Definition of Loss Ratio. For purposes of calculating the Profit Commission, the term "Loss Ratio" means an amount equal to Losses divided by collected and earned Net Net Written Premium. For purposes of Sections 3.3(c) only, the term "Losses" means the sum of (a) all losses incurred under the Policies (including outstanding case reserves), plus (b) all allocated and unallocated loss adjustment expenses incurred in connection with such losses (provided that the amount of Legal Loss Adjustment Expenses, as defined in that certain Claims Administration Agreement between the General Agent and the Company, dated August 15, 2001, shall be limited to four percent (4.0%) of Net Written Premium), plus (c) losses incurred but not reported, as determined using the applicable IBNR factor listed in the chart below, provided that if such IBNR factor is less than the expected amount of losses incurred but not reported, as determined by Clarendon's actuaries at their sole reasonable discretion, then the amount of losses incurred but not reported for purposes of this Section 3.3(c) shall be the amount determined by Clarendon rather than the applicable IBNR factor. ----------------------------------------------------------------- IBNR Factors for Calculating the Loss Ratio For Profit Commission -----------------------------------------------------------------
