Exhibit 10.1

COMMUTATION AGREEMENT

          This Commutation Agreement (“Agreement”) is entered into as of July
25, 2008 (the “Effective Date”) by and between XL Financial Assurance Ltd., a
Bermuda exempted company (“XLFA”), and RAM Reinsurance Company Ltd., a Bermuda
exempted company (“RAM Re”). XLFA and RAM Re are hereinafter referred to
collectively as the “Parties” and individually as a “Party”.

          WHEREAS, the Parties entered into the Amended and Restated Variable
Comprehensive Automatic Treaty Retrocession Agreement, dated as of March 4, 2008
(the “Variable Retrocession Agreement”), between XLFA and RAM Re, the Restricted
Cession Agreement, dated as of April 19, 2004 (the “Restricted Cession
Agreement”), between XLFA and RAM Re and the Master Facultative Retrocession
Agreement, effective as of September 15, 2003 (the “Master Retrocession
Agreement” and collectively with the Variable Retrocession Agreement and the
Restricted Cession Agreement, the “Retrocession Agreements”), between XLFA and
RAM Re;

          WHEREAS, the Parties now wish, effective as of the Effective Date, to
fully and finally terminate, release, determine and fully and finally settle,
commute and extinguish all their respective obligations and liabilities, known
and unknown, fixed and contingent, under, arising out of, in connection with
and/or pursuant to the Retrocession Agreements; and

          WHEREAS, in connection herewith, the Parties desire to fully and
finally settle any and all obligations between them with respect to the
Retrocession Agreements.

          NOW, THEREFORE, in consideration of the covenants, conditions,
promises and releases contained herein, and for other valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Parties agree
as follows:

          1.      Consideration. In consideration of the release and discharge
set forth in Section 2 below, RAM Re hereby agrees to pay to XLFA the sum of
ninety-four million four hundred thousand United States dollars
(US$94,400,000.00) (hereinafter referred to as the “Commutation Amount”) by no
later than four (4) Business Days after the Effective Date in cash by wire
transfer pursuant to the wire transfer instructions set out in Schedule A to
this Agreement. XLFA shall accept the Commutation Amount in full, final and
complete settlement of any and all amounts due or claimed to be due by RAM Re to
XLFA, or any of XLFA’s heirs, administrators, predecessors, successors and
assigns, including, but not limited to, any Affiliates of XLFA, relating to, or
arising out of, or in any way related to, the Retrocession Agreements,
including, without limitation, any and all amounts due or claimed to be due
relating to, or arising out of, or in any way related to any policies ceded, or
purported to have been ceded, under the Retrocession Agreements (the
“Policies”). “Affiliates” means, with respect to either Party, any person or
entity that (at the time when the determination is to be made) directly, or
indirectly

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through one (1) or more intermediaries, controls, or is controlled by, or is
under common control with, such Party. As used in the foregoing sentence, the
term “control” (including, with correlative meaning, the terms “controlling,”
“controlled by” and “under common control with”) means the possession, directly
or indirectly, of the power to vote ten percent (10%) or more of the voting
securities of such Party. “Business Day” means any day other than a Saturday or
Sunday or any other day on which commercial banking institutions in the Islands
of Bermuda are authorized or obligated by law, executive order or government
decree to be closed.

          2.     Release. Each of the Parties, on behalf of itself and its
Affiliates and their respective agents, representatives, officers, directors,
employees, advisors, attorneys and auditors (collectively, “Representatives”),
and their respective heirs, administrators, predecessors, successors and assigns
and each of them unconditionally releases, acquits and forever discharges the
other Party and its Affiliates and their respective Representatives, and their
respective heirs, administrators, predecessors, successors and assigns, from and
against any and all past, present and future claims, demands, debts,
obligations, liabilities, payments, damages, adjustments, executions, offsets,
sums of money, accounts, reckonings, bonds, bills, costs, expenses, actions,
causes of action, controversies, covenants, contracts, agreements, promises,
judgments, and/or losses, of every nature, kind, character, and description
whatsoever, whether grounded in law or in equity, in contract, tort, or
otherwise (including, without limitation, any claims based on fraud, bad faith,
or extra-contractual liabilities), all whether known or unknown, which such
Party now owns, holds or has, or at any time heretofore, owned, held or had, or
which such Party hereafter can, shall or may own, hold or have against the other
Party, and each of them, arising out of, resulting from, or in any way related
to the Retrocession Agreements, including, without limitation, the Policies, it
being the intent of the Parties that this release shall operate to fully and
finally settle and extinguish any and all obligations and liabilities arising
out of, resulting from, or in way relating to the Retrocession Agreements,
including, without limitation, the Policies.

          3.     No Challenge. Neither Party, nor such Party’s heirs,
administrators, predecessors, successors or assigns, including, but not limited
to, such Party’s Affiliates, shall challenge or contest the validity or
enforceability of this Agreement or any of the provisions herein.

          4.     Representations and Warranties.

                  (a.)      Mutual Representations and Warranties. Each of the
Parties expressly severally represents and warrants to the other Party that: (i)
such Party is a company, duly organized, validly existing and in good standing
under the laws of the Islands of Bermuda; (ii) such Party is duly licensed as an
insurance company by the Bermuda Monetary Authority (the “BMA”); (iii) the
execution and delivery of, giving effect to, and performance of, such Party’s
obligations under this Agreement and the transactions contemplated hereby are
fully authorized by such Party, including such Party’s Board of Directors; (iv)
the person executing this Agreement on behalf of such Party has the necessary
and appropriate authority to do so; (v) this Agreement constitutes a valid and
binding obligation of such Party; (vi) such Party derives a

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substantial economic benefit from this Agreement and the transactions
contemplated hereby and will not assert a lack of fair or sufficient
consideration for entering into this Agreement; (vii) there are no pending
agreements, transactions or negotiations to which such Party is a party that
would render this Agreement or any part thereof void, avoidable or
unenforceable; (viii) there is no authorization, consent or approval of any
government or regulatory authority that is required to make this Agreement
valid, enforceable in accordance with its terms and binding upon such Party;
(ix) no claim or account being paid or settled hereunder has previously been
assigned or transferred to another person or entity; (x) no order has been made
or petition presented or other step taken for such Party to be wound up or for
the appointment of a liquidator, provisional liquidator, receiver, administrator
or other like office holder under the laws of any jurisdiction whatsoever; (xi)
such Party has not made an election to be treated as a United States company
pursuant to Section 953(d) of the Internal Revenue Code of 1986, as amended from
time to time; (xii) the execution and delivery of, giving effect to, and
performance of, such Party’s obligations under this Agreement do not conflict
with, result in a breach or violation or imposition of any lien, charge or
encumbrance upon any property or assets of such Party or its Affiliates pursuant
to, the charter or bye-laws or other organizational document of such Party or
its Affiliates or the terms of any indenture, contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which such Party or any of its Affiliates is a party
or bound or to which such Party’s of any of its Affiliates’ property is subject;
and (xiii) the execution and delivery of, giving effect to, and performance of,
such Party’s obligations under this Agreement do not contravene, or fail to
comply with, any Applicable Laws. “Applicable Laws” means any Bermuda or foreign
law (including common law), statute, ordinance, rule, regulation, order, writ,
injunction, judgment, permit, governmental agreement or decree applicable to a
Party or any of such Party’s subsidiaries, properties, assets, or to such
Party’s Representatives in their capacity as such.

                  (b.)     Representations and Warranties of XLFA.

                  (i)       Save in respect of Merrill Lynch ABS and/or CDO
transactions originated by XL Capital Assurance Inc. and retroceded to RAM Re,
XLFA expressly represents and warrants to RAM Re that neither XLFA nor XL
Capital Assurance Inc. has, as of the Effective Date, executed, or agreed in
principle to enter into, any agreement pursuant to which any Policy directly or
indirectly insuring, covering or otherwise related to, risks in connection with
swaps or other derivative contracts (including, without limitation, credit
default swaps and other credit derivatives, options or futures), structured
notes, asset backed securities, or collateralized debt obligations will be
commuted, restructured or otherwise compromised; and

                  (ii)      XLFA represents and warrants that the written loss
reserve information it has provided to RAM Re as at the Effective Date is the
same information as the management of XLFA has provided as its loss reserves for
the quarter ended June 30, 2008 to its Board of Directors and to its independent
auditors as at the Effective Date.

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          5.     Covenants. Notwithstanding any other provision in this
Agreement to the contrary, XLFA shall obtain from the BMA an order or letter
that this Agreement and the transactions contemplated hereby do not violate
applicable Bermuda law or regulations and that the BMA approves, or does not
disapprove of, this Agreement and the transactions contemplated hereby, and XLFA
shall promptly deliver to RAM Re such order, letter or other written evidence
prior to the time by which RAM Re shall be obligated to pay to XLFA the
Commutation Amount.

          6.     Public Announcements. Neither Party nor any of their respective
Affiliates shall issue or cause the dissemination of any press release or other
public announcements or statements with respect to this Agreement or the
transactions contemplated hereby without the consent of the other Party, which
consent will not be unreasonably withheld, except as either Party reasonably
believes is required by Applicable Law or by any listing agreement with a
national securities exchange or trading market (and in such case shall use all
reasonable efforts to consult the other Party prior to such release or
statement). XLFA and RAM Re agree to consult with each other before issuing any
press release or making any public statement with respect to this Agreement or
the transactions contemplated hereby and, except as may be required by
Applicable Law, will not issue any such press release or make any such public
statement prior to such consultation.

          7.     Hold Harmless and Indemnification. Each Party shall indemnify
and hold harmless the other Party from and against damages, losses, claims
(whether or not the other Party is a party to any action or proceeding that
gives rise to any indemnification obligation), actions, suits, demands,
judgments, liabilities (including penalties), obligations or disbursements of
any kind or nature whatsoever, and related costs and expenses (including
reasonable attorneys’ fees and disbursements), awarded against or incurred by
the other Party arising out of or as a result of (A) any representation or
warranty made by a Party hereunder having been untrue or incorrect in any
material respect when made or deemed to have been made, or (B) any breach by a
Party of any of its covenants, agreements or obligations hereunder.

           8.     Arbitration. Any dispute, controversy or claim arising out of,
relating to or in connection with this Agreement, including, without limitation,
any dispute regarding the termination, performance or breach of this Agreement,
or any statutory claims relating hereto, shall be finally settled by arbitration
administered by the AIDA Reinsurance and Insurance Arbitration Society
(“ARIAS”). The arbitration shall be conducted in accordance with the ARIAS
Arbitration Guidelines in effect at the time of the arbitration, except as they
may be modified herein or by agreement of the Parties to the arbitration.

                  (a)      The place of arbitration shall be Hamilton, Bermuda.

                  (b)      The arbitration shall be conducted by one (1)
arbitrator (the “Arbitrator”), who shall be a disinterested third party with
significant experience in reinsurance and

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commutation transactions or disputes, who is not employed by, a consultant to,
or otherwise affiliated with, and has at no time been employed by, a consultant
to, or otherwise affiliated with, either Party or their respective Affiliates.
The Parties shall appoint the Arbitrator within thirty (30) days following the
transmittal of written demand of either Party to arbitrate any dispute
arbitrable under this Agreement. If the Parties hereto shall fail to appoint an
arbitrator, as herein provided, within thirty (30) days following the
transmittal of written demand of either Party to arbitrate any dispute
arbitrable under this Agreement, then the President of the ARIAS shall appoint
the Arbitrator. The Arbitrator will not be bound by formal rules of legal
procedure.

                  (c)      The award rendered by the Arbitrator shall be final
and binding on the Parties to the arbitration. The award shall be rendered by
the Arbitrator in the form of a written reasoned opinion, and shall not be
appealable to the Arbitrator nor in a court of law. In no event shall any award
include special, indirect, consequential or punitive damages. Judgment on the
award may be entered in any court of competent jurisdiction.

                  (d)      To initiate arbitration, a Party shall send a notice
demanding arbitration to the other Party.

                  (e)      After a notice demanding arbitration is received and
the Arbitrator is appointed, each Party is required immediately to disclose to
the other Party all documents in its control pertaining to any of the disputes,
controversies or claims contained in the notice demanding arbitration or as
directed by the Arbitrator. Each Party to the arbitration shall have the right
to promptly obtain written interrogatories from, and depositions of, any persons
possessing knowledge or cognizance of the facts relevant to the disputes,
controversies or claims contained in the notice demanding arbitration or as
directed by the Arbitrator.

                  (f)      Each Party shall be responsible for the fees and
costs of the Arbitrator and any costs and expenses of the other Party in
connection with any arbitration hereunder in the same proportion as (x) the
aggregate dollar amount of items submitted to the Arbitrator that are
unsuccessfully disputed by such Party (as finally determined by the Arbitrator)
bears to (y) the aggregate dollar amount of disputed items so submitted.

          9.     Expenses. All expenses incurred in connection with this
Agreement (including the fees and disbursements of legal, actuarial, accounting
and other advisors incurred on or before the Effective Date) shall be paid by
the Party incurring such expenses.

          10.   Waivers and Amendments. This Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by both of the Parties, or in
the case of a waiver, by the Party waiving compliance. No delay on the part of
any Party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any waiver on the part of either Party of

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any right, power or privilege, nor any single or partial exercise of any right,
power or privilege, preclude any further exercise thereof or the exercise of any
other such right, power or privilege.

          11.   Notices. Any notices given pursuant to this Agreement shall be
in writing and shall be sent, postage pre-paid by registered or certified mail
or by overnight courier or by confirmed facsimile transmission, such facsimile
transmission to be accompanied by the mailing, postage pre-paid by registered or
certified mail or overnight courier, of a hard copy of any such facsimile
transmission to the other Party at the address or facsimile number set forth
below.

To XLFA:   XL Financial Assurance Ltd. A.S. Cooper Building 26 Reid Street, 4th
Floor Hamilton HM 11 Bermuda Attention: Michael Rego Fax: 441-296-4351 Tel:
441-279-7483   To RAM Re:   RAM Re House 46 Reid Street Hamilton, HM 12, Bermuda
Attention: Vern Endo Fax: 441-296-6509 Tel: 441-298-2113

          12.   Further Assurances. The Parties agree to do or cause to be done
such further acts and things and deliver or cause to be delivered to the other
Parties such additional assignments, agreements, powers and instruments as such
Parties may reasonably require or deem advisable to carry into effect the
purposes of this Agreement or to better assure and confirm unto the other Party
the rights, powers and remedies of each hereunder.

          13.   Successors and Assigns. The rights, duties and obligations set
forth herein shall inure to the benefit of and be binding upon XLFA and RAM Re
and their respective successors and permitted assigns and is not intended to
confer any rights or benefits upon persons or entities other than the foregoing
entities.

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          14.   Governing Law and Jurisdiction. The validity and interpretation
of this Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the Islands of Bermuda.

          15.   Severability of Provisions. If it is found in a final judgment
by the Arbitrator or a court of competent jurisdiction (not subject to further
appeal) that any term or provision hereof is invalid or unenforceable, (i) the
remaining terms and provisions hereof shall be unimpaired and shall remain in
full force and effect and (ii) the invalid or unenforceable provision or term
shall be replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of such invalid or unenforceable term
or provision.

          16.   Entire Agreement; Superseding Definitive Agreement. This
Agreement embodies the entire agreement and understanding of the Parties and
supersedes any and all prior agreements, arrangements and undertakings relating
to the matters provided for herein. No alteration, waiver, amendment, change or
supplement hereto shall be binding or effective unless the same is set forth in
writing signed by a duly authorized representative of RAM Re and XLFA.

          17.   Counterparts. For the convenience of the Parties, any number of
counterparts of this Agreement may be executed by the Parties. Each such
counterpart shall be, and shall be deemed to be, an original instrument, but all
such counterparts taken together shall constitute one and the same Agreement.

          18.   Investigation. The Parties acknowledge that they have entered
into this Agreement in reliance upon their own independent investigation and
analysis and not on the basis of any representation or warranty by the other
Parties hereto other than those representations and warranties set forth in this
Agreement.

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          IN WITNESS WHEREOF the Parties, by their respective duly authorized
officers, have executed this Agreement as of the date set forth above.

  XL FINANCIAL ASSURANCE LTD.     By: /s/ Michael Rego Name: Michael Rego Title:
   Chief Operating Officer       RAM REINSURANCE COMPANY LTD.     By: /s/ Vernon
M. Endo Name: Vernon M. Endo Title:    President and Chief Executive Officer

 

 

 

 

 

 

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Schedule A

Wire Transfer Instructions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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