<PAGE>

                         INSURANCE AND INDEMNITY AGREEMENT

                            dated as of December 3, 1996

                     amended and restated as of  July 21, 1998

                                       among

                         FINANCIAL SECURITY ASSURANCE INC.,


                              ARCADIA FINANCIAL LTD.,


                         ARCADIA RECEIVABLES FINANCE CORP.,


                                        and


                   ARCADIA AUTOMOBILE RECEIVABLES WAREHOUSE TRUST




                           Floating Rate Variable Funding
                                    FSA Insured
                        Automobile Receivables-Backed Notes


<PAGE>

                                 TABLE OF CONTENTS

<TABLE>
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                                                                            Page
<S>                                                                         <C>
ARTICLE I DEFINITIONS

SECTION 1.01.  DEFINITIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . 1

                 ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS

SECTION 2.01.  REPRESENTATIONS AND WARRANTIES OF AFL AND ARFC. . . . . . . . . 2

SECTION 2.02.  AFFIRMATIVE COVENANTS OF AFL AND ARFC.. . . . . . . . . . . . . 7
SECTION 2.03.  NEGATIVE COVENANTS OF AFL AND ARFC. . . . . . . . . . . . . . .13
SECTION 2.04.  REPRESENTATIONS AND WARRANTIES OF AFL AND THE ISSUER. . . . . .17
SECTION 2.05.  AFFIRMATIVE COVENANTS OF AFL AND THE ISSUER.. . . . . . . . . .20
SECTION 2.06.  NEGATIVE COVENANTS OF AFL AND THE ISSUER. . . . . . . . . . . .25

                 ARTICLE III THE POLICY; REIMBURSEMENT; INDEMNIFICATION

SECTION 3.01.  ISSUANCE OF THE POLICY. . . . . . . . . . . . . . . . . . . . .26
SECTION 3.02.  PAYMENT OF FEES AND PREMIUM.. . . . . . . . . . . . . . . . . .26
SECTION 3.03.  REIMBURSEMENT AND ADDITIONAL PAYMENT OBLIGATION.. . . . . . . .27
SECTION 3.04.  INDEMNIFICATION.. . . . . . . . . . . . . . . . . . . . . . . .28
SECTION 3.05.  SUBROGATION.. . . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 3.06.  CERTAIN OBLIGATIONS NOT RECOURSE TO AFL AND ARFC. . . . . . . .30
SECTION 3.07.  LIMITED RECOURSE TO ISSUER. . . . . . . . . . . . . . . . . . .30

                            ARTICLE IV FURTHER AGREEMENTS

SECTION 4.01.  EFFECTIVE DATE; TERM OF AGREEMENT.. . . . . . . . . . . . . . .31
SECTION 4.02.  OBLIGATIONS ABSOLUTE. . . . . . . . . . . . . . . . . . . . . .31
SECTION 4.03.  ASSIGNMENTS; REINSURANCE; THIRD-PARTY RIGHTS. . . . . . . . . .32
SECTION 4.04.  LIABILITY OF FINANCIAL SECURITY.. . . . . . . . . . . . . . . .33

                        ARTICLE V EVENTS OF DEFAULT; REMEDIES

SECTION 5.01.  EVENTS OF DEFAULT.. . . . . . . . . . . . . . . . . . . . . . .33
SECTION 5.02.  REMEDIES; WAIVERS.. . . . . . . . . . . . . . . . . . . . . . .35

                             ARTICLE VI MISCELLANEOUS

SECTION 6.01.  AMENDMENTS, ETC.. . . . . . . . . . . . . . . . . . . . . . . .36
SECTION 6.02.  NOTICES.. . . . . . . . . . . . . . . . . . . . . . . . . . . .36
SECTION 6.03.  PAYMENT PROCEDURE.. . . . . . . . . . . . . . . . . . . . . . .38
SECTION 6.04.  SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . .38
SECTION 6.05.  GOVERNING LAW.. . . . . . . . . . . . . . . . . . . . . . . . .39
SECTION 6.06.  CONSENT TO JURISDICTION.. . . . . . . . . . . . . . . . . . . .39
</TABLE>

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<TABLE>
<S>                                                                         <C>
SECTION 6.07.  CONSENT OF FINANCIAL SECURITY.. . . . . . . . . . . . . . . . .40
SECTION 6.08.  COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . .40
SECTION 6.09.  TRIAL BY JURY WAIVED. . . . . . . . . . . . . . . . . . . . . .40
SECTION 6.10.  LIMITED LIABILITY.. . . . . . . . . . . . . . . . . . . . . . .40
SECTION 6.11.  ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . .40
SECTION 6.12.  HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .41



Appendix A     Definitions
Appendix B     Conditions Precedent to Issuance of the Policy
Exhibit I      Form of Policy
</TABLE>

                                      ii
<PAGE>

                       INSURANCE AND INDEMNITY AGREEMENT

          INSURANCE AND INDEMNITY AGREEMENT dated as of December 3, 1996, 
amended and restated as of July 21, 1998, among FINANCIAL SECURITY ASSURANCE 
INC. ("FINANCIAL SECURITY"), ARCADIA FINANCIAL LTD. ("AFL"), ARCADIA 
RECEIVABLES FINANCE CORP. ("ARFC") and ARCADIA AUTOMOBILE RECEIVABLES 
WAREHOUSE TRUST (the "ISSUER").

                              INTRODUCTORY STATEMENTS

     1.   ARFC has agreed from time to time to purchase from AFL, and AFL has 
agreed from time to time to sell and assign to ARFC, Receivables pursuant to 
the Receivables Purchase Agreement and Assignment.

     2.   ARFC proposes to transfer Receivables to the Issuer against the 
transfer of funds by the Issuer in accordance with the terms of the Sale and 
Servicing Agreement.

     3.   The Issuer will issue Securities pursuant to the Indenture. Each 
Security will be secured by the Receivables and other collateral.

     4.   The Issuer has requested that Financial Security issue a financial 
guaranty insurance policy guarantying scheduled payments of interest and 
ultimate payment of principal on the Securities (including any such payments 
subsequently avoided as a preference under applicable bankruptcy law) upon 
the terms and subject to the conditions provided herein.

     5.   The parties hereto desire to specify the conditions precedent to 
the issuance of the Policy by Financial Security, the payment of premium in 
respect of the Policy, the indemnity and reimbursement to be provided to 
Financial Security in respect of certain amounts paid by Financial Security 
under the Policy or otherwise and certain other matters.

          In consideration of the premises and of the agreements herein 
contained, Financial Security, AFL, ARFC and the Issuer hereby agree as 
follows:

                                  ARTICLE I

                                 DEFINITIONS

          Section 1.01.    DEFINITIONS.

          Capitalized terms used herein shall have the meanings provided in 
Appendix A hereto, or the meanings given such terms in the Sale and Servicing 
Agreement, unless the context otherwise requires.


                                      1
<PAGE>

                                  ARTICLE II

                     REPRESENTATIONS, WARRANTIES AND COVENANTS

          Section 2.01.    REPRESENTATIONS AND WARRANTIES OF AFL AND ARFC.

          AFL and ARFC jointly and severally represent, warrant and covenant, 
as of the date hereof and as of the Date of Issuance, as follows:

          (a)     DUE ORGANIZATION AND QUALIFICATION.  Each of AFL and ARFC is a
     corporation duly organized, validly existing and in good standing under the
     laws of the State of Minnesota or the laws of the State of Delaware,
     respectively, with power and authority to own its properties and conduct
     its business. Each of AFL and ARFC is duly qualified to do business, is in
     good standing and has obtained all necessary licenses, permits, charters,
     registrations and approvals (together, "APPROVALS") necessary for the
     conduct of its business as currently conducted and the performance of its
     obligations under the Transaction Documents, in each jurisdiction in which
     the failure to be so qualified or to obtain such approvals would render any
     Receivable unenforceable in such jurisdiction or any Transaction Document
     unenforceable in any respect or would otherwise have a material adverse
     effect upon the Transaction.

          (b)     POWER AND AUTHORITY.  Each of AFL and ARFC has all necessary
     corporate power and authority to conduct its business as currently
     conducted, to execute, deliver and perform its obligations under this
     Agreement and each other Transaction Document to which it is a party and to
     carry out the terms of each such Transaction Document and has full power
     and authority to sell and assign the Receivables as contemplated by the
     Transaction Documents and to consummate the Transaction.

          (c)     DUE AUTHORIZATION.  The execution, delivery and performance by
     each of AFL and ARFC of this Agreement and each other Transaction Document
     to which it is a party have been duly authorized by all necessary corporate
     action and do not require any additional approvals or consents or other
     action by or any notice to or filing with any Person, including, without
     limitation, any governmental entity, the stockholders of AFL or the
     stockholder of ARFC.

          (d)     NONCONTRAVENTION.  Neither the execution nor delivery of this
     agreement and each other Transaction Document to which AFL or ARFC is a
     party, nor the consummation of the Transaction nor the satisfaction of the
     terms and conditions of this agreement and each other Transaction Documents
     to which AFL or ARFC is a party,

                  (i)   conflicts with or results, or will conflict with or 
          result, in any breach or violation of any provision of the 
          Certificate of Incorporation or Bylaws of AFL or ARFC or any law, 
          rule, regulation, order, writ, judgment, injunction, decree, 
          determination or award currently in effect

                                      2
<PAGE>

          having applicability to AFL or ARFC, or any of their respective 
          properties,

                  (ii)  constitutes or will constitute a default by AFL or 
          ARFC under or a breach of any provision of any loan agreement, 
          mortgage, indenture or other agreement or instrument to which AFL 
          or ARFC or any of their respective Subsidiaries is a party or by 
          which it or any of its or their properties is or may be bound or 
          affected, or

                  (iii) results in or requires, or will result in or require, 
          the creation of any Lien upon or in respect of any of the assets of 
          AFL or ARFC or any of their respective Subsidiaries except as 
          otherwise expressly contemplated by the Transaction Documents.

          (e)     LEGAL PROCEEDINGS.  There is no action, proceeding or
     investigation pending, or to the best knowledge of AFL and ARFC after
     reasonable inquiry, threatened by or before any court, regulatory body,
     governmental or administrative agency or arbitrator against or affecting
     AFL or ARFC, or any properties or rights of AFL or ARFC, including without
     limitation, the Receivables: (A) asserting the invalidity of this Agreement
     or any other Transaction Document to which the AFL or ARFC is a party, (B)
     seeking to prevent the issuance of the Securities or the consummation of
     the Transaction, (C) seeking any determination or ruling that might
     materially and adversely affect the validity or enforceability of this
     Agreement or any other Transaction Document to which AFL or ARFC is a party
     or (D) which might result in a Material Adverse Change with respect to AFL
     or ARFC.

          (f)     VALID AND BINDING OBLIGATIONS.  Each of the Transaction
     Documents to which either AFL or ARFC is a party, when executed and
     delivered by it, and assuming due authorization, execution and delivery by
     the other parties thereto, will constitute the legal, valid and binding
     obligations of such Person, enforceable in accordance with its terms,
     except as such enforceability may be limited by bankruptcy, insolvency,
     reorganization, moratorium or other similar laws affecting creditors'
     rights generally and general equitable principles. The Securities when
     executed, authenticated and delivered in accordance with the Indenture,
     will be entitled to the benefits of the Indenture and will constitute
     legal, valid and binding obligations of the Issuer, enforceable in
     accordance with their terms, except as such enforceability may be limited
     by bankruptcy, insolvency, reorganization, moratorium or other similar laws
     affecting creditors' rights generally and general equitable principles.

          (g)     NO CONSENTS.  No consent, license, approval or authorization
     from, or registration, filing or declaration with, any regulatory body,
     administrative agency, or other governmental instrumentality, nor any
     consent, approval, waiver or notification of any creditor, lessor or other
     non-governmental person, is required in connection with the execution,
     delivery and performance by AFL or ARFC of this Agreement or of any other
     Transaction Document to which it is a


                                      3
<PAGE>

     party, except (in each case) such as have been obtained and are in full 
     force and effect.

          (h)     COMPLIANCE WITH LAW, ETC.  No practice, procedure or policy
     employed or proposed to be employed by AFL or ARFC in the conduct of their
     respective businesses violates any law, regulation, judgment, agreement,
     order or decree applicable to it which, if enforced, would result in a
     Material Adverse Change with respect to such Person.

          (i)     GOOD TITLE; VALID TRANSFER ABSENCE OF LIENS; SECURITY
                  INTEREST.

                  (i)   Immediately prior to the transfer of any Receivables 
          and related Other Conveyed Property to ARFC pursuant to the 
          Receivables Purchase Agreement and Assignment, AFL was or will have 
          been the owner of, and had or will have had good and marketable 
          title to, such Receivables free and clear of all Liens and 
          Restrictions on Transferability, and had or will have had full 
          right, corporate power and lawful authority to assign, transfer and 
          pledge such Receivables and related Other Conveyed Property and 
          immediately following such transfer ARFC will be the owner of, and 
          have good and marketable title to, such Receivables and related 
          Other Conveyed Property free and clear of all Liens and 
          Restrictions on Transferability. Each such transfer pursuant to the 
          Receivables Purchase Agreement and Assignment constitutes or will 
          constitute a valid sale, transfer and assignment of such 
          Receivables and related Other Conveyed Property to ARFC enforceable 
          against creditors of and purchasers from AFL. In the event that, in 
          contravention of the intention of the parties, a transfer of 
          Receivables and related Other Conveyed Property by AFL to ARFC is 
          characterized as other than a sale, such transfer shall be 
          characterized as a secured financing, and ARFC shall have a valid 
          and perfected first priority security interest in such Receivables 
          and related Other Conveyed Property free and clear of all Liens and 
          Restrictions on Transferability, subject to the provisions of the 
          Sale and Servicing Agreement.

                  (ii)  Immediately prior to the transfer of any Receivables 
          and related Other Conveyed Property to the Issuer pursuant to the 
          Sale and Servicing Agreement, ARFC was or will have been the owner 
          of, and had good and marketable title to, such property free and 
          clear of all Liens and Restrictions on Transferability, and had or 
          will have had full right, corporate power and lawful authority to 
          assign, transfer and pledge such Receivables. In the event that a 
          transfer of the Receivables and related Other Conveyed Property by 
          ARFC to the Issuer is characterized as other than a sale, such 
          transfer shall be characterized as a secured financing, and the 
          Issuer shall have a valid and perfected first priority security 
          interest in such Receivables and related Other Conveyed Property 
          free and clear of all Liens and Restrictions on Transferability, 
          other than the Lien of the Security Agreement in favor of the 
          Collateral Agent.


                                      4
<PAGE>

          (j)     ACCURACY OF INFORMATION.  None of the Transaction Documents
     nor any of the other Provided Documents provided by AFL or ARFC contain any
     statement of a material fact with respect to AFL or ARFC or the Transaction
     that was untrue or misleading in any material respect when made (except
     insofar as any such Document was connected or superseded by a subsequent
     Provided Document and Financial Security has not detrimentally relied on
     the original Provided Document). There is no fact known to AFL or ARFC
     which has a material possibility of causing a Material Adverse Change with
     respect to either of them or which has a material possibility of impairing
     the value or marketability of the Receivables, taken as a whole, or
     decreasing the possibility that amounts due in respect of the Receivables
     will be collected as due. Since the furnishing of the Provided Documents,
     there has been no change, or any development or event involving a
     prospective change known to AFL or ARFC that would render any
     representation or warranty or other statement made by either of them in any
     of the Provided Documents untrue or misleading in any material respect.

          (k)     FINANCIAL STATEMENTS.  The Financial Statements of AFL, copies
     of which have been furnished to Financial Security, (i) are, as of the
     dates and for the periods referred to therein, complete and correct in all
     material respects, (ii) present fairly the financial condition and results
     of operations of such Person as of the dates and for the periods indicated
     and (iii) have been prepared in accordance with generally accepted
     accounting principles consistently applied, except as noted therein
     (subject as to interim statements to normal year-end adjustments).  Since
     the date of the most recent Financial Statements with respect to such
     Person, there has been no material adverse change in such financial
     condition or results of operations of such Person.  Except as disclosed in
     the Financial Statements, AFL is not subject to any contingent liabilities
     or commitments that, individually or in the aggregate, have a material
     possibility of causing a Material Adverse Change in respect of AFL.

          (l)     ERISA.  AFL is in compliance with ERISA in all material
     respects and has not incurred and does not reasonably expect to incur any
     material liabilities to the PBGC under ERISA in connection with any Plan or
     Multiemployer Plan or to contribute now or in the future in respect of any
     Plan or Multiemployer Plan.

          (m)     COMPLIANCE WITH SECURITIES LAWS.  ARFC is not required to be
     registered as an "investment company" under the Investment Company Act and
     is not subject to the information reporting requirements of the Exchange
     Act.

          (n)     TRANSACTION DOCUMENTS.  Each of the representations and
     warranties of AFL and ARFC contained in the Transaction Documents is true
     and correct in all material respects and each of AFL and ARFC hereby makes
     each such representation and warranty made by it to, and for the benefit
     of, Financial Security as if the same were set forth in full herein.

          (o)     SPECIAL PURPOSE ENTITY.


                                      5
<PAGE>

                  (i)   The capital of ARFC is adequate for the business and  
          undertakings of ARFC.

                  (ii)  Other than with respect to the ownership by AFL of 
          the stock of ARFC and as provided in this Agreement and the 
          Receivables Purchase Agreement and Assignment, the Sale and 
          Servicing Agreement, the Security Agreement and the Spread Account 
          Agreement, and in connection with the Term Transactions, ARFC is 
          not engaged in any business transactions with AFL or any affiliate 
          of AFL.

                  (iii) At least one director of ARFC shall be a person who 
          is not, and will not be, a director, officer, employee or holder of 
          any equity securities of AFL or any of its affiliates or 
          Subsidiaries.

                  (iv)  The funds and assets of ARFC are not, and will not 
          be,  commingled with the funds of any other person.

                  (v)   The bylaws of ARFC require it to maintain (A) correct 
          and complete minute books and records of account, and (B) minutes 
          of the meetings and other proceedings of its shareholders and board 
          of directors.

          (p)     SOLVENCY; FRAUDULENT CONVEYANCE.  Each of AFL and ARFC is
     solvent and will not be rendered insolvent by the Transaction and, after
     giving effect to the Transaction, neither AFL nor ARFC will be left with an
     unreasonably small amount of capital with which to engage in its business.
     Neither AFL nor ARFC intends to incur, or believes that it has incurred,
     debts beyond its ability to pay such debts as they mature. Neither AFL nor
     ARFC contemplates the commencement of insolvency, bankruptcy, liquidation
     or consolidation proceedings or the appointment of a receiver, liquidator,
     conservator, trustee or similar official in respect of AFL or ARFC or any
     of its assets. The amount of consideration being received by ARFC upon the
     transfer of Receivables and related Other Conveyed Property to the Issuer
     constitutes reasonably equivalent value and fair consideration for the
     Receivables and such Other Conveyed Property. The amount of consideration
     being received by AFL upon the sale of the Receivables and related Other
     Conveyed Property to ARFC constitutes reasonably equivalent value and fair
     consideration for the Receivables and such Other Conveyed Property. Neither
     AFL nor ARFC is entering into the Transaction Documents or consummating the
     transactions contemplated thereby with any intent to hinder, delay or
     defraud any of the Issuer's creditors.

          (q)     TAXES.  Each of AFL and ARFC has, and each member of the
     respective affiliated groups of corporations of which such Person is a
     member has, filed all federal and state tax returns which are required to
     be filed and paid all taxes, including any assessments received by such
     Person, to the extent that such taxes have become due other than taxes that
     such Person shall currently be contesting the validity thereof in good
     faith by appropriate proceedings and shall have set aside on its books
     adequate reserves with respect thereto. Any taxes, fees


                                      6
<PAGE>

     and other governmental charges payable by AFL or ARFC in connection with 
     the Transaction, the execution and delivery of the Transaction Documents 
     and the issuance of the Securities have been paid or shall have been 
     paid at or prior to the Date of Issuance.

          (r)     PLEDGE OF SHARES.  The shares of stock of ARFC which have been
     pledged pursuant to the Stock Pledge Agreement constitute all of the issued
     and outstanding shares of ARFC.

          (s)     PERFECTION OF LIENS AND SECURITY INTEREST.  The Lien and
     security interest in favor of the Collateral Agent with respect to the
     Receivables and Other Conveyed Property will be perfected by the filing of
     financing statements on Form UCC-1 on or prior to the Date of Issuance in
     each jurisdiction where such recording or filing is necessary for the
     perfection thereof, the delivery of the Receivable Files for the
     Receivables to the Custodian, and the establishment of the Collection
     Account, the Note Distribution Account and the Spread Account in accordance
     with the provisions of the Transaction Documents, and no other filings in
     any jurisdiction or any other actions (except as expressly provided herein)
     are necessary to perfect the Collateral Agent's Lien on and security
     interest in the Receivables and Other Conveyed Property as against any
     third parties.

          (t)     SECURITY INTEREST IN ACCOUNTS.  Assuming the retention of
     funds in the Collection Account, the Note Distribution Account and the
     Spread Account and the acquisition of Eligible Investments, in each case,
     in accordance with the Transaction Documents, such funds and Eligible
     Investments will be subject to a valid and perfected, first priority
     security interest in favor of the Collateral Agent on behalf of Financial
     Security and the Trustee for the benefit of the Noteholders.

          Section 2.02.    AFFIRMATIVE COVENANTS OF AFL AND ARFC.

          AFL and ARFC jointly and severally hereby agree, during the Term of
this Agreement, unless Financial Security shall otherwise expressly consent in
writing, as follows:

          (a)     COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS.  Each of AFL
     and ARFC shall perform each of its respective obligations under the
     Transaction Documents and shall comply with all material requirements of
     any law, rule or regulation applicable to it or thereto, or that are
     required in connection with its performance under any of the Transaction
     Documents. Neither AFL nor ARFC will cause or permit to become effective
     any amendment to or modification of any of the Transaction Documents to
     which it is a party unless (i) so long as no Insurer Default shall have
     occurred and be continuing Financial Security shall have previously
     approved in writing the form of such amendment or modification or (ii) if
     an Insurer Default shall have occurred and be continuing such amendment
     would not adversely affect the interests of Financial Security. Neither


                                      7
<PAGE>

     AFL nor ARFC shall take any action or fall to take any action that would 
     interfere with the enforcement of any rights under the Transaction 
     Documents.

          (b)     FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; BOOKS AND RECORDS;
     OTHER INFORMATION.  Each of AFL and ARFC shall keep or cause to be kept in
     reasonable detail books and records of account of its assets and business.
     Each of AFL and ARFC shall furnish or cause to be furnished to Financial
     Security:

                  (i)   ANNUAL FINANCIAL STATEMENTS.  As soon as available, 
          and in any event within 90 days after the close of each fiscal year 
          of AFL, the audited balance sheets of AFL, as of the end of such 
          fiscal year and the audited statements of income, changes in 
          shareholders' equity and cash flows of AFL, for such fiscal year, 
          all in reasonable detail and stating in comparative form the 
          respective figures for the corresponding date and period in the 
          preceding fiscal year, prepared in accordance with generally 
          accepted accounting principles, consistently applied, and 
          accompanied by the certificate of independent accountants (which 
          shall be a nationally recognized firm or otherwise acceptable to 
          Financial Security) for AFL, and by the certificate specified in 
          Section 2.02(c) hereof.

                  (ii)  QUARTERLY FINANCIAL STATEMENTS.  As soon as 
          available, and in any event within 45 days after the close of each 
          of the first three quarters of each fiscal year of AFL, the 
          unaudited balance sheets of AFL as of the end of such quarter and 
          the unaudited statements of income, changes in shareholders' equity 
          and cash flows of AFL for the portion of the fiscal year then 
          ended, all in reasonable detail and stating in comparative form the 
          respective figures for the corresponding date and period in the 
          preceding fiscal year, prepared in accordance with generally 
          accepted accounting principles, consistently applied (subject to 
          normal year-end adjustments), and accompanied by the certificate 
          specified in Section 2.02(c) hereof if such certificate is required 
          to be provided pursuant to such Section.

                  (iii) ACCOUNTANTS' REPORTS.  If a Special Event specified 
          in clauses (a) or (d) of the definition thereof or clause (b) or 
          (c) of the definition thereof with respect to AFL or ARFC has 
          occurred, copies of any reports submitted to AFL or ARFC by their 
          respective independent accountants in connection with any 
          examination of the financial statements of AFL or ARFC promptly 
          upon receipt thereof.

                  (iv)  OTHER INFORMATION.  Promptly upon receipt thereof, 
          copies of all reports, statements, certifications, schedules, or 
          other similar items delivered to or by AFL or ARFC pursuant to the 
          terms of the Transaction Documents and, promptly upon request, such 
          other data as Financial Security may reasonably request; PROVIDED, 
          HOWEVER, that neither AFL nor ARFC shall be required to deliver any 
          such items if provision by some other party to Financial Security 
          is required under the Transaction


                                      8
<PAGE>

          Documents unless such other party wrongfully fails to deliver such 
          item. AFL and ARFC shall, upon the request of Financial Security, 
          permit Financial Security and its authorized agents (A) to inspect 
          its books, records and operations as they may relate to the 
          Securities, the Receivables, the obligations of AFL or ARFC under 
          the Transaction Documents, the Transaction and AFL's business; (B) 
          to discuss the affairs, finances and accounts of AFL and ARFC with 
          its Chief Operating Officer and Chief Financial Officer upon 
          Financial Security's reasonable request; and (C) to discuss the 
          affairs, finances and accounts of AFL and ARFC with their 
          respective independent accountants, PROVIDED that an officer of 
          such Person shall have the right to be present during such 
          discussions. Such inspections and discussions shall be conducted 
          during normal business hours and shall not unreasonably disrupt the 
          business of such Person. The fees and expenses of any such 
          authorized agents of Financial Security shall be for the account of 
          AFL. In addition, AFL and ARFC shall promptly (but in no case more 
          than 30 days following issuance or receipt by a Commonly Controlled 
          Entity) provide to Financial Security a copy of all correspondence 
          between a Commonly Controlled Entity and the PBGC, IRS, Department 
          of Labor or the administrators of a Multiemployer Plan relating to 
          any Reportable Event or the underfunded status, termination or 
          possible termination of a Plan or a Multiemployer Plan. The books 
          and records of AFL and ARFC with respect to the Receivables will be 
          maintained at 7825 Washington Avenue South, Suite 900, Minneapolis, 
          Minnesota 55439-2435, unless AFL or ARFC shall otherwise advise the 
          parties hereto in writing.

                  (v)   AFL shall provide or cause to be provided to 
          Financial Security an executed original copy of each document 
          executed in connection with the Transaction within 30 days after 
          the date of closing.

          (c)     COMPLIANCE CERTIFICATE.  AFL shall deliver to Financial
     Security concurrently with the delivery of the financial statements
     required pursuant to Section 2.02(b)(i) hereof (and concurrently with the
     delivery of the financial statements required pursuant to Section
     2.02(b)(ii) hereof, if a Special Event specified in clauses (a) or (d) of
     the definition thereof or clause (b) or (c) of the definition thereof with
     respect to AFL or ARFC has occurred), a certificate signed by its Chief
     Financial Officer stating that:

                  (i)   a review of such Person's performance under the 
          Transaction Documents during such period has been made under such 
          officer's supervision;

                  (ii)  to the best of such officer's knowledge following 
          reasonable inquiry, no Special Event, Default or Event of Default 
          has occurred with respect to such Person, or if a Special Event, 
          Default or Event of Default has occurred with respect to such 
          Person, specifying the nature thereof and, if such Person has a 
          right to cure any such Default or Event of


                                      9
<PAGE>

          Default pursuant to Section 5.01, stating in reasonable detail the 
          steps, if any, being taken by such Person to cure such Default or 
          Event of Default or to otherwise comply with the terms of the 
          agreement to which such Default or Event of Default relates; and

                  (iii) the attached financial reports submitted in 
          accordance with Section 2.02(b)(i) or (ii) hereof, as applicable, 
          are complete and correct in all material respects and present 
          fairly the financial condition and results of operations of AFL as 
          of the dates and for the periods indicated, in accordance with 
          generally accepted accounting principles consistently applied 
          (subject as to interim statements to normal year-end adjustments).

          (d)     NOTICE OF MATERIAL EVENTS.  AFL and ARFC shall promptly inform
     Financial Security in writing of the occurrence of any of the following:

                  (i)   the submission of any claim or the initiation of any 
          legal process, litigation or administrative or judicial 
          investigation against AFL or ARFC involving potential damages or 
          penalties in an uninsured amount in excess of $5,000 in any one 
          instance or $25,000 in the aggregate with respect to ARFC and in 
          excess of $10,000 in any one instance or $25,000 in the aggregate 
          with respect to AFL;

                  (ii)  any change in the location of such Person's principal 
          office or any change in the location of the books and records of 
          AFL or ARFC;

                  (iii) the occurrence of any Default or Special Event (which 
          notice shall also be delivered to the Rating Agencies);

                  (iv)  the commencement of any proceedings by or against AFL 
          under any applicable bankruptcy, reorganization, liquidation, 
          rehabilitation, insolvency or other similar law now or hereafter in 
          effect or of any proceeding in which a receiver, liquidator, 
          conservator, trustee or similar official shall have been, or may 
          be, appointed or requested for AFL or ARFC or any of their assets;

                  (v)   the receipt of notice that (A) AFL or ARFC is being 
          placed under regulatory supervision, (B) any license, permit, 
          charter, registration or approval necessary for the conduct of 
          AFL's or ARFC's business is to be, or may be, suspended or revoked, 
          or (C) AFL or ARFC is to cease and desist any practice, procedure 
          or policy employed by AFL or ARFC in the conduct of its business, 
          and such cessation may result in a Material Adverse Change with 
          respect to AFL or ARFC; or

                  (vi)  any other event, circumstance or condition that has 
          resulted, or which such Person reasonably believes might result, in 
          a Material Adverse Change in respect of AFL or ARFC.


                                      10
<PAGE>

          (e)     FURTHER ASSURANCES.  Each of AFL and ARFC will file all
     necessary financing statements, assignments or other instruments, and any
     amendments or continuation statements relating thereto, necessary to be
     kept and filed in such manner and in such places as may be required by law
     to preserve and protect fully the Lien on and security interest in, and all
     rights of the Collateral Agent, for the benefit of the Trustee for the
     Noteholders and Financial Security, with respect to, the Receivables, the
     Collection Account, the Note Distribution Account and the Spread Account.
     In addition, each of AFL and ARFC shall, upon the request of Financial
     Security, from time to time, execute, acknowledge and deliver, or cause to
     be executed, acknowledged and delivered, within thirty (30) days of such
     request, such amendments hereto and such further instruments and take such
     further action as may be reasonably necessary to effectuate the intention,
     performance and provisions of the Transaction Documents or to protect the
     interest of the Collateral Agent, for the benefit of the Trustee for
     Noteholders and Financial Security, in the Receivables, the Collection
     Account, the Note Distribution Account and the Spread Account, free and
     clear of all Liens and Restrictions on Transferability except the
     Restrictions on Transferability imposed by the Transaction Documents. In
     addition, each of AFL and ARFC agrees to cooperate with S&P and Moody's in
     connection with any review of the Transaction which may be undertaken by
     S&P and Moody's after the date hereof.

          (f)     THIRD-PARTY BENEFICIARY.  Each of AFL and ARFC agrees that
     Financial Security shall have all rights of a third-party beneficiary in
     respect of the Sale and Servicing Agreement and hereby incorporates and
     restates its representations, warranties and covenants as set forth therein
     for the benefit of Financial Security.

          (g)     CORPORATE EXISTENCE.  Each of AFL and ARFC shall maintain its
     corporate existence and shall at all times continue to be duly organized
     under the laws of the State of Minnesota or laws of the State of Delaware,
     respectively, and duly qualified and duly authorized (as described in
     Sections 2.01(a), (b) and (c) hereof) and shall conduct its business in
     accordance with the terms of its Certificate of Incorporation and Bylaws.

          (h)     SPECIAL PURPOSE ENTITY.

                  (i)   ARFC shall conduct its business solely in its own 
          name through its duly authorized officers or agents so as not to 
          mislead others as to the identity of the entity with which those 
          others are concerned. It particularly will use its best efforts to 
          avoid the appearance of conducting business on behalf of AFL or any 
          affiliate of AFL and to avoid the appearance that the assets of 
          ARFC are available to pay the creditors of AFL or any affiliate 
          thereof. Without limiting the generality of the foregoing, all oral 
          and written communications, including, without limitation, letters, 
          invoices, purchase orders, contracts, statements and loan 
          applications, will be made solely in the name of ARFC.


                                      11
<PAGE>

                  (ii)  ARFC shall maintain corporate records and books of 
          account separate from those of AFL and the affiliates thereof. 
          ARFC's books and records shall clearly reflect the transfer of the 
          Receivables to the Issuer.

                  (iii) ARFC shall obtain proper authorization from its Board 
          of Directors of all corporate action requiring such authorization, 
          meetings of the board of directors of ARFC shall be held not less 
          frequently than three times per annum and copies of the minutes of 
          each such board meeting shall be delivered to Financial Security 
          within two weeks of such meeting.

                  (iv)  ARFC shall obtain proper authorization from its 
          shareholders of all corporate action requiring shareholder 
          approval, meetings of the shareholders of ARFC shall be held not 
          less frequently than one time per annum and copies of each such 
          authorization and the minutes of each such shareholder meeting 
          shall be delivered to Financial Security within two weeks of such 
          authorization or meeting, as the case may be.

                  (v)   Although the organizational expenses of ARFC have 
          been paid by AFL, operating expenses and liabilities of ARFC shall 
          be paid from its own funds. If AFL transfers funds to ARFC which 
          funds ARFC applies to the satisfaction of an obligation under the 
          Transaction Documents, such transfer shall be characterized by ARFC 
          and AFL as a loan recourse only to amounts available for payment to 
          AFL pursuant to Section 2.08 of the Spread Account Agreement, shall 
          be pursuant to documentation substantially in the form set forth as 
          Exhibit C to the Sale and Servicing Agreement, and ARFC's 
          obligation to AFL with respect to such loan shall be limited to the 
          amounts so available; ARFC and AFL covenant and agree that any such 
          available amounts shall be applied to the satisfaction of any 
          amounts outstanding under any such loan, prior to distribution by 
          ARFC on or in respect of the capital stock of ARFC.

                  (vi)  The annual financial statements of ARFC shall 
          disclose the effects of its transactions in accordance with 
          generally accepted accounting principles and shall disclose that 
          the assets of ARFC are not available to pay creditors of AFL or any 
          affiliate of AFL.

                  (vii) The resolutions, agreements and other instruments of 
          ARFC underlying the transactions described in this Agreement and in 
          the other Transaction Documents shall be continuously maintained by 
          ARFC as official records of ARFC separately identified and held 
          apart from the records of AFL and each affiliate of AFL.

                  (viii)     ARFC shall maintain an arm's-length relationship 
          with AFL and the affiliates thereof and will not hold itself out as 
          being liable for the debts of AFL or any of AFL's affiliates.


                                      12
<PAGE>

                  (ix)  ARFC shall keep its assets and liabilities wholly 
          separate from those of all other entities, including, but not 
          limited to, AFL and its affiliates.

                  (x)   The books and records of ARFC will be maintained at 
          7825 Washington Avenue South, Suite 900, Minneapolis, Minnesota 
          55439-2435, unless it shall otherwise advise the parties hereto in 
          writing. ARFC shall, upon the request of Financial Security, permit 
          Financial Security or its authorized agents to inspect its books 
          and records.

          (i)     MAINTENANCE OF LICENSES.  Each of AFL and ARFC shall maintain
     all licenses, permits, charters and registrations which are material to the
     performance by it of its obligations under this Insurance Agreement and
     each other Transaction Document to which is a party or by which it is
     bound.

          (j)     MAINTENANCE OF WAREHOUSING FACILITIES.  AFL and its
     Subsidiaries shall at all times have warehousing facilities (other than
     that contemplated by the Transaction) under which the amount of credit
     available (including amounts outstanding) to finance the purchase of
     automobile receivables originated by AFL, together with the sum of the
     amount of unrestricted cash on AFL's balance sheet and the aggregate
     principal balance of automobile receivables eligible to be pledged by AFL
     (but not pledged) under the Transaction or such warehouse facilities as of
     the end of the immediately preceding calendar quarter, at least equal to
     $250,000,000.

          (k)     PROVISION OF INFORMATION.  ARFC shall provide the Independent
     Accountants with such information as is necessary to conduct the review
     required by Section 3.18 of the Sale and Servicing Agreement.

          (l)     CLOSING DOCUMENTS.  AFL shall provide or cause to be provided
     to Financial Security an executed original copy of each document executed
     in connection with the Transaction within 30 days after the Closing Date,
     except that AFL shall cause a copy of the Sale and Servicing Agreement, the
     Purchase Agreement, the Indenture, and each Transaction Document to which
     Financial Security is a party to be provided to Financial Security on the
     Closing Date.

          (m)     INCORPORATION OF COVENANTS.  Each of AFL and ARFC agrees to
     comply with their respective covenants set forth in the Transaction
     Documents and hereby incorporates such covenants by reference as if each
     were set forth herein.

          Section 2.03.    NEGATIVE COVENANTS OF AFL AND ARFC.

          AFL and ARFC hereby jointly and severally agree, during the Term of
the Agreement, unless Financial Security shall otherwise expressly consent in
writing, as follows:


                                      13
<PAGE>

          (a)     RESTRICTIONS ON LIENS.  Neither AFL nor ARFC shall (i) create,
     incur or suffer to exist, or agree to create, incur or suffer to exist, or
     consent to cause or permit in the future (upon the happening of a
     contingency or otherwise) the creation, incurrence or existence of any Lien
     or Restriction on Transferability of the Receivables and related Other
     Conveyed Property except for (w) the Liens imposed by the Transaction
     Documents, and (x) Liens for taxes if such taxes shall not at the time be
     due and payable or if the Issuer shall currently be contesting the validity
     thereof in good faith by appropriate proceedings and shall have set aside
     on its books adequate reserves with respect thereto, and (y) the
     Restrictions on Transferability imposed by the Transaction Documents, or
     (ii) sign or file under the Uniform Commercial Code of any jurisdiction any
     financing statement which names either AFL, ARFC or the Issuer as a debtor,
     or sign any security agreement authorizing any secured party thereunder to
     file such financing statement, with respect to the Receivables, except in
     each case any such instrument solely securing the rights and preserving the
     Lien of the Issuer or of the Collateral Agent for the benefit of the
     Trustee for the Noteholders and Financial Security.

          (b)     IMPAIRMENT OF RIGHTS.  Neither AFL nor ARFC shall take any
     action, or fail to take any action, if such action or failure to take
     action may (i) interfere with the enforcement of any rights under the
     Transaction Documents that are material to the rights, benefits or
     obligations of the Trustee, the Noteholders or Financial Security, (ii)
     result in a Material Adverse Change in respect of the Receivables or (iii)
     impair the ability of AFL or ARFC to perform their respective obligations
     under the Transaction Documents.

          (c)     LIMITATION ON MERGERS.  AFL shall not consolidate with or
     merge with or into any Person or transfer all or any material part of its
     assets to any Person (except as contemplated by the Transaction Documents)
     or liquidate or dissolve, provided that AFL may consolidate with, merge
     with or into, or transfer all or a material part of its assets to, another
     corporation if (i) the acquiror of its assets, or the corporation surviving
     such merger or consolidation, shall be organized and existing under the
     laws of any state and shall be qualified to transact business in each
     jurisdiction in which failure to qualify would render any Transaction
     Document unenforceable or would result in a Material Adverse Change in
     respect of AFL or the Other Conveyed Property; (ii) after giving effect to
     such consolidation, merger or transfer of assets, no Default or Event of
     Default shall have occurred or be continuing; (iii) such acquiring or
     surviving entity can lawfully perform the obligations of AFL under the
     Transaction Documents and shall expressly assume in writing all of the
     obligations of AFL, including, without limitation, its obligations under
     the Transaction Documents; and (iv) such acquiring or surviving entity and
     the consolidated group of which it is a part shall each have a net worth
     immediately subsequent to such consolidation, merger or transfer of assets
     at least equal to the net worth of AFL immediately prior to such
     consolidation, merger or transfer of assets; and AFL shall give Financial
     Security written notice of any such consolidation, merger or transfer of
     assets on the earlier of: (A) the date upon which any publicly available
     filing or release is made with respect to such action or (B) 10 Business
     Days prior to the date of consummation


                                      14
<PAGE>

     of such action. AFL shall furnish to Financial Security all information 
     requested by it that is reasonably necessary to determine compliance with 
     this paragraph.

          (d)     WAIVER, AMENDMENTS, ETC.  Neither AFL nor ARFC shall waive,
     modify, amend, supplement or consent to any waiver, modification or
     amendment of, any of the provisions of any of the Transaction Documents or
     the certificate of incorporation or by-laws of ARFC (i) unless, if no
     Insurer Default shall have occurred and be continuing, Financial Security
     shall have consented thereto in writing or (ii) if an Insurer Default shall
     have occurred and be continuing, which would adversely affect the interests
     of Financial Security.

          (e)     SUCCESSORS.  Neither AFL nor ARFC shall terminate or
     designate, or consent to the termination or designation of, the servicer,
     back-up servicer or collateral agent or any successor thereto without the
     prior approval of Financial Security.

          (f)     CREATION OF INDEBTEDNESS; GUARANTEES.  ARFC shall not create,
     incur, assume or suffer to exist any Indebtedness, other than in connection
     with Term Transactions, the Sale and Servicing Agreement, Indebtedness
     permitted by Section 2.02(j) hereof and any other Indebtedness guaranteed
     or approved in writing by Financial Security. Without the prior written
     consent in writing by Financial Security, ARFC shall not assume, guarantee,
     endorse or otherwise be or become directly or contingently liable for the
     obligations of any Person by, among other things, agreeing to purchase any
     obligation of another Person, agreeing to advance funds to such Person or
     causing or assisting such Person to maintain any amount of capital.

          (g)     SUBSIDIARIES.  ARFC shall not form, or cause to be formed, any
     Subsidiaries.

          (h)     ISSUANCE OF STOCK.  ARFC shall not issue any shares of capital
     stock or rights, warrants or options in respect of capital stock or
     securities convertible into or exchangeable for capital stock.

          (i)     NO MERGERS.  ARFC shall not consolidate with or merge into any
     Person or (except as contemplated in the Transaction Documents or any Term
     Transaction) transfer all or any material amount of its assets to any
     Person or liquidate or dissolve.

          (j)     ERISA.  (A) AFL shall not contribute or incur any obligation
     to contribute to, or incur any liability in respect of, any Plan or
     Multiemployer Plan, except that AFL may make such a contribution or incur
     such a liability provided that neither AFL nor any Commonly Controlled
     Entity will:

                  (i)   terminate any Plan so as to incur any material 
          liability to  the PBGC;


                                      15
<PAGE>

                  (ii)  knowingly participate in any "prohibited transaction" 
          (as defined in ERISA) involving any Plan or Multiemployer Plan or 
          any trust created thereunder which would subject any of them to a 
          material tax or penalty on prohibited transactions imposed under 
          Section 4975 of the Code or ERISA;

                  (iii) fail to pay to any Plan or Multiemployer Plan any 
          contribution which it is obligated to pay under the terms of such 
          Plan or Multiemployer Plan, if such failure would cause such Plan 
          to have any material Accumulated Funding Deficiency, whether or not 
          waived; or

                  (iv)  allow or suffer to exist any occurrence of a 
          Reportable Event, or any other event or condition, which presents a 
          material risk of termination by the PBGC of any Plan or 
          Multiemployer Plan, to the extent that the occurrence or 
          nonoccurrence of such Reportable Event or other event or condition 
          is within the control of it or any Commonly Controlled Entity.

          (B) ARFC shall not contribute or incur any obligation to contribute to
any Multiemployer Plan.

          (k)     OTHER ACTIVITIES. ARFC shall not:

                  (i)   sell, transfer, exchange or otherwise dispose of any 
          of its assets except as permitted under the Transaction Documents 
          and the Term Transactions; or

                  (ii)  engage in any business or activity other than in 
          connection with the Sale and Servicing Agreement, the Trust 
          Agreement, the Security Agreement, the Spread Account Agreement, 
          the Receivables Purchase Agreement and Assignment and the Term 
          Transactions, and as permitted by its certificate of incorporation.

          (l)     INSOLVENCY.  Neither AFL nor ARFC shall commence with respect
     to ARFC or the Issuer, as the case may be, any case, proceeding or other
     action (A) under any existing or future law of any jurisdiction, domestic
     or foreign, relating to the bankruptcy, insolvency, reorganization or
     relief of debtors, seeking to have an order for relief entered with respect
     to it, or seeking reorganization, arrangement, adjustment, winding-up,
     liquidation, dissolution, corporation or other relief with respect to it or
     (B) seeking appointment of a receiver, trustee, custodian or other similar
     official for it or for all or any substantial part of its assets, or make a
     general assignment for the benefit of its creditors. Neither AFL nor ARFC
     shall take any action in furtherance of, or indicating the consent to,
     approval of, or acquiescence in any of the acts set forth above. ARFC shall
     not admit in writing its inability to pay its debts.

          (m)     DIVIDENDS.  ARFC shall not declare or make payment of (i) any
     dividend or other distribution on any shares of its capital stock, or (ii)
     any


                                      16
<PAGE>

     payment on account of the purchase, redemption, retirement or
     acquisition of any option, warrant or other right to acquire shares of its
     capital stock, unless (in each case) at the time of such declaration or
     payment (and after giving effect thereto) no amount payable by ARFC under
     any Transaction Document is then due and owing but unpaid.

          Section 2.04.    REPRESENTATIONS AND WARRANTIES OF AFL AND THE ISSUER.

          Each of AFL and the Issuer represent and warrant as of the date 
hereof and as of the Date of Issuance, as follows:

          (a)     DUE ORGANIZATION AND QUALIFICATION.  The Issuer is duly 
     formed and validly existing as a Delaware statutory business trust and 
     is in good standing under the laws of the State of Delaware, with power 
     and authority to own its properties and to conduct its business.  The 
     Issuer is duly qualified to do business, is in good standing and has 
     obtained all necessary licenses, permits, charters, registrations and 
     approvals (together, "approvals") necessary for the conduct of its 
     business as described in the Transaction Documents and the performance 
     of its obligations under the Transaction Documents, in each jurisdiction 
     in which the failure to be so qualified or to obtain such approvals 
     would render the Receivables in such jurisdiction or any Transaction 
     Document unenforceable in any respect or would otherwise have a material 
     adverse effect upon the Transaction.

          (b)     POWER AND AUTHORITY.  The Issuer has all necessary trust 
     power and authority to conduct its business as currently conducted, to 
     execute, deliver and perform its obligations under this Agreement and 
     each other Transaction Document to which the Issuer is a party and to 
     carry out the terms of each such Transaction Document, and has full 
     power and authority to sell and assign the Receivables as contemplated 
     by the Transaction Documents and to consummate the Transaction.

          (c)     DUE AUTHORIZATION.  The execution, delivery and performance 
     of this Agreement and each other Transaction Document to which the 
     Issuer is a party has been duly authorized by all necessary action on 
     the part of the Issuer and does not require any additional approvals or 
     consents or other action by or any notice to or filing with any Person 
     by or on behalf of the Issuer, including, without limitation, any 
     governmental entity.

          (d)     NONCONTRAVENTION.  Neither the execution and delivery of 
     this Agreement and each other Transaction Document to which the Issuer 
     is a party, the consummation of the Transaction nor the satisfaction of 
     the terms and conditions of this Agreement and each other Transaction 
     Document to which the Issuer is a party,

                  (i)   conflicts with or results in any breach or violation 
          of any provision of the Certificate of Trust or the Trust Agreement 
          or any law, rule, regulation, order, writ, judgment, injunction, 
          decree, determination or


                                      17
<PAGE>

          award currently in effect having applicability to the Issuer or any 
          of its properties, including regulations issued by an 
          administrative agency or other governmental authority having 
          supervisory powers over the Issuer,

                  (ii)  constitutes a default by the Issuer under or a breach 
          of any provision of any loan agreement, mortgage, indenture or 
          other agreement or instrument to which the Issuer is a party or by 
          which it or any of its properties is or may be bound or affected, or

                  (iii) results in or requires the creation of any Lien upon 
          or in respect of any of the Issuer's assets except as otherwise 
          expressly contemplated by the Transaction Documents.

          (e)     LEGAL PROCEEDINGS.  There is no action, proceeding or 
     investigation pending, or, to the Issuer's best knowledge, threatened, 
     before any court, regulatory body, administrative agency, arbitrator or 
     governmental agency or instrumentality having jurisdiction over the 
     Issuer or its properties: (A) asserting the invalidity of this Agreement 
     or any other Transaction Document to which the Issuer is a party, (B) 
     seeking to prevent the issuance of the Securities or the consummation of 
     the Transaction, (C) seeking any determination or ruling that might 
     materially and adversely affect the validity or enforceability of this 
     Agreement or any other Transaction Document to which the Issuer is a 
     party, (D) which might result in a Material Adverse Change with respect 
     to the Issuer or (E) which might adversely affect the federal or state 
     tax attributes of the Securities or the Issuer.

          (f)     VALID AND BINDING OBLIGATIONS.  Each of the Transaction 
     Documents to which the Issuer is a party, when executed and delivered by 
     the Issuer, and assuming due authorization, execution and delivery by 
     the other parties thereto, will constitute the legal, valid and binding 
     obligation of the Issuer enforceable in accordance with its terms, 
     except as such enforceability may be limited by bankruptcy, insolvency, 
     reorganization, moratorium or other similar laws affecting creditors' 
     rights generally and general equitable principles.  The Securities, when 
     executed, authenticated and delivered in accordance with the Indenture, 
     will be validly issued and outstanding and entitled to the benefits of 
     the Indenture, except as such enforceability may be limited by 
     bankruptcy, insolvency, reorganization, moratorium or other similar laws 
     affecting creditors' rights generally and general equitable principles.

          (g)     NO CONSENTS.  No consent, license, approval or 
     authorization from, or registration, filing or declaration with, any 
     regulatory body, administrative agency, or other governmental 
     instrumentality, nor any consent, approval, waiver or notification of 
     any creditor, lessor or other non-governmental person, is required in 
     connection with the execution, delivery and performance by the Issuer of 
     this Agreement or of any other Transaction Document to which the Issuer 
     is a party, except (in each case) such as have been obtained and are in 
     full force and effect.


                                      18
<PAGE>

          (h)     COMPLIANCE WITH LAW, ETC.  No practice, procedure or policy 
     employed or proposed to be employed by the Issuer in the conduct of its 
     business violates any law, regulation, judgment, agreement, order or 
     decree applicable to the Issuer which, if enforced, would result in a 
     Material Adverse Change with respect to the Issuer.

          (i)     ACCURACY OF INFORMATION.  None of the Provided Documents 
     contain any statement of a material fact with respect to the Issuer or 
     the Transaction that was untrue or misleading in any material respect 
     when made (except insofar as any such Document was connected or 
     superseded by a subsequent Provided Document). There is no fact known to 
     AFL or the Issuer which has a material possibility of causing a Material 
     Adverse Change with respect to either of them or which has a material 
     possibility of impairing the value or marketability of the Receivables 
     and related Other Conveyed Property, taken as a whole, or decreasing the 
     profitability that amounts due in respect of the Receivables and related 
     Other Conveyed Property will be collected as due. Since the furnishing 
     of the Provided Documents, there has been no change, or any development 
     or event involving a prospective change known to AFL or the Issuer that 
     would render any representation or warranty or other statement made by 
     either of them in any of the Provided Documents untrue or misleading in 
     any material respect.

          (j)     ERISA.  The Issuer does not maintain or contribute to, or 
     have any obligation to maintain or contribute to, any Plan.

          (k)     COMPLIANCE WITH SECURITIES LAWS.  The Issuer is not 
     required to be registered as an "investment company" under the 
     Investment Company Act and is not subject to the information reporting 
     requirements of the Exchange Act.

          (l)     TRANSACTION DOCUMENTS.  Each of the representations and 
     warranties of the Issuer contained in the Transaction Documents is true 
     and correct in all material respects and the Issuer hereby makes each 
     such representation and warranty made by it to, and for the benefit of, 
     Financial Security as if the same were set forth in full herein.

          (m)     SPECIAL PURPOSE ENTITY.

                  (i)   The capital of the Issuer is adequate for the business 
          and undertakings of the Issuer.

                  (ii)  Other than as provided in this Agreement, the 
          Indenture, the Sale and Servicing Agreement, the Security Agreement 
          and the Trust Agreement, the Issuer is not engaged in any business 
          transactions with AFL or any affiliate of AFL.

                  (iii) The Issuer's funds and assets are not, and will not 
          be, commingled with the funds of any other Person, except as 
          provided in the Transaction Documents.


                                      19
<PAGE>

          (n)     SOLVENCY; FRAUDULENT CONVEYANCE.  The Issuer is solvent and 
     will not be rendered insolvent by the Transaction and, after giving 
     effect to the Transaction, the Issuer will not be left with an 
     unreasonably small amount of capital with which to engage in its 
     business. The Issuer does not intend to incur, or believe that it has 
     incurred, debts beyond its ability to pay such debts as they mature. The 
     Issuer does not contemplate the commencement of insolvency, bankruptcy, 
     liquidation or consolidation proceedings or the appointment of a 
     receiver, liquidator, conservator, trustee or similar official in 
     respect of the Issuer or any of its assets. The Issuer is not entering 
     into the Transaction Documents or consummating the transactions 
     contemplated thereby with any intent to hinder, delay or defraud any of 
     the Issuer's creditors.

          (o)     NO PRIOR ACTIVITIES.  The Issuer has not engaged in any 
     activities or entered into any agreements prior to this Transaction.

          Section 2.05.    AFFIRMATIVE COVENANTS OF AFL AND THE ISSUER.

          Each of AFL and the Issuer hereby agree that during the Term of this
Agreement, unless Financial Security shall otherwise expressly consent in
writing, as follows:

          (a)     COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS.  The Issuer 
     shall perform each of its respective obligations under the Transaction 
     Documents and shall comply with all material requirements of, and the 
     Securities shall be offered and sold in accordance with, any law, rule 
     or regulation applicable to it or thereto, or that are required in 
     connection with its performance under any of the Transaction Documents. 
     The Issuer will not cause or permit to become effective any amendment to 
     or modification of any of the Transaction Documents to which it is a 
     party unless (i) so long as no Insurer Default shall have occurred and 
     be continuing Financial Security shall have previously approved in 
     writing the form of such amendment or modification or (ii) if an Insurer 
     Default shall have occurred and be continuing such amendment would not 
     adversely affect the interests of Financial Security. The Issuer shall 
     not take any action or fail to take any action that would interfere with 
     the enforcement of any rights under the Transaction Documents.

          (b)     BOOKS AND RECORDS; OTHER INFORMATION.  The Issuer shall 
     keep or cause to be kept in reasonable detail books and records of 
     account of its assets and business.  The Issuer shall furnish or cause 
     to be furnished to Financial Security promptly upon receipt thereof, 
     copies of all reports, statements, certifications, schedules, or other 
     similar items delivered to or by the Issuer pursuant to the terms of the 
     Transaction Documents and, promptly upon request, such other data as 
     Financial Security may reasonably request; PROVIDED, HOWEVER, that the 
     Issuer shall not be required to deliver any such items if provision by 
     some other party to Financial Security is required under the Transaction 
     Documents unless such other party wrongfully fails to deliver such item. 
      The Issuer shall, upon the request of Financial Security, permit 
     Financial Security or its authorized agents (A) to


                                      20
<PAGE>

     inspect its books and records as they may relate to the Securities, the 
     Receivables, the obligations of the Issuer under the Transaction 
     Documents, the Transaction; (B) to discuss the affairs, finances and 
     accounts of the Issuer with its officers upon Financial Security's 
     reasonable request; and (C) upon the occurrence of a Special Event, to 
     discuss the affairs, finances and accounts of the Issuer with its 
     independent accountants, PROVIDED that an officer of the Issuer shall 
     have the right to be present during such discussions.  Such inspections 
     and discussions shall be conducted during normal business hours and 
     shall not unreasonably disrupt the business of such Person.  The books 
     and records of the Issuer will be maintained at Wilmington Trust 
     Company, Rodney Square North, 1100 North Market Street, Wilmington, 
     Delaware, unless such Person shall otherwise advise the parties hereto 
     in writing.

          (c)     COMPLIANCE CERTIFICATE.  The Issuer shall deliver to 
     Financial Security within 90 days after the close of each fiscal year of 
     the Issuer (and, if a Special Event has occurred, within 45 days after 
     the close of each of the first three quarters of each fiscal year of the 
     Issuer), a certificate signed by a President, Vice President or duly 
     authorized agent stating that:

                  (i)   a review of the Issuer's performance under the 
          Transaction Documents during such period has been made under such 
          officer's supervision; and

                  (ii)  to the best of such officer's knowledge following 
          reasonable inquiry, no Special Event, Default or Event of Default 
          has occurred with respect to such Person, or if a Special Event, 
          Default or Event of Default has occurred with respect to such 
          Person, specifying the nature thereof and, if such Person has a 
          right to cure any such Default or Event of Default pursuant to 
          Section 5.01, stating in reasonable detail the steps, if any, being 
          taken by such Person to cure such Default or Event of Default or to 
          otherwise comply with the terms of the agreement to which such 
          Default or Event of Default relates.

          (d)     NOTICE OF MATERIAL EVENTS.  The Issuer shall promptly inform
     Financial Security in writing of the occurrence of any of the following:

                  (i)   the submission of any claim or the initiation of any 
          legal process, litigation or administrative or judicial 
          investigation (A) against the Issuer pertaining to the Receivables 
          in general, (B) with respect to a material portion of the 
          Receivables or (C) in which a request has been made for 
          certification as a class action (or equivalent relief) that would 
          involve a material portion of the Receivables;

                  (ii)  any change in the location of such Person's principal 
          office or any change in the location of the books and records of the 
          Issuer;


                                      21
<PAGE>

                  (iii) the occurrence of any Default or Special Event (which 
          notice shall also be delivered to the Rating Agencies);

                  (iv)  the commencement or threat of any rule making or 
          disciplinary proceedings or any proceedings instituted by or 
          against the Issuer in any federal, state or local court or before 
          any governmental body or agency, or before any arbitration board, 
          or the promulgation of any proceeding or any proposed or final rule 
          which, if adversely determined, would result in a Material Adverse 
          Change with respect to the Issuer;

                  (v)   the commencement of any proceedings by or against the 
          Issuer under any applicable bankruptcy, reorganization, 
          liquidation, rehabilitation, insolvency or other similar law now or 
          hereafter in effect or of any proceeding in which a receiver, 
          liquidator, conservator, trustee or similar official shall have 
          been, or may be, appointed or requested for the Issuer or any of 
          its assets;

                  (vi)  the receipt of notice that (A) the Issuer is being 
          placed under regulatory supervision, (B) any license, permit, 
          charter, registration or approval necessary for the conduct of the 
          Issuer's business is to be, or may be, suspended or revoked, or (C) 
          the Issuer is to cease and desist any practice, procedure or policy 
          employed by the Issuer in the conduct of its business, and such 
          cessation may result in a Material Adverse Change with respect to 
          the Issuer; or

                  (vii) any other event, circumstance or condition that has 
          resulted, or which such Person reasonably believes might result, in 
          a Material Adverse Change in respect of the Issuer.

          (e)     FURTHER ASSURANCES.  The Issuer will file all necessary 
     financing statements, assignments or other instruments, and any 
     amendments or continuation statements relating thereto, necessary to be 
     kept and filed in such manner and in such places as may be required by 
     law to preserve and protect fully the Lien on and security interest in, 
     and all rights of the Collateral Agent, for the benefit of the Trustee 
     for the Noteholders and Financial Security, with respect to, the 
     Receivables, the Collection Account and the Note Distribution Account. 
     In addition, the Issuer shall, upon the request of Financial Security, 
     from time to time, execute, acknowledge and deliver, or cause to be 
     executed, acknowledged and delivered, within thirty (30) days of such 
     request, such amendments hereto and such further instruments and take 
     such further action as may be reasonably necessary to effectuate the 
     intention, performance and provisions of the Transaction Documents or to 
     protect the interest of the Collateral Agent, for the benefit of the 
     Trustee for the Noteholders and Financial Security, in the Receivables, 
     free and clear of all Liens and Restrictions on Transferability, except 
     the Restrictions on Transferability imposed by the Transaction 
     Documents. In addition, the Issuer agrees to cooperate with the Rating 
     Agencies in connection


                                      22
<PAGE>

     with any review of the Transaction which may be undertaken by the Rating 
     Agencies after the date hereof.

          (f)     REDEMPTION OF SECURITIES.  The Issuer shall, upon the 
     repayment of outstanding Advances and termination of the Issuer's 
     obligation to make further Advances pursuant to the Sale and Servicing 
     Agreement or otherwise, furnish to Financial Security a notice of such 
     repayment and termination, and, upon payment of all of the Securities 
     and the expiration of the term of the Policy, surrender the Policy to 
     Financial Security for cancellation.

          (g)     THIRD-PARTY BENEFICIARY.  The Issuer agrees that Financial 
     Security shall have all rights of a third-party beneficiary in respect 
     of the Sale and Servicing Agreement and hereby incorporates and restates 
     its representations, warranties and covenants as set forth therein for 
     the benefit of Financial Security.

          (h)     DISCLOSURE DOCUMENT.  Any Offering Document delivered with 
     respect to the Securities shall clearly disclose that the Policy is not 
     covered by the property/casualty Insurance Security Fund specified in 
     Article 76 of the New York Insurance Law. In addition, any Offering 
     Document delivered with respect to the Securities which includes 
     financial statements of Financial Security prepared in accordance with 
     generally accepted accounting principles shall include the following 
     statement immediately preceding such financial statements:

                  The New York State Insurance Department 
                  recognizes only statutory account practices for 
                  determining and reporting the financial 
                  condition and results of operations of an 
                  insurance company, for determining its solvency 
                  under the New York Insurance Law, and for 
                  determining where its financial condition 
                  warrants the payment of a dividend to its 
                  stockholders. No consideration is given by the 
                  New York State Insurance Department to 
                  financial statements prepared in accordance 
                  with generally accepted accounting principles 
                  in making such determinations.

          (i)     SPECIAL PURPOSE ENTITY.

                  (i)   The Issuer shall conduct its business solely in its 
          own name through its duly authorized officers or agents so as not 
          to mislead others as to the identity of the entity with which those 
          others are concerned. It particularly will use its best efforts to 
          avoid the appearance of conducting business on behalf of AFL or any 
          affiliate thereof or and to avoid the appearance that the assets of 
          the Issuer are available to pay the creditors of AFL or any 
          affiliate thereof. Without limiting the generality of the 
          foregoing, all oral and written communications, including, without 
          limitation, letters, invoices, purchase orders, contracts, 
          statements and loan applications, will be made solely in the name 
          of the Issuer.


                                      23
<PAGE>

                  (ii)  The Issuer shall maintain trust records and books of 
          account separate from those of AFL and any affiliate thereof.  The 
          Issuer's books and records shall clearly reflect the transfer of 
          the Receivables and related Other Conveyed Property to the Issuer.

                  (iii) The Issuer shall obtain proper authorization from its 
          equity owners of all trust action requiring such authorization and 
          copies of such authorization shall be delivered to Financial 
          Security within two weeks of such authorization.

                  (iv)  Although the organizational expenses of the Issuer 
          have been paid by AFL, operating expenses and liabilities of the 
          Issuer shall be paid from its own funds.

                  (v)   The annual financial statements of the Issuer shall 
          disclose the effects of its transactions in accordance with 
          generally accepted accounting principles and shall disclose that 
          the assets of the Issuer are not available to pay creditors of AFL 
          or any affiliate thereof.

                  (vi)  The resolutions, agreements and other instruments of 
          the Issuer underlying the transactions described in this Agreement 
          and in the other Transaction Documents shall be continuously 
          maintained by the Issuer as official records of the Issuer 
          separately identified and held apart from the records of AFL and 
          each affiliate thereof.

                  (vii) The Issuer shall maintain an arm's-length 
          relationship with AFL and the affiliates thereof and will not hold 
          itself out as being liable for the debts of AFL or any affiliate 
          thereof.

                  (viii)     The Issuer shall keep its assets and liabilities 
          wholly separate from those of all other entities, including, but 
          not limited to, AFL and the affiliates thereof.

                  (ix)  The books and records of the Issuer will be 
          maintained at Wilmington Trust Company, Rodney Square North, 1100 
          North Market Street, Wilmington, Delaware, unless it shall 
          otherwise advise the parties hereto in writing. The Issuer shall, 
          upon the request of Financial Security, permit Financial Security 
          or its authorized agents to inspect its books and records.

          (j)     MAINTENANCE OF LICENSES.  The Issuer shall maintain all 
     licenses, permits, charters and registrations which are material to the 
     performance by of its obligations under this Agreement and each other 
     Transaction Document to which is a party or by which it is bound.

          (k)     INCORPORATION OF COVENANTS.  The Issuer agrees to comply 
     with each of the Issuer's covenants set forth in the Transaction 
     Documents and hereby incorporates such covenants by reference as if each 
     were set forth herein.


                                      24
<PAGE>

          (l)     TAX MATTERS.  The Issuer will not take any action that will 
     cause the Issuer to be taxable as an association (or publicly traded 
     partnership) or taxable as a corporation for federal and state income 
     tax purposes.

          Section 2.06.    NEGATIVE COVENANTS OF AFL AND THE ISSUER.

          Each of AFL and the Issuer hereby agree that during the Term of this
Agreement, unless Financial Security shall otherwise expressly consent in
writing, as follows:

          (a)     RESTRICTIONS ON LIENS.  The Issuer shall not (i) create, 
     incur or suffer to exist, or agree to create, incur or suffer to exist, 
     or consent to cause or permit in the future (upon the happening of a 
     contingency or otherwise) the creation, incurrence or existence of any 
     Lien or Restriction on Transferability of the Receivables except for (w) 
     the Lien in favor of the Collateral Agent, for the benefit of the 
     Trustee for the Noteholders and Financial Security, (x) Liens for taxes 
     if such taxes shall not at the time be due and payable or if the Issuer 
     shall currently be contesting the validity thereof in good faith by 
     appropriate proceedings and shall have set aside on its books adequate 
     reserves with respect thereto, and (y) the Restrictions on 
     Transferability imposed by the Transaction Documents or (ii) sign or 
     file under the Uniform Commercial Code of any jurisdiction any financing 
     statement which names the Issuer as a debtor, or sign any security 
     agreement authorizing any secured party thereunder to file such 
     financing statement, with respect to the Receivables, except in each 
     case any such instrument solely securing the rights and preserving the 
     Lien of the Collateral Agent, for the benefit of the Trustee for the 
     Noteholders and Financial Security.

          (b)     IMPAIRMENT OF RIGHTS.  The Issuer shall not take any 
     action, or fail to take any action, if such action or failure to take 
     action may (i) interfere with the enforcement of any rights under the 
     Transaction Documents that are material to the rights, benefits or 
     obligations of the Trustee, the Noteholders or Financial Security, (ii) 
     result in a Material Adverse Change in respect of the Receivables or 
     (iii) impair the ability of the Issuer to perform its obligations under 
     the Transaction Documents, including any consolidation, merger with any 
     Person or any transfer of all or any material amount of the assets of 
     the Issuer to any other Person if such consolidation, merger or transfer 
     would materially impair the net worth of the Issuer or any successor 
     Person obligated, after such event, to perform such Person's obligations 
     under the Transaction Documents.

          (c)     WAIVER, AMENDMENTS, ETC.  The Issuer shall not waive, 
     modify or amend, or consent to any waiver, modification or amendment of, 
     any of the provisions of any of the Transaction Documents unless (i) if 
     no Insurer Default shall have occurred and be continuing Financial 
     Security shall have occurred and be continuing Financial Security shall 
     have consented thereto in writing or (ii) if an Issuer Default shall 
     have occurred and be continuing which would adversely affect the 
     interests of Financial Security.


                                      25
<PAGE>

          (d)     SUCCESSORS.  The Issuer shall not terminate or designate, 
     or consent to the termination or designation of, the servicer, back-up 
     servicer or collateral agent or any successor thereto without the prior 
     approval of Financial Security.

          (e)     OTHER ACTIVITIES.  The Issuer shall not issue securities 
     other than the Securities or create, incur, assume or suffer to exist 
     any Indebtedness or sell, transfer, exchange or otherwise dispose of any 
     of its assets, or engage in any business or activity, except for the 
     Transaction and otherwise only if the following conditions are met: (i) 
     no other securities of the Issuer will be downgraded or listed for 
     credit review for possible downgrade by reason of such transaction, (ii) 
     the shadow rating of the Securities is not reduced by reason of such 
     transaction, (iii) all parties to such transaction enter into agreements 
     with the Issuer (and satisfactory to Financial Security), with Financial 
     Security as a named third-party beneficiary, not to commence a 
     bankruptcy, reorganization or similar proceeding against the Issuer.

          (f)     SUBSIDIARIES.  The Issuer shall not form, or cause to be
     formed, any Subsidiaries.

          (g)     NO MERGERS.  The Issuer shall not consolidate with or merge 
     into any Person or transfer all or any material amount of its assets to 
     any Person or liquidate or dissolve.

          (h)     INSOLVENCY.  The Issuer shall not commence with respect to 
     ARFC any case, proceeding or other action (A) under any existing or 
     future law of any jurisdiction, domestic or foreign, relating to the 
     bankruptcy, insolvency, reorganization or relief of debtors, seeking to 
     have an order for relief entered with respect to it, or seeking 
     reorganization, arrangement, adjustment, winding-up, liquidation, 
     dissolution, corporation or other relief with respect to it or (B) 
     seeking appointment of a receiver, trustee, custodian or other similar 
     official for it or for all or any substantial part of its assets, or 
     make a general assignment for the benefit of its creditors. Neither AFL 
     nor the Issuer shall take any action in furtherance of, or indicating 
     the consent to, approval of, or acquiescence in any of the acts set 
     forth above. The Issuer shall not admit in writing its inability to pay 
     its debts.

                                ARTICLE III

           THE POLICY; REIMBURSEMENT; INDEMNIFICATION; LIMITED RECOURSE

          Section 3.01.    ISSUANCE OF THE POLICY.

          Financial Security agrees to issue the Policy subject to satisfaction
of each and all of the conditions precedent set forth in Appendix B hereto.

          Section 3.02.    PAYMENT OF FEES AND PREMIUM.

          (a)     PREMIUM LETTER FEES AND EXPENSES.  On the Date of Issuance, 
     AFL shall pay or cause to be paid the amounts specified with respect to 
     fees, expenses


                                      26
<PAGE>

     and disbursements in the Premium Letter, unless otherwise agreed between 
     AFL and Financial Security.

          (b)     LEGAL FEES.  On the Date of Issuance, AFL shall pay or 
     cause to be paid legal fees and disbursements incurred by Financial 
     Security in connection with the issuance of the Policy, unless otherwise 
     agreed between AFL and Financial Security.

          (c)     RATING AGENCY FEES.  The initial fees of S&P and Moody's 
     with respect to the Securities and the Transaction shall be paid by AFL 
     in full on the Date of Issuance, or otherwise provided for to the 
     satisfaction of Financial Security. All periodic and subsequent fees of 
     S&P or Moody's with respect to, and directly allocable to, the 
     Securities and the Transaction shall be for the account of, and shall be 
     billed to, AFL. The fees for any other rating agency shall be paid by 
     the party requesting such other agency's rating, unless such other 
     agency is a substitute for S&P or Moody's in the event that S&P or 
     Moody's is no longer determining a capital charge with respect to the 
     Policy by Financial Security, in which case the cost for such agency 
     shall be paid by AFL.

          (d)     AUDITORS' FEES.  AFL shall pay on demand any fees of 
     Financial Security's auditors payable in respect of any Offering 
     Document that are incurred after the Date of Issuance. It is understood 
     that Financial Security's auditors shall not incur any additional fees 
     in respect of future Offering Documents except at the request of or with 
     the consent of AFL.

          (e)     PREMIUM.  In consideration of the issuance by Financial 
     Security of the Policy, Financial Security shall be entitled to receive 
     the Premium as and when due in accordance with the terms of the Premium 
     Letter. The Premium paid hereunder or under the Sale and Servicing 
     Agreement shall be nonrefundable without regard to whether Financial 
     Security makes any payment under the Policy or any other circumstances 
     relating to the Securities or provision being made for payment of the 
     Securities prior to maturity.

          Section 3.03.    REIMBURSEMENT AND ADDITIONAL PAYMENT OBLIGATION.

          AFL agrees to pay to Financial Security the following amounts as and
when incurred:

          (a)     a sum equal to the total of all amounts paid by Financial 
     Security under the Policy;

          (b)     any and all out-of-pocket charges, fees, costs and expenses 
     which Financial Security may reasonably pay or incur, including, but not 
     limited to, attorneys' and accountants' fees and expenses, in connection 
     with (i) in the event of payments under the Policy, any accounts 
     established to facilitate payments under the Policy, to the extent 
     Financial Security has not been immediately reimbursed on the date that 
     any amount is paid by Financial Security under the Policy, or other 
     administrative expenses relating to such payments under the


                                      27
<PAGE>

     Policy, (ii) the enforcement, defense or preservation of any rights in 
     respect of any of the Transaction Documents, including defending, 
     monitoring or participating in any litigation or proceeding (including 
     any insolvency or bankruptcy proceeding in respect of any Transaction 
     participant or any affiliate thereof) relating to any of the Transaction 
     Documents, any party to any of the Transaction Documents or the 
     Transaction, (iii) any amendment, waiver or other action with respect 
     to, or related to, any Transaction Document whether or not executed or 
     completed, or (iv) any review or investigation made by Financial 
     Security in those circumstances where its approval or consent is sought 
     under any of the Transaction Documents;

          (c)     interest on any and all amounts described in Section 
     3.03(a) or (b) or Section 3.02(e) from the date due to Financial 
     Security pursuant to the provisions hereof until payment thereof in 
     full, payable to Financial Security at the Late Payment Rate per annum; 
     and

          (d)     any payments made by Financial Security on behalf of, or 
     advanced to, AFL, in its capacity as Servicer, or the Trustee, 
     including, without limitation, any amounts payable by AFL, in its 
     capacity as Servicer, or the Trustee pursuant to the Securities or any 
     other Transaction Documents; and any payments made by Financial Security 
     as, or in lieu of, any servicing, management, trustee, custodial or 
     administrative fees payable, in the sole discretion of Financial 
     Security to third parties in connection with the Transaction.

          Section 3.04.    INDEMNIFICATION.

          (a)     INDEMNIFICATION BY AFL. In addition to any and all rights 
     of reimbursement, indemnification, subrogation and any other rights 
     pursuant hereto or under law or in equity, AFL hereby agrees to pay, and 
     to protect, indemnify and save harmless, Financial Security and its 
     officers, directors, shareholders, employees, agents and each Person, if 
     any, who controls Financial Security within the meaning of either 
     Section 15 of the Securities Act or Section 20 of the Exchange Act from 
     and against any and all claims, losses, liabilities (including 
     penalties), actions, suits, judgments, demands, damages, costs or 
     expenses (including, without limitation, fees and expenses of attorneys, 
     consultants and auditors and reasonable costs of investigations) of any 
     nature arising out of or relating to the transactions contemplated by 
     the Transaction Documents by reason of:

                  (i)   the negligence, bad faith, willful misconduct, 
          misfeasance, malfeasance or theft committed by any director, 
          officer, employee or agent of AFL, ARFC or the Issuer;

                  (ii)  the breach by AFL, ARFC or the Issuer of any 
          representation, warranty or covenant under any of the Transaction 
          Documents or the occurrence, in respect of AFL, ARFC or the Issuer 
          under any of the Transaction Documents of any "event of default" or 
          any event which, with


                                      28
<PAGE>

          the giving of notice or the lapse of time or both, would constitute 
          any "event of default"; or

                  (iii) any untrue statement or alleged untrue statement of a 
          material fact contained in any Offering Document or any omission or 
          alleged omission to state therein a material fact required to be 
          stated therein or necessary to make the statements therein not 
          misleading, except insofar as such claims arise out of or are based 
          upon any untrue statement or omission in information included in an 
          Offering Document and furnished by Financial Security in writing 
          expressly for use therein (all such information so furnished by 
          Financial Security being referred to herein as "FINANCIAL SECURITY 
          INFORMATION").

          (b)     CONDUCT OF ACTIONS OR PROCEEDINGS. If any action or 
     proceeding (including any governmental investigation) shall be brought 
     or asserted against Financial Security, any officer, director, 
     shareholder, employee or agent of Financial Security or any Person 
     controlling Financial Security (individually, an "INDEMNIFIED PARTY" 
     and, collectively, the "INDEMNIFIED PARTIES") in respect of which 
     indemnity may be sought from AFL (the "INDEMNIFYING PARTY") hereunder, 
     Financial Security shall promptly notify the Indemnifying Party in 
     writing, and the Indemnifying Party shall assume the defense thereof, 
     including the employment of counsel satisfactory to Financial Security 
     and the payment of all expenses. An Indemnified Party shall have the 
     right to employ separate counsel in any such action and to participate 
     in the defense thereof at the expense of the Indemnified Party; 
     PROVIDED, HOWEVER, that the fees and expenses of such separate counsel 
     shall only be at the expense of the Indemnifying Party if (i) the 
     Indemnifying Party has agreed to pay such fees and expenses, (ii) the 
     Indemnifying Party shall have failed to assume the defense of such 
     action or proceeding and employ counsel satisfactory to Financial 
     Security in any such action or proceeding or (iii) the named parties to 
     any such action or proceeding (including any impleaded parties) include 
     both the Indemnified Party and the Indemnifying Party, and the 
     Indemnified Party shall have been advised by counsel that (A) there may 
     be one or more legal defenses available to it which are different from 
     or additional to those available to the Indemnifying Party and (B) the 
     representation of the Indemnifying Party and the Indemnified Party by 
     the same counsel would be inappropriate or contrary to prudent practice 
     (in which case, if the Indemnified Party notifies the Indemnifying Party 
     in writing that it elects to employ separate counsel at the expense of 
     the Indemnifying Party, the Indemnifying Party shall not have the right 
     to assume the defense of such action or proceeding on behalf of such 
     Indemnified Party, it being understood, however, that the Indemnifying 
     Party shall not, in connection with any one such action or proceeding or 
     separate but substantially similar or related actions or to proceedings 
     in the same jurisdiction arising out of the same general allegations or 
     circumstances, be liable for the reasonable fees and expenses of more 
     than one separate firm of attorneys at any time for the Indemnified 
     Parties, which firm shall be designated in writing by Financial 
     Security). The Indemnifying Party shall not be liable for any settlement 
     of any such action or proceeding effected without its


                                      29
<PAGE>

     written consent but, if settled with its written consent, or if there be 
     a final judgment for the plaintiff in any such action or proceeding with 
     respect to which the Indemnifying Party shall have received notice in 
     accordance with this subsection (b), the Indemnifying Party agrees to 
     indemnify and hold the Indemnified Parties harmless from and against any 
     loss or liability by reason of such settlement or judgment.

          (c)     CONTRIBUTION.  To provide for just and equitable 
     contribution if the indemnification provided by the Indemnifying Party 
     is determined to be unavailable for any Indemnified Party (other than 
     due to application of this Section), the Indemnifying Party shall 
     contribute to the losses incurred by the Indemnified Party on the basis 
     of the relative fault of the Indemnifying Party, on the one hand, and 
     the Indemnified Party, on the other hand.

          Section 3.05.    SUBROGATION.

          Subject only to the priority of payment provisions of the Indenture
and the Security Agreement, each of the parties hereto acknowledges that, to the
extent of any payment made by Financial Security pursuant to the Policy,
Financial Security is to be fully subrogated to the extent of such payment and
any additional interest due on any late payment, to the rights of the
Noteholders to any moneys paid or payable in respect of the Securities under the
Transaction Documents or otherwise. Each of the parties hereto agrees to such
subrogation and, further, agrees to execute such instruments and to take such
actions as, in the sole judgment of Financial Security, are necessary to
evidence such subrogation and to perfect the rights of Financial Security to
receive any moneys paid or payable in respect of the Securities under the
Transaction Documents or otherwise.

          Section 3.06.    CERTAIN OBLIGATIONS NOT RECOURSE TO AFL AND ARFC.

          Notwithstanding any provision of this Agreement to the contrary, the
payment obligations provided in Section 3.03(a) and (d), in each case, to the
extent that such payment obligations do not arise from any failure or default in
the performance by AFL or ARFC of any of its obligations under the Transaction
Documents, and any interest on the foregoing in accordance with Section 3.03(c),
shall be non-recourse obligations with respect to AFL and ARFC, respectively,
and shall be payable only from monies available for such payment in accordance
with the provisions of the Sale and Servicing Agreement.

          Section 3.07.    LIMITED RECOURSE TO ISSUER.

          Financial Security covenants and agrees that it shall not look to any
property or assets of the Issuer, other than amounts paid to the Issuer under
the Transaction Documents and to amounts payable to Financial Security pursuant
to the Transaction Documents in respect of the Issuer's obligations hereunder.
To the extent that such funds are insufficient, any payment obligation or claim
arising hereunder shall not constitute a claim against the Issuer.


                                      30
<PAGE>

                                  ARTICLE IV

                              FURTHER AGREEMENTS

          Section 4.01.    EFFECTIVE DATE; TERM OF AGREEMENT.

          This Agreement shall take effect on the Date of Issuance and shall
remain in effect until the later of (a) such time as Financial Security is no
longer subject to a claim under the Policy and the Policy shall have been
surrendered to Financial Security for cancellation and (b) all amounts payable
to Financial Security and the Noteholders under the Transaction Documents and
under the Securities have been paid in full; PROVIDED, HOWEVER, that the
provisions of Sections 3.02, 3.03 and 3.04 hereof shall survive any termination
of this Agreement.

          Section 4.02.    OBLIGATIONS ABSOLUTE.

          (a)     The payment obligations of AFL, ARFC and the Issuer 
     hereunder shall be absolute and unconditional, and shall be paid 
     strictly in accordance with this Agreement under all circumstances 
     irrespective of (i) any lack of validity or enforceability of, or any 
     amendment or other modifications of, or waiver with respect to, any of 
     the Transaction Documents, the Securities or the Policy; (ii) any 
     exchange or release of any other obligations hereunder; (iii) the 
     existence of any claim, setoff, defense, reduction, abatement or other 
     right which AFL, ARFC or the Issuer may have at any time against 
     Financial Security or any other Person; (iv) any document presented in 
     connection with the Policy proving to be forged, fraudulent, invalid or 
     insufficient in any respect, including any failure to strictly comply 
     with the terms of the Policy, or any statement therein being untrue or 
     inaccurate in any respect; (v) any failure of the Issuer to receive the 
     proceeds from the sale of the Securities; (vi) any breach by AFL, ARFC 
     or the Issuer of any representation, warranty or covenant contained in 
     any of the Transaction Documents; or (vii) any other circumstances, 
     other than payment in full, which might otherwise constitute a defense 
     available to, or discharge of, AFL, ARFC or the Issuer in respect of any 
     Transaction Document.

          (b)     AFL, ARFC and the Issuer and any and all others who are now 
     or may become liable for all or part of the obligations of such Persons 
     under this Agreement agree to be bound by this Agreement and (i) to the 
     extent permitted by law, waive and renounce any and all redemption and 
     exemption rights and the benefit of all valuation and appraisement 
     privileges against the indebtedness, if any, and obligations evidenced 
     by any Transaction Document or by any extension or renewal thereof, (ii) 
     waive presentment and demand for payment, notices of nonpayment and of 
     dishonor, protest of dishonor and notice of protest; (iii) waive all 
     notices in connection with the delivery and acceptance hereof and all 
     other notices in connection with the performance, default or enforcement 
     of any payment hereunder except as required by the Transaction 
     Documents; (iv) waive all rights of abatement, diminution, postponement 
     or deduction, or to any defense other than payment, or to any right of 
     setoff or recoupment arising out of any


                                      31
<PAGE>

     breach under any of the Transaction Documents, by any party thereto or 
     any beneficiary thereof, or out of any obligation at any time owing to 
     AFL, ARFC or the Issuer; (v) agree that any consent, waiver or 
     forbearance hereunder with respect to an event shall operate only for 
     such event and not for any subsequent event; (vi) consent to any and all 
     extensions of time that may be granted by Financial Security with 
     respect to any payment hereunder or other provisions hereof and to the 
     release of any security at any time given for any payment hereunder, or 
     any part thereof, with or without substitution, and to the release of 
     any Person or entity liable for any such payment; and (vii) consent to 
     the addition of any and all other makers, endorsers, guarantors and 
     other obligors for any payment hereunder, and to the acceptance of any 
     and all other security for any payment hereunder, and agree that the 
     addition of any such obligors or security shall not affect the liability 
     of the parties hereto for any payment hereunder.

          (c)     Nothing herein shall be construed as prohibiting AFL, ARFC 
     or the Issuer from pursuing any rights or remedies it may have against 
     any Person other than Financial Security in a separate legal proceeding.

          Section 4.03.    ASSIGNMENTS; REINSURANCE; THIRD-PARTY RIGHTS.

          (a)     This Agreement shall be a continuing obligation of the 
     parties hereto and shall be binding upon and inure to the benefit of the 
     parties hereto and their respective successors and permitted assigns. 
     None of AFL, ARFC nor the Issuer may assign its rights under this 
     Agreement, or delegate any of its duties hereunder, without the prior 
     written consent of Financial Security. Any assignment made in violation 
     of this Agreement shall be null and void.

          (b)     Financial Security shall have the right to give 
     participations in its rights under this Agreement and to enter into 
     contracts of reinsurance with respect to the Policy upon such terms and 
     conditions as Financial Security may in its discretion determine; 
     PROVIDED, HOWEVER, that no such participation or reinsurance agreement 
     or arrangement shall relieve Financial Security of any of its 
     obligations hereunder or under the Policy.

          (c)     In addition, Financial Security shall be entitled to assign 
     or pledge to any bank or other lender providing liquidity or credit with 
     respect to the Transaction or the obligations of Financial Security in 
     connection therewith any rights of Financial Security under the 
     Transaction Documents or with respect to any real or personal property 
     or other interests pledged to Financial Security, or in which Financial 
     Security has a security interest, in connection with the Transaction.

          (d)     Except as provided herein with respect to participants and 
     reinsurers, nothing in this Agreement shall confer any right, remedy or 
     claim, express or implied, upon any Person, including, particularly, any 
     Noteholder, other than Financial Security, against AFL, ARFC or the 
     Issuer, and all the terms, covenants, conditions, promises and 
     agreements contained herein shall be for the


                                      32
<PAGE>

     sole and exclusive benefit of the parties hereto and their successors 
     and permitted assigns. Neither the Trustee nor any Noteholder shall have 
     any right to payment from any premiums paid or payable hereunder or from 
     any other amounts paid by AFL or the Issuer pursuant to Section 3.02, 
     3.03 or 3.04 hereof.

          Section 4.04.    LIABILITY OF FINANCIAL SECURITY.

          Neither Financial Security nor any of its officers, directors or
employees shall be liable or responsible for: (a) the use which may be made of
the Policy by the Trustee or for any acts or omissions of the Trustee in
connection therewith or (b) the validity, sufficiency, accuracy or genuineness
of documents delivered to Financial Security (or its Fiscal Agent) in connection
with any claim under the Policy, or of any signatures thereon, even if such
documents or signatures should in fact prove to be in any or all respects
invalid, insufficient, fraudulent or forged (unless Financial Security had
actual knowledge thereof). In furtherance and not in limitation of the
foregoing, Financial Security (or its Fiscal Agent) may accept documents that
appear on their face to be in order, without responsibility for further
investigation.

                                  ARTICLE V

                         EVENTS OF DEFAULT; REMEDIES

          Section 5.01.    EVENTS OF DEFAULT.

          The occurrence of any of the following events shall constitute an
Event of Default hereunder:

          (a)     any demand for payment shall be made under the Policy;

          (b)     any representation or warranty made by AFL, ARFC or the 
     Issuer under any of the Transaction Documents, or in any certificate or 
     report furnished under any of the Transaction Documents, shall prove to 
     be untrue or incorrect in any material respect; PROVIDED, HOWEVER, that 
     if AFL, ARFC or the Issuer effectively cures any such defect in any 
     representation or warranty under any Transaction Document, or 
     certificate or report furnished under any Transaction Document, within 
     the time period specified in the relevant Transaction Document as the 
     cure period therefor, such defect shall not in and of itself constitute 
     an Event of Default hereunder;

          (c)     (i) AFL, ARFC or the Issuer shall fail to pay when due any 
     amount payable by it, shall fall to effect any purchase or repurchase 
     required to be made by it, in each case, hereunder or under any of the 
     Transaction Documents unless such amounts are paid in full within any 
     applicable cure period explicitly provided for under the relevant 
     Transaction Document; (ii) AFL, ARFC or the Issuer shall have asserted 
     that any material provision of the Transaction Documents to which it is 
     a party is not valid and binding on the parties thereto; or (iii) any 
     court, governmental authority or agency having jurisdiction over any of 
     the parties to any of the Transaction Documents or any property thereof 
     shall find


                                      33
<PAGE>

     or rule that any material provision of any of the Transaction 
     Documents is not valid and binding on the parties thereto;

          (d)     AFL, ARFC or the Issuer shall fail to perform or observe 
     any other covenant or agreement contained in any of the Transaction 
     Documents (except for the obligations described under clause (c) above) 
     and such failure shall continue beyond any applicable cure period 
     explicitly provided for under the relevant Transaction Document;

          (e)     any of AFL, ARFC or the Issuer shall fail to pay its debts 
     generally as they come due, or shall admit in writing its inability to 
     pay its debts generally, or shall make a general assignment for the 
     benefit of creditors, or shall institute any proceeding seeking to 
     adjudicate it insolvent or seeking a liquidation, or shall take 
     advantage of any insolvency act, or shall commence a case or other 
     proceeding naming it as debtor under the United States Bankruptcy Code 
     or similar law, domestic or foreign, or a case or other proceeding shall 
     be commenced against any of AFL, ARFC or the Issuer under the United 
     States Bankruptcy Code or similar law, domestic or foreign, or any 
     proceeding shall be instituted against any of AFL, ARFC or the Issuer 
     seeking liquidation of its assets and such Person shall fail to take 
     appropriate action resulting in the withdrawal or dismissal of such 
     proceeding within 30 days or there shall be appointed or any of AFL, 
     ARFC or the Issuer shall consent to, or acquiesce in, the appointment of 
     a receiver, liquidator, conservator, trustee or similar official in 
     respect of such Person or the whole or any substantial part of its 
     properties or assets or such Person shall take any corporate action in 
     furtherance of any of the foregoing;

          (f)     the occurrence of an Insurance Agreement Event of Default 
     with respect to any Term Transaction, which Insurance Agreement Event of 
     Default is not defined as a "Portfolio Performance Event of Default" in 
     the related Insurance Agreement;

          (g)     ARFC shall fall to make a deposit with respect to any WAC 
     Deficiency Amount in accordance with the provisions of Section 4.1(f) of 
     the Sale and Servicing Agreement, and such failure shall continue for 
     one Business Day;

          (h)     it shall be determined on any Determination Date that the 
     Collateral Test shall fail to have been satisfied as of the immediately 
     preceding Accounting Date, after taking into account any deposit made by 
     ARFC to the Collection Account on such Determination Date and such 
     failure shall continue for one Business Day;

          (i)     a Servicer Termination Event shall occur;

          (j)     the occurrence of an "Event of Default" under the Sale and 
     Servicing Agreement and either (x) the Repurchase Date or the 
     Amortization Date (each as defined in the Sale and Servicing Agreement) 
     shall have been deemed to automatically occur or (y) the Issuer shall 
     have exercised its option to have the


                                      34
<PAGE>

     Repurchase Date or the Amortization Date, as the case may be, 
     immediately occur pursuant to Section 2.6(a) of the Sale and Servicing 
     Agreement; or

          (k)     if on any Distribution Date, after giving effect to 
     distributions made on such Distribution Date, the amount on deposit in 
     the Spread Account is less than the Spread Account Minimum Amount.

          Section 5.02.    REMEDIES; WAIVERS.

          (a)     Upon the occurrence of an Event of Default, Financial 
     Security may exercise any one or more of the rights and remedies set 
     forth below:

                  (i)   declare the Premium Supplement to be immediately due 
          and payable, and the same shall thereupon be immediately due and 
          payable, whether or not Financial Security shall have declared an 
          "Event of Default" or shall have exercised, or be entitled to 
          exercise, any other rights or remedies hereunder;

                  (ii)  exercise any rights and remedies available under the 
          Transaction Documents in its own capacity or in its capacity as the 
          Person entitled to exercise the rights of the Noteholders in 
          respect of the Securities; or

                  (iii) take whatever action at law or in equity may appear 
          necessary or desirable in its judgment to enforce performance of 
          any obligation of AFL, ARFC or the Issuer under the Transaction 
          Documents.

          (b)     Unless otherwise expressly provided, no remedy herein 
     conferred upon or reserved is intended to be exclusive of any other 
     available remedy, but each remedy shall be cumulative and shall be in 
     addition to other remedies given under the Transaction Documents or 
     existing at law or in equity. No delay or failure to exercise any right 
     or power accruing under any Transaction Document upon the occurrence of 
     any Event of Default or otherwise shall impair any such right or power 
     or shall be construed to be a waiver thereof, but any such right and 
     power may be exercised from time to time and as often as may be deemed 
     expedient. In order to entitle Financial Security to exercise any remedy 
     reserved to Financial Security in this Article, it shall not be 
     necessary to give any notice, other than such notice as may be expressly 
     required in this Article.

          (c)     If any proceeding has been commenced to enforce any right 
     or remedy under this Agreement and such proceeding has been discontinued 
     or abandoned for any reason, or has been determined adversely to 
     Financial Security, then and in every such case the parties hereto 
     shall, subject to any determination in such proceeding, be restored to 
     their respective former positions hereunder, and, thereafter, all rights 
     and remedies of Financial Security shall continue as though no such 
     proceeding had been instituted.


                                      35
<PAGE>

          (d)     Financial Security shall have the right, to be exercised in 
     its complete discretion, to waive any covenant, Default or Event of 
     Default by a writing setting forth the terms, conditions and extent of 
     such waiver signed by Financial Security and delivered to AFL, ARFC and 
     the Issuer. Any such waiver may only be effected in writing duly 
     executed by Financial Security, and no other course of conduct shall 
     constitute a waiver of any provision hereof.  Unless such writing 
     expressly provides to the contrary, any waiver so granted shall extend 
     only to the specific event or occurrence so waived and not to any other 
     similar event or occurrence.

          (e)     Upon the declaration of an Event of Default by Financial 
     Security, Financial Security shall provide written notice of such Event 
     of Default to the Rating Agencies.

                                 ARTICLE VI

                                MISCELLANEOUS

          Section 6.01.    AMENDMENTS, ETC.

          This Agreement may be amended, modified or terminated only by written
instrument or written instruments signed by the parties hereto. No act or course
of dealing shall be deemed to constitute an amendment, modification or
termination hereof.

          Section 6.02.    NOTICES.

          All demands, notices and other communications to be given hereunder
shall be in writing (except as otherwise specifically provided herein) and shall
be mailed by registered mail or personally delivered or telecopied to the
recipient as follows:


                                      36
<PAGE>

          (a)   To Financial Security:  Financial Security Assurance Inc.
                                        350 Park Avenue
                                        New York, NY  10022
                                        Attention: Surveillance Department

                                        Re:  Arcadia Automobile Receivables 
                                             Warehouse Trust, Floating Rate 
                                             Variable Funding Automobile 
                                             Receivables-Backed Notes/Arcadia
                                             Structured Warehouse Facility
                                        Confirmation:  (212) 826-0100
                                        Telecopy Nos.: (212) 339-3518
                                                       (212) 339-3529
                                        (in each case in which notice or other
                                        communication to Financial Security 
                                        refers to an Event of Default, a 
                                        claim on the Policy or with respect 
                                        to which failure on the part of 
                                        Financial Security to respond shall 
                                        be deemed to constitute consent or 
                                        acceptance, then a copy of such 
                                        notice or other communication should 
                                        also be sent to the attention of each 
                                        of the General Counsel and the 
                                        Head--Financial Guaranty Group and 
                                        shall be marked to indicate "URGENT 
                                        MATERIAL ENCLOSED.")

          (b)   To AFL:                 Arcadia Financial Ltd.
                                        Arcadia Financial Center
                                        7825 Washington Avenue South
                                        Minneapolis, MN 55439-2444
                                        Attention:  Treasurer

          (c)   To ARFC:                Arcadia Receivables Finance Corp.
                                        Arcadia Financial Center
                                        7825 Washington Avenue South, Suite 900
                                        Minneapolis, MN 55439-2444
                                        Attention:  Treasurer


                                      37
<PAGE>

          (d)   To the Issuer:          Arcadia Automobile Receivables Warehouse
                                        Trust
                                        c/o Wilmington Trust Company
                                        Rodney Square North
                                        1100 North Market Street
                                        Wilmington, DE  19890-0001
                                        Attention:  Corporate Trust 
                                        Administration

                                        with a copy to

                                        Arcadia Financial Ltd.
                                        Arcadia Financial Center
                                        7825 Washington Avenue South
                                        Minneapolis, MN 55439-2444
                                        Attention:  Treasurer


          A party may specify an additional or different address or addresses by
writing mailed or delivered to the other party as aforesaid. All such notices
and other communications shall be effective upon receipt.

          Section 6.03.    PAYMENT PROCEDURE.

          In the event of any payment by Financial Security for which it is
entitled to be reimbursed or indemnified as provided herein, each party
obligated hereunder to make such reimbursement or provide such indemnification
agrees to accept the voucher or other evidence of payment as prima facie
evidence of the propriety thereof and the liability therefor to Financial
Security. All payments to be made to Financial Security under this Agreement
shall be made to Financial Security in lawful currency of the United States of
America in immediately available funds to the account number provided in the
Premium Letter before 1:00 p.m. (New York, New York time) on the date when due
or as Financial Security shall otherwise direct by written notice to AFL. In the
event that the date of any payment to Financial Security or the expiration of
any time period hereunder occurs on a day which is not a Business Day, then such
payment or expiration of time period shall be made or occur on the next
succeeding Business Day with the same force and effect as if such payment was
made or time period expired on the scheduled date of payment or expiration date.
Payments to be made to Financial Security under this Agreement shall bear
interest at the Late Payment Rate from the date due to the date paid.

          Section 6.04.    SEVERABILITY.

          In the event that any provision of this Agreement shall be held
invalid or unenforceable by any court of competent jurisdiction, the parties
hereto agree that such holding shall not invalidate or render unenforceable any
other provision hereof. The parties hereto further agree that the holding by any
court of competent jurisdiction that any remedy pursued by any party hereto is
unavailable or unenforceable shall not affect in any way the ability of such
party to pursue any other remedy available to it.


                                      38
<PAGE>

          Section 6.05.    GOVERNING LAW.

          THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.

          Section 6.06.    CONSENT TO JURISDICTION.

          (a)     THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE 
     JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN 
     DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED IN 
     THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE COURT FROM ANY 
     THEREOF, IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR 
     IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS 
     CONTEMPLATED THEREUNDER OR FOR RECOGNITION OR ENFORCEMENT OF ANY 
     JUDGMENT, AND THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY 
     AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE 
     HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OF, TO THE EXTENT 
     PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE PARTIES HERETO AGREE THAT A 
     FINAL JUDGMENT IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE 
     CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE 
     JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. TO THE EXTENT PERMITTED 
     BY APPLICABLE LAW, THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO 
     ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, 
     ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE 
     JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS 
     BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR 
     PROCEEDING IS IMPROPER OR THAT THE TRANSACTION DOCUMENTS OR THE SUBJECT 
     MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.

          (b)     To the extent permitted by applicable law, the parties 
     hereto shall not seek and hereby waive the right to any review of the 
     judgment of any such court by any court of any other nation or 
     jurisdiction which may be called upon to grant an enforcement of such 
     judgment.

          (c)     Each of AFL, ARFC and the Issuer hereby irrevocably 
     appoints and designates CT Corporation System, whose address is 1633 
     Broadway, New York, New York 10019, as its true and lawful attorney and 
     duly authorized agent for acceptance of service of legal process. Each 
     of AFL, ARFC and the Issuer agrees that service of such process upon 
     such Person shall constitute personal service of such process upon it.


                                      39
<PAGE>

          (d)     Nothing contained in the Agreement shall limit or affect 
     Financial Security's right to serve process in any other manner 
     permitted by law or to start legal proceedings relating to any of the 
     Transaction Documents against AFL, ARFC or the Issuer or its property in 
     the courts of any jurisdiction.

          Section 6.07.    CONSENT OF FINANCIAL SECURITY.

          In the event that Financial Security's consent is required under any
of the Transaction Documents, the determination whether to grant or withhold
such consent shall be made by Financial Security in its sole discretion without
any implied duty towards any other Person, except as otherwise expressly
provided therein.

          Section 6.08.    COUNTERPARTS.

          This Agreement may be executed in counterparts by the parties hereto,
and all such counterparts shall constitute one and the same instrument.

          Section 6.09.    TRIAL BY JURY WAIVED.

          EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING DIRECTLY
OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH ANY OF THE TRANSACTION
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREUNDER. EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY
BY, AMONG OTHER THINGS, THIS WAIVER.

          Section 6.10.    LIMITED LIABILITY.

          No recourse under any Transaction Document shall be had against, and
no personal liability. shall attach to, any officer, employee, director,
affiliate or shareholder of any party hereto, as such, by the enforcement of any
assessment or by any legal or equitable proceeding, by virtue of any statute or
otherwise in respect of any of the Transaction Documents, the Securities or the
Policy, it being expressly agreed and understood that each Transaction Document
is solely a corporate obligation of each party hereto, and that any and all
personal liability, either at common law or in equity, or by statute or
constitution, of every such officer, employee, director, affiliate or
shareholder for breaches by any party hereto of any obligations under any
Transaction Document is hereby expressly waived as a condition of and in
consideration for the execution and delivery of this Agreement.

          Section 6.11.    ENTIRE AGREEMENT.


                                      40
<PAGE>

          This Agreement, the Premium Letter and the Policy set forth the entire
agreement between the parties with respect to the subject matter thereof, and
this Agreement supersedes and replaces any agreement or understanding that may
have existed between the parties prior to the date hereof in respect of such
subject matter.

          Section 6.12.    HEADINGS.

          The headings of articles and sections and the table of  contents
contained in this Agreement are provided for convenience only.  They form no
part of this Agreement and shall not affect its construction or interpretation.
Unless otherwise indicated, all references to articles and sections in this
Agreement refer to the corresponding articles and sections of this Agreement.


                                      41
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement, all as of the day and year first above written.

                            FINANCIAL SECURITY ASSURANCE INC.


                            By:
                               ------------------------------------------
                                           Authorized Officer


                            ARCADIA FINANCIAL LTD.

                            By:
                               ------------------------------------------
                               Name:   John A. Witham
                               Title:  Executive Vice President and Chief
                                       Financial Officer


                            ARCADIA RECEIVABLES FINANCE CORP.

                            By:
                               ------------------------------------------
                               Name:   John A. Witham
                               Title:  Senior Vice President and Chief
                                       Financial Officer

                            ARCADIA AUTOMOBILE RECEIVABLES WAREHOUSE TRUST

                            By:  Wilmington Trust Company, not in its
                                 individual capacity but solely as Owner Trustee

                            By:
                               ------------------------------------------
                               Name:
                               Title:


<PAGE>

                               APPENDIX A

                               DEFINITIONS

          "ACCUMULATED FUNDING DEFICIENCY" shall have the meaning provided in 
Section 412 of the Code and Section 302 of ERISA, whether or not waived.

          "ASSIGNMENT AGREEMENT" means, with respect to any Receivables, the 
assignment agreement between AFL and ARFC pursuant to which AFL sells and 
assigns Receivables to ARFC, in such form as is attached to the Receivables 
Purchase Agreement and Assignment as Exhibit A.

          "BUSINESS DAY" means any day other than (a) a Saturday or Sunday or 
(b) a day on which banking institutions in the City of New York, New York or 
the City of Minneapolis, Minnesota are authorized or obligated by law or 
executive order to be closed.

          "CODE" means the Internal Revenue Code of 1986, including, unless 
the context otherwise requires, the rules and regulations thereunder, as 
amended from time to time.

          "COMMISSION" means the Securities and Exchange Commission.

          "COMMONLY CONTROLLED ENTITY" means ARFC and each entity, whether or 
not incorporated, which is affiliated with such Person pursuant to Section 
414(b), (c), (m) or (o) of the Code.

          "CUSTODIAN AGREEMENT" means any Custodian Agreement as defined in 
the Sale and Servicing Agreement.

          "DATE OF ISSUANCE" means the date on which the Policy is issued as 
specified therein.

          "DEFAULT" means any event which results, or which with the giving 
of notice or the lapse of time or both would result, in an Event of Default.

          "ERISA" means the Employee Retirement Income Security Act of 1974, 
including, unless the context otherwise requires, the rules and regulations 
thereunder, as amended from time to time.

          "EVENT OF DEFAULT" means any event of default specified in Section 
5.01 of the Insurance Agreement.

          "EXPIRATION DATE" means the final date of the Term of the Policy, 
as specified in the Policy.

          "FINANCIAL SECURITY" means Financial Security Assurance Inc., a New 
York stock insurance company, its successors and assigns.


                                      A-1
<PAGE>

          "FINANCIAL STATEMENTS" means with respect to each of AFL and ARFC 
the balance sheets as of December 31, 1997 and the statements of income, 
retained earnings and cash flows for the 12-month period then ended and the 
notes thereto and the balance sheets as of June 30, 1998 and the statements 
of income, retained earnings and cash flows for the fiscal quarter then ended.

          "FISCAL AGENT" means the Fiscal Agent, if any, designated pursuant 
to the terms of the Policy.

          "INDEBTEDNESS" of any Person means at any date, without 
duplication, (i) all obligations of such Person for borrowed money, (ii) all 
obligations of such Person evidenced by bonds, debentures, notes or other 
similar instruments, (iii) all obligations of such Person to pay the deferred 
purchase price of property or services, except trade accounts payable arising 
in the ordinary course of business, (iv) all obligations of such Person as 
lessee under any capital leases, (v) all Indebtedness of others secured by a 
Lien on any asset of such Person, whether or not such Indebtedness is assumed 
by such Person, (vi) all Indebtedness of others guaranteed by such Person or 
with respect to which such Person shall agree to become directly or 
contingently liable by, and (vii) all obligations of such Person in 
connection with the repurchase of motor vehicle retail installment sales 
contracts.

          "INSURANCE AGREEMENT" means this Insurance and Indemnity Agreement, 
as the same may be amended from time to time, and, with respect to a Term 
Transaction, any Insurance and Indemnity Agreement entered into in connection 
with such Term Transaction.

          "INSURANCE AGREEMENT EVENT OF DEFAULT" means an "Event of Default" 
under any Insurance and Indemnity Agreement among Financial Security, AFL and 
ARFC entered into with respect to a Term Transaction.

          "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, 
including, unless the context otherwise requires, the rules and regulations 
thereunder, as amended from time to time.

          "IRS" means the Internal Revenue Service.

          "LATE PAYMENT RATE" means the lesser of (a) the greater of (i) the 
per annum rate of interest, publicly announced from time to time by Chemical 
Bank at its principal office in the City of New York, as its prime or base 
lending rate (any change in such rate of interest to be effective on the date 
such change is announced by Chemical Bank) plus 3%, and (ii) the then 
applicable highest rate of interest on the Securities and (b) the maximum 
rate permissible under applicable usury or similar laws limiting interest 
rates. The Late Payment Rate shall be computed on the basis of the actual 
number of days elapsed over the actual number of days in the current calendar 
year.

          "LIEN" means, as applied to the property or assets (or the income 
or profits therefrom) of any Person, in each case whether the same is 
consensual or nonconsensual or arises by contract, operation of law, legal 
process or otherwise: (a) any mortgage, lien, 


                                      A-2
<PAGE>

pledge, attachment, charge, lease, conditional sale or other title retention 
agreement, or other security interest or encumbrance of any kind or (b) any 
arrangement, express or implied, under which such property or assets are 
transferred, sequestered or otherwise identified for the purpose of 
subjecting or making available the same for the payment of debt or 
performance of any other obligation in priority to the payment of the 
general, unsecured creditors of such Person.

          "LOCKBOX AGREEMENT" means the Lockbox Agreement, as defined in the 
Sale and Servicing Agreement.

          "MATERIAL ADVERSE CHANGE" means, (a) in respect of any Person, a 
material adverse change in (i) the business, financial condition, results of 
operations or properties of such Person or any of its Subsidiaries or (ii) 
the ability of such Person to perform its obligations under any of the 
Transaction Documents to which it is a party and (b) in respect of the 
Receivables, a material adverse change in (i) the value or marketability of 
the Receivables, taken as a whole, or (ii) the probability that amounts now 
or hereafter due in respect of a material portion of the Receivables will be 
collected on a timely basis,

          "MOODY'S" means Moody's Investors Service, Inc., a Delaware 
corporation, and any successor thereto, and, if such corporation shall for 
any reason no longer perform the functions of a securities rating agency, 
"Moody's" shall be deemed to refer to any other nationally recognized rating 
agency designated by Financial Security.

          "MULTIEMPLOYER PLAN" means a multiemployer plan (within the meaning 
of Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled 
Entity makes contributions or has liability.

          "NOTEHOLDERS" means registered holders of the Securities.

          "NOTICE OF CLAIM" means a Notice of Claim and Certificate in the 
form attached as Exhibit A to Endorsement No. 1 to the Policy.

          "OFFERING DOCUMENT" means any offering document in respect of the 
Securities that makes reference to the Policy.

          "OTHER CONVEYED PROPERTY" has the meaning provided in the 
Receivables Purchase Agreement and Assignment.

          "PBGC" means the Pension Benefit Guaranty Corporation or any 
successor agency, corporation or instrumentality of the United States to 
which the duties and powers of the Pension Benefit Guaranty Corporation are 
transferred.

          "PERSON" means an individual, joint stock company, trust, 
unincorporated association, joint venture, corporation, business or owner 
trust, partnership or other organization or entity (whether governmental or 
private).


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<PAGE>

          "PLAN" means any pension plan (other than a Multiemployer Plan) 
covered by Title IV of ERISA, which is maintained by a Commonly Controlled 
Entity or in respect of which a Commonly Controlled Entity has liability.

          "POLICY" means the financial guaranty insurance policy, including 
any endorsements thereto, issued by Financial Security with respect to the 
Securities, substantially in the form attached as Exhibit I to this Agreement.

          "PREMIUM" means the premium payable in accordance with Section 3.02 
of the Insurance Agreement and the Premium Supplement, if any.

          "PREMIUM LETTER" means the side letter between Financial Security, 
AFL, ARFC, the Issuer and the Trustee dated July 21, 1998, in respect of the 
premium payable by AFL in consideration of the issuance of the Policy.

          "PREMIUM SUPPLEMENT" means a non-refundable premium, in addition to 
the premium payable in accordance with Section 3.02 of the Insurance 
Agreement, payable to Financial Security in monthly installments commencing 
on the first Distribution Date following an Event of Default and on each 
monthly anniversary thereof in accordance with the terms set forth in the 
Premium Letter.

          "PROVIDED DOCUMENTS" means the Transaction Documents and any 
documents, agreements, instruments, schedules, certificates, statements, cash 
flow schedules, number runs or other writings or data furnished to Financial 
Security by or on behalf of AFL, ARFC or the Issuer with respect to 
themselves, their Subsidiaries or the Transaction.

          "RECEIVABLE" has the meaning provided in the Sale and Servicing 
Agreement.

          "RECEIVABLES PURCHASE AGREEMENT AND ASSIGNMENT" means the Amended 
and Restated Receivables Purchase Agreement and Assignment dated as of July 
21, 1998 between ARFC and AFL, as the same may be amended from time to time.

          "REPORTABLE EVENT" means any of the events set forth in Section 
4043(b) of ERISA or the regulations thereunder.

          "RESTRICTIONS ON TRANSFERABILITY" means, as applied to the property 
or assets (or the income or profits therefrom) of any Person, in each case 
whether the same is consensual or nonconsensual or arises by contract, 
operation of law, legal process or otherwise, any material condition to, or 
restriction on, the ability of such Person or any transferee therefrom to 
sell, assign, transfer or otherwise liquidate such property or assets in a 
commercially reasonable time and manner or which would otherwise materially 
deprive such Person or any transferee therefrom of the benefits of ownership 
of such property or assets.

          "SALE AND SERVICING AGREEMENT" means the Amended and Restated Sale 
and Servicing Agreement dated as of July 21, 1998, among the Issuer, Arcadia 


                                      A-4
<PAGE>

Receivables Conduit Corp., ARFC, AFL, BofA, as Administrative Agent and RCC 
Agent, Morgan Guaranty Trust Company of New York, as DFC Agent and the 
Trustee, as Backup Servicer, Collateral Agent and Indenture Trustee, as the 
same may be amended from time to time.

          "SECURITIES" means the Issuer's Floating Rate Variable Funding 
Automobile Receivables-Backed Note issued under the Amended and Restated 
Indenture, dated as of even date herewith, between the Issuer, the Original 
Issuer and the Trustee, in an aggregate principal amount at any one time 
outstanding not exceeding $400 million.

          "SECURITIES ACT" means the Securities Act of 1933, including, 
unless the context otherwise requires, the rules and regulations thereunder, 
as amended from time to time.

          "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 
1934, including, unless the context otherwise requires, the rules and 
regulations thereunder, as amended from time to time.

          "S&P" means Standard & Poor's Ratings Group, a division of 
McGraw-Hill, Inc., and any successor thereto, and, if such entity shall for 
any reason no longer perform the functions of a securities rating agency, 
"S&P" shall be deemed to refer to any other nationally recognized rating 
agency designated by Financial Security.

          "SPECIAL EVENT" means the occurrence of any one of the following: 
(a) an Event of Default under the Insurance Agreement has occurred and is 
continuing, (b) any legal proceeding or binding arbitration is instituted 
with respect to the Transaction or with respect to AFL, ARFC or the Issuer 
that would result in a Material Adverse Change in respect of AFL, ARFC, the 
Issuer or the Receivables, (c) any governmental or administrative 
investigation, action or proceeding is instituted that would, if adversely 
decided, result in a Material Adverse Change in respect of ARFC, the Issuer 
or the Receivables, or (d) Financial Security pays a claim under the Policy.

          "SPREAD ACCOUNT AGREEMENT" means the Spread Account Agreement, 
dated as of March 26, 1993, as amended and restated as of June 23, 1998 among 
ARFC, AFL, the Collateral Agent named therein and the trustees specified 
therein, as the same may be further amended, supplemented or otherwise 
modified in accordance with the terms thereof.

          "SPREAD ACCOUNT MINIMUM AMOUNT" means, with respect to the 
Warehousing Series and any Determination Date:  (i) if no Amortization Event 
with respect to the Warehousing Series has occurred as of the related 
Determination Date, one percent of the Principal Balance as of such 
Determination Date of the Receivables (as defined in the Sale and Servicing 
Agreement); or (ii) if an Amortization Event with respect to the Warehousing 
Series has occurred as of the related Determination Date, one percent of the 
Principal Balance of the Receivables (as defined in the Sale and Servicing 
Agreement) as of the date of the occurrence of such Amortization Event.


                                      A-5
<PAGE>

          "STOCK PLEDGE AGREEMENT" means the Stock Pledge Agreement, as 
amended and restated, dated as of December 3, 1996, among Financial Security, 
AFL and the Collateral Agent named therein, as the same may be amended from 
time to time.

          "SUBSIDIARY" means, with respect to any Person, any corporation of 
which a majority of the outstanding shares of capital stock having ordinary 
voting power for the election of directors is at the time owned by such 
Person directly or through one or more Subsidiaries.

          "TERM OF THE AGREEMENT" shall be determined as provided in Section 
4.01 of the Insurance Agreement.

          "TERM OF THE POLICY" has the meaning provided in the Policy.

          "TERM TRANSACTION" means any transaction other than the Transaction 
in connection with which Financial Security has issued a financial guaranty 
insurance policy to guarantee principal and/or interest on certificates or 
notes representing an interest in receivables originated by AFL.

          "TRANSACTION" means the transactions contemplated by the 
Transaction Documents.

          "TRANSACTION DOCUMENTS" means the Insurance Agreement, the 
Indenture, the Sale and Servicing Agreement, the Trust Agreement, the 
Receivables Purchase Agreement and Assignment (with respect to the 
Receivables), any Assignment Agreement (with respect to the Receivables), any 
Custodian Agreement, the Security Agreement, the Premium Letter, the Stock 
Pledge Agreement, the Lockbox Agreement and the Spread Account Agreement.

          "TRUST AGREEMENT" means the Trust Agreement dated as of July 21, 
1998 between ARFC and Wilmington Trust Company, as Owner Trustee.

          "TRUSTEE" means Norwest Bank Minnesota, National Association, a 
national banking association, as trustee under the Indenture, and any 
successor thereto as trustee under the Indenture.

          "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, 
including, unless the context otherwise requires, the rules and regulations 
thereunder, as amended from time to time.

          "UNDERFUNDED PLAN" means any Plan that has an Underfunding.

          "UNDERFUNDING" means, with respect to any Plan, the excess, if any, 
of (a) the present value of all benefits under the Plan (based on the 
assumptions used to fund the Plan pursuant to Section 412 of the Code) as of 
the most recent valuation date over (b) the fair market value of the assets 
of such Plan as of such valuation date.


                                      A-6
<PAGE>

                                   APPENDIX B

                 CONDITIONS PRECEDENT TO ISSUANCE OF THE POLICY

     (a)  PAYMENT OF INITIAL PREMIUM AND EXPENSES, PREMIUM LETTER.  Financial 
Security shall have been paid, by or on behalf of AFL and ARFC, a 
nonrefundable Premium and shall have been reimbursed, by or on behalf of AFL 
and ARFC, for other fees and expenses identified in Section 3.02 of the 
Insurance Agreement as payable at closing and Financial Security shall have 
received a fully executed copy of the Premium Letter.

     (b)  TRANSACTION DOCUMENTS.  Financial Security shall have received a 
copy of each of the Transaction Documents (other than the Policy), in form 
and substance satisfactory to Financial Security, duly authorized, executed 
and delivered by each party thereto. Without limiting the foregoing, the 
provisions of the Sale and Servicing Agreement and the Indenture relating to 
the payment to Financial Security of Premium due on the Policy and the 
reimbursement to Financial Security of amounts paid under the Policy shall be 
in form and substance acceptable to Financial Security in its sole discretion.

     (c)  CERTIFIED DOCUMENTS AND RESOLUTIONS.  Financial Security shall have 
received a copy of (i) the certificate of incorporation and bylaws of each of 
AFL, ARFC and the Original Issuer and (ii) the resolutions of the Board of 
Directors of each of AFL, ARFC and the Original Issuer authorizing the 
execution, delivery and performance by AFL, ARFC and the Original Issuer of 
the Transaction Documents to which it is a party and the transactions 
contemplated thereby, including, as to the Issuer, the authorization of the 
issuance of the Securities, certified by the Secretary or an Assistant 
Secretary of AFL, ARFC or the Original Issuer, as the case may be (which 
certificate shall state that such certificate of incorporation, bylaws and 
resolutions are in full force and effect without modification on December 3, 
1996.

     (d)  INCUMBENCY CERTIFICATE.  Financial Security shall have received a 
certificate of the Secretary or an Assistant Secretary of each of AFL, ARFC 
and the Original Issuer certifying the name and signatures of the officers of 
AFL, ARFC or the Original Issuer, as the case may be, authorized to execute 
and deliver the Transaction Documents and, if applicable, that shareholder 
consent to the execution and delivery of such documents is not necessary or 
has been obtained.

     (e)  REPRESENTATIONS AND WARRANTIES; CERTIFICATE.  The representations 
and warranties of AFL, ARFC or the Issuer, as the case may be, in the 
Insurance Agreement shall be true and correct as of the Date of Issuance with 
respect to such Person as if made on the Date of Issuance and Financial 
Security shall have received a certificate of appropriate officers of AFL, 
ARFC or the Issuer, as the case may be, to that effect.

     (f)  OPINIONS OF COUNSEL.  Financial Security shall have received 
opinions of counsel addressed to Financial Security, Moody's and S&P in 
respect of AFL, ARFC, the Issuer, the other parties to the Transaction 
Documents and the Transaction in form and 


                                      B-1
<PAGE>

substance satisfactory to Financial Security, addressing such matters as 
Financial Security may reasonably request, and the counsel providing each 
such opinion shall have been instructed by its client to deliver such opinion 
to the addressees thereof.

    (g)  APPROVALS, ETC.  Financial Security shall have received true and 
correct copies of all approvals, licenses and consents, if any, including, 
without limitation, the approval of the shareholders of AFL and ARFC and the 
Original Issuer, required in connection with the Transaction.

     (h)  NO LITIGATION, ETC.  No suit, action or other proceeding, 
investigation, or injunction or final judgment relating thereto, shall be 
pending or threatened before any court or governmental agency in which it is 
sought to restrain or prohibit or to obtain damages or other relief in 
connection with any of the Transaction Documents or the consummation of the 
Transaction.

     (i)  LEGALITY.  No statute, rule, regulation or order shall have been 
enacted, entered or deemed applicable by any government or governmental or 
administrative agency or court which would make the transactions contemplated 
by any of the Transaction Documents illegal or otherwise prevent the 
consummation thereof.

     (j)  ISSUANCE OF RATINGS.  Financial Security shall have received 
confirmation that the risk secured by the Policy constitutes an investment 
grade risk by S&P and an insurable risk by Moody's.

     (k)  NO DEFAULT.  No Default or Event of Default shall have occurred.

     (l)  ADDITIONAL ITEMS.  Financial Security shall have received such 
other documents, instruments, approvals or opinions requested by Financial 
Security as may be reasonably necessary to effect the Transaction, including 
but not limited to evidence satisfactory to Financial Security that all 
conditions precedent, if any, in the Transaction Documents have been 
satisfied.


                                      B-2
<PAGE>

                                   EXHIBIT I

                   FORM OF FINANCIAL GUARANTY INSURANCE POLICY


                                      I-1