Exhibit
10.42


 


PER POLICY EXCESS OF LOSS

SECOND RETROCESSION AGREEMENT


 


	
  Company:

  	
   

  	
  ACE Capital Title
  Reinsurance Company

  
	
   

  	
   

  	
   

  
	
  Reinsurer:

  	
   

  	
  ACE Capital Re
  International Ltd.

  
	
   

  	
   

  	
   

  
	
  Retrocessionaire:

  	
   

  	
  ACE Bermuda Insurance Ltd.

  
	
   

  	
   

  	
   

  
	
  Effective Date:

  	
   

  	
  12:01 a.m., Eastern
  Standard Time, on January 1, 2000.

  
	
   

  	
   

  	
   

  
	
  Term:

  	
   

  	
  Co-terminus with the
  Reinsurance Agreement (as defined below).

  
	
   

  	
   

  	
   

  
	
  Covered Business:

  	
   

  	
  Each Policy that (i) is
  ceded by the Company to the Reinsurer pursuant to the Per Policy Excess of
  Loss Retrocession Agreement dated as of January 1, 2000 between the Company
  and the Reinsurer (a copy of which is attached hereto as Annex A) (the
  “Reinsurance Agreement”) and (ii) has a Policy Limit (as defined in the
  Reinsurance Agreement) in excess of $100 million.

  
	
   

  	
   

  	
   

  
	
  Policy:

  	
   

  	
  A contract of title
  insurance written by a title insurer and reinsured by the Company.

  
	
   

  	
   

  	
   

  
	
  Type of Reinsurance:

  	
   

  	
  Per Policy excess of loss
  retrocession.

  
	
   

  	
   

  	
   

  
	
  Retrocessionaire’s
  Liability:

  	
   

  	
  The Retrocessionaire shall
  be liable for all Losses and Allocated Loss Adjustment Expenses arising
  during the Term from a Policy that is included in Covered Business, but only
  to the extent such Losses and Allocated Loss Adjustment Expenses exceed the
  Attachment Point for such Policy and subject to the Limit of Liability for
  such Policy.

  
	
   

  	
   

  	
   

  
	
  Losses:

  	
   

  	
  As defined in the
  Reinsurance Agreement.

  
	
   

  	
   

  	
   

  
	
  Allocated Loss

  Adjustment Expenses:

  	
   

  	
  As defined in the
  Reinsurance Agreement.

  
	
   

  	
   

  	
   

  
	
  Attachment Point:

  	
   

  	
  With respect to each
  Policy, Losses and Allocated Loss Adjustment Expenses equal to $100 million.

  
	
   

  	
   

  	
   

  
	
  Limit of Liability:

  	
   

  	
  With respect to each
  Policy, Losses and Allocated Loss Adjustment Expenses equal to $100 million.

  



 

















 


	
  Premium:

  	
   

  	
  For Policies ceded
  hereunder that have an inception date on or after the Effective Date (as
  defined above), the Reinsurer shall pay to the Retrocessionaire premium for
  each such Policy equal like Premium Share with respect to such Policy
  multiplied by the premium received by the Company with respect to such
  Policy.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  For Policies ceded
  hereunder that have an inception date prior to the Effective Date (as defined
  above), The Reinsurer will not pay a premium.

  
	
   

  	
   

  	
   

  
	
  Premium Share:

  	
   

  	
  With respect to a Policy,
  (i) the Policy Limit for such Policy minus $100,000,000 divided by (ii) the
  Policy Limit for such Policy.

  
	
   

  	
   

  	
   

  
	
  Taxes:

  	
   

  	
  The Retrocessionaire shall
  allow to the Reinsurer an amount equal to the Premium Share multiplied by the
  federal excise taxes allowed by the Reinsurer to the Company under the
  Reinsurance Agreement.

  
	
   

  	
   

  	
   

  
	
  Ceding Commission:

  	
   

  	
  Nil.

  
	
   

  	
   

  	
   

  
	
  Intermediary:

  	
   

  	
  None.

  
	
   

  	
   

  	
   

  
	
  Exclusions:

  	
   

  	
  Ex-gratia payments.

  
	
   

  	
   

  	
   

  
	
  Right of Claims
  Associations:

  	
   

  	
  When so requested, the
  Reinsurer will afford the Retrocessionaire an opportunity to be associated in
  the defense or control of any claim, suit or proceeding involving this
  Agreement, and the Reinsurer and the Retrocessionaire shall cooperate in
  every respect in the defense of such suit, claim or proceeding.

  



 

















 


	
  Reports:

  	
   

  	
  Within 45 days of the end
  of each quarter during the Term, the Reinsurer shall provide the
  retrocessionaire a bordereau showing for such calendar quarter:

  
	
   

  	
   

  	
  1.

  	
  all Policies ceded
  hereunder during such calendar quarter and Policies ceded hereunder to date,

  
	
   

  	
   

  	
  2.

  	
  Losses and Allocated Loss
  Adjustment Expenses with respect to the Policies ceded hereunder,

  
	
   

  	
   

  	
  3.

  	
  the Retrocessionaire’s
  share of Losses and Allocated Loss Adjustment Expenses paid and Losses and
  Allocated Loss Adjustment Expenses outstanding,

  
	
   

  	
   

  	
  4.

  	
  the Retrocessionaire’s
  share of subrogation, salvage and other recoveries received by the Reinsurer
  with respect to Losses and Allocated Loss Adjustment Expenses on Policies
  ceded hereunder, and

  
	
   

  	
   

  	
  5.

  	
  the Company’s premium for
  each Policy ceded hereunder during such calendar quarter, the reinsurance
  premium payable to the Retrocessionaire for such calendar quarter and the
  taxes allowed by the Retrocessionaire hereunder.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Within ten (10) days after
  the Retrocessionaire’s receipt of such bordereau, the parties shall transfer
  cash so as to eliminate any balance due from one party to the other as
  reflected in such accounting.

  
	
   

  	
   

  	
   

  
	
  Loss Advice:

  	
   

  	
  Promptly will full
  particulars following notification of the Reinsurer by the Company.

  
	
   

  	
   

  	
   

  
	
  General Terms and
  Conditions:

  	
   

  	
  Per Attached Annex B.

  



 


 


Agreed
to and accepted effective as of January 1, 2000 by:


 


 


	
  ACE Capital Re
  International Ltd.

  	
  ACE Bermuda Insurance Ltd.

  
	
   

  	
   

  
	
  By:

  	
  /s/ [ILLEGIBLE]

  	
   

  	
  By:

  	
  /s/ [ILLEGIBLE]

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  Chief Operating Officer

  	
  Title:

  	
  CHIEF OPERATING OFFICER

  
						



 

















 


ANNEX A


 


PER POLICY EXCESS OF LOSS

RETROCESSION AGREEMENT


 


This Per Policy Excess of
Loss Retrocession Agreement dated as of January 1, 2000 is made and entered
into by and between ACE Capital Re International Ltd. (the “Reinsurer”), an
insurance company organized under the laws of the Islands of Bermuda, and ACE
Capital Title Reinsurance Company (the “Company”), an insurance company
organized under the laws of the State of New York.


 


In consideration of the
mutual covenants herein contained and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Company and the
Reinsurer agree as follows:


 


ARTICLE 1


 


DEFINITIONS


 


Section 1.1. Definitions.  For all
purposes of this Agreement, (i) the following terms shall have the meanings
assigned to them and shall include the plural as well as the singular, and (ii)
all accounting terms involving premium and loss calculations and surplus and
reserves shall have the meanings assigned to them under accounting principles
prescribed and permitted by the laws and regulations of the Company’s state of
domicile:


 


A.                                    “Agreement” shall mean this Per Policy Excess of Loss
Retrocession Agreement made by and between the Company and the Reinsurer.


 


B.                                    “Allocated Loss Adjustment
Expenses” shall mean those
expenses relating to the adjustment of Losses, including court costs, interest
upon judgments as it accrues, and allocated investigation, adjustment, and
legal expenses chargeable to the investigation, negotiation, settlement or
defense of a claim or Loss or the protection and perfection of any subrogation
or salvage rights under any Policy.


 


C.                                    “Company’s Retention” shall mean, with respect to a Policy, an
amount of Loss and Allocated Loss Adjustment Expenses arising from such Policy
equal to $5,000,000.


 


D.                                    “Effective Date” shall have the meaning set forth in Article
2.


 


E.                                      “Loss” and “Losses”
shall mean the actual loss paid by the Company during the Term arising from a
Policy, including sums paid in settlement of claims and in satisfaction of
judgments, net of any salvage and any inuring reinsurance in connection
therewith.


 


Excess
of Loss Retrocession


Between Capital Title &
ACE Cap Re International


 


1

















 


F.                                      “Notice” shall mean communications conforming to the
provisions of Section 12.10 of this Agreement.


 


G.                                    “Policy or Policies” shall mean an in force contract of title
insurance written by a title insurer and reinsured by the Company’ prior to or
during the Term.  Notwithstanding
anything herein to the contrary, all contracts of title insurance that pertain
to one risk shall be deemed to be one “Policy” for the purposes of this
Agreement.


 


H.                                    “Policy Limit” shall mean the amount of liability ceded to
the Company with respect to a Policy.


 


I.                                         “Reinsurer’s Limit of
Liability” shall mean, with
respect to a Policy, an amount of Loss and Allocated Loss Adjustment Expenses
arising from such Policy equal to the lesser of the Policy Limit for such
Policy and $195 million.


 


J.                                      “Term” shall have the meaning set forth in Article
2.


 


In this Agreement, all terms
not otherwise defined herein shall have the same meanings such terms have in
the New York Insurance Law.


 


ARTICLE 2


 


TERM


 


This Agreement shall be
effective from and after 12:01 a.m., Eastern Standard Time, on January 1, 2000
(the “Effective Date”) and shall continue in effect until all of the Company’s
exposure under Policies with Policy Limits in excess of the Company’s Retention
has expired (the ‘Term”).


 


ARTICLE 3


 


TYPE


 


Per policy excess of loss reinsurance.


 


ARTICLE 4


 


COVER


 


The Reinsurer shall be liable
to and will reimburse the Company for all Loss and Allocated Loss Adjust
Expenses arising from each Policy in excess of the Company’s


 


2

















 


Retention for such Policy,
subject to the Reinsurer’s Limit of Liability for such Policy.  The Company’s Retention shall be fully paid
and satisfied by the Company before the Reinsurer shall be liable for any
payment of Losses and Allocated Loss Adjustment Expenses under this Agreement.  The Reinsurer shall not be liable under this
Agreement for any portion of the Company’s Retention under any circumstances
including, but not limited to, the Company’s bankruptcy, insolvency, inability
or unwillingness to pay for Losses or Allocated Loss Adjustment Expenses for
any reasons whatsoever or the uncollectability of any other insurance or
reinsurance covering any of the Policies.


 


ARTICLE
5


 


EXCLUSIONS


 


This Agreement does not
cover (i) business reinsured by the Company not described herein, (ii) bad
faith, punitive damages or other extracontractual liability asserted against
the Company, its officers, directors, employees or agents, (iii) office
expenses of the Company and salaries of officials and employees of the Company,
or (iv) all liability of the Company, arising by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any Insolvency Fund. 
“Insolvency Fund” includes any guaranty fund, insolvency fund, plan,
pool, association, fund or other arrangement, howsoever denominated,
established or governed, which provides for any assessment of or payment or
assumption by the Company of part or all of any claim, debt, charge, fee or
other obligation of an insurer, or its successors or assigns, which has been
declared by the competent authority to be insolvent, or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in whole
or in part.


 


ARTICLE 6


 


PREMIUM


 


For Policies with an
inception date on or after the Effective Date, the Company shall pay to the
Reinsurer premium for each Policy equal to (i) (A) the Policy Limit for such
Policy minus the Company’s Retention divided by (B) the Policy Limit for such
Policy, multiplied by (ii) the premium received by the Company with respect to
such Policy (the “Premium”).  The
Premium due to the Reinsurer for each Policy shall be due during the calendar
quarter during which the Company receives its premium with regard to such
Policy and shall be payable to the Reinsurer as provided in Article 7 hereof.


 


No Premium shall be payable
to the Reinsurer with respect to Policies with an inception date prior to the
Effective Date.


 


3

















 


ARTICLE
7


 


ACCOUNTS AND REPORTS


 


The Company shall provide
the Reinsurer with a bordereau within forty five (45) days following the end of
each calendar quarter showing for such calendar quarter and each Policy ceded
hereunder: Policy Limit, premium received by the Company, Premium due to the
Reinsurer, Losses and Allocated Loss Adjustment Expenses (paid and outstanding)
and the Reinsurer’s share of salvage and other recoveries received by the
Company.  The net balance shall be
payable by the debtor party within ten (10) business days after the bordereau
is furnished to the Reinsurer.


 


The Company shall also
furnish to the Reinsurer such other reports or other information as may
reasonably be required by the Reinsurer and reasonably available to the
Company.


 


ARTICLE 8


 


CLAIMS


 


Section 8.1. Notice of Claim. The
Company agrees to provide Notice of any claim under any Policy as soon as is
reasonably possible. Failure to provide such Notice shall not relieve the
Reinsurer of its obligations hereunder for any Loss or Allocated Loss
Adjustment Expenses resulting from such claim unless the Reinsurer has suffered
undue prejudice thereby.


 


Section 8.2. Rights and Settlements.
The Reinsurer agrees to abide by the loss settlements of the Company.  The Company shall be the sole judge of:


 


A.                                   The interpretation of all Policies;


 


B.                                     What shall constitute a claim or Loss covered
under a Policy or Allocated Loss Adjustment Expenses in connection therewith;
and


 


C.                                     The Company’s liability with respect to a
Policy and the amount it shall be proper for the Company to pay in respect
thereto.


 


The Reinsurer shall be bound
by the judgment of the Company concerning the salvage and subrogation rights
and remedies of the Company, and the Company shall have complete and sole
control of direction of all claims and salvage and subrogation remedies.


 


Section 8.3. Rights of Association and Cooperation. The Reinsurer shall not be called upon to
assume charge of the settlement or defense of any claim made or suit brought or


 


4

















 


proceeding instituted under
a Policy, but the Reinsurer shall have the right and shall be given the
opportunity to associate at its own expense with any party in the defense and
control of any such claim, suit or proceeding if (i) the claim, suit or
proceeding involves, or appears reasonably likely to involve, the Reinsurer,
and (ii) the Company has the right under the Policy to participate in the
same.  In such event, the Reinsurer and
the Company shall cooperate in all aspects of the defense of such claim, suit
or proceeding.


 


ARTICLE 9


 


SALVAGE


 


All recoveries, salvages,
reimbursements and reversals or reductions of verdicts or judgments (net of the
cost of obtaining such recovery, salvage, reimbursement or reversal or
reduction of a verdict or judgment), whether recovered, received or obtained prior
or subsequent to a loss settlement under this Agreement, shall be applied as if
recovered, received or obtained prior to such settlement, and all necessary
adjustments shall be made by the parties hereto.


 


ARTICLE 10


 


CASH LOSS


 


At the option and upon the
demand of the Company, when the amount due from the Reinsurer as a result of
any one loss exceeds $5,000,000, the Company shall be paid by wire transfer of
same day federal funds by 12:00 p.m. 
Eastern Standard Time on the later of either (a) three business days
following the date of receipt by the Reinsurer of a special loss accounting
which shall be prepared by the Company and shall contain relevant details in
connection with the loss and (b) one business day prior to the date such loss
payment is made by the Company.  If for
any reason the Company shall not make such loss payment on the scheduled date
and no such loss payment is anticipated to be made within seven days, the
Company shall immediately return to the Reinsurer, the amount paid to the Company
by the Reinsurer.  If such loss payment
is made within seven days but in an amount less than the special remittance,
the Company shall immediately return to the Reinsurer the unused amount.


 


ARTICLE 11


 


WARRANTY


 


The Company warrants that,
as of the Effective Date, there are no known or reported claims under any
Policy reported under this Agreement that are in excess of the Company’s
Retention with respect to such Policy.


 


5

















 


ARTICLE 12


 


GENERAL
CONDITIONS


 


Section 12.1. Insolvency. In the
event of the insolvency of the Company, this reinsurance shall be payable
directly to the Company, or its liquidator, receiver, conservator or statutory
successor, immediately upon demand on the basis of the liability of the Company
without diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator or statutory successor of the Company has
failed to pay all or a portion of any claim. 
It is agreed, however, that within a reasonable time the liquidator,
receiver, conservator or statutory successor of the Company shall give written
notice to the Reinsurer of the pendency of a claim against the Company
indicating any Policy or Policies reinsured within a reasonable time after such
claim is filed in the insolvency proceeding. 
During the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding where such claim is
to be adjudicated, any defense or defenses that they may deem available to the
Company or its liquidator, receiver, conservator or statutory successor.  The expense thus incurred by the Company
shall be chargeable, subject to the approval of the court, against the Company
as part of the expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the Company solely as a result of
the defense undertaken by the Reinsurer.


 


Section 12.2. Errors and Omissions.
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, provided such delay, omission or
error is rectified as soon as possible after discovery.


 


Section 12.3. Access to Records.
The Reinsurer or its duly authorized representative shall have access to and
the right to inspect the books and records of the Company at all reasonable
times for the purpose of obtaining and copying information concerning this
Agreement, the Policies or the subject matter hereof.


 


Section 12.4. Arbitration. If any
irreconcilable dispute shall arise between the Reinsurer and the Company with
reference to the interpretation of this Agreement (including, but not limited
to, disputes concerning the formation or validity of this Agreement), whether
such dispute arises during or after the Term, such dispute, upon the written
request of either party, shall be submitted to three arbitrators, one to be
chosen by each party, and the third by the two arbitrators so chosen.  Where a party fails to appoint an arbitrator
within fourteen (14) days of being called upon to do so or where the two
party-appointed arbitrators fail to appoint a third within twenty eight (28)
days of their appointment, then upon application ARIAS (UK) will appoint an
arbitrator to fill the vacancy.  At any
time prior to the appointment by ARIAS (UK), the party or arbitrators in
default may make such appointment.  All
arbitrators shall be active or retired disinterested officers of


 


6

















 


insurance or reinsurance
companies or underwriters at Lloyd’s of London not under the control of or
otherwise affiliated with either party.


 


Except as may be otherwise
provided herein, the arbitrators shall promulgate rules to interpret this
Agreement under ARIAS Arbitration Rules. 
The arbitrators shall interpret this Agreement as an honorable
engagement rather than as a legal obligation and will make their award with the
view to effecting the general purpose and intent of this Agreement, rather than
in accordance with the literal interpretation of this Agreement.


 


The party requesting the
arbitration shall submit its case to the arbitrators within forty five (45)
days of the appointment of the third arbitrator.  The party responding to the request for arbitration shall submit
its case to the arbitrators within forty five (45) days of the receipt of the
petitioner’s case.  A hearing shall be
held within thirty (30) days after receipt of the parties’ cases in
writing.  The arbiters shall render
their decision within thirty (30) days after completion of the hearing.  The decision in writing of any two arbiters,
when filed with the parties, shall be final and binding on both parties.  Judgment may be entered upon the final
decision of the arbitrators in any court having jurisdiction.  Each party shall bear the expense of its own
arbitrator and shall jointly and equally bear with the other party the expense
of the third arbitrator and the arbitration. 
Said arbitration shall take place in Hamilton, Bermuda, unless some
other place is mutually agreed upon by the parties.


 


The procedures specified
herein shall be the sole and exclusive procedures for the resolution of
irreconcilable disputes between the parties arising out of or relating to this
Agreement.


 


Section 12.5. Currency. The
currency for the purposes of this Agreement shall be United States dollars.


 


Section 12.6 Offset. The parties
hereto have the right to offset any balance(s) due from one to the other under
this Agreement.  The party asserting the
right of offset may exercise such right at any time whether the balance(s) due
are on account of premiums or losses or otherwise.  In the event of the insolvency of a party hereto, offsets shall
only be allowed in accordance with the provisions of Section 7427 of the New
York Insurance Law and all other applicable law.


 


Section 12.7. Applicable Law. This
Agreement shall be interpreted in accordance with the laws of the State of New
York without giving effect to the conflict of law rules thereof.


 


Section 12.8. Taxes. The Company
shall pay any federal excise taxes on premium reported to the Reinsurer
hereunder.  The Company may deduct any
federal excise tax from the premium to be paid to the Reinsurer.


 


7

















 


Section 12.9. Financial Statement Credit. The Reinsurer, upon the request and at the discretion of the Company,
shall take all steps necessary to ensure that the Company obtains full
financial statement credit according to statutory requirements in all
applicable States of the United States for the reinsurance provided by the
Reinsurer hereunder and shall provide evidence of the same.  Notwithstanding the foregoing, the Reinsurer
shall not be required to provide credit for statutory premium reserves or for
incurred but not reported losses.


 


Section 12.10. Notice. As used in
this Agreement, notice shall mean any and all notices, requests, demands or
other communications required or permitted to be given hereunder, and all
notices shall be sent by facsimile transmission or by an overnight delivery
service, addressed to the parties at the addresses set forth below:


 


If to Company, to:


 


ACE
Capital Title Reinsurance Company

1325 Avenue of the Americas

New York, New York 10019

Fax: 212-581-3268

Attn:  Corporate Secretary


 


If to Reinsurer, to:


 


ACE
Capital Re International Ltd.

30 Woodbourne Avenue

Hamilton HM 08

Bermuda

Fax: 441-292-8677

Attn:  Corporate Secretary


 


The Company and Reinsurer
shall provide each other with wiring instructions for monies to be transferred
under this Agreement promptly after execution of this Agreement and at the time
of any change in such instructions.


 


Section 12.11. Amendments. This
Agreement may be amended only by a writing executed by the Company and the
Reinsurer.


 


Section 12.12. Severability. In the
event any provision of this Agreement is held invalid or unenforceable under
applicable law, the Agreement shall be deemed not to include such provision and
all other provisions shall remain in full force and effect.


 


Section 12.13. Assignment This
Agreement is not assignable by Reinsurer or the Company without the consent of
the other party hereto and such attempt at assignment shall be void.


 


8

















 


Section 12.11. Amendments. This
Agreement may be amended only by a writing executed by the Company and the
Reinsurer upon not less than 30 days’ prior written notice by one party to the
other.


 


Section 12.12. Severability. In the
event any provision of this Agreement is held invalid or unenforceable under
applicable law, the Agreement shall be deemed not to include such provision and
all other provisions shall remain in full force and effect.


 


Section 12.13. Assignment. This
Agreement is not assignable by Reinsurer or the Company without the consent of
the other party hereto and such attempt at assignment shall be void.


 


Section 12.14. Headings. All
captions, headings or titles preceding any Section or Article in this Agreement
are solely for convenience of reference and are not part of this Agreement and
shall not affect its meaning, construction or effect.


 


 


IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed by their duly
authorized officers and delivered as of the date first written above.


 


	
  Reinsurer: ACE Capital Re
  International Ltd.

  
	
   

  
	
   

  
	
  By:

  	
    /s/
  [ILLEGIBLE]

  	
   

  
	
  Title:

  	
     5/17/00

  	
   

  
	
   

  
	
   

  
	
  Company: ACE Capital Title
  Reinsurance Company

  
	
   

  
	
   

  
	
  By:

  	
    /s/
  [ILLEGIBLE]

  	
   

  
	
  Title:

  	
     President

  	
   

  



 


9

















 


ANNEX B TO


PER POLICY EXCESS OF LOSS

SECOND RETROCESSION AGREEMENT


 


GENERAL TERMS AND CONDITIONS


 


INSOLVENCY


 


In the event of the
insolvency of the Reinsurer, this reinsurance shall be payable directly to the
Reinsurer, or its liquidator, receiver, conservator or statutory successor, on
the basis of the liability of the Reinsurer without diminution because of the
insolvency of the Reinsurer or because the liquidator, receiver, conservator or
statutory successor of the Reinsurer has failed to pay all or a portion of any claim.  It is agreed, however, that the liquidator,
receiver, conservator or statutory successor of the Reinsurer shall give
written notice to the Retrocessionaire of the pendency of each claim against
the Reinsurer with respect to which the Retrocessionaire may have liability
under this Agreement within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership.  During the pendency of such claim, the
Retrocessionaire may investigate such claim and interpose, at its own expense,
in the proceeding where such claim is to be adjudicated, any defense or
defenses that it may deem available to the Reinsurer or its liquidator,
receiver, conservator or statutory successor. 
The expense thus incurred by the Retrocessionaire shall be chargeable,
subject to the approval of the court, against the Reinsurer as part of the
expense of conservation or liquidation to the extent of a pro rata share of the
benefit which may accrue to the Reinsurer solely as a result of the defense
undertaken by the Retrocessionaire.


 


ERRORS AND OMISSIONS


 


Any inadvertent delay,
omission or error shall not be held to relieve either party hereto from any
liability that would attach to it under this Agreement if such delay, omission
or error had not been made provided such delay, omission or error (i) is
rectified as soon as possible after discovery thereof and (ii) does not
increase the liability of the Retrocessionaire hereunder.


 


ACCESS TO RECORDS


 


The Retrocessionaire or its
authorized representative shall have access to the books and records of the
Reinsurer at all reasonable times for the purpose of obtaining information
concerning this Agreement or its subject matter.  This access shall include, without limitation, access to all
papers in the possession of the Reinsurer in connection with claims and the
adjustment of claims.  The
Retrocessionaire’s right of access shall continue as long as cither party has a
claim against the other arising out of this Agreement.


 

















 


RECOVERIES, SALVAGE AND REIMBURSEMENTS


 


The Reinsurer shall credit
the Retrocessionaire with its pro rata share of any recoveries, salvage or
reimbursements on account of any Losses and Allocated Loss Adjustment Expenses
paid by the Retrocessionaire under this Agreement.  In  the event there
are any recoveries, salvage or reimbursements recovered subsequent to a payment
of Losses or Allocated Loss-Adjustment Expenses by the Retrocessionaire, it is
agreed that the amount recovered shall first be applied to the reimbursement of
the expense of recovery and then in proportion to the liability of each party
for the Losses and Allocated Loss Adjustment Expenses before such recovery had
been obtained.  Expenses shall exclude
all office expenses and salaries of officials and employees of the
Reinsurer.  This provision shall survive
the Term of this Agreement and shall remain in effect until all recoveries,
salvage and reimbursements on account of any Losses and Allocated Loss
Adjustment Expenses paid by the Retrocessionaire under this Agreement shall
have been obtained.  The Reinsurer shall
pay to the Retrocessionaire its share of any recoveries, salvage and
reimbursements within thirty (30) days after the Reinsurer receives such
recoveries, salvage and reimbursements.


 


ARBITRATION


 


If any irreconcilable
dispute shall arise between the Reinsurer and the Retrocessionaire with
reference to the interpretation of this Agreement (including, but not limited
to, disputes concerning the formation or validity of this Agreement), whether
such dispute arises before or after termination of this Agreement, such
dispute, upon the written request of either party, shall be submitted to three
arbitrators, one to be chosen by each party, and the third by the two
arbitrators so chosen.  Where a party
fails to appoint an arbitrator within 14 days of being called upon to do so or
where the two party-appointed arbitrators fail to appoint a third within 28
days of their appointment, then upon application ARIAS (UK) will appoint an
arbitrator to fill the vacancy.  At any
time prior to the appointment by ARIAS (UK) the party or arbitrators in default
may make such appointment.  All
arbitrators shall be active or retired disinterested officers of insurance or
reinsurance companies or underwriters at Lloyd’s of London not under the
control of or otherwise affiliated with either party to this Agreement.


 


Except as may be otherwise
provided herein, the arbitrators shall promulgate rules to interpret this
Agreement under ARIAS Arbitration Rules. 
The arbitrators shall interpret this Agreement as an honorable
engagement rather than as a legal obligation and will make their award with the
view to effecting the general purpose and intent of this Agreement, rather than
in accordance with the literal interpretation of this Agreement.


 


The party requesting the
arbitration shall submit its case to the arbitrators within forty five (45)
days of the appointment of the third arbitrator.  The party responding to the request for arbitration shall submit
its case to the arbitrators within forty five (45) days of the receipt of the
petitioner’s case.  A hearing shall be
held within thirty (30) days after receipt of the parties’ cases in
writing.  The


 

















 


arbiters shall render their
decision within thirty (30) days after completion of the hearing.  The decision in writing of any two arbiters,
when filed with the parties, shall be final and binding on both parties.  Judgment may be entered upon the final
decision of the arbitrators in any court having jurisdiction.  Each party shall bear the expense of its own
arbitrator and shall jointly and equally bear with the other party the expense
of the third arbitrator and the arbitration. 
Said arbitration shall take place in Hamilton, Bermuda, unless some
other place is mutually agreed upon by the parties.


 


The procedures specified
herein shall be the sole and exclusive procedures for the resolution of
irreconcilable disputes between the parties arising out of or relating to this
Agreement.


 


CURRENCY


 


All payments under this
Agreement shall be made in US dollars.


 


OFFSET CLAUSE


 


The Reinsurer and the
Retrocessionaire have the right to offset any balance(s) due from one to the
other under this Agreement or under any other agreements between the
parties.  The party asserting the right
of offset may exercise such right at any time whether the balance(s) due are on
account of premiums, ceding commissions, losses, salvage or otherwise.  In the event of the insolvency of the
Reinsurer or the Retrocessionaire, offsets shall only be allowed in accordance
with applicable law.


 


GOVERNING LAW


 


This Agreement shall be
interpreted in accordance with the laws of the State of New York, without
giving effect to the conflict of law rules thereof.


 


FOLLOWS REINSURANCE AGREEMENT


 


Except as otherwise
specifically provided in this Agreement, this Agreement shall be subject to the
same rates, terms, conditions, interpretations, waivers, the exact proportion
of premiums paid to the Reinsurer and to the same modifications, alterations
and cancellations as the Reinsurance Agreement, the true intent of this
Agreement being that the Retrocessionaire shall, in every case to which this
Agreement applies and in the proportion specified in this Agreement, follow the
fortunes of the Reinsurer.  This
Agreement shall be construed as an honorable undertaking between the Reinsurer
and the Retrocessionaire and shall not be defeated by technical legal
constructions.  However, nothing in this
Agreement shall be construed to expand the liability of the Retrocessionaire
beyond what is specifically assumed thereunder by creating rights of any third
party, including any reinsured of the Reinsurer, in or under this Agreement.


 

















 


NOTICES


 


All notices, requests,
demands or other communications required or permitted to be given under this
Agreement shall be Hand delivered, sent by confirmed facsimile transmission,
mailed by first class certified mail, return receipt requested, or sent by an
overnight delivery service, addressed to the party at its address set forth
below or to such other address as such party may designate in writing:


 


If to the Reinsurer:


 


ACE
Capital Re International Ltd.

Victoria Hall
11 Victoria Street
P.O. Box 1826
Hamilton HM HX
Bermuda
Attn: Corporate Secretary
Fax: 441-296-3379


 


If to the Retrocessionaire:


 


ACE
BERMUDA INSURANCE LTD.

The ACE Building

30 Woodbourne Avenue

Hamilton HM 08

Bermuda

Attn: Andrew M. Gibbs, CFO & SVP

Fax: 441-292-8677


 


MISCELLANEOUS


 


This Agreement shall be
binding upon and inure to the benefit of the Reinsurer and Retrocessionaire and
their respective successors and assigns; provided that this Agreement may not
be assigned by either party without the prior written consent of the other
party.


 


The Retrocessionaire’s
liability under this Agreement shall not increase or decrease as a result of
the receivership, insolvency or inability to pay of the Reinsurer.


 


The headings included in
this Annex B are intended solely for convenience of reference and shall not
effect the meaning, interpretation, construction or effect hereof or thereof.