Exhibit 10.45

                    ADVERSE DEVELOPMENT REINSURANCE AGREEMENT

THIS  AGREEMENT is effective on [   ] (the  effective date of the initial public
offering of XLCA's parent, referred to herein as the "IPO Date") and is made and
entered  into by and  between  XL Capital  Assurance  Inc.,  a New York  insurer
(hereinafter  called the "Company" or "XLCA") and XL Reinsurance America Inc., a
New York insurer (hereinafter called the "Reinsurer" or "XLRA").

         In  consideration  of the mutual  covenants  hereinafter  contained and
other good and valuable  consideration,  the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:

                                    ARTICLE I
                                    COVERAGE

         Subject to the terms,  conditions,  and  limitations of this Agreement,
the  Reinsurer  agrees to indemnify  the Company on an aggregate  excess of loss
basis for Aggregate  Adverse  Development up to the Maximum  Liability Amount on
the Subject Business (as each such term is defined in Article V).

         No payments shall be made under this  Agreement  unless the Company has
first paid  Ultimate Net Loss in an amount in excess of the  Retained  Reserves.
Under no  circumstances  shall the total  liability of the Reinsurer  under this
Agreement  exceed  the  Maximum  Liability  Amount  (as that term is  defined in
Article V).

         Nothing herein shall in any manner create any  obligations or establish
any rights  against the  Reinsurer in favor of any third  parties or any persons
not parties to this Agreement except as provided in Article XIX.


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                                   ARTICLE II
                                      TERM

         This  Agreement  shall remain in full force and effect until the expiry
of all  liabilities  under this  Agreement  or  Commutation  as provided  for in
Article IX.

         The  provisions  of this  Agreement  shall  continue  to  apply  to all
obligations  and liabilities of the parties  incurred  hereunder to the end that
all such obligations and liabilities shall be fully performed and discharged.

                                   ARTICLE III
                                    TERRITORY

         The territorial scope of this Agreement shall be worldwide.

                                   ARTICLE IV
                                   [RESERVED]

                                    ARTICLE V
                                   DEFINITIONS

         The  following  definitions  shall  apply in  respect of all use of the
defined terms in this Agreement:

A.        "Aggregate  Adverse  Development"  shall  mean any  increase  in Total
          Incurred (as defined herein) on the Subject  Business that will result
          in Ultimate Net Loss in an amount exceeding the Retained Reserves.

B.        "Affiliate" shall mean a person which, directly or indirectly, owns at
          least  10% but  less  than  50% of the  financial  guaranty  insurance
          corporation  or which is at least  ten  percent  but less  than  fifty
          percent,  directly  or

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         indirectly, owned by a financial guaranty corporation.  Such definition
         is set forth in Section  6901(c) of the New York Insurance Laws and may
         be amended from time to time.

C.       RESERVED

D.       RESERVED

E.       "Loss Adjustment Expense" shall mean expenses of the Company, including
         all court costs, fees and expenses;  fees for service of process;  fees
         to attorneys; cost of undercover operative and detective services; fees
         and expenses for financial advisors,  attorneys,  third party servicers
         and  consultants;  fees  of  independent  adjusters  or  attorneys  for
         investigation  or adjustment of claims  beyond  initial  investigation,
         cost of  employing  experts for  preparation  of reports,  photographs,
         diagrams,  chemical  or physical  analysis  or for  advice,  opinion or
         testimony concerning claims under investigation or in litigation; costs
         for  legal  transcripts  of  testimony  taken  at  coroner's  inquests,
         criminal or civil proceedings;  costs for copies of any public records;
         costs of depositions and court reported or recorded statements; and any
         other  similar  fees;  cost or  expense  reasonably  chargeable  to the
         investigation, negotiation, settlement or defense of a claim or loss or
         to the  protection  and  perfection  of the  subrogation  rights of any
         insured covered by the policies relating to the Subject Business.  This
         amount  shall not include  overhead  expenses of Company or salaries or
         expenses of persons  employed by the  Company in an  administrative  or
         supervisory capacity, nor for ordinary office expenses of the Company.

F.       "Maximum Liability Amount" shall mean $[ * ].

G.       RESERVED

H.       "Retained Reserves" shall mean the Company's (a) gross case reserves of
         $[ * ], calculated as of June 30, 2006 and (b) loss adjustment  expense

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         reserve of $[ * ] arising from the Subject  Business as of the IPO Date
         before   giving   consideration   to  this   Agreement,   after  giving
         consideration to the Third Amended and Restated Facultative Quota Share
         Reinsurance Treaty,  dated as of July 1, 2006 (the "XLCA/XLFA Treaty"),
         between XLCA and XL Financial  Assurance Ltd , and before giving effect
         to any other third-party reinsurance.

I.       "Subject  Business"  shall mean  risks  attaching  under (a)  Financial
         Guaranty  Insurance Policy [ * ] (Attached hereto as Exhibit A) and (b)
         Financial Guaranty Insurance Policy [ * ].

J.       "Term"  shall mean the period from the IPO Date until the expiry of all
         liabilities  under  this  Agreement,  both  days  inclusive,  in  which
         increases  to  the  Aggregate  Adverse  Development  are  eligible  for
         coverage under this Agreement.

K.       "Total Incurred" shall mean the sum of (i) Ultimate Net Loss paid after
         the IPO Date plus (ii) case reserves for Ultimate Net Loss unpaid.

L.       "Ultimate  Net Loss" shall mean:  (i) the actual amount the Company has
         paid or has become liable to pay and all Loss Adjustment  Expenses with
         respect to the Subject  Business and (ii) one hundred percent (100%) of
         the amount of any Extra Contractual Obligations and one hundred percent
         (100%) of the amount of any Excess Limits  Liability (as each such term
         is defined in Article V), after giving effect to the XLCA/XLFA  Treaty,
         but before any other  third-party  reinsurance  and before all salvages
         and subrogations that are actually received by the Company.

         All salvages,  recoveries, or payments recovered or received subsequent
         to a loss  settlement  under  this  Agreement  shall be  applied  as if
         recovered or received prior to the aforesaid settlement and pursuant to
         Article XIV and all necessary  adjustments shall be made by the parties
         hereto,  provided  always  that  nothing  in this  definition  shall be
         construed to mean

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         that Ultimate Net Loss under this  Agreement is not  recoverable  until
         the Company's Ultimate Net Loss has been ascertained.

                                   ARTICLE VI
            EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY

         This Agreement  shall cover any losses  arising from Extra  Contractual
Obligations and Excess Limits Liability.

         "Extra  Contractual  Obligations"  as used in this Agreement shall mean
those  liabilities  not covered  under any other  provision  of this  Agreement,
including third party claims against the Company,  which arise from the handling
of any claim on business covered hereunder; such liabilities arising because of,
but not limited  to, the  following:  failure to settle  within the limit of the
policies  relating  to the  Subject  Business,  by reason of  alleged  or actual
negligence,  fraud,  or bad faith in  rejecting an offer of  settlement,  in the
preparation  of the defense,  in the trial of any action  against the insured or
reinsured,  or in the  preparation or prosecution of an appeal  consequent  upon
such action, all as determined by the Company in its sole discretion.

         "Excess Limits  Liability" as used in this Agreement shall mean damages
payable in excess of the limit of the policies  relating to the Subject Business
as a result of alleged or actual  negligence,  fraud, or bad faith in failing to
settle and/or rejecting a settlement  within the limit of the policies  relating
to the Subject Business,  in the preparation of the defense, in the trial of any
action against the insured or reinsured, or in the preparation or prosecution of
an appeal consequent upon such action. Excess Limits Liability is any amount for
which the Company would have been contractually  liable to pay, as determined by
the  Company  in its sole  discretion,  had it not been  for the  limits  of the
reinsured policy.

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         The date on which any Extra Contractual Obligation and/or Excess Limits
Liability is incurred by the Company shall be deemed, in all  circumstances,  to
be the date of the original loss.

         In the event any  provision of this  Article VI is rendered  illegal or
unenforceable by the laws,  regulations,  or public policy of any  jurisdiction,
such provision shall be considered void as respects that jurisdiction  only, and
such a  consideration  shall not affect the  validity or  enforceability  of any
other provision of this Article VI in that  jurisdiction nor the  enforceability
of such provision in any other jurisdiction.

         In no event shall coverage be provided to the extent that such coverage
is not permitted under New York Law.

                                   ARTICLE VII
                              REINSURANCE PREMIUM

         In consideration of coverage provided hereunder,  the Company shall pay
to the Reinsurer  Reinsurance Premium on an installment basis in accordance with
Schedule A.

                                  ARTICLE VIII
                                   [RESERVED]

                                   ARTICLE IX
                                   COMMUTATION

         This Agreement may be commuted upon the mutual agreement of the Parties
and the approval of the New York  Department of Insurance.  Upon any commutation
the Reinsurer  will receive a full and final release from all past,  current and
future liability under or related to this Agreement.

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<PAGE>

                                    ARTICLE X
                             REPORTS AND REMITTANCES

A.       As respects  the Subject  Business,  the Company  shall  furnish to the
         Reinsurer  within  forty-five  (45) days after the end of each calendar
         quarter:

         1.       The quarterly  account of Ultimate Net Loss paid as of the end
                  of the  calendar  quarter and on a  cumulative  basis from the
                  effective date of this Agreement; and

         2.       The Company's  estimate of case reserves for Ultimate Net Loss
                  unpaid as of the end of the calendar quarter.

B.       Within thirty (30) days following receipt of Company's quarterly report
         as  called  for  above,  the  Reinsurer  shall pay to the  Company  the
         positive  amount,  if any,  by which  paid  Ultimate  Net Loss from the
         effective  date  of this  Agreement  through  the  end of the  calendar
         quarter, both dates inclusive,  exceed the Retained Reserves, minus any
         Ultimate Net Loss (net of any Ultimate  Net Loss  overpayments  paid by
         the Company) previously paid by the Reinsurer under this Agreement.  If
         the Reinsurer shall dispute the amount owing by the debtor party as set
         forth in the report, the debtor party nevertheless shall pay the amount
         in dispute to the creditor party as provided in this paragraph  pending
         resolution of the dispute as provided in this Agreement.

C.       Notwithstanding the foregoing, at the option and upon the demand of the
         Company,  when the  amount  due in the  aggregate  as a  result  of any
         payment(s)  on a claim  under  the  policies  relating  to the  Subject
         Business ("Policy Payment") exceeds US $500,000.,  the Company shall be
         paid by special  remittance  within five (5) business days upon receipt
         of a special

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         account,  which shall be prepared by the Company and shall  contain all
         relevant details in connection with the claim.

D.       If the  Reinsurer  is  required  to post  security  pursuant to Article
         XVIII,  the  quarterly  report  shall  include  the amount of  security
         required.

E.       In addition to the foregoing,  as soon as reasonably possible following
         the end of each calendar year, at the  Reinsurer's  request the Company
         shall provide the Reinsurer with a copy of the Company's  Annual Report
         and/or statutory Annual Statement.

                                   ARTICLE XI
                  LOSS SETTLEMENTS AND LOSS ADJUSTMENT EXPENSES

         The Company shall be the sole judge as to what shall constitute a claim
or loss  covered  under the Subject  Business.  The Company  shall,  in its sole
discretion, monitor, evaluate, negotiate, adjust, investigate, settle, defend or
compromise  all claims or potential  claims and all losses or potential  losses,
including Extra Contractual  Obligations and Excess Limits  Liability.  All such
negotiations, adjustments, investigations, settlements, defenses and compromises
shall be unconditionally  binding on the Reinsurer.  In addition to amounts paid
in settlement of losses,  the  Reinsurer  shall be liable for its  proportionate
share of all reasonable Loss Adjustment  Expenses.  The Reinsurer shall have the
right,  at its own  expense and upon prior  written  notice to the  Company,  to
become  associated  in any suit,  litigation  or action  relating to the Subject
Business and retain counsel and advisors of their own choice.

         The Company or the  Reinsurer,  as the case may be,  shall at all times
use  reasonable  best efforts to keep the Reinsurer or the Company,  as the case
may be,  apprised  of the  status of any  material  events  with  respect to the
Subject Business.

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<PAGE>

         Further, the Company shall provide,  without limitation,  the following
surveillance  services to the Reinsurer as part of the Company's  discharging of
its own  obligations  under the  policies  for the  benefit of the  Company  and
consistent with its fiduciary duties to its reinsurers:  (a) preparation for and
with  the  consent  of the  Reinsurer,  representation  of the  interest  of the
Reinsurer  at and  follow up on matters  arising  from any  meetings  with third
parties  relating  to the  Subject  Business;  (b)  participation  in  quarterly
reserving work-up discussions to develop a recommendation on reserves related to
the Subject Business;  and (c) preparation of reports as necessary to update the
Reinsurer on workout matters. The Reinsurer shall be liable for its share of all
reasonable  Loss  Adjustment  Expenses  paid  or  incurred  by  the  Company  in
connection with such surveillance services.

                                   ARTICLE XII
                               FOLLOW THE FORTUNES

A.       The Reinsurer's  liability shall attach simultaneously with that of the
         Company and shall be subject in all respects to the same risks,  terms,
         rates,  conditions,  interpretations,  assessments,  waivers, the exact
         proportion of premium paid to the Company  without any  deductions  for
         brokerage and to the same  modification,  alterations and cancellations
         as the  policies,  the true  intent of this  Agreement  being  that the
         Reinsurer shall, in every case to which this Agreement applies,  follow
         the  underwriting  fortunes of the Company and the  Reinsurer  shall be
         bound, without limitation, by any payments and settlements entered into
         by the Company in good faith.

B.       Nothing  shall in any manner  create any  obligations  or establish any
         rights  against  the  Reinsurer  in favor of any third  parties  or any
         persons not parties to this Agreement.

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                                  ARTICLE XIII
                                     OFFSET

         In the event of  insolvency  of either the  Company  or the  Reinsurer,
offset shall be permitted  in  accordance  with the terms of this Article and as
otherwise  permitted  by Section 7427 of the  Insurance  Law of the State of New
York.  Subject to the foregoing,  each party hereto shall have, and may exercise
at any time and from time to time, the right to offset any balances,  whether on
account of premiums or on account of losses or otherwise, due from such party to
the other  party  hereto  under  this  Agreement  or under  any other  agreement
heretofore  or hereafter  entered into by and between  them,  and may offset the
same against any balance or balances due or to become due to the former from the
latter  under  the same or any  other  agreement  between  them;  and the  party
asserting the right of offset shall have and may exercise such right whether the
balance  or  balances  due or to become  due to such party from the other are on
account of premiums or on account of losses or otherwise  and  regardless of the
capacity,  whether as Company or as  Reinsurer,  in which each party acted under
the agreement or, if more than one, the different agreements involved.

                                   ARTICLE XIV
                             SALVAGE AND SUBROGATION

         In the event of any salvage and/or  subrogation  received in respect of
claims and settlements under the policies relating to the Subject Business,  the
salvage and/or  subrogation shall be coordinated under this and other applicable
reinsurance  of the Subject  Business  by  reference  to the order of  Company's
reinsurance  cessions  under the  definition of Article V H, Retained  Reserves.
First,  the  salvage  and/or  subrogation  shall  be paid  with  respect  to the
reinsurance  contract or contracts  which are  obligated to pay Company first on
the Subject  Business for amounts in excess of that reinsurer's held reserves as
of

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June 30, 2006 (the "Held  Reserves").  Once such amounts paid by such reinsurers
in excess of their  respective  Held  Reserves have been fully  reimbursed,  any
additional  subrogation  and/or  salvage  shall then be applied to the amount of
each such reinsurer's Held Reserves,  starting with the reinsurer of the Subject
Business  whose  obligation  to pay Company  occurs last and  proceeding  to the
reinsurer so obligated to pay first. If two or more reinsurers have  obligations
to  pay  Company  on  the  Subject  Business  which  occur  simultaneously,  the
subrogation  and/or  salvage shall be divided  between them in proportion to the
amount  each of them  is  obligated  to pay as a part  of the  amount  of  their
combined obligation to pay.

         The Company hereby agrees to enforce such subrogation  rights as it may
obtain by virtue of  payments  made under the  policies  relating to the Subject
Business,  but in case it shall refuse or neglect to do so,  Reinsurer is hereby
authorized and empowered to bring any appropriate action to enforce such rights.

         All subrogation recoveries, other recoveries,  salvage or payments made
subsequent to the payment of claims hereunder shall be applied as if made before
such payment of claims and shall be made as soon as practicable.

                                   ARTICLE XV
                          DELAYS, ERRORS, AND OMISSIONS

         Any inadvertent delay,  error, or omission made in connection with this
Agreement or any  transaction  hereunder shall not relieve either party from any
liability  that would have  attached  had such delay,  error,  or  omission  not
occurred, provided that any error or omission is rectified as soon as reasonably
practical.

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<PAGE>

                                   ARTICLE XVI
                           AMENDMENTS AND ALTERATIONS

         This Agreement may be changed,  altered,  or amended as the parties may
agree, provided such change, alteration, or amendment is evidenced in writing or
by  endorsement  executed by the Company and the Reinsurer and provided  further
that any such change,  alteration  or amendment  has been  previously  filed for
approval with the  Superintendent  of the New York Insurance  Department for his
review and non-objection thereto.

                                  ARTICLE XVII
                                ACCESS TO RECORDS

         Provided the  Reinsurer  gives at least fifteen (15) days prior written
notice, it or its designated representatives,  provided such representatives are
reasonably  acceptable  to the  Company,  shall have the right to inspect at any
reasonable  time, in the office of the Company where the files are located,  all
records  of  the  Company  that  pertain  in  any  way to  this  Agreement;  the
Reinsurer's right of inspection shall survive expiration or cancellation of this
Agreement, so long as any claim or premium matters remain outstanding.

         All  non-public  information  provided in the course of the  inspection
shall be kept confidential by the Reinsurer as against third parties,  except as
respects any obligation to do so by law or contract.

                                  ARTICLE XVIII
                              RESERVES AND FUNDING

A.       Reinsurer hereby agrees to establish reserves for the policies relating
         to the  Subject  Business  being  reinsured  under  this  Agreement  in
         accordance  with  the  requirements  of  Article  69 of  the  New  York
         Insurance  Laws.  With  respect to the  Subject  Business,  the Company
         agrees that, when it files with the Insurance  Department or sets up on
         its books

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         reserves  for  losses  (including  loss  and loss  expense  paid by the
         Company but not recovered from the Reinsurer, and loss and loss expense
         reported and outstanding) and unearned premium, which it is required by
         law to set up, it shall  forward to the  Reinsurer a statement  showing
         the proportion of such reserves applicable to it.

B.       The  Reinsurer  shall  take all  steps  necessary  to  comply  with the
         provisions  of  Article  69 of the  New  York  Insurance  Laws  and all
         applicable  laws and  regulations so as to permit the Company to obtain
         full credit on its statutory  financial  statements for the reinsurance
         provided by this Agreement in all applicable jurisdictions,  including,
         without  limitation,  compliance  with  Section  6906 of the  New  York
         Insurance  Law, to the extent credit is not otherwise  available  under
         applicable  law or  regulations.  It is understood  and agreed that any
         term or condition  required by such law or regulation to be included in
         this  Agreement  for the  Company to receive  financial  credit for the
         reinsurance   provided  by  this  Agreement   shall  be  deemed  to  be
         incorporated in this Agreement by reference.

C.       If the Company is unable to take credit on its statutory statements for
         the  reinsurance  provided by this  Agreement,  the Reinsurer will post
         security in the form of a Letter of Credit  and/or Trust  Account in an
         amount and in a form  which will  entitle  the  Company to obtain  such
         credit under the New York insurance laws and regulations.

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                                   ARTICLE XIX
                                   INSOLVENCY

         In the event of the insolvency of the Company and the  appointment of a
liquidator,  receiver, conservator or statutory successor, reinsurance due under
this Agreement shall be payable with reasonable  provision for verification,  on
the basis of the liability of the Company  resulting from claims allowed against
the  Company  by any  court  of  competent  jurisdiction  or by any  liquidator,
receiver,  conservator  or statutory  successor  having  authority to allow such
claims without diminution because of such insolvency or because such liquidator,
receiver,  conservator or statutory successor has failed to pay all or a portion
of any claims.

         Payments by the Reinsurer as set forth above shall be made directly and
exclusively  to the  Company  or to its  liquidator,  receiver,  conservator  or
statutory  successor except as provided by subsection (a) of section 4118 of New
York Insurance Law or except (a) where this Agreement specifies another payee in
the event of the  insolvency,  or (b) the  Reinsurer,  with the  consent  of the
direct  insureds,  has assumed such policy  obligations of the Company as direct
obligations  to  the  payees  under  such  policies  in  substitution   for  the
obligations of the Company to such payees.

         In  the  event  of  the  insolvency  of the  Company,  the  liquidator,
receiver,  conservator or statutory  successor  shall give written notice of the
pendency of a claim  against  the  Company  under  policies  reinsured  within a
reasonable time after such claim is filed in the insolvency  proceeding.  During
the  pendency of such  claim,  the  Reinsurer  has the right but not the duty to
investigate  said claim and interpose in the proceeding where the claim is to be
adjudicated,  at its own  expense,  any  defense  or  defenses  that it may deem
available to the Company, or its liquidator,  receiver, conservator or statutory
successor. The expense thus incurred by the Reinsurer will be chargeable against
the Company, subject to court approval, against the insolvent Company as part of
the expense of

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liquidation  to the extent of a  proportionate  share of the  benefit  which may
accrue  to the  Company  solely  as a result of the  defense  undertaken  by the
Reinsurer.  Where two or more  reinsurers  are  involved in the same claim and a
majority  in interest  elects to  interpose  defense to such claim,  the expense
shall be  apportioned  in accordance  with the terms of this Agreement as though
such  expense  had been  incurred  by the  Company.  Should the  Company go into
liquidation or should a receiver be appointed, the Reinsurer will be entitled to
exercise any offset rights specifically provided by this Agreement and to offset
any other sums permitted under applicable law.

                                   ARTICLE XX
                                   ARBITRATION

         Any and all  disputes  or other  matter in  question  relating  to this
Agreement, including its formation,  interpretation and performance or breach of
this  Agreement,  whether the dispute arises before or after the  termination of
this  Agreement,  shall be  resolved  by a panel of three  arbitrators  and such
arbitration  shall be initiated at the written  request of either party within a
reasonable time after dispute has arisen.

         The members of the panel  shall be US  citizens  and shall be active or
retired disinterested officers of insurance or reinsurance companies.

         An arbitrator shall be chosen by each party and the two so chosen shall
choose the third.  If either party fails to appoint an arbitrator  within thirty
(30) days of being requested to do so by the other party,  the requesting  party
may choose both  arbitrators  who shall  choose the third.  In the event the two
arbitrators  are unable to agree upon the third  arbitrator  within  thirty (30)
days of their  appointment each of them shall name five, of whom the other shall
decline four and the decision shall be made by drawing lots.

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<PAGE>

         The party  requesting  arbitration  shall submit its case within thirty
(30) days of the  selection of the third  arbitrator  and the  respondent  shall
submit its case  thirty (30) days  thereafter  or as  otherwise  extended by the
arbitration  panel.  The panel shall make its decision with regard to the custom
and practice of the applicable  insurance and  reinsurance  business.  The panel
shall not be obligated to follow all judicial  formalities  and may abstain from
following  the  strict  rules of  evidence  and  procedure  except to the extent
required by governing law.

         Each party shall bear the  expenses of the  arbitrator  it selected and
shall share equally with the other in the expenses of the third  arbitrator  and
the  arbitration.  The panel  shall  issue its  decision as promptly as possible
following  the  completion  of a hearing,  if there is one,  but in no event may
punitive damages be awarded.  The majority  decision of the arbitrators shall be
final and binding  upon all parties to the  proceeding.  Judgment may be entered
upon the award of the  panel in any court  having  jurisdiction  thereof.  In no
event will the panel award punitive, exemplary or enhanced compensatory damages.

         The arbitration shall take place in New York, New York.

                                   ARTICLE XXI
                             RATING OF THE REINSURER

         If the  Reinsurer  is  downgraded  by  Standard  and  Poor's or Moody's
Investors Service (a "Downgrade") and as a result of such Downgrade, the Company
is  receiving  less  financial  credit from a rating  agency with respect to the
reinsurance  provided by this agreement than it did prior to the Downgrade,  the
parties will work together and take reasonable  steps to ensure that the Company
receives  financial credit for the reinsurance from the applicable rating agency
to the same extent as it did prior to the Downgrade.

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<PAGE>

                                  ARTICLE XXII
                           COVENANTS OF THE REINSURER

The Reinsurer hereby covenants that it:

    A.   has and shall maintain surplus to policyholders of at least thirty-five
         million dollars (US $35,000,000);

    B.   shall  establish and maintain the reserves  required in Section 6903 of
         New York's Insurance Laws or any or any succeeding statutory provision,
         as such may be amended,  modified or  interpreted  from time to time in
         any  regulation,  bulletin  or  opinion  promulgated  by the  New  York
         Department of Insurance;

    C.   shall  comply  with the  provisions  of  Section  6904(c) of New York's
         Insurance Laws (except that the maximum total  exposures  reinsured net
         of retrocessions and collateral shall be one-half of that permitted for
         a New York financial guaranty insurance corporation thereunder);

    D.   for so long as the Reinsurer is either a parent of the insurer, another
         subsidiary of the parent of the insurer, or a subsidiary of the insurer
         (Section  6904(d) of New York's  Insurance Laws provides that direct or
         indirect ownership interests of fifty percent or more shall be deemed a
         parent/subsidiary  relationship), the aggregate of all risks assumed by
         the Reinsurer shall not exceed ten percent of the Company's  exposures,
         net of retrocessions and collateral;

    E.   in the event that the  Reinsurer is an Affiliate of the Company,  shall
         not assume a percentage of the Company's total exposures insured net of
         retrocessions  and  collateral  in excess of its  percentage  of equity
         interest in the Company; and

                                                                              17
<PAGE>

    F.   assumes,  together with all other  reinsurers of the Company subject to
         Section  6906(a)(2)(F)  of New York's  Insurance  Law,  less than fifty
         percent of the total  exposures  insured  net of  collateral  remaining
         after deducting any reinsurance  placed with another financial guaranty
         insurance  corporation or an insurer  writing only  financial  guaranty
         insurance  as is or would be  permitted  by  Article  69 of New  York's
         Insurance Law.

                                  ARTICLE XXIII
                                  GOVERNING LAW

         This  Agreement  shall be governed by and  construed  according  to the
internal laws of the State of New York without  giving effect to the  principles
of conflicts of laws thereof.

                                  ARTICLE XXIV
                                    CURRENCY

         The currency to be used for all purposes of this Agreement shall be the
currency  of the United  States of America.  And the sign "$" in this  Agreement
refers to United States of America dollars.

                                   ARTICLE XXV
                        COMMUTATION OF OTHER REINSURANCE

         The Company must give prior  written  notice to the  Reinsurer  and the
Reinsurer must consent in writing to the commutation of any reinsurance provided
by the XLCA/XLFA Treaty with respect to the Subject Business.

                                                                              18
<PAGE>

                                  ARTICLE XXVI

                                     NOTICE

         All notices (including,  without  limitation,  notices of cancellation,
commutations  or  amendments  to policies  relating  to the  Subject  Business),
requests,  demands,  approvals  and  other  communications  under  this  Adverse
Development  Reinsurance  Agreement  shall be in writing and shall be  delivered
personally,  sent by facsimile transmission or sent by certified,  registered or
express mail,  postage prepaid or sent by overnight  courier or sent by email to
an address specified by one party to the other party in writing. Any such notice
or other  communication  shall be deemed  given:  (a) upon  actual  delivery  if
presented personally or sent by overnight delivery or by facsimile  transmission
or sent by email and (b) three (3) business days following deposit in the United
States mail, if sent by certified,  registered or express mail, postage prepaid,
in each case to the following addresses:

                  If to Company:
                  XL Capital Assurance Inc.
                  1221 Avenue of the Americas, 31st Floor
                  New York, New York 10020
                  Attn: General Counsel
                  Fax: (212) 478-3579

                  If to Reinsurer:

                  XL Reinsurance America Inc.
                  Seaview House
                  70 Seaview Avenue
                  Stamford, CT 06902
                  Attention: General Counsel
                  Fax: (203) 964-5309

                                                                              19
<PAGE>

                                  ARTICLE XXVII
                                   ASSIGNMENT

         This  Agreement  shall be binding  upon and inure to the benefit of the
parties   hereto  and  their   respective   successors  and  assigns  and  legal
representatives.  This Agreement is not assignable except by operation of law or
by mutual  consent of the parties  hereto;  such consent not to be  unreasonably
withheld.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their duly authorized representatives.

         Signed at New York, New York

         XL REINSURANCE AMERICA INC.


         By: ____________________________________
         Name Printed: __________________________
         Title: _________________________________



         Signed at New York, New York

         XL CAPITAL ASSURANCE INC.

         By: ____________________________________
         Name Printed: __________________________
         Title: _________________________________

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<PAGE>


                                   Schedule A

                          Schedule of Premium Payments





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