AGREEMENT AND PLAN OF MERGER

EXHIBIT 2.1

AGREEMENT AND PLAN OF MERGER

Dated as of August 4, 2008

among

TOWER GROUP, INC.,

OCEAN I CORPORATION

and

CASTLEPOINT HOLDINGS, LTD.

i

ii

iii

AGREEMENT AND PLAN OF MERGER, dated as of August 4, 2008 (this “ Agreement ”), among Tower Group, Inc., a Delaware corporation (“ Parent ”), Ocean I Corporation, a Delaware corporation and an indirect wholly-owned subsidiary of Parent (“ Merger Sub ”), and CastlePoint Holdings, Ltd., a Bermuda exempted company (“ Company ”).

WHEREAS, Michael H. Lee, the Chairman and Chief Executive Officer of Company, is also the Chairman of the Board, President and Chief Executive Officer of Parent, and beneficially owns approximately 2.4% of the outstanding share capital of Company and 12.7% of the outstanding capital stock of Parent, and Parent beneficially owns approximately 6.7% of the outstanding share capital of Company;

WHEREAS, each of Company and Parent has established a Special Committee of its Board of Directors (each, a “ Special Committee ”) comprised of independent, non-conflicted directors to review, evaluate and consider a possible transaction between Company and Parent;

WHEREAS, the Special Committee of Company and the Board of Directors of Company have adopted this Agreement, authorized and approved the merger and amalgamation of Company with and into Merger Sub upon the terms and subject to the conditions set forth herein (the “ Merger ”), and deem it fair to, advisable to and in the best interests of Company to consummate this Agreement, the Merger and the other transactions contemplated hereby;

WHEREAS, the Special Committee of Parent and the Board of Directors of Parent have approved and adopted this Agreement, authorized and approved the issuance of shares of Parent Common Stock in the Merger (the “ Share Issuance ”), and deem it fair to, advisable and in the best interests of Parent to consummate this Agreement and the Share Issuance;

WHEREAS, the Board of Directors of Merger Sub has adopted this Agreement, authorized and approved the Merger, and deems it advisable and in the best interests of Merger Sub to consummate this Agreement, the Merger and the other transactions contemplated hereby;

WHEREAS, this Agreement is being entered into in accordance with S.105 of the Bermuda Companies Act of 1981 (the “ Companies Act ”); and

WHEREAS, Parent, Merger Sub and Company desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe various conditions to the Merger.

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties agree as follows:

THE MERGER

The Merger; Effective Time .  Subject to the provisions of this Agreement, Merger Sub and Company will cause ( a ) a certificate of merger (the “ Certificate of Merger ”) to be duly prepared, executed and thereafter delivered to the Secretary of State of the State of Delaware for filing, as provided in the General Corporation Law of the State of Delaware, as amended (“ DGCL ”) on the Closing Date, and ( b ) a notice of amalgamation to be prepared, executed and delivered to the Registrar of Companies in Bermuda (the “ Registrar ”) as provided under S.104C of  the Companies Act prior to the Closing Date.  The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware or at such time thereafter as may be mutually agreed by Parent and Company and specified in the Certificate of Merger (the “ Effective Time ”); provided that the Certificate of Merger shall be filed by the Surviving Company with the Registrar within 30 days after the date of issue thereof in accordance with S.104C of the Companies Act.  Under the Companies Act, this Agreement shall be deemed to have been adopted when it has been approved by the stockholders of each of Company and Merger Sub.

Closing .  The closing of the Merger (the “ Closing ”) will take place at 10:00 a.m. on the date (the “ Closing Date ”) that is the sixth trading day after the satisfaction or waiver (subject to applicable law) of the latest to be satisfied or waived of the conditions set forth in Article 0 (excluding conditions that, by their terms, are to be satisfied on the Closing Date), but under no circumstances before December 2, 2008, unless another time or date is agreed to in writing by the parties; provided that Parent and Merger Sub shall not be required to effect the Closing prior to the third business day immediately following the last day on which the holders of Company Common Shares can require appraisal of their Company Common Shares pursuant to Bermuda law.  The Closing shall be held at the offices of Debevoise & Plimpton LLP, in New York, New York, unless another place is agreed to in writing by the parties.

Effects of the Merger .  At the Effective Time, subject to the terms and conditions of this Agreement, Company shall be merged, and amalgamated, with and into Merger Sub and the separate existence of Company shall cease and Merger Sub shall continue as the surviving corporation in the Merger.  The Merger will have the effects set forth in the DGCL.  As used in this Agreement, “ Surviving Company ” shall mean Merger Sub, at and after the Effective Time, as the surviving corporation in the Merger.  The parties acknowledge and agree that for purposes of Bermuda law ( i ) the Merger shall be effected so as to constitute an “amalgamation” in accordance with S.104B of the Companies Act, and ( ii ) the Surviving Company shall be deemed to be an “amalgamated company” and “amalgamated corporation” as such term is defined under the Companies Act.

Certificate of Incorporation; By-laws .

At the Effective Time, the certificate of incorporation of Merger Sub, in effect immediately prior to the Effective Time, shall be the certificate of incorporation of the Surviving Company, until thereafter amended as provided therein or by the DGCL.

At the Effective Time, the by-laws of Merger Sub, in effect immediately prior to the Effective Time, shall be the by-laws of the Surviving Company, until thereafter amended as provided therein, or by the certificate of incorporation of the Surviving Company or the DGCL.

Directors and Officers of the Surviving Company .  The directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Company until the earlier of their resignation or removal or until their respective successors are duly elected and qualified.  The names and addresses of such directors are set forth in Section 0 of the Parent Disclosure Letter.  The officers of Company immediately prior to the Effective Time shall be the officers of the Surviving Company until the earlier of their resignation or removal or until their respective successors are duly elected and qualified.

CONVERSION OF COMPANY SECURITIES;
EXCHANGE OF CERTIFICATES

Effect on Share Capital .  Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares in the share capital of Company, each having a par value of $0.01 (each, a “ Company Common Share ”), as evidenced by way of entry in the register of shareholders of Company (the “ Company Share Register ”) or by share certificates registered in the name of the bearer (each, a “ Company Certificate ”):

Conversion of Company Common Shares .  Each Company Common Share, issued and outstanding immediately prior to the Effective Time (other than Company Restricted Shares and Dissenting Shares) shall be cancelled and converted into the right to receive a fraction of a share of Parent Common Stock equal to the Exchange Ratio, as determined in accordance with this Section 0, and an amount in cash equal to $1.83, subject to any adjustment pursuant to Section 0 (the “ Cash Consideration ” and together with the Exchange Ratio and any cash paid in lieu of fractional shares in accordance with Section 0, the “ Merger Consideration ”).  The “ Exchange Ratio ” shall equal:

0.47, if the Average Parent Stock Price is greater than or equal to $20.00 and less than or equal to $26.00;

if the Average Parent Stock Price is greater than $26.00, that fraction (rounded to the nearest ten-thousandth) equal to the quotient obtained by dividing $12.22 by the Average Parent Stock Price;

if the Average Parent Stock Price is greater than or equal to $17.50 and less than $20.00, that fraction (rounded to the nearest ten-thousandth) equal to the quotient obtained by dividing $9.40 by the Average Parent Stock Price;

0.5371, if the Average Parent Stock Price is less than $17.50; or

if Parent shall have given a Top-Up Notice pursuant to Section 0, the Exchange Ratio shall be as set forth in such notice pursuant to Section 0.

“ Average Parent Stock Price ” means the volume weighted average price per share of Parent Common Stock on NASDAQ (as reported by Bloomberg L.P. or, if not reported thereby, by another authoritative source mutually agreed by the parties) for the 15 consecutive trading days immediately preceding the fifth trading day prior to the Closing Date (“ Reference Period ”).  The Average Parent Stock Price shall be calculated to the nearest one-hundredth of one cent.  Upon such conversion, each Company Common Share shall be cancelled and each holder of such shares registered in the Company Share Register or holding a valid Company Certificate immediately prior to the Effective Time shall thereafter cease to have any rights with respect to such shares except the right to receive the Merger Consideration.  The Exchange Ratio and the Cash Consideration shall be appropriately adjusted to reflect fully the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Company Common Shares), reorganization, recapitalization, reclassification or other like change with respect to Parent Common Stock or Company Common Shares having a record date on or after the date hereof and prior to the Effective Time.

Cancellation of Parent-Owned Securities .  Notwithstanding anything in this Agreement to the contrary, all Company Common Shares that are owned by Parent or by any wholly-owned subsidiary of Parent immediately prior to the Effective Time shall, by virtue of the Merger, and without any action on the part of the holder thereof, automatically be cancelled and retired without any conversion thereof and shall cease to exist, and no payment shall be made in respect thereof.

Shares of Dissenting Shareholders .  Notwithstanding anything in this Agreement to the contrary, any issued and outstanding Company Common Shares held by a person who did not vote in favor of the Merger and who complies with all the provisions of the Companies Act concerning the right of holders of Company Common Shares to require appraisal of their Company Common Shares pursuant to Bermuda law (such shareholder, a “ Dissenting Shareholder ”, and such shares, “ Dissenting Shares ”) shall not be converted into the right to receive the Merger Consideration as described in Section  0 , but shall be converted into the right to receive such consideration as may be determined to be due to such Dissenting Shareholder pursuant to the procedures set forth in the Companies Act.  In the event that a Dissenting Shareholder fails to perfect, effectively withdraws or otherwise waives any right to appraisal, its Company Common Shares shall be deemed to be cancelled and converted as of the Effective Time into the right to receive the Merger Consideration for each such Dissenting Share, without interest.  Company shall give Parent ( i ) prompt notice of ( A ) any written demands for appraisal of Dissenting Shares or withdrawals of such demands received by Company and ( B ) to the extent that Company has actual knowledge, any attempted applications to the Supreme Court of Bermuda for appraisal of the fair value of the Dissenting Shares, and ( ii ) the opportunity to participate in and direct all negotiations and proceedings with respect to any demands for appraisal under the Companies Act.  Company shall not, without the prior written consent of Parent, voluntarily make any payment with respect to, or settle, offer to settle or otherwise negotiate, any such demands.

Effect of Amalgamation under Companies Act .  Under the Companies Act, as from the Effective Time: ( i ) the Merger of Company and Merger Sub and their continuance as one company shall become effective; ( ii ) the property of each of Company and Merger Sub shall become the property of Surviving Company; ( iii ) Surviving Company shall continue to be liable for the obligations and liabilities of Company and Merger Sub; ( iv ) any existing cause of action, claim or liability to prosecution shall be unaffected; ( v ) a civil, criminal or administrative action or proceeding pending by or against Company or Merger Sub may be continued to be prosecuted by or against Surviving Company; and ( vi ) a conviction against, or ruling, order or judgment in favor of or against, Company or Merger Sub may be enforced by or against Surviving Company.

Exchange of Certificates .

Exchange Agent .  Prior to the Effective Time, Parent shall designate a bank or trust company reasonably acceptable to Company (the “ Exchange Agent ”) for the purpose of exchanging Company Common Shares held by the shareholders of Company.  At or as promptly as practicable (and, in any event, within two business days) after the Effective Time, Parent shall deposit, or shall cause to be deposited, with the Exchange Agent in accordance with this Article 0, separate and apart from the Exchange Agent’s other funds, certificates, or at Parent’s option, shares in book entry form representing the shares of Parent Common Stock to be exchanged in the Merger, cash in an amount sufficient to pay the aggregate Cash Consideration payable pursuant to Section 0 and any cash payable in lieu of fractional shares pursuant to Section 0 and any dividends or distributions to which the shareholders of Company may be entitled pursuant to Section 0.  Such Merger Consideration and cash so deposited, together with any dividends or distributions with respect to Parent Common Stock to be issued or paid pursuant to Section 0, are hereinafter referred to as the “ Exchange Fund .”  No interest shall be paid or accrued for the benefit of holders of the Company Certificates on cash amounts payable upon the surrender of such certificates pursuant to this Section 0.

Exchange Procedures .  As promptly as practicable following the Effective Time, the Surviving Company shall cause the Exchange Agent to mail, to each shareholder of Company, ( i ) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Company Common Shares shall pass, upon delivery of the Company Certificates, to the extent available and in issue, to the Exchange Agent, and which shall be in such form and have such other provisions as the parties may reasonably specify) and, where applicable, ( ii ) instructions for use in effecting the surrender of the Company Certificates, to the extent available and in issue, in exchange for the Merger Consideration.  After the Effective Time, upon surrender of title to the Company Common Shares previously held by a shareholder of Company in accordance with this Section 0, together with such letter of transmittal duly executed, and such other documents as the Exchange Agent may reasonably require, such shareholder shall be entitled to receive in exchange therefor a certificate representing that number of whole shares of Parent Common Stock, the Cash Consideration and any cash in lieu of fractional shares, which such shareholder has the right to receive in respect of the surrender of title to the Company Common Shares pursuant to the provisions of this Article 0, and any Company Certificate surrendered in respect thereof shall forthwith be marked as cancelled.  In the event of a transfer of ownership of Company Common Shares which is not registered in the transfer records of Company, a certificate representing the proper number of shares of Parent Common Stock may be issued to a transferee if the Company Certificate representing such Company Common Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid.

Distributions with Respect to Unexchanged Shares .  No dividends or other distributions declared or made with respect to Parent Common Stock with a record date after the Effective Time shall be paid to any shareholder of Company holding any unsurrendered Company Certificate with respect to the shares of Parent Common Stock represented thereby, nor shall the Cash Consideration or cash payment in lieu of fractional shares be paid to any such shareholder pursuant to Section 0, until a shareholder of Company holding any Company Certificate shall surrender such Company Certificate in accordance with the procedures set forth in this Article 0.  Subject to the effect of applicable laws, following the surrender of any such Company Certificate in accordance with the procedures set forth in this Article 0, a shareholder of Company holding such Company Certificate shall be entitled to receive, in addition to the consideration set forth in Section 0, without interest, ( i ) at the time of such surrender, the amount of any dividends or other distributions with a record date after the Effective Time theretofore paid (but withheld pursuant to the immediately preceding sentence) with respect to such whole shares of Parent Common Stock which a shareholder of Company holding such Company Certificate is entitled to receive hereunder, and ( ii ) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Parent Common Stock which a shareholder of Company holding such Company Certificate is entitled to receive hereunder.

No Further Rights in Company Common Shares .  All Merger Consideration paid or issued upon the surrender of title to Company Common Shares in accordance with the terms of this Article 0 (including any cash paid pursuant to this Article 0) shall be deemed to have been issued (and paid) in full satisfaction of all rights pertaining to the shareholders of Company.  There shall be no further registration of transfers on the stock transfer books of the Surviving Company of the Company Common Shares which were outstanding immediately prior to the Effective Time.  If, after the Effective Time, Company Certificates are presented to the Surviving Company or the Exchange Agent for any reason, they shall be marked as cancelled and exchanged in accordance with this Article 0, except as otherwise provided by law.

No Fractional Shares .  Notwithstanding anything in this Agreement to the contrary, no fraction of a share of Parent Common Stock will be issued in connection with the Merger, and in lieu thereof any shareholder of Company who would otherwise have been entitled to a fraction of a share of Parent Common Stock, upon surrender of title to Company Common Shares for exchange, shall be paid upon such surrender (and after taking into account and aggregating Company Common Shares represented by all Company Certificates surrendered by such holder, or as set out in the Company Share Register, as applicable) cash (without interest) in an amount equal to the product obtained by multiplying ( i ) the fractional share interest to which such shareholder (after taking into account and aggregating all Company Common Shares represented by all Company Certificates surrendered by such shareholder or as set out in the Company Share Register, as applicable) would otherwise be entitled by ( ii ) the Average Parent Stock Price.

Lost, Stolen or Destroyed Certificates .  In the event any Company Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof, the Merger Consideration and any dividends or other distributions as may be required pursuant to this Article 0 in respect of the Company Common Shares represented by such lost, stolen or destroyed certificates; provided that Parent may, in its reasonable discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent or the Exchange Agent with respect to the certificates alleged to have been lost, stolen or destroyed.

Termination of Exchange Fund .  Any portion of the Exchange Fund which remains undistributed to the stockholders of Company for six months after the Effective Time shall be delivered to Parent, upon demand, and any stockholders of Company who have not theretofore complied with this Article 0 shall thereafter look only to Parent for payment, as applicable, of their claim for the Merger Consideration and any dividends or distributions with respect to Parent Common Stock.

No Liability .  None of Parent, Merger Sub, Surviving Company or the Exchange Agent shall be liable to any shareholder of Company for any Merger Consideration or any dividends or distributions with respect to Parent Common Stock delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

Withholding .  The Exchange Agent, Parent and the Surviving Company shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any shareholder of Company such amounts as it is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “ Code ”), and the rules and regulations promulgated thereunder, or any provision of state, local or foreign tax law.  To the extent that amounts are so withheld by the Exchange Agent, Parent or the Surviving Company, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Company Common Shares in respect of which such deduction and withholding was made.  The parties agree to cooperate with each other for purposes of determining whether any taxes are required to be withheld with respect to the Merger.

Company Options and Other Company Share Awards .

Subject to the terms and conditions of this Agreement, at the Effective Time, each unexercised and outstanding option to purchase Company Common Shares (a “ Company Share Option ”), issued pursuant to any Company Share Plan, whether vested or unvested, shall be assumed by Parent, shall cease to represent a right to acquire Company Common Shares and shall automatically be converted into an option to acquire a number of shares of Parent Common Stock determined by multiplying the number of Company Common Shares subject to such option immediately prior to the Effective Time by the Option Exchange Ratio (rounded down, if necessary, to the nearest whole share), with an exercise price per share of Parent Common Stock (rounded up, if necessary, to the nearest whole cent) equal to ( x ) the per share exercise price of the Company Share Option immediately prior to the Effective Time divided by ( y ) the Option Exchange Ratio; provided that, notwithstanding the foregoing, the exercise price and number of shares of Parent Common Stock for which each Company Share Option is exercisable shall ( i ) in the case of any Company Share Option which is intended to be an “incentive stock option” under Section 422 of the Code, be determined in a manner consistent with the requirements of Section 424(a) of the Code and ( ii ) in the case of any Company Share Option which is not intended to be an “incentive stock option”, be determined in a manner consistent with the requirements of Section 409A of the Code; provided further that such options will otherwise have the same terms and conditions (including vesting dates, expiration date and exercise periods) as were in effect with respect to the corresponding Company Share Options immediately prior to the Effective Time.  “ Option Exchange Ratio ” means a fraction, the numerator of which is the per share cash value of the Merger Consideration (valuing the stock portion of such consideration based on the volume weighted average price per share of Parent Common Stock on NASDAQ (as reported by Bloomberg L.P. or, if not reported thereby, by another authoritative source mutually agreed by the parties) for the 5 consecutive trading days immediately preceding the Closing Date) and the denominator of which is the volume weighted average price per share of Parent Common Stock on NASDAQ (as reported by Bloomberg L.P. or, if not reported thereby, by another authoritative source mutually agreed by the parties) for the 5 consecutive trading days immediately preceding the Closing Date.

Subject to the terms and conditions of this Agreement, at the Effective Time, each Company Common Share granted pursuant to any Company Share Plan that is subject to vesting or other restrictions immediately prior to the Effective Time (“ Company Restricted Shares ”) shall be assumed by Parent and shall, by virtue of the Merger, and without any action on the part of the holder thereof, automatically be converted into Parent Common Stock at the Option Exchange Ratio (rounded down, if necessary, to the nearest whole share); provided that such converted shares of Parent Common Stock shall remain subject to the same restrictions that applied to the Company Restricted Shares immediately prior to the Effective Time and shall otherwise have the same terms and conditions (including vesting dates) as were in effect with respect to the corresponding Company Restricted Shares immediately prior to the Effective Time.

All amounts payable pursuant to this Section 0 shall be reduced by any required withholding of taxes in accordance with Section 0 and shall be paid without interest.

Parent shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Parent Common Stock for delivery upon exercise of the Company Share Options and vesting of Company Restricted Shares in accordance with this Section 0.  At or prior to the Effective Time, Parent shall file with the SEC a registration statement on Form S-8 (or any successor or other appropriate forms) with respect to Parent Common Stock subject to the Company Share Options and Company Restricted Shares, and shall use its commercially reasonable efforts to maintain the effectiveness of such registration statement (and maintain the current status of the prospectus required thereunder) for so long as any Company Share Plan remains in effect and such registration of the shares of Parent Common Stock issuable thereunder continues to be required.

As soon as practicable after the Effective Time, Parent shall deliver to the holders of Company Share Options and Company Restricted Shares appropriate notices setting forth such holders’ rights pursuant to any Company Share Plan and agreements evidencing the grants of such Company Share Options and Company Restricted Shares, and stating that the Company Share Plans and such Company Share Options and Company Restricted Shares and agreements have been assumed by Parent and shall continue in effect on the same terms and conditions (subject to the adjustments required by this Section 0 after giving effect to the Merger and the terms of the Company Share Plans).

Cancellation of Warrants .  At the Effective Time, all warrants held by Parent or any of its subsidiaries to purchase Company Common Shares immediately prior to the Effective Time shall, by virtue of the Merger, and without any action on the part of the holder thereof, automatically be cancelled and retired without any conversion thereof and shall cease to exist and no payment shall be made in respect thereof.

Qualified Stock Purchase .  The parties intend that all of the outstanding shares of CastlePoint Bermuda Holdings, Ltd., a Bermuda company and a direct wholly-owned subsidiary of Company (“ CP Bermuda ”), will be transferred to Merger Sub by virtue of the Merger and that such transfer will constitute a “qualified stock purchase” within the meaning of Section 338(d)(3) of the Code.

REPRESENTATIONS AND WARRANTIES

Representations and Warranties of Company .  Except as ( i ) set forth in the correspondingly identified subsection of the disclosure letter delivered by Company to Parent prior to the execution of this Agreement (the “ Company Disclosure Letter ”) (it being understood by the parties that information disclosed in one section or subsection of the Company Disclosure Letter shall be deemed to be included in each other section or subsection of the Company Disclosure Letter in which the relevance of such information would be readily apparent on the face thereof) or ( ii )  disclosed in the Company SEC Documents filed with the SEC on or after December 31, 2007 and prior to the date of this Agreement (excluding any disclosures set forth in any risk factor section or forward-looking statements contained therein), Company represents and warrants to Parent and Merger Sub as follows:

Organization, Standing and Power .

Each of Company and its subsidiaries is a company or other legal entity duly organized and validly existing and in good standing (with respect to jurisdictions which recognize such concept) under the laws of its jurisdiction of incorporation or organization, has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and is duly qualified to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, other than in such jurisdictions where the failure to so qualify would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Company.

“ Material Adverse Effect ” means, with respect to any party, any change, state of facts, circumstance, event or effect that is materially adverse to ( A ) the financial condition, properties, assets, liabilities, obligations (whether accrued, absolute, contingent or otherwise), businesses or results of operations of such party and its subsidiaries, taken as a whole, excluding any such change, state of facts, circumstance, event or effect to the extent caused by or resulting from:  ( i ) except with respect to the representations and warranties set forth in Section 0 or Section 0, the execution, delivery and announcement of this Agreement and the transactions contemplated hereby, ( ii ) changes in economic, market, business, regulatory or political conditions generally in the United States or any other jurisdiction in which such party operates or in U.S. or global financial markets, ( iii ) changes, circumstances or events generally affecting the insurance and reinsurance industries in which such party operates, ( iv ) changes in any law, ordinance or regulation (or any interpretation thereof)), ( v ) changes in generally accepted accounting principles or in statutory accounting principles (“ GAAP ” and “ SAP ”, respectively), including accounting pronouncements by the Securities and Exchange Commission (the “ SEC ”), the National Association of Insurance Commissioners (“ NAIC ”) and the Financial Accounting Standards Board, ( vi ) a change in the trading prices or volume of such party’s capital stock ( provided that this exception shall not prevent or otherwise affect a determination that any state of facts, circumstances, events or effects underlying a change described in this clause (vi) has resulted in, or contributed to, a Material Adverse Effect), ( vii ) the failure to meet any revenue, earnings or other projections, forecasts or predictions for any period ending after the date of this Agreement, but not excluding any underlying cause of such failure, ( viii ) the commencement, occurrence or continuation of any war or armed hostilities in which the United States is involved or any act of terrorism within the United States or directed against its facilities or citizens wherever located, or ( ix ) any action or omission to act required to be taken by a party pursuant to the terms of this Agreement (other than Section 4.1(a) and, with respect to Section 4.1(a), 4.1(m), or Section 4.2(a) and, with respect to Section 4.2(a), Section 4.2(l), as applicable) or taken by a party with the written consent or at the written request of the other party (including any amendments to the Reinsurance Agreements or any other agreements between Company and Parent and/or any of their respective subsidiaries, or the entrance into any new agreements between Company and Parent and/or any of their respective subsidiaries), except in the case of the foregoing clauses (ii), (iii), (iv), (v) and (viii) to the extent those changes or events have a materially disproportionate effect on such party and its subsidiaries taken as a whole relative to other Bermuda property and casualty reinsurance companies, in the case of Company, and other property and casualty insurance companies operating primarily in the Northeastern United States, in the case of Parent, and/or ( B ) the ability of such party to perform its obligations under this Agreement or to consummate the transactions contemplated hereby on a timely basis.

The copies of the memorandum of association and bye-laws of Company incorporated by reference in the Form 10-K of Company for the year ended December 31, 2007, are true, complete and correct copies of such documents, are in full force and effect and have not been amended or otherwise modified, except as they may be or have been amended or otherwise modified pursuant to the Bye-Law Amendments.

Capital Structure of Company .

The authorized share capital of Company consists of 100,000,000 of Company Common Shares.  As of the close of business on August 1, 2008, 38,305,735 Company Common Shares were issued and outstanding, of which 23,415 were Company Restricted Shares, and 3,245,301 Company Common Shares were reserved for issuance upon the exercise or payment of outstanding warrants and outstanding stock options or other equity-related awards (such stock option and restricted share plans and programs, collectively, the “ Company Share Plans ”).  There are no Company Common Shares held by Company or by its subsidiaries.  From March 31, 2008 to the date hereof, Company has not issued or permitted to be issued any Company Common Shares, share appreciation rights or securities exercisable or exchangeable for or convertible into shares in the share capital of Company or any of its subsidiaries, other than pursuant to and as required by the terms of the Company Share Plans and, from March 31, 2008 to the date hereof, Company has not issued any share options or other awards under the Company Share Plans.  All outstanding Company Common Shares have been duly authorized and validly issued and are fully paid and non-assessable and not subject to preemptive rights.

No bonds, debentures, notes or other indebtedness having the right to vote (or which are convertible into or exercisable for securities having the right to vote) on any matters on which stockholders may vote (“ Voting Debt ”) of Company or any subsidiary of Company are issued or outstanding.

Except as set forth in Section 3.1(b)(iii) of the Company Disclosure Letter, and for options, units or awards issued or to be issued under the Company Share Plans, there are no options, warrants, calls, convertible or exchangeable securities, rights, commitments or agreements of any character to which Company or any subsidiary of Company is a party or by which it or any such subsidiary is bound ( A ) obligating Company or any subsidiary of Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the share capital or any Voting Debt or other equity rights of Company, or of any subsidiary of Company, ( B ) obligating Company or any subsidiary of Company to grant, extend or enter into any such option, warrant, call, convertible or exchangeable security, right, commitment or agreement or ( C ) which provide the economic equivalent of an equity ownership interest in Company or any subsidiary of Company.  Except as set forth in Section 3.1(b)(iii) of the Company Disclosure Letter, none of Company or any subsidiary of Company is a party to any member or shareholder agreement, voting trust agreement or registration rights agreement relating to any equity securities of Company or any subsidiary of Company or any other agreement relating to disposition, voting or dividends with respect to any equity securities of Company or any subsidiary of Company.  There are no outstanding contractual obligations of Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares in the share capital of Company or any of its subsidiaries.

Except as set forth in Section 3.1(b)(iv) of the Company Disclosure Letter, since June 30, 2008 through the date of this Agreement, Company has not declared, set aside, made or paid to the shareholders of Company dividends or other distributions on the outstanding shares in the share capital of Company.

Authority .

Company has all requisite corporate power and authority to enter into this Agreement and, subject in the case of the consummation of the Merger to the approval of this Agreement by the Required Company Vote, to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Company and no other corporate proceedings on the part of Company are necessary to authorize this Agreement and consummate the transactions contemplated hereby, subject in the case of the consummation of the Merger to the Required Company Vote.  This Agreement has been duly executed and delivered by Company and (assuming the due authorization, execution and delivery by Parent and Merger Sub) constitutes a valid and binding obligation of Company, enforceable against Company in accordance with its terms, except to the extent enforcement is limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and by general equitable principles.

Neither the execution and delivery of this Agreement by Company nor the consummation by Company of the transactions contemplated hereby, nor compliance by Company with any of the terms or provisions hereof, will ( A ) violate any provision of the memorandum of association or bye-laws of Company (as they may be or have been amended or otherwise modified pursuant to the Bye-Law Amendments) or the memorandum of association, bye-laws or equivalent organizational documents of any subsidiary of Company or ( B ) assuming that the consents, approvals, orders, authorizations, registrations, declarations and filings referred to in paragraph (iii) below are duly obtained or made, ( x ) violate any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Company or any subsidiary of Company or any of their respective properties or assets or ( y ) except as set forth in Section 3.1(c)(ii) of the Company Disclosure Letter, violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the respective properties or assets of Company or any subsidiary of Company under, any of the terms, conditions or provisions of any loan or credit agreement, note, mortgage, indenture, lease, Company Benefit Plan or other agreement, obligation or instrument to which Company or any subsidiary of Company is a party, or by which they or any of their respective properties or assets may be bound or affected, except in the case of the foregoing clause (B) above for such violations, conflicts, breaches, losses, defaults, terminations, rights, accelerations, and encumbrances which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Company.

No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, or self-regulatory organization (each, a “ Governmental Entity ”), is required to be made or obtained by Company or any subsidiary of Company in connection with the execution and delivery of this Agreement by Company or the consummation by Company of the transactions contemplated hereby (including any distributions and/or dividends by CP Re and CP Bermuda), except for ( A ) the filing with the SEC of such registrations, prospectuses, reports and other materials as may be required in connection with this Agreement and the transactions contemplated hereby, including the Joint Proxy Statement/, and the obtaining from the SEC of such orders as may be required in connection therewith, ( B ) the filing of the Certificate of Merger with the Delaware Secretary of State and the filing of the notice of amalgamation and related attachments with the Registrar, ( C ) such applications, filings, authorizations, orders and approvals as may be required under the Insurance Laws of any state or foreign jurisdiction (including Bermuda), and any approvals thereof (collectively, the “ Insurance Approvals ”), which are set forth in Section 0(C) of the Company Disclosure Letter, ( D ) notices or filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”), ( E ) compliance with any applicable requirements of NASDAQ, and ( F ) any such consent, approval, order or authorization of, or registration, declaration or filing, the failure of which to make or obtain would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Company.

SEC Documents; Regulatory Reports; Undisclosed Liabilities .

Company and its subsidiaries have timely filed all required reports, schedules, registration statements and other documents with the SEC since March 22, 2007 (the “ Company SEC Documents ”).  As of their respective dates of filing with the SEC (or, if amended or superseded by a filing prior to the date hereof, as of the date of such filing), the Company SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (the “ Securities Act ”), or the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), as the case may be, and the rules and regulations of the SEC thereunder applicable to such Company SEC Documents, and none of the Company SEC Documents when filed contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of Company and its subsidiaries included in the Company SEC Documents complied, as of their respective dates of filing with the SEC (or, if amended or superseded by a filing prior to the date hereof, as of the date of such filing), in all material respects with all applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be disclosed therein) and fairly present in all material respects the consolidated financial position of Company and its consolidated subsidiaries and the consolidated results of operations, changes in stockholders’ equity and cash flows of such companies as of the dates and for the periods shown.  As of the date hereof, there are no outstanding written comments from the SEC with respect to the Company SEC Documents.

Except for ( A ) those liabilities that are reflected or reserved for in the consolidated financial statements of Company included in its Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC prior to the date of this Agreement, ( B ) liabilities incurred since December 31, 2007 in the ordinary course of business and ( C ) liabilities which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Company, Company and its subsidiaries do not have, and since December 31, 2007, Company and its subsidiaries have not incurred, any liabilities or obligations of any nature whatsoever (whether accrued, absolute, contingent or otherwise and whether or not required to be reflected in Company’s financial statements in accordance with GAAP).

Compliance with Applicable Laws and Reporting Requirements .

Company and its subsidiaries hold all permits, licenses, variances, exemptions, orders, approvals and authorizations of all Governmental Entities which are material to the operation of the businesses of Company and its subsidiaries, taken as a whole (the “ Company Permits ”), and Company and its subsidiaries are in compliance with the terms of the Company Permits and all applicable laws and regulations, except where the failure to so hold or comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Company.  The businesses of Company and its subsidiaries are not being conducted in violation of any applicable law, ordinance or regulation of any Governmental Entity (including but not limited to the USA PATRIOT Act of 2001, as amended (the “ PATRIOT Act ”), the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1 et seq., as amended (“ FCPA ”) (or any other similar applicable foreign, federal, or state legal requirement), anti-money laundering laws, anti-terrorism laws, and all applicable laws or other legal requirements relating to the retention of e-mail and other information), except for violations which do not have, and would not, individually or in the aggregate, reasonably be expected to have, a Material Adverse Effect on Company.

Company has established and maintains disclosure controls and procedures (as defined in Rule 13a-15 under the Exchange Act).  Such disclosure controls and procedures are designed to ensure that material information relating to Company, including its consolidated subsidiaries, is made known to Company’s principal executive officer and its principal financial officer by others within those entities, particularly during the periods in which the periodic reports required under the Exchange Act are being prepared.

Such disclosure controls and procedures are effective in all material respects in timely alerting Company’s principal executive officer and principal financial officer to material information required to be included in Company’s periodic reports under the Exchange Act and ensure that the information required to be disclosed in the Company SEC Documents is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.  Company and its subsidiaries maintain a system of internal controls over financial reporting sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.  The records, systems, controls, data and information of Company and its subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of Company or its subsidiaries or accountants (including all means of access thereto and therefrom), except for any non-exclusive ownership and non-direct control that would not reasonably be expected to have a Material Adverse Effect on Company’s system of internal accounting controls.  Company has disclosed, based on its most recent evaluation of internal controls prior to the date hereof, to Company’s auditors and audit committee ( A ) any significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect Company’s ability to record, process, summarize and report financial information and ( B ) any fraud, whether or not material, that involves management or other employees who have a significant role in internal controls.  Company has made available to Parent a summary of any such disclosure made by management to Company’s auditors and audit committee since March 22, 2007.

There are no outstanding loans or other extensions of credit made by Company or any of its subsidiaries to any executive officer (as defined in Rule 3b-7 under the Exchange Act) or director of Company.  Company has not, since the enactment of the Sarbanes-Oxley Act of 2002, as amended (“ SOX ”), taken any action prohibited by Section 402 of SOX.

Since March 23, 2007, Company has complied in all material respects with the applicable listing and corporate governance rules and regulations of NASDAQ.

Legal Proceedings .  Except as disclosed in the Company SEC Documents filed prior to the date of this Agreement and except for litigation arising from ordinary course claims for insurance under contracts of insurance or reinsurance issued by a subsidiary of Company, there are no claims, suits, actions or proceedings (whether judicial, arbitral or administrative) (“ Legal Proceedings ”) pending or, to the knowledge of Company, threatened, against Company or any subsidiary of Company, that would, individually or in the aggregate, if determined or resolved adversely in accordance with the plaintiff’s demands, reasonably be expected to have a Material Adverse Effect on Company, nor are there any writs, judgments, decrees, injunctions, rules or orders of any Governmental Entity or arbitrator binding upon Company or any subsidiary of Company or any of their respective assets or properties that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Company.  To the knowledge of Company, no investigation by any Governmental Entity with respect to Company or any of its subsidiaries is pending or threatened, other than, in each case, those the outcome of which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Company.

Taxes .

(i)       All material Tax Returns required by applicable law to be filed with any Taxing Authority by, or on behalf of, Company or any of its subsidiaries have been filed when due in accordance with all applicable laws, and all such Tax Returns are true, correct and complete.

(ii)      There are no liens for any Taxes upon the assets of Company or any of its subsidiaries, other than ( x ) statutory liens for Taxes not yet due and payable or ( y ) liens which are being contested in good faith by appropriate proceedings, for which adequate reserves have been established on Company’s financial statements in accordance with GAAP and SAP.

(iii)     Company and each of its subsidiaries have paid or have withheld and remitted to the appropriate Taxing Authority all material Taxes due and payable, or have established in accordance with GAAP and SAP an adequate accrual for all such Taxes.

(iv)      There is no claim, audit, action, suit, proceeding or investigation now pending or, to Company’s knowledge, threatened against or with respect to Company or its subsidiaries in respect of any Tax or Tax Asset.

(v)       Company and each of its subsidiaries have withheld all material amounts required to have been withheld by them in connection with amounts paid or owed to any employee, independent contractor, creditor, stockholder or any other third party; such withheld amounts were either duly paid to the appropriate Taxing Authority or set aside in accounts for such purpose.  Company and each of its subsidiaries have reported such withheld amounts to the appropriate Taxing Authority and to each such employee, independent contractor, creditor, stockholder or any other third party, as required under law.

(vi)      Neither Company nor any of its subsidiaries is a party to a Tax allocation, sharing, indemnity or similar agreement (other than indemnities included in ordinary course employment contracts or leases) that will require any payment by Company or any of its subsidiaries of any Tax of another person after the Closing Date.

(vii)     Neither Company nor any of its subsidiaries has entered into a “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2).

(viii)    Neither Company nor any of its subsidiaries ( A ) has filed any extension of time within which to file any material Tax Returns that have not been filed, ( B ) has entered into any agreement or other arrangement waiving or extending the statute of limitations or the period of assessment or collection of any material Taxes, ( C ) has granted any power of attorney that is in force with respect to any matters relating to any material Taxes or ( D ) has applied for a ruling from a Taxing Authority relating to any material Taxes that has not been granted or has proposed to enter into an agreement with a Taxing Authority that is pending.

(ix)      No subsidiary of the Company is now or has ever been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code.

(x)       Neither Company nor any of its subsidiaries has agreed to, requested, or is required to include any adjustment under Section 481 of the Code (or any corresponding provision of state, local or foreign law) by reason of a change in accounting method or otherwise.

(xi)      Neither Company nor any of its subsidiaries has elected to be a pass-through entity for U. S. federal income tax purposes.

(xii)     Neither Company nor any of its subsidiaries organized outside the United States has ever been engaged in a trade or business in the United States within the meaning of Section 864(b) of the Code or has ever had a permanent establishment in the United States within the meaning of the tax treaty between the United States and Bermuda.  

(xiii)    Company and each of its subsidiaries organized under Bermuda law are not subject to any income, corporate or profit tax or withholding tax, capital gains tax or capital transfer tax in Bermuda and have received an assurance from the Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966, as amended, of Bermuda, that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to Company or any of its Bermuda subsidiaries or any of their respective operations, shares, debentures or other obligations until March 28, 2016.

“ Tax ” means ( i ) all federal, state, local or foreign taxes, charges, fees, imposts, levies or other assessments, including all income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, premium, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, ( ii ) all interest, penalties, fines, additions to tax or additional amounts imposed by any Taxing Authority in connection with any item described in clause (i), and ( iii ) any transferee liability in respect of any items described in clauses (i) or (ii) payable by reason of contract, assumption, transferee liability, operation of law, Treasury Regulation Section 1.1502-6(a) (or any predecessor or successor thereof of any analogous or similar provision under law) or otherwise.

“ Tax Asset ” means any net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction, or any other credit or Tax attribute that could be carried forward or carried back to reduce Taxes.

“ Taxing Authority ” means the Internal Revenue Service or any other Governmental Entity responsible for the administration of any Tax.

“ Tax Return ” means any return, report or statement required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof) including any information return, claim for refund, amended return or declaration of estimated Tax, and including, where permitted or required, combined, consolidated or unitary returns for any group of entities that includes Parent, Company or any subsidiaries thereof.

Subsidiaries .  Company owns all of the issued and outstanding shares in the share capital of CP Bermuda.  CP Bermuda owns all of the issued and outstanding shares in the share capital of CastlePoint Reinsurance Company, Ltd., a Bermuda company and a direct wholly-owned subsidiary of CP Bermuda (“ CP Re ”).  All of the issued and outstanding shares in the share capital of each of the subsidiaries of Company are owned beneficially and of record by Company or by another wholly-owned subsidiary of Company and are fully paid and nonassessable, are not subject to preemptive rights and are free and clear of any claim, lien or encumbrance, other than restrictions on transfer imposed by Insurance Laws.

Absence of Certain Changes or Events .  Since December 31, 2007, ( i ) there has not been any event, change, circumstance, state of facts or effect, alone or in combination, that has had or is, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on Company and ( ii ) Company has not taken any action or failed to take any action that would have resulted in a breach in any material respect of Section 0, Section 0, Section 0, Section 0 or, with respect to any of the foregoing, Section 4.1(m), had such sections been in effect since December 31, 2007.

Special Committee and Board Approval .  The Board of Directors of Company, by resolutions duly adopted by unanimous vote at a meeting duly called and held, has ( i ) determined that amendments to Company’s bye-laws to insert new bye-laws permitting ( A ) a shareholder of Company to irrevocably appoint a proxy and ( B ) the shareholders of Company to approve an amalgamation of Company with any other company by the affirmative vote of a majority of the votes cast at a general meeting of the shareholders of Company (collectively, the “ Bye-Law Amendments ”) are advisable to and in the best interests of Company, ( ii ) adopted the Bye-Law Amendments, and ( iii ) recommended that the shareholders of Company vote in favor of the Bye-Law Amendments (the “ Bye-Law Recommendation ”) and determined to submit the Bye-Law Amendments for consideration by the shareholders of Company at a general meeting of the shareholders of Company.  The Special Committee of the Board of Directors of Company, by resolutions duly adopted by unanimous vote at a meeting duly called and held, have ( A ) determined that this Agreement, the Merger and the other transactions contemplated by this Agreement are fair to, advisable to and in the best interests of Company, ( B ) adopted this Agreement and authorized and approved the Merger and the other transactions contemplated by this Agreement, and ( C ) recommended that the Board of Directors adopt this Agreement and authorize and approve the Merger and the other transactions contemplated hereby and submit this Agreement for consideration by the shareholders of Company at a general meeting of the shareholders of Company, and ( D ) recommended that the shareholders of Company vote in favor of the adoption of this Agreement and the approval of the Merger (the “ Company Committee Recommendation ”).  The Board of Directors of Company, by resolutions duly adopted by unanimous vote at a meeting duly called and held, have ( x ) determined that this Agreement, the Merger and the other transactions contemplated by this Agreement are fair to, advisable to and in the best interests of Company, ( y ) adopted this Agreement and authorized and approved the Merger and the other transactions contemplated by this Agreement, and ( z ) recommended that the shareholders of Company vote in favor of the adoption of this Agreement and the approval of the Merger (together with the Company Committee Recommendation, the “ Company Recommendation ”) and determined to submit this Agreement for consideration by the shareholders of Company at a general meeting of the shareholders of Company.

Vote Required .  The affirmative vote of a majority of the votes cast at a general meeting of the shareholders of Company at which a quorum is present in accordance with the bye-laws of Company to approve the Bye-Law Amendments is the only vote necessary to approve the Bye-Law Amendments (the “ Bye-Law Vote ”).  The affirmative vote of ( i ) if the Bye-Law Amendment described in Section 3.1(j)(i)(B) is adopted by the shareholders of Company, a majority of the votes cast at a general meeting of the shareholders of Company at which a quorum is present in accordance with the bye-laws of Company or ( ii ) if the Bye-Law Amendment described in Section 3.1(j)(i)(B) is not adopted by the shareholders of Company, a supermajority vote of three-fourths of the votes cast at a general meeting of the shareholders of Company at which a quorum is present in accordance with the bye-laws of Company, in each case to adopt this Agreement and to approve of the Merger (the “ Required Company Vote ”), is the only vote of the holders of any class or series of Company share capital necessary to approve this Agreement and the transactions contemplated hereby (including the Merger, but excluding the Bye-Law Amendments).

Agreements with Regulators .  Neither Company nor any subsidiary of Company is a party to any written agreement, consent decree or memorandum of understanding with, or a party to any commitment letter or similar undertaking to, or is subject to any cease-and-desist or other order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any policies, procedures or board resolutions at the request of, any Governmental Entity which restricts materially the conduct of its business or its risk management policies, nor has Company been advised by any Governmental Entity that it is contemplating any such undertakings.

Insurance Reports .  Each of Company’s subsidiaries which by virtue of its operations and activities is required to be licensed as an insurance company (collectively, the “ Company Insurance Entities ”) is listed in Section 3.1(m) of the Company Disclosure Letter.  Since January 1, 2007, each of the Company Insurance Entities has filed all annual and quarterly statements, together with all exhibits, interrogatories, notes, schedules and any actuarial opinions, affirmations or certifications or other supporting documents in connection therewith, required to be filed with or submitted to the appropriate insurance regulatory authorities of the jurisdiction in which it is domiciled or commercially domiciled on forms prescribed or permitted by such authority (collectively, the “ Company SAP Statements ”), except for such failures to file that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Company.  Company has delivered or made available to Parent, to the extent permitted by applicable laws, true and complete copies of all annual Company SAP Statements for each Company Insurance Entity for the periods beginning January 1, 2007 and through the date hereof and the quarterly Company SAP Statements for each Company Insurance Entity for the quarterly periods ended September 30, 2007, March 31, 2008 and, once duly and timely filed, June 30, 2008, each in the form (including exhibits, annexes and any amendments thereto) filed with the applicable insurance regulatory authority and true and complete copies of all examination reports of insurance departments and any insurance regulatory authorities received by Company on or after January 1, 2007 and through the date hereof relating to Company Insurance Entities.  Financial statements included in Company SAP Statements were prepared in conformity with SAP prescribed or permitted by the applicable insurance regulatory authority, in each case, consistently applied for the periods covered thereby and present fairly in all material respects the statutory financial position of the relevant Company Insurance Entity as at the respective dates thereof and the results of operations of such Company Insurance Entity for the respective periods then ended.  The Company SAP Statements complied in all material respects with all applicable laws, rules and regulations when filed, and no material deficiency has been asserted in writing by any Governmental Entity with respect to any Company SAP Statements.  The statutory balance sheets and income statements included in the annual Company SAP Statements have been audited by Company’s independent auditors, and Company has delivered or made available to Parent true and complete copies of all audit opinions related thereto for periods beginning January 1, 2007.

Benefit Plans .  Except as set forth in Section 3.1(n) of the Company Disclosure Letter, all Company Benefit Plans are administered by Parent or its affiliates.

Brokers or Finders .  Other than Goldman, Sachs & Co. (“ Goldman ”) and Friedman, Billings, Ramsey, no agent, broker, investment banker, financial advisor or other firm or person is or will be entitled to any broker’s or finder’s fee or any other similar commission or fee in connection with any of the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Company or any of its subsidiaries.

Opinion of Company Financial Advisor .  The Special Committee and the Board of Directors of Company have received the opinion of the Special Committee’s financial advisor, Goldman, dated the date of this Agreement, to the effect that, as of such date, the Merger Consideration to be paid to the shareholders of Company pursuant to Section 0 is fair, from a financial point of view, to the holders of Company Common Shares (other than Parent).

Takeover Laws .  No “fair price,” “moratorium,” “control share acquisition,” “interested stockholder” or other anti-takeover statute or regulation is applicable to this Agreement, the Merger or the other transactions contemplated hereby by reason of Company being a party to this Agreement, performing its obligations hereunder and consummating the Merger and the other transactions contemplated hereby.

Affiliate Transactions .  There are no transactions, agreements, arrangements or understandings between ( i ) Company and its subsidiaries, on the one hand, and ( ii ) any directors, officers or shareholders of Company (other than Parent), on the other hand, of the type that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act, other than the indemnification agreements entered into by Company with the members of Company’s Special Committee.

Representations and Warranties of Parent and Merger Sub .  Except as ( i ) set forth in the correspondingly identified subsection of the disclosure letter delivered by Parent to Company prior to the execution of this Agreement (the “ Parent Disclosure Letter ”) (it being understood by the parties that information disclosed in one section or subsection of the Parent Disclosure Letter shall be deemed to be included in each other section or subsection of the Parent Disclosure Letter in which the relevance of such information would be readily apparent on the face thereof) or ( ii ) disclosed in the Parent SEC Documents filed with the SEC on or after December 31, 2007 and prior to the date of this Agreement (excluding any disclosures set forth in any risk factor section or forward-looking statements contained therein), Parent and Merger Sub represent and warrant to Company as follows:

Organization, Standing and Power .

Each of Parent and its subsidiaries is a corporation duly organized and validly existing and in good standing (with respect to jurisdictions which recognize such concept) under the laws of its jurisdiction of incorporation or organization, has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and is duly qualified to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary, other than in such jurisdictions where the failure to so qualify would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent.

The copies of the certificate of incorporation and by-laws of Parent incorporated by reference in the Form 10-K of Parent for the year ended December 31, 2007, are true, complete and correct copies of such documents, are in full force and effect and have not been amended or otherwise modified.  True and complete copies of the certificate of incorporation and by-laws of Merger Sub, each as in effect as of the date of this Agreement, have previously been made available to Company.

Capital Structure of Parent .

The authorized capital stock of Parent consists of forty million (40,000,000) shares of Parent Common Stock, $0.01 par value per share (“ Parent Common Stock ”), and two million (2,000,000) shares of Series A Perpetual Preferred Stock (“ Parent Series A Preferred Stock ”).  As of the close of business on August 1, 2008, 23,379,981 shares of Parent Common Stock were issued and outstanding (including shares held in treasury), of which 261,635 were shares of Parent Common Stock subject to vesting or other restrictions and 309,887 shares of Parent Common Stock were reserved for issuance upon the exercise or payment of outstanding stock options or other equity related awards (such stock option and restricted share plans and programs, collectively, the “ Parent Stock Plans ”), and 63,148 shares of Parent Common Stock were held by Parent in its treasury or by its subsidiaries.  As of August 1, 2008, none of the shares of Parent Series A Preferred Stock were issued and no shares of Parent Series A Preferred Stock were held by Parent in its treasury or by its subsidiaries.  From March 31, 2008 to the date hereof, Parent has not issued or permitted to be issued any shares of capital stock, stock appreciation rights or securities exercisable or exchangeable for or convertible into shares of capital stock of Parent or any of its subsidiaries, other than pursuant to and as required by the terms of the Parent Stock Plans and, from March 31, 2008 to the date hereof, Parent has not issued any stock options or other awards under the Parent Stock Plans.  All outstanding shares of Parent Common Stock are, and all shares of Parent Common Stock to be issued in connection with the Merger and the other transactions contemplated by this Agreement, will be, when so issued, validly issued and outstanding, fully paid, non-assessable and not subject to preemptive rights.

No Voting Debt of Parent is issued or outstanding.

Except for options, units or awards issued or to be issued under the Parent Stock Plans, there are no options, warrants, calls, convertible or exchangeable securities, rights, commitments or agreements of any character to which Parent is a party or by which it is bound ( A ) obligating Parent to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or any Voting Debt or other equity rights of Parent, ( B ) obligating Parent to grant, extend or enter into any such option, warrant, call, convertible or exchangeable security, right, commitment or agreement or ( C ) which provide the economic equivalent of an equity ownership interest in Parent. Parent is not a party to any stockholders agreement, voting trust agreement or registration rights agreement relating to any equity securities of Parent or any other agreement relating to disposition, voting or dividends with respect to any equity securities of Parent.  There are no outstanding contractual obligations of Parent to repurchase, redeem or otherwise acquire any shares of capital stock of Parent.

Since June 30, 2008 through the date of this Agreement, Parent has not declared, set aside, made or paid to the holders of Parent Common Stock dividends or other distributions on the outstanding shares of Parent Common Stock.

Capital Structure of Merger Sub .  The authorized capital stock of Merger Sub, as of the date hereof, consists of 1,000 shares of common stock, par value $0.01 per share, all of which shares are validly issued and outstanding.  One of Parent’s wholly-owned subsidiaries is the legal and beneficial owner of all of the issued and outstanding shares of Merger Sub.  Merger Sub was formed by a subsidiary of Parent solely for the purpose of effecting the Merger and the other transactions contemplated by this Agreement.  Merger Sub has not conducted any business prior to the date hereof and has no, and prior to the Effective Time will have no, assets, liabilities or obligations of any nature other than those incident to its formation and pursuant to this Agreement.

Authority .

Each of Parent and Merger Sub has all requisite corporate power and authority to enter into this Agreement and, subject in the case of Parent to the Required Parent Vote, to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement and consummate the transactions contemplated hereby, subject in the case of Parent to the Required Parent Vote.  This Agreement has been duly executed and delivered by Parent and Merger Sub and (assuming the due authorization, execution and delivery by Company) constitutes a valid and binding obligation of each of Parent and Merger Sub, enforceable against each of them in accordance with its terms, except to the extent enforcement is limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and by general equitable principles.

Neither the execution and delivery of this Agreement by Parent or Merger Sub nor the consummation by Parent and Merger Sub of the transactions contemplated hereby, nor compliance by Parent or Merger Sub with any of the terms or provisions hereof, will ( A ) violate any provision of the certificate of incorporation or by-laws (as they may be amended or otherwise modified pursuant to Sections 0 and 0) of Parent or the certificate of incorporation or by-laws of Merger Sub or ( B ) assuming that the consents, approvals, orders, authorizations, registrations, declarations and filings referred to in paragraph (iii) below are duly obtained or made, ( x ) violate any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or Merger Sub or any of their respective properties or assets or ( y ) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any lien, pledge, security interest, charge or other encumbrance upon any of the respective properties or assets of Parent or Merger Sub under, any of the terms, conditions or provisions of any loan or credit agreement, note, mortgage, indenture, lease, benefit plan or other agreement, obligation or instrument to which Parent or Merger Sub is a party, or by which they or any of their respective properties or assets may be bound or affected, except in the case of the foregoing clause (B) above for such violations, conflicts, breaches, losses, defaults, terminations, rights, accelerations, and encumbrances which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent.

No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required to be made or obtained by Parent or Merger Sub in connection with the execution and delivery of this Agreement by Parent or Merger Sub or the consummation by Parent or Merger Sub of the transactions contemplated hereby, except for ( A ) the filing with the SEC of such registrations, prospectuses, reports and other materials as may be required in connection with this Agreement and the transactions contemplated hereby, including ( x ) the Joint Proxy Statement/, and ( y ) the Form S-4, and the obtaining from the SEC of such orders as may be required in connection therewith, ( B ) the filing of an amendment to Parent’s certificate of incorporation in the form attached hereto as Exhibit A, providing for an increase in the number of authorized shares of Parent Common Stock that is, at a minimum, sufficient to deliver the shares of Parent Common Stock required under ARTICLE II (the “ Charter Amendment ”) with the Delaware Secretary of State, ( C ) the filing of the Certificate of Merger with the Delaware Secretary of State and the filing of the notice of amalgamation and related attachments with the Registrar, ( D ) the Insurance Approvals, which are set forth in Section 0(D) of the Parent Disclosure Letter, ( E ) notices or filings under the HSR Act, ( F ) such filings and approvals as are required to be made or obtained under the securities or “Blue Sky” laws of various states or foreign jurisdictions in connection with the issuance of the shares of Parent Common Stock pursuant to this Agreement, ( G ) compliance with any applicable requirements of NASDAQ and ( H ) any such consent, approval, order or authorization of, or registration, declaration or filing, the failure of which to make or obtain would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent.

SEC Documents; Regulatory Reports; Undisclosed Liabilities .

Parent has timely filed all required reports, schedules, registration statements and other documents with the SEC since December 31, 2005 (the “ Parent SEC Documents ”).  As of their respective dates of filing with the SEC (or, if amended or superseded by a filing prior to the date hereof, as of the date of such filing), the Parent SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Documents, and none of the Parent SEC Documents when filed contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  The financial statements of Parent and its subsidiaries included in the Parent SEC Documents complied, as of their respective dates of filing with the SEC (or, if amended or superseded by a filing prior to the date hereof, as of the date of such filing), in all material respects with all applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be disclosed therein) and fairly present in all material respects the consolidated financial position of Parent and its consolidated subsidiaries and the consolidated results of operations, changes in stockholders’ equity and cash flows of such companies as of the dates and for the periods shown.  As of the date hereof, there are no outstanding written comments from the SEC with respect to the Parent SEC Documents.

Except for ( A ) those liabilities that are reflected or reserved for in the consolidated financial statements of Parent included in its Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC prior to the date of this Agreement, ( B ) liabilities incurred since December 31, 2007 in the ordinary course of business and ( C ) liabilities which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Parent, Parent does not have, and since December 31, 2007, Parent has not incurred, any liabilities or obligations of any nature whatsoever (whether accrued, absolute, contingent or otherwise and whether or not required to be reflected in Parent’s financial statements in accordance with GAAP).

Compliance with Applicable Laws and Reporting Requirements .  

Parent and its subsidiaries hold all permits, licenses, variances, exemptions, orders, approvals and authorizations of all Governmental Entities which are material to the operation of the businesses of Parent and its subsidiaries, taken as a whole (the “ Parent Perm