Covered Events which have precipitated the immediate need to continue to pay additional claims as they become due.

(5)	Delinquent Payments

Failure to submit a payment when due is a violation of the terms of this Contract and Section 215.555, Florida Statutes. Interest on late payments shall be due as set forth in Article VIII(2) and Article IX(2) of this Contract.

(6)	Inadequate Data Submissions

If exposure data or other information required to be reported by the Company under the terms of this Contract is not received by the FHCF in the format specified by the FHCF or is inadequate to the extent that the FHCF requires resubmission of data, the Company will be required to pay the FHCF a resubmission fee of $1,000 for resubmissions that are not a result of an examination by the SBA. If a resubmission is necessary as a result of an examination report issued by the SBA, the first resubmission fee will be $2,000. If the Company’s examination-required resubmission is inadequate and the SBA requires an additional resubmission(s), the resubmission fee for each subsequent resubmission shall be $2,000. A resubmission of exposure data may delay the processing of the Company’s request for reimbursement or an advance.

(7)	Delinquent Submissions

Failure to submit an exposure submission, resubmission, loss report, or commutation documentation when due is a violation of the terms of this Contract and Section 215.555, Florida Statutes.

(8)	Confidential Information/Trade Secret Information

Pursuant to the provisions of Section 215.557, Florida Statutes, the reports of insured values under Covered Policies by ZIP Code submitted to the SBA pursuant to Section 215.555, Florida Statutes, are confidential and exempt from the provisions of Section 119.07(1), Florida Statutes, and Section 24(a), Art. I of the State Constitution. If other information submitted by the Company to the FHCF could reasonably be ruled a “trade secret” as defined in Section 812.081, Florida Statutes, such information must be clearly marked “Trade Secret Information.”

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XI—TAXES

In consideration of the terms under which this Contract is issued, the Company agrees to make no deduction in respect of the Premium herein when making premium tax returns to the appropriate authorities. Should any taxes be levied on the Company in respect of the Premium herein, the Company agrees to make no claim upon the SBA for reimbursement in respect of such taxes.

ARTICLE XII—ERRORS AND OMISSIONS

Any inadvertent delay, omission, or error on the part of the SBA shall not be held to relieve the Company from any liability which would attach to it hereunder if such delay, omission, or error had not been made.

ARTICLE XIII—INSPECTION OF RECORDS

The Company shall allow the SBA to inspect, examine, and verify, at reasonable times, all records of the Company relating to the Covered Policies under this Contract, including Company files concerning claims, losses, or legal proceedings regarding subrogation or claims recoveries which involve this Contract, including premium, loss records and reports involving exposure data or losses under Covered Policies. This right by the SBA to inspect, examine, and verify shall survive the completion and closure of an exposure examination or loss examination file and the termination of the Contract. The Company shall have no right to re-open an exposure or loss reimbursement examination once closed and the findings have been accepted by the Company; any re-opening shall be at the sole discretion of the SBA. If the State Board of Administration Finance Corporation (formerly known as the FHCF Finance Corporation) has issued revenue bonds and relied upon the exposure and loss data submitted and certified by the Company as accurate to determine the amount of bonding needed, the SBA may choose not to require, or accept, a resubmission if the resubmission will result in additional reimbursements to the Company. The SBA may require any discovered errors, inadvertent omissions, and typographical errors associated with the data reporting of insured values, discovered prior to the closing of the file and acceptance of the examination findings by the Company, to be corrected to reflect the proper values. The Company shall retain its records in accordance with the requirements for records retention regarding exposure reports and claims reports outlined herein, and in any administrative rules adopted pursuant to Section 215.555, Florida Statutes. Companies writing covered collateral protection policies, as defined in definition (10)(d) of Article V herein, must be able to provide documentation that the policy covers personal residences, protects both the borrower’s and lender’s interest, and that the coverage is in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowner’s policy.

(1)	Purpose of FHCF Examination

The purpose of the examinations conducted by the SBA is to evaluate the accuracy of the FHCF exposure or loss data reported by the Company. However, due to the limited nature of the examination, it cannot be relied upon as an assurance that a company’s data is reported accurately or in its entirety. The company should not rely on the FHCF to identify every type of reporting error in its data. In addition, the reporting requirements are subject to change each

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Contract Year so it is the Company’s responsibility to be familiar with the applicable Contract Year requirements and to incorporate any changes into its data for that Contract Year. It is also the Company’s responsibility to ensure that its data is reported accurately and to comply with Florida Statutes and any applicable rules when reporting exposure data. The examination report is not intended to provide a legal determination of the Company’s compliance.

(2)	Examination Requirements for Exposure Verification

The Company shall retain complete and accurate records, in policy level detail, of all exposure data submitted to the SBA in any Contract Year until the SBA has completed its examination of the Company’s exposure submissions. The Company shall also retain complete and accurate records of any completed exposure examination for any Contract Year in which the Company incurred losses until the completion of the loss reimbursement examination and commutation for that Contract Year. The records to be retained are outlined in the Data Call adopted for the Contract Year under Rule 198.029, F.A.C. A complete list of records to be retained for the exposure examination is set forth in Form FHCF-EAP1, adopted for the Contract Year under Rule 19-8.030, F.A.C.

(3)	Examination Requirements for Loss Reports

The Company shall retain complete and accurate records of all reported losses and/or advances submitted to the SBA until the SBA has completed its examination of the Company’s reimbursable losses and commutation for the Contract Year (if applicable) has been concluded. The records to be retained are set forth as part of the Proof of Loss Report, Form FHCF-L1B, adopted for the Contract Year under Rule 19-8.029, F.A.C., and Form FHCF-LAP1, adopted for the Contract Year under Rule 19-8.030, F.A.C.

(4)	Examination Procedures

(a)

The FHCF will send an examination notice to the Company providing the commencement date of the examination, the site of the examination, any accommodation requirements of the examiner, and the reports and data which must be assembled by the Company and forwarded to the FHCF upon request. The Company shall be prepared to choose one location in which to be examined, unless otherwise specified by the SBA.

(b)

The reports and data are required to be forwarded to the FHCF as set forth in an examination notice letter. The information is then forwarded to the examiner. If the FHCF receives accurate and complete records as requested, the examiner will contact the Company to inform the Company as to what policies or other documentation will be required once the examiner is on site. Any records not required to be provided to the examiner in advance shall be made available at the time the examiner arrives on site. Any records to support reported losses which are provided after the examiner has left the work-site will, at the SBA’s discretion, result in an additional examination of exposure and/or loss records or an extension or expansion of the examination already in progress. All costs associated with such additional examination or with the extension or expansion of the original examination shall be borne by the Company.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

(c)

At the conclusion of the examiner’s work and the management review of the examiner’s report, findings, recommendations, and work papers, the FHCF will forward an examination report to the Company and require a response from the Company by a date certain as to the examination findings and recommendations.

(d)

If the Company accepts the examination findings and recommendations, and there is no recommendation for additional information, the examination report will be finalized and the exam file closed.

(e)

If the Company disputes the examiner’s findings, the areas in dispute will be resolved by a meeting or a conference call between the Company and FHCF management.

(f)

1. If the recommendation of the examiner is to resubmit the Company’s exposure data for the Contract Year in question, then the FHCF will send the Company a letter outlining the process for resubmission and including a deadline to resubmit. Once the resubmission is received, the FHCF’s Administrator calculates a revised Reimbursement Premium for the Contract Year which has been examined. The SBA shall then review the resubmission with respect to the examiner’s findings, and accept the resubmission or contact the Company with any questions regarding the resubmission. Once the SBA has accepted the resubmission as a sufficient response to the examiner’s findings, the exam is closed.

If the recommendation of the examiner is to give the Company the option to either resubmit the exposure data or to pay the estimated Premium difference, then the FHCF will send the Company a letter outlining the process for resubmission or for paying the estimated Premium difference and including a deadline for the resubmission or the payment to be received by the FHCF’s Administrator. If the Company chooses to resubmit, the same procedures outlined in Article XIII(3)(01. apply.

(g)

If the recommendation of the examiner is to update the Company’s Proof of Loss Report(s) for the Contract Year under review, the FHCF will send the Company a letter outlining the process for submitting the Proof of Loss Report(s) and including a deadline to file. Once the Proof of Loss Report(s) is received by the FHCF Administrator, the FHCF’s Administrator will calculate a revised reimbursement. The SBA shall then review the submitted Proof of Loss Report(s) with respect to the examiner’s findings, and accept the Proof of Loss Report(s) as filed or contact the Company with any questions. Once the SBA has accepted the corrected Proof of Loss Report(s) as a sufficient response to the examiner’s findings, the exam is closed.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

(h)

The examiner’s list of errors is made available in the examination report sent to the Company. Given that the examination was based on a sample of the Company’s policies or claims rather than the whole universe of the Company’s Covered Policies or reported claims, the error list is not intended to provide a complete list of errors but is intended to indicate what information needs to be reviewed and corrected throughout the Company’s book of Covered Policy business or claims information to ensure more complete and accurate reporting to the FHCF.

(5)	Costs of the Examinations

The costs of the examinations shall be borne by the SBA. However, in order to remove any incentive for a Company to delay preparations for an examination, the SBA shall be reimbursed by the Company for any examination expenses incurred in addition to the usual and customary costs, which additional expenses were incurred as a result of the Company’s failure, despite proper notice, to be prepared for the examination or as a result of a Company’s failure to provide requested information. All requested information must be complete and accurate.

ARTICLE XIV—INSOLVENCY OF THE COMPANY

Company shall notify the FHCF immediately upon becoming insolvent. Except as otherwise provided below, no covered loss reimbursements will be made until the FHCF has completed and closed its examination of the insolvent Company’s losses, unless an agreement is entered into by the court appointed receiver specifying that all data and computer systems required for FHCF exposure and loss examinations will be maintained until completion of the Company’s exposure and loss examinations. Except as otherwise provided below, in order to account for potential erroneous reporting, the SBA shall hold back 25% of requested loss reimbursements until the exposure and loss examinations for the Company are completed. Only those losses supported by the examination will be reimbursed. Pursuant to Section 215.555(4)(g), Florida Statutes, the FHCF is required to pay the “net amount of all reimbursement moneys” due an insolvent insurer to the Florida Insurance Guaranty Association (FIGA) for the benefit of Florida policyholders. For the purpose of this Contract, a Company is insolvent when an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction. In light of the need for an immediate infusion of funds to enable policyholders of insolvent companies to be paid for their claims, the SBA may enter into agreements with FIGA allowing exposure and loss examinations to take place immediately without the usual notice and response time limitations and allowing the FHCF to make loss reimbursements (net of any amounts payable to the SBA from the Company or FIGA) to FIGA before the examinations are completed and before the response time expires for claims filing by reinsurers and financial institutions, which have a priority interest in those funds pursuant to Section 215.555(4)(g), Florida Statutes. Such agreements must ensure the availability of the necessary records and adequate security must be provided so that if the FHCF determines that it overpaid FIGA on behalf of the Company, or if claims are filed by reinsurers or financial institutions having a priority interest in these funds, that the funds will be repaid to the FHCF by FIGA within a reasonable time.

ARTICLE XV—TERMINATION

The FHCF and the obligations of both parties under this Contract can be terminated only as may be provided by law or applicable rules.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XVI—VIOLATIONS

Pursuant to the provisions of Section 215.555(10), Florida Statutes, any violation of the terms of this Contract by the Company constitutes a violation of the Insurance Code of the State of Florida. Pursuant to the provisions of Section 215.555(11), Florida Statutes, the SBA is authorized to take any action necessary to enforce any administrative rules adopted pursuant to Section 215.555, Florida Statutes, and the provisions and requirements of this Contract.

ARTICLE XVII—APPLICABLE LAW

This Contract shall be governed by and construed according to the laws of the State of Florida in respect of any matter relating to or arising out of this Contract.

ARTICLE XVIII—REIMBURSEMENT CONTRACT ELECTIONS

(1)	Reimbursement Percentage

For purposes of determining reimbursement (if any) due the Company under this Contract and in accordance with the Statute, the Company has the option to elect a [***]% or [***]% or [***]% reimbursement percentage under this Contract. If the Company is a member of an NAIC group, all members must elect the same reimbursement percentage, and the individual executing this Contract on behalf of the Company, by placing his or her initials in the box under (a) below, affirms that the Company has elected the same reimbursement percentage as all members of its NAIC group. If the Company is an entity created pursuant to Section 627.351, Florida Statutes, the Company must elect the [***]% reimbursement percentage. The Company shall not be permitted to change its reimbursement percentage during the Contract Year. The Company shall be permitted to change its reimbursement percentage at the beginning of a new Contract Year, but may not reduce its reimbursement percentage if a Covered Event required the issuance of revenue bonds, until the bonds have been fully repaid.

IMPORTANT NOTE: The State Board of Administration Finance Corporation has issued revenue bonds as a result of its liabilities for Covered Events under the Contract Year effective June 1, 2005. As those bonds have not been fully repaid, the Company may not select a Reimbursement Percentage that is less than its selection under the prior Contract Year effective June 1, 2013.

The Reimbursement Percentage elected by the Company for the prior Contract Year effective June 1, 2013 was as follows: Heritage Property and Casualty Insurance Company—90%

(a)

NAIC Group Affirmation: Initial the following box if the Company is part of an NAIC Group:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

(b)

Reimbursement Percentage Election: The Company hereby elects the following Reimbursement Percentage for the Contract Year from 12:00:01 a.m., Eastern Time, June 1, 2014, to 12:00 a.m., Eastern Time, May 31, 2015, (the individual executing this Contract on behalf of the Company shall place his or her initials in the box to the left of the percentage elected for the Company):

[***]%

/s/ SR

[***]%

(2)	Reporting Exposure for a Single Structure, with a Mix of Commercial Habitational and Commercial Non-Habitational Exposure, Written on a Commercial Policy

This section is applicable to all Companies which either have exposure for single structures with a mix of commercial habitational and commercial non-habitational exposure written under a Commercial Policy, or have the authority to write such policies. If the Company does not have the authority to write this type of exposure, this section does not apply; initial the N/A box at the end of this section, which completes this section of ARTICLE XVIII. If the Company does write, or has the authority to write, this type of exposure, please read and complete the remainder of this section.

For the purpose of determining the predominant use of mixed-use single structures under this Contract, the FHCF considers predominant use to be greater than 50% of the total insured value of the structure as justified by the company on the basis of number of floors, square footage, or other reasonable methodology presented to the Administrator (e.g., a classification plan explaining how predominance is determined, and likely to include commercial residential and commercial non-residential or business class codes) for approval prior to the Data Call submission under this Contract. Exposure shall be reported under the Company’s Data Call in accordance with the following:

Predominant Use is Dwelling or Habitational Occupancies

If a single structure is used for both habitational and non-habitational purposes and the predominant use is dwelling or habitational occupancies, the entire exposure for the structure should be reported to the FHCF under the Data Call, and the FHCF will reimburse losses for the entire structure.

Predominant Use is Non-Dwelling or Non-Habitational Occupancies

If a single structure is used for both habitational and non-habitational purposes and the predominant use is non-dwelling or non-habitational occupancies, the habitational portion of that structure should be identified and reported to the FHCF under the Data Call.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

However, in recognition of the unusual nature of commercial structures with incidental habitational exposure and the hardship some companies may face in having to carve out such incidental habitational exposure, as well as the losses to such structures, the FHCF will accommodate these companies by allowing them to exclude the entire exposure for the single structure from their Data Call submission, providing the following two conditions are met:

(a)

The decision to not carve out and report the incidental habitational exposure shall apply to all such structures insured by the Company; and

(b)

If the incidental habitational exposure is not reported to the FHCF, the Company agrees it shall not report losses to the structure and the FHCF shall not reimburse any losses to the structure.

Initial the CARVING box below if the Company is able to carve out and report its incidental habitational exposure, OR, if this requirement presents a hardship, the Company must communicate its decision to not carve out and to not report the incidental exposure by having the individual executing this Contract on behalf of the Company placing his or her initials in the NOT CARVING box below. If the Company does not currently write such policies, but has the authority to write such policies after the start date of this Contract, the decision to carve or not carve out the incidental habitational exposure must be indicated below.

/s/ SR

CARVING

NOT CARVING

NOT APPLICABLE

By initialing the CARVING or NOT CARVING box above, the Company is making an irrevocable decision for the corresponding Contract Year Data Call submission and any subsequent resubmissions.

Important Note: Since this election will impact your Data Call submission, please share this decision with the individual(s) responsible for compiling your Data Call submission.

(3)	Additional Living Expense (ALE) Written as Time Element Coverage

If your Company writes Covered Policies that provide ALE coverage on a time element basis (i.e., coverage is based on a specific period of time as opposed to a stated dollar limit), you must initial the ‘Yes — Time Element ALE’ box below. If your Company does not write time element ALE coverage, initial ‘No — Time Element ALE’ box below.




	OR
Yes – Time Element ALD		No – Time Element ALE

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XIX—SIGNATURES\

Approved by:

Florida Hurricane Catastrophe Fund


By:	State Board of Administrations of the State of Florida

By:	/s/ Ashbel C. Williams	Date 6/5/14
	Ashbel C. Williams
	Executive Director & CIO

Approved as to legality:

By:	/s/ Craig A. Meyer	Date 6/5/14
	Craig A. Meyer
	Assistant General Counsel

Heritage Property and Casualty Insurance Company


Stephen Rohde
		Typed/Printed Name and Title


By:	/s/ Stephen Rohde	Date 2/10/14
	Signature

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Exhibit 10.19

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may

hereafter come under the ownership, management and/or control of the Company

PROPERTY EXCESS PER RISK

REINSURANCE CONTRACT

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS


ARTICLE		PAGE

I	BUSINESS COVERED		1
II	TERM		1
III	SPECIAL TERMINATION		2
IV	RUN-OFF REINSURERS		4
V	DEFINITIONS		6
	Declaratory Judgment Expense		6
	Extra Contractual Obligations/Loss in Excess of Policy Limits		6
	Loss Adjustment Expense		7
	Loss Occurrence		7
	Policy		8
	Risk		9
	Subject Earned Premium		9
	Ultimate Net Loss		9
VI	TERRITORY		9
VII	EXCLUSIONS		9
VIII	SPECIAL ACCEPTANCES		11
IX	COVERAGE		12
X	OTHER REINSURANCE		12
XI	REINSTATEMENT		12
XII	ACCOUNTING BASIS		13
XIII	REINSURANCE PREMIUM		13
XIV	NOTICE OF LOSS AND LOSS SETTLEMENTS		14
XV	LATE PAYMENTS		14
XVI	ALLOCATION		15
XVII	SALVAGE AND SUBROGATION		16
XVIII	DELAYS, ERRORS AND OMISSIONS		16
XIX	OFFSET		17
XX	CURRENCY		17
XXI	TAXES		17
XXII	FEDERAL EXCISE TAX		17
XXIII	RESERVES AND FUNDING		18

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.


XXIV	NET RETAINED LINES	20
XXV	THIRD PARTY RIGHTS	21
XXVI	ENTIRE AGREEMENT	21
XXVII	SEVERABILITY	21
XXVIII	GOVERNING LAW	21
XXIX	ACCESS TO RECORDS	21
XXX	CONFIDENTIALITY	23
XXXI	INSOLVENCY	23
XXXII	ARBITRATION	24
XXXIII	SERVICE OF SUIT	26
XXXIV	MODE OF EXECUTION	27
XXXV	INTERMEDIARY	27
	Exhibit A
	Pools, Associations & Syndicates Exclusion Clause
	Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance - U.S.A.
	North American War Exclusion Clause (Reinsurance)
	Electronic Date Recognition Clause EDRC (B)
	Terrorism Exclusion Clause
	Transmission And Distribution Lines Exclusion – Overhead (150m Exclusion)
	Mold, Fungus, Mildew And Spore Exclusion

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

PROPERTY EXCESS PER RISK

REINSURANCE CONTRACT

(the “Contract”)

between

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may

hereafter come under the ownership, management and/or control of the Company

(collectively 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 assumed, issued or renewed at or after that time and date, and classified by the Company as Property business, including but not limited to Personal Residential and Commercial Residential, subject to the terms, conditions and limitations hereafter set forth.

ARTICLE II

TERM

This Contract shall become effective at 12:01 a.m., Eastern Standard Time, June 27, 2014, with respect to losses occurring at or after that time and date, and shall continue in effect until 12:01 a.m., Eastern Standard Time, June 1, 2015, or until such time as this Contract is terminated in accordance with the provisions of the SPECIAL TERMINATION ARTICLE.

B.	Upon expiration or termination of this Contract, the Reinsurer shall be relieved of all liability hereunder for losses occurring with dates of loss subsequent to the time and date of expiration or termination of this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Notwithstanding the above, upon expiration or termination of this Contract, the Company shall have the option of requiring that the Reinsurer remain liable for losses occurring under Policies in force at the time and date of expiration or termination of this Contract in respect of all losses occurring from the effective date of the Policy to the end of the run-off period by providing written notification to the Reinsurer within 30 days after the termination or expiration of this Contract. As respects each Policy ceded to this Contract, “run-off” period means the period from the expiration or termination (if applicable) of this Contract up to the first anniversary date, termination, or natural expiration date of such Policies or until 12 months plus odd time not to exceed 18 months in all following the date of expiration or termination, whichever occurs first. However, should the Company elect termination or expiration on a “run-off” basis, in the event that any Policy subject to this Contract is required by statute, regulation or by order of an insurance department to be continued in force, the Reinsurer agrees to extend reinsurance coverage hereunder with respect to such Policy until such Policy may be canceled or non-renewed by the Company, but in no event beyond 36 months following the effective time and date of termination or expiration of this Contract.

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

ARTICLE III

SPECIAL TERMINATION

A.	The Company may terminate the share of the Reinsurer at any time, upon said Reinsurer experiencing one or more of the Special Termination Event(s). A “Special Termination Event” shall be deemed to have occurred in the event of any of the following circumstances:

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

The Reinsurer has voluntarily ceased assuming new and renewal reinsurance business for the lines of business covered hereunder;

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;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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

The Reinsurer’s A.M. Best’s Financial Strength Rating has been assigned or downgraded below “A-”;

The Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent;

10.

Where a Special Termination event has taken place and after giving the Reinsurer prior written notice by electronic mail, certified mail, or by a nationally or internationally recognized delivery service, the Company may terminate or reduce the Reinsurer’s share hereunder effective at any time following the Reinsurer’s receipt of the written notice. In such event the Company may elect that:

As respects each Policy in force at the date of termination or reduction, the Reinsurer shall remain liable for all losses occurring from the effective date of the Policy to the end of the run-off period, as provided in paragraph C of the TERM ARTICLE; or

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The entire liability of the Reinsurer for losses occurring subsequent to the date of termination shall cease concurrently with the date of termination and any minimum premium shall be waived.

ARTICLE IV

RUN-OFF REINSURERS

A.	“Run-off Reinsurer” means the Reinsurer:

Has been ordered by a state insurance department or other legal authority to cease writing business, or has been placed under regulatory supervision or in rehabilitation; or

Has ceased all or substantially all of its reinsurance underwriting operations; or

Has transferred all or substantially all of its claims-paying authority to an unaffiliated entity without the consent of the Company; or

In any other way has assigned all or substantially all of its interests or delegates all or substantially all of its obligations under this Contract to an unaffiliated entity.

B.	Notwithstanding paragraph A above, the following shall not constitute a transfer of the Reinsurer’s claims-paying authority for purposes of subparagraphs A(3) and A(4) above:

The transfer of claims-paying authority or administration to a third party, if the Reinsurer maintains control over claims settlement decisions; or

Agreement by a Lloyd’s Syndicate to follow claims procedures under The Lloyd’s Claims Scheme (Combined) or as amended or any successor thereto.

Notwithstanding any other provision of this Contract, in the event that the Reinsurer becomes a Run-off Reinsurer at any time, the Company may elect, by giving written notice to the Run-off Reinsurer at any time thereafter, that all or any of the following shall apply to the Run-off Reinsurer’s participation hereunder:

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The interest penalty specified in the LATE PAYMENTS ARTICLE shall be increased by 0.5% for each 30 days that the payment is past due, subject to a maximum increase of 7.0%.

If mutually agreed by the Company and the Run-off Reinsurer, the Run-off Reinsurer’s liability for losses for Policies covered by this Contract may be commuted. In the event the Company and the Run-off Reinsurer cannot agree on the commutation amount of the Run-off Reinsurer’s liability under such Policies, either party may choose to abandon the process. If neither party chooses to abandon the process, they may appoint an actuary to assess such liability and shall share equally in any expense of the actuary. The appointed actuary shall be either a Fellow of the Casualty Actuarial Society or the American Academy of Actuaries. If the Company and the Run-off Reinsurer cannot agree on an actuary, the parties shall abandon the process. If a mutually acceptable commutation is agreed, payment by the Run-off Reinsurer of the amount of liability ascertained shall constitute a complete and final release of both parties under this Contract. In the event the Company and the Run-off Reinsurer do not agree to a mutually acceptable commutation, the parties’ respective rights and obligations shall continue as set forth in this Contract.

The sole arbitrator shall be chosen by mutual agreement of the parties within 15 business days after the demand for arbitration. If the parties have not chosen an arbitrator within the 15 business days after the receipt of the arbitration notice, the arbitrator shall be chosen in accordance with the Neutral Arbitrator Selection Procedure modified for a single arbitrator, established by the AIDA Reinsurance and Insurance Arbitration Society – U.S. (ARIAS) and in force on the date the arbitration is demanded. The nominated arbitrator must be available to read any written submissions and hear testimony within 60 calendar days of being chosen.

The arbitrator shall render a decision within 10 business days after the latter of the date on which briefs are submitted or the end of the limited hearing. The decision of the arbitrator shall be in writing and shall be final and binding on both parties.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

D.	The Company’s waiver of any rights provided in this Article is not a waiver of that right or other rights at a later date.

ARTICLE V

DEFINITIONS

A.	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.

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

Extra Contractual Obligations

“Extra Contractual Obligations” shall mean those liabilities not covered under any other provision of this Contract, including any punitive, exemplary, compensatory or consequential damages, which arise from the handling of any claim on business covered hereunder; such liabilities arising because of, but not limited to, the following: failure to settle within the Policy limit, by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement, in preparation of the defense, in the trial of any action against its insured, reinsured, its insured’s or reinsured’s assignee or a third party claimant, or in the preparation or prosecution of an appeal consequent upon such action.

Loss in Excess of Policy Limits

“Loss in Excess of Policy Limits” shall mean amounts paid or damages payable by the Company in excess of the Policy limit as a result of alleged or actual negligence, fraud, or bad faith in failing to settle and/or rejecting a settlement within the Policy limit, in the preparation of the defense, in the trial of any action against its insured, reinsured, its insured’s or reinsured’s assignee or a third party claimant, or in the preparation or prosecution of an appeal consequent upon such action. Loss in Excess of Policy Limits is any amount for which the Company would have been contractually liable to pay had it not been for the limits of the Policy.

Coverage for Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall not apply when such loss has been incurred due to an adjudicated finding of 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Any Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

C.	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 salaries and expenses of employees, other than 4) above, and office and other overhead expenses.

D.	Loss Occurrence

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

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

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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in subparagraph D(1) above) 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.”

As regards firestorms, brush fires and other fires or series of fires, irrespective of origin and how the fire or series of fires spread, all individual losses sustained by the Company which commence during any period of 168 consecutive hours within a 50-mile radius of any one 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,” other than those referred to in subparagraph 1(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, except for any “Loss Occurrence” referred to in subparagraph 1(a) above where only one such period of 72 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

As respects those “Loss Occurrences” referred to in subparagraph 1(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.

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.

Policy

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

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Risk

“Risk” as used herein shall mean a unique street address location.

H.	Subject Earned Premium

“Subject Earned Premium” as used herein shall mean gross earned premium of the Company 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 or increases the Company’s available capacity, and less Policy fees and/or service charges.

I.	Ultimate Net Loss

“Ultimate Net Loss” as used herein shall mean the amount of any settlement, award, or judgment paid by the Company or for which the Company has become liable to pay, including 1) any pre-judgment interest that is included as part of an award or judgment, 2) Loss Adjustment Expense, 3) 90% of Loss in Excess of Policy Limits, and 4) 90% of Extra Contractual Obligations, after making deductions for all recoveries, salvages, and subrogations which are actually recovered, and all claims on inuring reinsurance, whether 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 VI

TERRITORY

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

ARTICLE VII

EXCLUSIONS

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

Treaty reinsurance assumed by the Company, except:

Intra-group company reinsurance.

Reinsurance assumed by the Company where the policies involved are to be reissued as Policies of the Company at the next anniversary or expiration date of such policies.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Loss or liability excluded under the provisions of the “Pools, Associations & Syndicates Exclusion Clause” attached hereto.

Comprehensive Personal Liability.

Flood, when written as such.

Loss or liability excluded under the provisions of the “Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance – U.S.A.” attached hereto.

All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successor 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.

Seepage and pollution, defined as any loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke damage. Nevertheless, this exclusion does not preclude payment of the cost of the removal of debris of property damaged by a loss otherwise covered hereunder, but subject always to a limit of 25% of the Company’s property loss under the applicable Policy.

War risk, as excluded by the “North American War Exclusion Clause (Reinsurance)” attached hereto.

Forced Placed Property business.

10.

Loss or liability excluded by the provisions of the “Electronic Date Recognition Clause EDRC (B)” attached hereto.

11.

Terrorism losses excluded by the provisions of the “Terrorism Exclusion Clause” attached hereto.

12.

All Casualty (including Boiler and Machinery) and Fidelity coverages.

13.

Financial Guarantee and Insolvency.

14.

Loss or liability excluded by the provisions of the “Transmission and Distribution Lines Exclusion – Overhead (150M Exclusion)” (LSW 1634) attached hereto.

15.

Businessowners (property coverage) business, except in the State of Florida.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

16.

Losses arising from named storms (regardless of the intensity of the storm at the time of the Loss Occurrence) which are assigned a name by the National Hurricane Center.

17.

Florida Difference-In-Conditions (DIC) business.

18.

Losses directly or indirectly occasioned by:

loss of, alteration of, or damage to

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 arising out of one or more of the following perils: fire, lightning, explosion, aircraft, or vehicle impact, falling objects, windstorm, hail tornado, cyclone, hurricane, earthquake, volcano, tsunami, flood, freeze or weight of snow.

19.

Mold, fungus, mildew and spore pursuant to the “Mold, Fungus, Mildew and Spore Exclusion” attached hereto.

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 set forth in paragraph A above (except for exclusions 1, 5, 7, 8, 11 and 13), then a loss for which the Company is liable because of such invalidation of coverage shall not be excluded hereunder.

ARTICLE VIII

SPECIAL ACCEPTANCES

Business that is not within the scope of this Contract may be submitted to the Reinsurer for special acceptance hereunder and such business, if accepted by the Reinsurer, shall be subject to all terms, conditions and limitations of this Contract, except as modified by the special acceptance. Should denial of a request for special acceptance not be received from the Reinsurer within five business days of the Reinsurer’s receipt of said request, the special acceptance shall be deemed automatically agreed.

If Subscribing Reinsurers under the excess layer with total percentage shares in the interests and liabilities of the Reinsurer of 51% or greater for the excess layer agree to a special acceptance, such special acceptance shall be binding on all Subscribing Reinsurers with respect to their respective shares for the excess layer. If such percentage agreement is not achieved, such special acceptance shall be made to the excess layer only with respect to the interests and liabilities of each Subscribing Reinsurer for the excess layer that agrees to the special acceptance.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The renewals of Policies which have previously received a special acceptance either under this Contract or a predecessor contract are deemed to be covered hereunder. Furthermore, should the Reinsurer become a party to this Contract subsequent to the acceptance of any business not normally covered hereunder, it shall automatically accept same as being covered by this Contract.

ARTICLE IX

COVERAGE

As respects the excess layer hereunder, the Reinsurer shall be liable for the Ultimate Net Loss in excess of the “Company’s Retention” for the excess layer, as stated in Exhibit A, as respects each Risk, each loss, subject to a limit of liability to the Reinsurer equal to the “Reinsurer’s Limit, Each Risk, Each Loss” for the excess layer, as stated in Exhibit A. The Reinsurer’s liability in respect of any one Loss Occurrence shall not exceed the “Reinsurer’s Limit, Each Loss Occurrence” for the excess layer, as stated in Exhibit A, nor shall it exceed the “Reinsurer’s Limit, All Risks, All Losses” for the excess layer, as stated in Exhibit A, in respect of all losses occurring during the term of this Contract.

ARTICLE X

OTHER REINSURANCE

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

B.	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 XI

REINSTATEMENT

A.	As respects the excess layer hereunder, 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, if any, at the time of the Reinsurer’s payment of the loss calculated in accordance with the following formula:

The percentage of the “Reinsurer’s Limit, Each Risk, Each Loss” for the excess layer, as stated in Exhibit A, exhausted for the loss, multiplied by

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The “Reinstatement Percentage” for the excess layer, as stated in Exhibit A and in the sequential order noted therein, of the reinsurance premium paid or payable for the excess layer for the term of this Contract, multiplied by

The reinsurance premium as calculated under this Contract for the excess layer for the term of this Contract.

The dollar amount resulting from the multiplication of subparagraphs B(1), B(2) and B(3) above shall equal the reinstatement premium, if any, for the excess layer. 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 for the excess layer subject to adjustment when the reinsurance premium is finally established.

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

ARTICLE XII

ACCOUNTING BASIS

All premiums and losses under this Contract shall be reported on an “accident year” accounting basis. Unless specified otherwise herein, all premiums shall be credited to the period during which they earn, and all losses shall be charged to the period during which they occur.

ARTICLE XIII

REINSURANCE PREMIUM

As premium for the reinsurance provided hereunder for the excess layer, the Company shall pay the Reinsurer the “Premium Rate” for the excess layer, as stated in Exhibit A, times its Subject Earned Premium for the term of this Contract, subject to the “Minimum Premium” for the excess layer as stated in Exhibit A.

B.	The Company shall pay the Reinsurer the “Deposit Premium” for the excess layer, as stated in Exhibit A, in “Quarterly Installments” on July 1 and October 1, 2014, and January 1 and April 1, 2015 for the amounts stated in Exhibit A.

Within 90 days after the expiration of this Contract, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder, segregated by the applicable excess layer, as computed in accordance with paragraph A above. Any additional premium due the Reinsurer or return premium due the Company for the applicable layer shall be remitted within 15 working days.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

D.	If this Contract expires on a “run-off” basis under the provisions of paragraph C of the TERM ARTICLE, as premium for the period from the effective date of expiration through the end of the “run-off” period, the Company shall pay the Reinsurer in accordance with the following:

If there has been no loss to the Reinsurer under this Contract, the Company shall pay the Reinsurer the expiring premium rate for each excess layer times the unearned premium on the date run-off commences;

If there has been loss to the Reinsurer under this Contract, the reinsurance premium rate for the “run-off” period shall be as mutually agreed, but shall not exceed 150% of the expiring premium rate. The Company shall pay the Reinsurer the agreed upon rate for each excess layer times the unearned premium on the date run-off commences.

The premium due the Reinsurer for the “run-off” period shall be remitted by the Company in four equal installments, payable within 60 days after each fiscal quarter end during the “run-off” period.

ARTICLE XIV

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.

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.

All loss settlements paid or to be paid by the Company that are within the terms and conditions of the Policy or by way of compromise, except as otherwise provided in this Contract, shall be binding upon the Reinsurer. Upon receipt of evidence of the amount paid or to be paid, the Reinsurer agrees to pay within 5 days of its receipt of such evidence or allow, as the case may be, its share of each such amount.

ARTICLE XV

LATE PAYMENTS

(The provisions of this Article shall not be implemented unless specifically invoked by the Company in writing.)

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

1/365ths of a rate equal to the 90-day Treasury Bill rate as published in The Wall Street Journal on the first business day following the date a remittance becomes due plus 300 basis points; times

The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties has been received by the intermediary.

B.	The establishment of the payment due date shall, for purposes of this Article, be determined in accordance with the applicable Article of this Contract.

ARTICLE XVI

ALLOCATION

A.	The methods of allocating and recording reinsurance recoverables and premiums among the reinsured companies with respect to this Contract shall be as follows:

Reinsurance recoverables and associated reinstatement premiums payable shall be allocated among the reinsured companies in proportion to the losses incurred by each reinsured company applicable to this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

Each reinsured company shall be responsible for its proportionate share of the reinsurance premiums due to the Reinsurer. The final reinsurance premium, as determined under the terms of this Contract, shall be allocated to each reinsured company in the same proportion that each reinsured company’s subject premium bears to the total subject premium.

B.	Records of these allocations shall be maintained by or on behalf of the reinsured companies in sufficient detail to identify both the reinsurance recoverables and premium allocated to each reinsured company.

Nothing herein shall be construed to provide a separate retention or limit of liability for each reinsured company. In no event shall the liability of the Reinsurer be increased by such apportionment, as all companies reinsured hereunder are deemed by the parties to this Contract to be one reinsured entity for this purpose.

ARTICLE XVII

SALVAGE AND SUBROGATION

A.	The Company, at its sole discretion, may enforce its right to salvage and/or subrogation and may prosecute all claims arising out of such right.

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. 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 XVIII

DELAYS, ERRORS AND OMISSIONS

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

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XIX

OFFSET

ARTICLE XX

CURRENCY

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 XXI

TAXES

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

ARTICLE XXII

FEDERAL EXCISE TAX

(Applicable to those Reinsurers, excepting Reinsurers exempt from Federal Excise Tax, who are domiciled outside the United States of America.)

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

B.	In the event of any return premium becoming due hereunder, the Reinsurer shall deduct the applicable percentage from the return premium payable hereon and the Company or its agent shall recover such tax from the United States Government.

ARTICLE XXIII

RESERVES AND FUNDING

A.	The Reinsurer shall provide funding under the terms of this Article only if the Company would be denied statutory credit for reinsurance ceded to that Reinsurer pursuant to the credit for reinsurance law or regulations of the regulatory authority having jurisdiction over the Company’s reserves.

Loss and loss expense paid by the Company but not recovered from the Reinsurer;

Known outstanding losses that have been reported to the Reinsurer and loss expense relating thereto;

Reserves for loss and loss expense incurred but not reported;

Unearned premium (if applicable);

Other amounts recoverable reported in Schedule F of the Company’s NAIC Statement;

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

C.	Deferral of funding that may be permitted for a certified reinsurer in the event of a catastrophe shall not apply to any Reinsurer under this Contract.

When funding in whole or in part by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional LOC dated on or before December 31 of the year in which the request is made (on or before the last day of the calendar quarter for any quarterly adjustment), issued by a member of the Federal Reserve System or any bank approved for use by the NAIC Securities Valuation Office, and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves. Such LOC shall be issued for a period of not less than one year and shall include an “evergreen clause,” which automatically extends the term for at least one additional year at each expiration date unless 60 days (or such other time period as may be required by the applicable 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 LOC extended for any additional period.

To reimburse the Company for the Reinsurer’s share of unearned premium on Policies reinsured hereunder on account of cancellations of such Policies;

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;

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

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 funding provided by the Reinsurer is in excess of the actual amount required for subparagraph E(1), E(2) or E(4) above or, in the case of subparagraph D(5) above, 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

F.	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.

G.	At annual intervals, or more frequently but never more frequently than quarterly, the Company shall prepare a specific report of the Reinsurer’s Obligations, for the sole purpose of amending the LOC or other method of funding, in the following manner:

H.	Should the Reinsurer be in breach of its obligations under this Article, notwithstanding anything to the contrary elsewhere in this Contract, the Company may seek relief in respect of said breach from any court having competent jurisdiction over the parties hereto.

ARTICLE XXIV

NET RETAINED LINES

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.

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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXV

THIRD PARTY RIGHTS

ARTICLE XXVI

ENTIRE AGREEMENT

ARTICLE XXVII

SEVERABILITY

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

ARTICLE XXVIII

GOVERNING LAW

This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, 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 XXIX

ACCESS TO RECORDS

A.	The Reinsurer or its designated representative(s) approved by the Company, upon providing reasonable advance notice to the Company, shall have access at the offices of the Company or at a location to be mutually agreed, at a time to be mutually agreed, to inspect

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

the Company’s underwriting, accounting, or claim files pertaining to the subject matter of this Contract. The Company shall determine the manner in which files shall be accessed by the Reinsurer. The Reinsurer may, at its own expense, reasonably request copies of such files and agrees to pay the Company’s reasonable costs (including staff expense and other overhead costs) incurred in procuring such copies.

The Reinsurer or its designated representative(s) shall not have access to Protected Records related to a claim ceded to this Contract; however, the Reinsurer shall be permitted to have access to those Protected Records described in subparagraph F(1) of this Article after the Company’s final settlement or final adjudication of such underlying claim. If Protected Records are withheld, the Company shall advise the Reinsurer accordingly and the Company shall take reasonable steps to provide the Reinsurer with sufficient information to determine its liability hereunder. Further, the Reinsurer or its designated representative(s) shall not have access to any communications with any other Reinsurer supporting the Company in respect of business subject to this Contract and shall not have access to Protected Records relating to any dispute between the Company and the Reinsurer.

C.	If any undisputed amounts are overdue from the Reinsurer to the Company, the Reinsurer shall have access to such records only upon payment of all such overdue amounts.

Upon completion of the audit, the Reinsurer and its representative(s) shall consult with the Company promptly and in good faith, no later than 30 days after the completion of the audit unless otherwise agreed, with respect to any and all questions or issues raised by the audit. If, as a result of the Reinsurer’s inspection of the Company’s files, any claim is denied, contested, or disputed, the Reinsurer shall promptly provide the Company with a written report outlining the findings of the inspection and identifying the reasons for contesting or disputing the subject claim.

E.	Nothing in this Article requires the Company to maintain or to make available any document for longer than the period required by the Company’s document retention policies and procedures or the period required by applicable statute or regulation, whichever is greater.

F.	“Protected Records” are defined as communications, files, records, documents, or books:

Deemed by the Company to concern Trade Secrets of the Company (Trade Secrets shall have the meaning provided in Section 1839 of the United States Economic Espionage Act of 1996); or

Deemed by the Company to be subject to attorney-client privilege or work product rule protection; or

Concerning individual private information that as a matter of law cannot be disclosed by the Company.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXX

CONFIDENTIALITY

The Reinsurer hereby acknowledges that the documents, information, and data provided to the Reinsurer by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract, inspection pursuant to the ACCESS TO RECORDS ARTICLE, (“Confidential Information”) are proprietary and confidential to the Company.

B.	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies, except when:

Required by retrocessionaires subject to the business ceded to this Contract; or

Required by state regulators performing an audit of the Reinsurer’s records and/or financial condition; or

Required by external auditors performing an audit of the Reinsurer’s records in the normal course of business.

C.	Further, the Reinsurer agrees not to use any Confidential Information for any purpose not permitted by this Contract or not related to the performance of their obligations or enforcement of their rights under this Contract.

Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process, or any regulatory authority to release or disclose any Confidential Information, unless prohibited by law the Reinsurer agrees to provide the Company written notice of same prior to such release or disclosure and to use its reasonable best efforts to assist the Company in maintaining the confidentiality provided for in this Article. If a protective order is not obtained, the Reinsurer agrees to disclose only that portion of the Confidential Information that it has been advised by its counsel is legally required to be disclosed.

E.	The provisions of this Article shall extend to the officers, directors, shareholders, and employees of the Reinsurer and its affiliates, who have received Confidential Information in accordance with this Contract, and shall be binding upon their successors and assigns.

ARTICLE XXXI

INSOLVENCY

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,

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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 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 that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

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

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. Then, and in that event only, the Company, with the prior approval by the Superintendent of Insurance of the State of New York of the Certificate of Assumption on New York risks, is entirely released from its obligation and the Reinsurers shall pay any loss directly to payees under such policies.

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 XXXII

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 validity thereof, whether arising before or after the expiry or termination of the Contract,

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ARTICLE XXXIII

SERVICE OF SUIT

Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his/her 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

D.	The individual named in paragraph C shall be deemed the Reinsurer’s agent for the service of process:

where the address designated in, or pursuant to paragraph B is invalid; or

to the extent necessary to bring this Contract into conformity with the applicable law of a state with jurisdiction over the Company.

ARTICLE XXXIV

MODE OF EXECUTION

ARTICLE XXXV

INTERMEDIARY

Willis Re Inc., 7760 France Avenue South, Suite 450, Minneapolis, Minnesota 55435 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 300, McLeansville, North Carolina 27301-9528. 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.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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 June, 2014.

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

including any and/or all of the subsidiary or affiliate companies that are now or may hereafter come under the ownership, management and/or control of the Company


By		/s/ Stephen Rohde
Printed Name		Stephen Rohde
Title		Chief Financial Officer

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

EXHIBIT A

HERITAGE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

including any and/or all of the subsidiary or affiliate companies that are now or may

hereafter come under the ownership, management and/or control of the Company

PROPERTY EXCESS PER RISK REINSURANCE CONTRACT


	Excess Layer 109893001-14
Company’s Retention	$	1,000,000
Reinsurer’s Limit, Each Risk, Each Loss	$	9,000,000
Reinsurer’s Limit, Each Loss Occurrence	$	9,000,000
Reinsurer’s Limit, All Risks, All Losses	$	27,000,000
Deposit Premium	$	[***]
Minimum Premium	$	[***]
Quarterly Installments	$	[***]
Premium Rate		[***]	%
Reinstatement Percentage and Total Number of Reinstatements		2 @ 100	%

The amounts and percentages stated above apply to each Reinsurer to the extent of the share(s) stated in the Reinsurer’s Interests and Liabilities Agreement attached hereto.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

POOLS, ASSOCIATIONS & SYNDICATES EXCLUSION CLAUSE

SECTION A:

EXCLUDING:

(a)

All Business derived directly or indirectly from any Pool, Association or

Syndicate which maintains its own reinsurance facilities.

(b)

SECTION B:

EXCLUDING:

Oil, Gas or Petro-Chemical Plants

Oil or Gas Drilling Rigs

Aviation Risks

SECTION B does not apply:

(a)

Where the Total Insured Value over all interests of the risk in question is less than $[***].

(b)

To interests traditionally underwritten as Inland Marine or Stock and/or Contents written on a Blanket basis.

(c)

(d)

To risks as follows:

SECTION C:

NEVERTHELESS the Reinsurer specifically agrees that liability accruing to the Company from its participation in residual market mechanisms including but not limited to:

(l)

The following so-called “Coastal Pools”:

ALABAMA INSURANCE UNDERWRITING ASSOCIATION

MISSISSIPPI WINDSTORM UNDERWRITING ASSOCIATION

NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION

SOUTH CAROLINA WINDSTORM AND HAIL UNDERWRITING ASSOCIATION

TEXAS WINDSTORM INSURANCE ASSOCIATION

AND

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

(2)

All “FAIR Plan” and “Rural Risk Plan” business

AND

(3)

The Louisiana Citizens Property Insurance Corporation, the Citizens Property Insurance Corporation (“CPIC”) and the California Earthquake Authority (CEA)

for all perils otherwise protected hereunder shall not be excluded, except, however, that this reinsurance does not include any increase in such liability resulting from:

(i)

The inability of any other participant in such “Coastal Pool” and/or “FAIR Plan”

and/or “Rural Risk Plan” and/or Residual Market Mechanisms to meet its liability.

(ii)

SECTION D:

(1)

(2)

Notwithstanding Section C above, in respect of the CPIC, where an assessment is made against the Company by the CPIC, the maximum loss that the Company may include in the Ultimate Net Loss in respect of any loss occurrence hereunder shall not exceed the lesser of:

(a)

The Company’s assessment from the CPIC for the accounting year in which the loss occurrence commenced, or

(b)

The product of the following:

(i)

The Company’s percentage participation in the CPIC for the accounting year in which the loss occurrence commenced; and

(ii)

The CPIC’s total losses in such loss occurrence.

Any assessments for accounting years subsequent to that in which the loss occurrence commenced may not be included in the Ultimate Net Loss hereunder. Moreover, notwithstanding Section C above, in respect of the CPIC, the Ultimate Net Loss hereunder shall not include any monies expended to purchase or retire bonds as a consequence of being a member of the CPIC. For the purposes of this Contract, the Company may not include in the Ultimate Net Loss any assessment or any percentage assessment levied by the CPIC to meet the obligations of an insolvent insurer member or other party, or to meet any obligations arising from the deferment by the CPIC of the collection of monies.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

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.

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:

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.

IV.

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

Without in any way restricting the 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

where the Reinsured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

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:

substantial quantities, and

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:

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,

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

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

NORTH AMERICAN WAR EXCLUSION CLAUSE (REINSURANCE)

(Approved by Lloyd’s Underwriters’ Fire and Non-Marine Association)

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, the District of Columbia, and including bridges between the Unites States of America and Mexico provided they are under United States ownership), Canada, St. Pierre and Miquelon, provided such interests are insured under Policies containing a standard war or hostilities or warlike operations exclusion clause.

20/8/59

N.M.A. 1230

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

ELECTRONIC DATE RECOGNITION CLAUSE EDRC (B)

Section 1

This Contract does not cover any loss, damage, cost, claim or expense, whether preventative, remedial or otherwise, directly or indirectly arising out of or relating to:

the calculation, comparison, differentiation, sequencing or processing of data involving the date change to the year 2000, or any other date change, including leap year calculations, by any computer system, hardware, or programme or software and/or microchip, integrated circuit or similar device in computer equipment or non-computer equipment, whether the property of the insured or not, or

any change, alteration or modification involving the date change to the year 2000 or any other date change, including leap year calculations, to any such computer system, hardware, or programme or software and/or microchip, integrated circuit or similar device in computer equipment or non-computer equipment, whether the property of the insured or not.

This clause applies regardless of any other cause or event that contributes concurrently or in any sequence to the loss, damage, injury, cost, claim or expense.

However this Section shall not apply in respect of physical damage occurring at the insured’s premises arising out of the perils of fire, lightening, explosion, aircraft or vehicle impact, falling objects, windstorm, hail, tornado, hurricane, riot, strike, civil commotion, vandalism, malicious mischief, earthquake, volcano, tsunami, freeze or weight of snow.

Section 2

Notwithstanding Section 1 above, this Contract does not cover any costs and expenses, whether preventative, remedial or otherwise arising out of or relating to change, alteration or modification of any computer system, hardware, programme or software of any microchip, integrated circuit or similar device in computer or non-computer equipment, whether the property of the insured or not.

Section 3

The date change to year 2000, or any other date change, including leap year calculations, shall not in and of itself be regarded as an event for the purposes of this Contract.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TERRORISM EXCLUSION CLAUSE

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

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

(i)

involves violence against one or more persons; or

(ii)

involves damage to property; or

(iii)

endangers life other than that of the person committing the action; or

(iv)

creates a risk to health or safety of the public or a section of the public; or

(v)

is designed to interfere with or to disrupt an electronic system.

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

Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this reinsurance Contract, in respect of personal lines only, this Contract shall pay actual loss or damage (but not related cost or expense) caused by any act of terrorism.

Notwithstanding the above, in no event shall this Contract provide coverage for actual loss or damage directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with biological, chemical, or nuclear pollution or contamination.

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

TRANSMISSION AND DISTRIBUTION LINES EXCLUSION – OVERHEAD

(150M EXCLUSION)

Excluding losses in respect of overhead transmission and distribution lines and their supporting structures other than those on or within 150 meters (or 500 feet) of the insured premises.

It is understood and agreed that public utilities extension and/or suppliers extension and/or contingent business interruption coverages are not subject to this exclusion, provided that these are not part of a transmitters’ or distributors’ policy.

LSW 1634

CONFIDENTIAL TREATMENT REQUESTED

BY HERITAGE INSURANCE HOLDINGS, INC.

MOLD, FUNGUS, MILDEW AND SPORE EXCLUSION

This reinsurance excludes absolutely any loss, damage, claim, cost, expense, sum or other obligation of any kind or description directly or indirectly caused by, contributing to, or resulting from mold, fungus, mildew or spores. This exclusion shall apply regardless of whether or not:

1.	The mold, fungus, mildew or spores is/are caused by, contributed to, or results from an insured peril;

2.	The reinsured’s original policy(ies) provided coverage;

3.	The reinsured’s original obligations are contractual, extra-contractual, or otherwise;

4.	The reinsurance presentation is for settlement(s), judgment(s) or any other form of resolution.

Notwithstanding the foregoing, this exclusion is not to apply if physical loss or damage from mold, fungus, mildew or spores:

1.	Arises out of one or more of the following perils:

Earthquake, Seaquake, Seismic and/or Volcanic Disturbance/Eruption, Hurricane, Rainstorm, Windstorm, Tornado, Cyclone, Typhoon, Tsunami, Flood, Hail, Freeze, Ice Storm, Weight of Snow or Ice, Avalanche, Meteor/Asteroid Impact, Landslip, Landslide, Mudslide, Bush Fire, Forest Fire, Lightning, Explosion, Fire, Aircraft and Vehicle Impact, Riots, Strikes and Civil Commotion.

2.	Reported to reinsurers as soon as practicable but not later than twelve (12) months after the covered peril first caused any physical loss or damage to insured property during this contract period.

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT

I, Bruce Lucas, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Heritage Insurance Holdings, Inc .;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d) for the registrant and we 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 quarterly report is being prepared;

b) [omitted pursuant to Exchange Act Rules 13a – 14(a) and 15d-15(a)]

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

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: August 6, 2014

By:

/s/ BRUCE LUCAS

Bruce Lucas

Chairman and Chief Executive Officer

(Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT

I, Stephen Rohde, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Heritage Insurance Holdings, Inc .;

b) [omitted pursuant to Exchange Act Rules 13a – 14(a) and 15d-15(a)]

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: August 6, 2014



By:		/s/ STEPHEN ROHDE
		Stephen Rohde Chief Financial Officer (Principal Financial Officer and Accounting Officer)

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT

In connection with the Form 10-Q of Heritage Insurance Holdings, Inc. for the quarter ended June 30, 2014, as filed with the Securities and Exchange Commission (the Report), I, Bruce Lucas, the Chairman and Chief Executive Officer (principal executive officer) of Heritage Insurance Holdings, Inc. hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Heritage Insurance Holdings, Inc.

Date: August 6, 2014

By:

/s/ BRUCE LUCAS

Bruce Lucas

Chairman and Chief Executive Officer

(Principal Executive Officer)

EXHIBIT 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT

In connection with the Form 10-Q of Heritage Insurance Holdings, Inc. for the quarter ended June 30, 2014, as filed with the Securities and Exchange Commission (the Report), I, Stephen Rohde, the Chief Financial Officer (Principal Financial Officer and Accounting Officer) of Heritage Insurance Holdings, Inc. hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Heritage Insurance Holdings, Inc.

Date: August 6, 2014

By:

/s/ STEPHEN ROHDE

Stephen Rohde

Chief Financial Officer

(Principal Financial Officer and Accounting Officer)