<PAGE>   1


                                                                  EXHIBIT 10.106







                        INSURANCE AND INDEMNITY AGREEMENT

                                      among

                       FINANCIAL SECURITY ASSURANCE INC.,

                       NATIONAL AUTO FINANCE 1999-1 TRUST,

                      NATIONAL FINANCIAL AUTO FUNDING TRUST

                                       and

                      NATIONAL AUTO FINANCE COMPANY, INC.,




                          Dated as of September 1, 1999




                       National Auto Finance 1999-1 Trust
                7.26% Class A Automobile Receivables-Backed Notes
                                   $48,000,000






<PAGE>   2


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                       PAGE
<S>                                                                                                    <C>
Article I.            DEFINITIONS.......................................................................2

         Section 1.01. Definitions......................................................................2

Article II.           REPRESENTATIONS, WARRANTIES AND COVENANTS.........................................2

         Section 2.01. Representations and Warranties of the Trust......................................2

         Section 2.02. Affirmative Covenants of the Trust...............................................6

         Section 2.03. Negative Covenants of the Trust.................................................12

         Section 2.04. Representations and Warranties of NAFI and the Transferor.......................14

         Section 2.05. Affirmative Covenants of NAFI and the Transferor................................20

         Section 2.06. Negative Covenants of NAFI and the Transferor...................................28

         Section 2.07. Representations and Warranties of NAFI and the Transferor
                               with respect to the Master Trust and Funding Trust II...................31

         Section 2.08. Affirmative Covenants of NAFI and the Transferor with
                               respect to the Master Trust and Funding Trust II........................32

         Section 2.09. Negative Covenants of NAFI and the Transferor with
                               respect to the Master Trust and Funding Trust II........................33

Article III.          THE POLICY; REIMBURSEMENT; INDEMNIFICATION.......................................34

         Section 3.01. Issuance of the Policy..........................................................34

         Section 3.02. Payment of Fees and Premium.....................................................34

         Section 3.03. Reimbursement Obligation........................................................35

         Section 3.04. Indemnification.................................................................36

         Section 3.05. Subrogation.....................................................................38

Article IV.           FURTHER AGREEMENTS...............................................................39

         Section 4.01. Effective Date; Term of Agreement...............................................39

         Section 4.02. Further Assurances and Corrective Instruments...................................39

         Section 4.03. Obligation Absolute.............................................................39

         Section 4.04. Assignments; Reinsurance; Third-Party Rights....................................41

         Section 4.05. Liability of Financial Security.................................................41

Article V.            EVENTS OF DEFAULT; REMEDIES......................................................42

         Section 5.01. Events of Default...............................................................42

         Section 5.02. Remedies; Waivers...............................................................45
</TABLE>


                                       i

<PAGE>   3


                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                      PAGE
<S>                                                                                                   <C>
Article VI.           MISCELLANEOUS....................................................................46

         Section 6.01. Amendments, Etc.................................................................46

         Section 6.02. Notices.........................................................................46

         Section 6.03. Payment Procedure...............................................................47

         Section 6.04. Severability....................................................................48

         Section 6.05. Governing Law...................................................................48

         Section 6.06. Consent to Jurisdiction.........................................................48

         Section 6.07. Consent of Financial Security...................................................49

         Section 6.08. Counterparts....................................................................49

         Section 6.09. Trial by Jury Waived............................................................49

         Section 6.10. Limited Liability...............................................................50

         Section 6.11. Entire Agreement................................................................50

Appendix I            Definitions

Appendix II           Conditions Precedent to Issuance of the Policy

Annex I               Form of Financial Guaranty Insurance Policy

Appendix A            Opinions of Counsel
</TABLE>



                                       ii

<PAGE>   4


                                                                  EXHIBIT 10.106

                        INSURANCE AND INDEMNITY AGREEMENT

                  INSURANCE AND INDEMNITY AGREEMENT dated as of September 1,
1999 by and among FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"),
NATIONAL AUTO FINANCE 1999-1 TRUST (the "Trust"), NATIONAL FINANCIAL AUTO
FUNDING TRUST (the "Transferor") and NATIONAL AUTO FINANCE COMPANY, INC.
("NAFI", and in its capacity as Servicer, the "Servicer").

                             INTRODUCTORY STATEMENTS

                  A. On the Closing Date, (i) the Master Trust will sell all of
         its right, title and interest in and to the Receivables and certain
         other property related thereto to Funding Trust II pursuant to the
         Assignment Agreement and will simultaneously release its liens on such
         Receivables and such other property related thereto, (ii) Funding Trust
         II will simultaneously sell all of its right, title and interest in and
         to the Receivables and such other property related thereto to the
         Transferor pursuant to the Sale Agreement, and will simultaneously
         release its liens on such Receivables and such other property related
         thereto, and (iii) the Transferor will simultaneously sell all of its
         right, title and interest in and to the Receivables and such other
         property related thereto to the Trust pursuant to the Sale and
         Servicing Agreement.

                  B. The Trust will issue the Securities and the Class B Notes
         pursuant to the Indenture and the Certificate pursuant to the Trust
         Agreement. The Trust has requested that Financial Security issue a
         financial guaranty insurance policy guaranteeing certain distributions
         of the principal of and interest on the Securities (including any such
         distributions subsequently avoided as a preference under applicable
         bankruptcy law) upon the terms and subject to the conditions provided
         herein.

                  C. NAFI and/or Funding Trust II and/or the Transferor and/or
         any other Affiliate of NAFI has previously entered, and may in the
         future enter, into one or more pooling and servicing agreements, sale
         and servicing agreements, indentures, receivables purchase agreements
         or other financing documents (each, a "Securitization Agreement")
         pursuant to which NAFI, Funding Trust II, the Transferor and/or such
         other Affiliate of NAFI has sold, pledged or otherwise transferred, and
         will sell, pledge or otherwise transfer, all or a portion of its right,
         title and interest in and to pools of contracts and/or other financial
         assets or property to a trust or other Person and in connection
         therewith Financial Security in its discretion has issued policies, and
         may in the future issue additional policies, with respect to certain
         guaranteed distributions or scheduled payments with respect to the
         corresponding securities, certificates, notes or other obligations
         issued or arising under such Securitization Agreements.

<PAGE>   5


                  D. The parties hereto desire to specify the conditions
         precedent to the issuance of the Policy, the terms of payment of
         premium in respect of the Policy, the indemnity and reimbursement to be
         provided to Financial Security in respect of 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, the Trust, the Transferor and NAFI hereby agree
as follows:

                                   ARTICLE I.

                                   DEFINITIONS

         Section 1.01. Definitions. Capitalized terms used herein shall have the
meanings provided in Appendix I hereto unless the context otherwise requires.
Unless otherwise defined in this Insurance Agreement, all terms defined in the
Sale and Servicing Agreement or in the Spread Account Agreement shall have the
same meanings in this Insurance Agreement. Unless otherwise specified, if a word
or phrase defined in the Sale and Servicing Agreement or in the Spread Account
Agreement can be applied with respect to one or more Series, such a word or
phrase shall be used herein as applied to Series 1999-1.

                                  ARTICLE II.

                    REPRESENTATIONS, WARRANTIES AND COVENANTS

         Section 2.01. Representations and Warranties of the Trust. The Trust
represents, warrants and covenants, as of the date hereof and as of the Date of
Issuance, with respect to itself and otherwise as follows:

                  (a) Due Organization and Qualification. The Trust is a
         Delaware statutory business trust, duly formed, validly existing and 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 Trust
         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 as described in the Offering Document 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 any respect or
         would otherwise have a material adverse effect upon the Transaction.

                  (b) Power and Authority. The Trust has all necessary trust
         power and authority to conduct its business as currently conducted and
         as described in the Offering Document, to execute, deliver and perform
         its obligations under the Transaction Documents and to consummate the
         Transaction.


                                       2

<PAGE>   6

                  (c) Due Authorization. The execution, delivery and performance
         of the Transaction Documents by the Trust have been duly authorized by
         all necessary action on the part of the Trust and do 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 Trust, including, without
         limitation, any governmental entity.

                  (d) Noncontravention. None of the execution and delivery of
         the Transaction Documents by the Trust, the consummation of the
         transactions contemplated thereby or the satisfaction of the terms and
         conditions of the Transaction Documents,

                           (i) conflicts with or results in any breach or
         violation of any provision of the certificate of trust of the Trust or
         the Trust Agreement, or any law, rule, regulation, order, writ,
         judgment, injunction, decree, determination or award currently in
         effect having applicability to the Trust, or any of its properties,
         including regulations issued by an administrative agency or other
         governmental authority having supervisory powers over the Trust,

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

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

                  (e) Legal Proceedings. There is no action, proceeding or
         investigation, by or before any court, governmental or administrative
         agency or arbitrator against or affecting all or any of the
         Receivables, the Trust, or any properties or rights of the Trust,
         pending or threatened, which, in any case, if decided adversely, could
         result in a Material Adverse Change with respect to the Trust or any
         Receivable.

                  (f) Valid and Binding Obligations. Each of the Transaction
         Documents to which the Trust is a party when executed and delivered by
         the Owner Trustee on behalf of the Trust, will constitute the legal,
         valid and binding obligations of the Trust, enforceable in accordance
         with its respective 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 and the Class B Notes; 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 Trust, enforceable in accordance
         with their terms. The Certificate, when executed, authenticated and
         delivered in accordance with the Trust Agreement, will be validly
         issued and outstanding and entitled to the


                                       3
<PAGE>   7

         benefits of the Trust Agreement and will evidence the entire beneficial
         interest in the Trust.

                  (g) ERISA. The Trust does not maintain or contribute to, or
         have any obligation to maintain or contribute to, any Plan. The Trust
         has no duties under ERISA.

                  (h) Accuracy of Information. None of the Provided Documents
         contain any statement of a material fact with respect to the Trust or
         the Transaction that was untrue or misleading in any material respect
         when made. Since the furnishing of the Provided Documents, there has
         been no change, nor any development or event involving a prospective
         change known to the Trust that would render any of the Provided
         Documents untrue or misleading in any material respect. There is no
         fact known to the Trust which has a material possibility of causing a
         Material Adverse Change with respect to the Trust or the Receivables.

                  (i) Compliance With Securities Laws. The offer and sale of the
         Securities, the Class B Notes and the issuance of the Certificate,
         comply in all material respects with all requirements of law, including
         all applicable registration requirements of securities laws. Without
         limitation of the foregoing, the Offering Document does not contain any
         untrue statement of a material fact and does not omit to state a
         material fact required to be stated therein or necessary to make the
         statements made therein, in light of the circumstances under which they
         were made, not misleading; provided that no representation is made with
         respect to information included in an Offering Document and furnished
         by Financial Security in writing expressly for use therein (all such
         information so furnished being referred to herein as "Financial
         Security Information"), it being understood that, in respect of the
         Offering Document, the Financial Security Information is limited to the
         information included under the caption "THE NOTE INSURER", and the
         financial statements of Financial Security attached thereto as Exhibit
         [ ]. None of the Trust Agreement, the Indenture or the Sale and
         Servicing Agreement is required to be qualified under the Trust
         Indenture Act.

                  (j) Incorporation of Certain Representations and Warranties.
         Each of the representations and warranties of the Trust contained in
         the Transaction Documents is true and correct in all material respects
         and the Trust 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.

                  (k) 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 nongovernmental Person, is required with
         respect to, or to be obtained by, the Trust in connection with the
         execution, delivery and performance by the Trust of this Insurance
         Agreement or


                                       4
<PAGE>   8

         any other Transaction Document to which the Trust is a party, except
         (in each case) such as have been obtained and are in full force and
         effect.

                  (l) Compliance With Law, Etc. No practice, procedure or policy
         employed or proposed to be employed by the Trust in the conduct of its
         business 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 the Trust.

                  (m) Special Purpose Entity.

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

                           (ii) Other than the transactions as provided in the
         Transaction Documents, the Trust is not engaged in any business
         transactions with NAFI, the Transferor or any of their respective
         Subsidiaries or Affiliates.

                           (iii) The Trust's funds and assets are not, and will
         not be, commingled with the funds of any other Person.

                  (n) Solvency; Fraudulent Conveyance. The Trust is solvent and
         will not be rendered insolvent by the Transaction and, after giving
         effect to such Transaction, the Trust will not be left with an
         unreasonably small amount of capital with which to engage in its
         business. The Trust does not intend to incur, or believe that it has
         incurred, debts beyond its ability to pay such debts as they mature.
         The Trust 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 Trust or any of its assets. The Trust is not pledging
         the Collateral to the Trust Collateral Agent, or issuing the
         Securities, the Class B Notes and the Certificate, as provided in the
         Transaction Documents, with any intent to hinder, delay or defraud any
         of the Trust's creditors.

                  (o) Investment Company Act Compliance. Neither the Trust nor
         the Owner Trust Estate is required to be registered as an "investment
         company" under the Investment Company Act. The Trust is not subject to
         the information reporting requirements of the Securities Exchange Act.

                  (p) Collateral. On the Date of Issuance, the Trust will be the
         owner of, and will have good and marketable title to, each item of
         Other Trust Property conveyed on such date and will own each such item
         free and clear of all Liens and Restrictions on Transferability (other
         than Liens contemplated under the Indenture) or any equity or
         participation interest of any other Person and will have full right,
         power and lawful authority to pledge such Other Trust Property pursuant
         to the Indenture. The Indenture constitutes a valid pledge of the


                                       5
<PAGE>   9


         Collateral to the Trust Collateral Agent, and the Trust Collateral
         Agent shall have a valid and perfected first priority security interest
         in the Collateral, free and clear of all Liens and Restrictions on
         Transferability.

                  (q) Perfection of Liens and Security Interest. On the Closing
         Date, the Lien and security interest in favor of the Trust Collateral
         Agent with respect to the Collateral will be perfected by the delivery
         of the Receivable Files to the Custodian, which Receivable Files the
         Custodian will hold on behalf of the Trust Collateral Agent, the filing
         of financing statements on Form UCC-1 in each jurisdiction where such
         recording or filing is necessary for the perfection of such Lien and
         security interest, and the establishment of the Collection Account, the
         Distribution Account, the Class A Note Distribution Account and the
         Class B Note Distribution 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 Trust Collateral Agent's first priority Lien on and
         security interest in the Collateral as against any third parties.

                  (r) Security Interest in Funds and Investments. Assuming the
         retention of funds in the Trust Accounts and the acquisition of
         Eligible Investments 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 Trust
         Collateral Agent on behalf of the Indenture Trustee (on behalf of the
         holders of the Securities) and Financial Security. Assuming the
         retention of funds in the Spread Account and the acquisition of
         Eligible Investments in accordance with the Spread Account Agreement,
         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.

         Section 2.02. Affirmative Covenants of the Trust. The Trust hereby
agrees, that during the Term of this Agreement, unless Financial Security shall
otherwise expressly consent in writing:

                  (a) Compliance With Agreements and Applicable Laws. The Trust
         shall perform each of its obligations under the Transaction Documents
         and shall comply with all material requirements of, and the Securities,
         the Class B Notes and the Certificate 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 Trust 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 Financial Security
         shall have previously approved in writing the form of such amendment or
         modification. The Trust shall not take any action or fail to take any
         action that would interfere with the enforcement of any rights under
         the Transaction Documents.


                                       6
<PAGE>   10

                  (b) Financial Statements; Accountants' Reports; Other
         Information. The Trust shall keep or cause to be kept in reasonable
         detail books and records of account of its assets and business, which
         shall be furnished to Financial Security upon request. The Trust shall
         furnish or cause to be furnished to Financial Security the following
         (in the case of clause (i), (ii) and (iii) to the extent any such
         financial statements or reports are prepared by or on behalf of the
         Trust):

                           (i) Annual Financial Statements. As soon as
         available, and in any event within 90 days after the close of each
         fiscal year of the Trust, the audited balance sheets of the Trust as of
         the end of such fiscal year and the audited statements of income,
         changes in shareholders' equity and cash flows of the Trust, 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
         the Trust's independent accountants (who shall be, in each case, a
         nationally recognized firm or otherwise acceptable to Financial
         Security) 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 the Trust, the
         unaudited balance sheets of the Trust, as of the end of such quarter
         and the unaudited statements of income, changes in shareholders' equity
         and cash flows of the Trust 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.

                           (iii) Accountants' Reports. Copies of any reports
         submitted to the Trust by its independent accountants in connection
         with any examination of the financial statements of the Trust.

                           (iv) Other Information. Promptly upon receipt
         thereof, copies of all reports, statements, certifications, schedules,
         financial statements, notices or other similar items delivered to or by
         the Trust pursuant to the terms of the Transaction Documents and,
         promptly upon request, such other data as Financial Security may
         reasonably request. The books and records of the Trust will be
         maintained at the address designated herein for receipt of notices,
         unless the Trust shall otherwise advise the parties hereto in writing.

                           (v) Documents. The Trust shall provide or cause to be
         provided to Financial Security an executed original copy of each
         document executed in connection with the Transaction within 10 days
         after the date of closing.


                                       7
<PAGE>   11

                           (vi) Tax Documentation. Not less than ten days prior
         to the date of filing with the IRS of any tax return or amendment
         thereto, copies of the proposed form of such return or amendment and
         promptly after the filing or sending thereof, copies of all tax returns
         and amendments thereto, proxy statements, financial statements, reports
         and registration statements which the Trust files, or delivers to, the
         IRS, the Commission, or any other federal, state or foreign government
         agency, authority or body which supervises the issuance of securities
         by the Trust or any national securities exchange.

                  (c) Compliance Certificate. The Trust shall deliver to
         Financial Security (x) 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 and (y) on each April 5, July 5,
         October 5, and January 5 (in each case, the next Business Day, if such
         day is not a Business Day), if the financial statements required
         pursuant to Section 2.02(b)(ii) hereof are not being delivered, a
         certificate signed by an officer of the Trust stating that:

                           (i) a review of the Trust's performance under the
         Transaction Documents during such period or the quarter ending March
         31, June 30, September 30 and December 31, as applicable, has been made
         under such officer's supervision;

                           (ii) to the best of such individual's knowledge, no
         Special Event, Default or Event of Default has occurred, or if a
         Special Event, Default or Event of Default has occurred, specifying the
         nature thereof and, if the Trust 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 the Trust 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, if any and as
         applicable, are complete and correct in all material respects and
         present fairly the financial condition and results of operations of the
         Trust, 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. The Trust 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 Trust 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


                                       8
<PAGE>   12

         class action (or equivalent relief) that would involve a material
         portion of the Receivables;

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

                           (iii) the occurrence of any Default or Special Event;
         or

                           (iv) any other event, circumstance or condition that
         has resulted, or the Trust reasonably believes might result, in a
         Material Adverse Change in respect of the Trust or the Receivables.

                  (e) Access to Records, Discussions with Officers and
         Accountants. The Trust shall, upon the request of Financial Security,
         permit Financial Security or its authorized agents (i) to inspect the
         books and records of the Trust as they may relate to the Securities,
         the Class B Notes, the Certificate, the Receivables and the Other Trust
         Property, the obligations of the Trust under the Transaction Documents,
         the Trust's business and the Transaction and (ii) to discuss the
         affairs, finances and accounts of the Trust with any of its personnel
         and representatives, including its independent accountants. Such
         inspections and discussions shall be conducted during normal business
         hours and shall not unreasonably disrupt the business of the Trust. The
         books and records of the Trust will be maintained at the address of the
         Trust designated herein for receipt of notices, unless the Trust shall
         otherwise advise the parties hereto in writing.

                  (f) Further Assurances. The Trust 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 Trust Collateral Agent with respect to the
         Collateral under the Indenture. In addition, the Trust shall, upon the
         request of Financial Security, from time to time, execute, acknowledge
         and deliver, or cause to be executed, acknowledged and delivered,
         within ten (10) 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 Trust
         Collateral Agent in the Collateral under the Indenture, free and clear
         of all Liens and Restrictions on Transferability except the Lien in
         favor of the Trust Collateral Agent. In addition, the Trust 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.

                  (g) Retirement of Securities. The Trust shall, upon retirement
         of the Securities, furnish to Financial Security a notice of such
         retirement, and, upon retirement of the Securities and the expiration
         of the Term Of The Policy, surrender the Policy to Financial Security
         for cancellation.


                                       9

<PAGE>   13

                  (h) Third-Party Beneficiary. The Trust agrees that Financial
         Security shall have all rights of a third-party beneficiary in respect
         of each of the Transaction Documents and hereby incorporates and
         restates its representations, warranties and covenants as set forth
         therein for the benefit of Financial Security.

                  (i) Preservation of Existence. The Trust shall observe in all
         material respects all procedures required by its certificate of trust
         and the Trust Agreement and preserve and maintain its existence as a
         trust and its rights, franchises and privileges in the jurisdiction of
         its organization, and duly qualify and remain in good standing in each
         jurisdiction where the nature of its business requires it to do so.

                  (j) Disclosure Document. (1) Each Offering Document 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, each Offering Document 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 accounting 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 whether 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.

         (2) Each Offering Document subsequent to the Date of Issuance shall be
in form and substance satisfactory to Financial Security in its sole discretion
as evidenced by Financial Security's prior written consent to the use thereof.

                  (k) Special Purpose Entity.

                           (i) The Trust 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
         officers are concerned, and particularly will avoid the appearance of
         conducting business on behalf of NAFI, the Transferor or any of their
         respective Affiliates or that the assets of the Trust are available to
         pay the creditors of NAFI, the Transferor or any of their respective
         Affiliates. 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 Trust.


                                       10
<PAGE>   14

                           (ii) The Trust shall maintain trust records and books
         of account separate from those of NAFI, the Transferor or any of their
         respective Affiliates. The books and records of the Trust will be
         separate from those of NAFI, the Transferor and their respective
         Affiliates and will be maintained at the address designated herein for
         receipt of notices, unless the Trust shall otherwise advise the parties
         hereto in writing with respect to such address.

                           (iii) The Trust shall obtain proper authorization
         from its equity owners of all trust action requiring such
         authorization, and copies of each such authorization and the minutes or
         other written summary of each such meeting shall be delivered to
         Financial Security within two weeks of such authorization or meeting,
         as the case may be.

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

                           (v) The annual financial statements of the Trust
         shall disclose the effects of the Trust's transactions in accordance
         with generally accepted accounting principles and shall disclose that
         the assets of the Trust are not available to pay creditors of NAFI, the
         Transferor or any of their respective Affiliates.

                           (vi) The resolutions, agreements and other
         instruments of the Trust underlying the transactions described in this
         Insurance Agreement and the other Transaction Documents shall be
         continuously maintained by the Trust as official records of the Trust
         separately identified and held apart from the records of NAFI, the
         Transferor or any of their respective Affiliates.

                           (vii) The Trust shall maintain an arm's-length
         relationship with NAFI, the Transferor and their respective Affiliates
         and will not hold itself out as being liable for the debts of NAFI, the
         Transferor or any of their respective Affiliates.

                           (viii) The Trust shall keep its assets and its
         liabilities wholly separate from those of all other entities,
         including, but not limited to NAFI, the Transferor and their respective
         Affiliates.

                  (l) Maintenance of Licenses. The Trust shall maintain all
         licenses, permits, charters and registrations which are material to the
         performance by the Trust of its business and of its obligations under
         this Insurance Agreement and each other Transaction Document to which
         the Trust is a party or by which the Trust is bound.


                                       11
<PAGE>   15

                  (m) Tax Matters. The Trust will take all actions necessary to
         ensure that the Trust is taxable as a partnership for federal and state
         income tax purposes and not as an association (or publicly traded
         partnership) taxable as a corporation.

                  (n) Securities Laws. The Trust shall comply in all material
         respects with all applicable provisions of state and federal securities
         laws, including blue sky laws and the Securities Act, the Exchange Act
         and the Investment Company Act and all rules and regulations
         promulgated thereunder for which non-compliance would result in a
         Material Adverse Change with respect to the Trust and shall deliver to
         Financial Security copies of all filings required to be made pursuant
         to such laws no later than 5 business days after such filings were
         made.

                  (o) Incorporation of Covenants. The Trust shall comply with
         each of the Trust's covenants set forth in the Transaction Documents
         and hereby incorporates such covenants by reference as if each were set
         forth herein.

                  (p) Notice of Default. In the event any notice is delivered to
         the Trust under Section 5.01(d) concerning a failure in the performance
         or observance of any covenant or agreement on the part of the
         Transferor, the Servicer or NAFI, the Trust shall promptly deliver a
         copy of such notice to NAFI, the Transferor, the Servicer and Financial
         Security.

         Section 2.03. Negative Covenants of the Trust. The Trust hereby agrees
that during the Term of this Agreement, unless Financial Security shall
otherwise expressly consent in writing:

                  (a) Restrictions on Liens. The Trust shall not, except as
         contemplated by the Transaction Documents (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 on the Receivables and the Other Trust
         Property except for the Lien in favor of the Trust Collateral Agent
         under the Indenture or (ii) sign or file under the Uniform Commercial
         Code of any jurisdiction any financing statement which names the Trust
         as a debtor, or sign any security agreement authorizing any secured
         party thereunder to file such financing statement, with respect to the
         Receivables and the Other Trust Property, except in each case any such
         instrument solely securing the rights and preserving the Lien of the
         Trust Collateral Agent, for the benefit of the holders of the
         Securities and Financial Security.

                  (b) Impairment of Rights. The Trust 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 Indenture Trustee, the Trust Collateral Agent, the
         Certificateholders, the holders of Securities, the Class B Notes or
         Financial Security, (ii) result in a Material Adverse Change in respect
         of the


                                       12
<PAGE>   16

         Receivables or (iii) impair the ability of the Trust to perform its
         obligations under the Transaction Documents.

                  (c) Waiver, Amendments, Etc. The Trust shall not waive, modify
         or amend, permit to become effective, or consent to, any waiver,
         modification or amendment of, any of the provisions of any of the
         Transaction Documents or its certificate of trust or the Trust
         Agreement unless Financial Security shall have approved the form of
         such waiver, amendment or modification and consented thereto in
         writing.

                  (d) Successors. The Trust shall not terminate or designate, or
         consent to the termination or designation of, the Servicer, the Backup
         Servicer, the Custodian, the Owner Trustee, the Trust Collateral Agent,
         the Indenture Trustee or the Collateral Agent or any successor thereto
         without the prior written approval of Financial Security.

                  (e) Creation of Indebtedness; Guarantees. The Trust shall not
         create, incur, assume or suffer to exist any indebtedness other than
         indebtedness guaranteed or approved in writing by Financial Security.
         Without the prior written consent of Financial Security, the Trust
         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.

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

                  (g) Issuance of Additional Beneficial Ownership Interests. The
         Trust shall not issue or allow the issuance of any additional
         beneficial ownership interests or securities convertible into or
         exchangeable for beneficial ownership interests in the Trust.

                  (h) No Mergers. The Trust shall not consolidate with or merge
         into any Person or transfer all or any material portion of its assets
         to any Person or liquidate or dissolve except as expressly permitted by
         the Transaction Documents.

                  (i) Other Activities. The Trust shall not:

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

                           (ii) engage in any business or activity except as
         contemplated by the Transaction Documents and as permitted under its
         certificate of trust.


                                       13
<PAGE>   17

                  (j) Insolvency. The Trust shall not commence 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. The Trust shall
         not take any action in furtherance of, or indicating the consent to,
         approval of, or acquiescence in any of the acts set forth above. The
         Trust shall not admit in writing its inability to pay its debts.

                  (k) ERISA. The Trust shall not contribute or incur any
         obligation to contribute to, or incur any liability in respect of, any
         Plan or Multiemployer Plan.

         Section 2.04. Representations and Warranties of NAFI and the
Transferor. NAFI represents, warrants and covenants, as of the date hereof and
the Date of Issuance, with respect to the Transferor and otherwise as follows,
and the Transferor represents, warrants and covenants, as of the date hereof and
the Date of Issuance with respect to itself and otherwise, as follows:

                  (a) Due Organization and Qualification. NAFI is a corporation,
         duly organized, validly existing and in good standing under the laws of
         the State of Delaware. The Transferor is a Delaware statutory business
         trust, duly formed, validly existing and in good standing under the
         laws of the State of Delaware. Each of NAFI and the Transferor 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 as described in the Offering Document 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 any respect or
         would otherwise have a material adverse effect upon the Transaction.

                  (b) Power and Authority. Each of NAFI and the Transferor has
         all necessary power and authority (corporate and otherwise) to conduct
         its business as currently conducted and as described in the Offering
         Document, to execute, deliver and perform its obligations under the
         Transaction Documents and to consummate the Transaction.

                  (c) Due Authorization. The execution, delivery and performance
         of the Transaction Documents by each of NAFI and the Transferor have
         been duly authorized by all necessary action (corporate and otherwise)
         and do not require any additional approvals or consents or other action
         (corporate or otherwise) by or any notice to or filing with any Person.


                                       14
<PAGE>   18

                  (d) Noncontravention. None of the execution and delivery of
         the Transaction Documents by the Transferor or NAFI, the consummation
         of the transactions contemplated thereby or the satisfaction of the
         terms and conditions of the Transaction Documents,

                           (i) conflicts with or results in any breach or
         violation of any provision of the certificate of trust and the trust
         agreement of the Transferor or the certificate of incorporation and
         by-laws of NAFI, or any law, rule, regulation, order, writ, judgment,
         injunction, decree, determination or award currently in effect having
         applicability to the Transferor or NAFI, as the case may be, or any of
         their respective properties, including regulations issued by an
         administrative agency or other governmental authority having
         supervisory powers over the Transferor or NAFI, as the case may be,

                           (ii) constitutes a default by the Transferor or NAFI,
         as the case may be, under or a breach of any provision of any loan
         agreement, mortgage, indenture or other agreement or instrument to
         which the Transferor or NAFI, as the case may be, or any of their
         respective Subsidiaries or Affiliates 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 the creation of any Lien
         upon or in respect of any of the assets of the Transferor or NAFI or
         any of their respective Subsidiaries or Affiliates except as otherwise
         expressly contemplated by the Transaction Documents.

                  (e) Legal Proceedings. Except as set forth in the Sale and
         Servicing Agreement and in any schedule thereto, there is no action,
         proceeding or investigation by or before any court, governmental or
         administrative agency or arbitrator against or affecting all or any of
         the Receivables, NAFI, the Transferor or any of their respective
         Subsidiaries or Affiliates, or any properties or rights of NAFI, the
         Transferor or any of their respective Subsidiaries or Affiliates,
         pending or threatened, which, in any case, if decided adversely, could
         reasonably be expected to result in a Material Adverse Change with
         respect to NAFI, the Transferor or any Receivable.

                  (f) Valid and Binding Obligations. Each of the Transaction
         Documents to which either NAFI or the Transferor is a party when
         executed and delivered by NAFI or by the Transferor, as the case may
         be, will constitute the legal, valid and binding obligations of such
         Person, enforceable in accordance with their respective 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 and
         the Class B Notes, when executed, authenticated and delivered in
         accordance with the Indenture, will be binding obligations of the
         Trust, enforceable in accordance with their terms, validly issued and
         outstanding and entitled to the benefits of the Indenture, except as
         such enforceability may be limited by bankruptcy,


                                       15

<PAGE>   19

         insolvency, reorganization, moratorium or other similar laws affecting
         creditors' rights generally and general equitable principles. The
         Certificate, when executed, authenticated and delivered in accordance
         with the Trust Agreement, will be validly issued and outstanding and
         entitled to the benefits of the Trust Agreement and will evidence the
         entire beneficial ownership interest in the Trust.

                  (g) Financial Statements. The Financial Statements of each of
         the Transferor and NAFI, 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 each of the Transferor and NAFI 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,
         there has been no material adverse change in such financial condition
         or results of operations. Except as disclosed in the Financial
         Statements, neither the Transferor nor NAFI is 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 the Transferor or NAFI, as the case may be.

                  (h) ERISA. Each of the Transferor and NAFI is in compliance
         with ERISA and has not incurred and does not reasonably expect to incur
         any 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.

                  (i) Accuracy of Information. None of the Provided Documents
         contain any statement of a material fact with respect to NAFI, the
         Transferor or the Transaction that was untrue or misleading in any
         material respect when made. Since the furnishing of the Provided
         Documents, there has been no change, nor any development or event
         involving a prospective change known to NAFI or to the Transferor, that
         would render any of the Provided Documents untrue or misleading in any
         material respect. There is no fact known to NAFI or to the Transferor
         which has a material possibility of causing a Material Adverse Change
         with respect to NAFI, the Transferor or the Receivables.

                  (j) Compliance With Securities Laws. The offer and sale of the
         Securities and the Class B Notes, and the issuance of the Certificate,
         comply in all material respects with all requirements of law, including
         all applicable registration requirements of securities laws. Without
         limitation of the foregoing, the Offering Document does not contain any
         untrue statement of a material fact and does not omit to state a
         material fact required to be stated therein or necessary to make the
         statements made therein, in light of the circumstances under which they
         were made, not misleading; provided that no representation is made with
         respect to information included in an Offering Document and furnished
         by Financial


                                       16

<PAGE>   20

         Security in writing expressly for use therein (all such information so
         furnished being referred to herein as "Financial Security
         Information"), it being understood that, in respect of the Offering
         Document, the Financial Security Information is limited to the
         information included under the caption "THE NOTE INSURER" and the
         financial statements of Financial Security attached thereto as Exhibit
         [ ]. Neither the Trust nor the Owner Trust Estate is required to be
         registered as an "investment company" under the Investment Company Act.
         None of the Trust Agreement, the Indenture or the Sale and Servicing
         Agreement is required to be qualified under the Trust Indenture Act.

                  (k) Incorporation of Certain Representations and Warranties.
         Each of the representations and warranties of NAFI and of the
         Transferor contained in the Transaction Documents is true and correct
         in all material respects and each of NAFI and the Transferor 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.

                  (l) 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 nongovernmental Person, is required in
         connection with the execution, delivery and performance by NAFI or by
         the Transferor of this Insurance Agreement or of any other Transaction
         Document to which such Person is a party, except (in each case) such as
         have been obtained and are in full force and effect.

                  (m) Compliance With Law, Etc. No practice, procedure or policy
         employed or proposed to be employed by NAFI or by the Transferor 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 or the Receivables.

                  (n) Special Purpose Entity.

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

                           (ii) Other than with respect to the ownership by NAFI
         and its Affiliates of all of the beneficial ownership interests of the
         Transferor and the transactions as provided in (A) the Transaction
         Documents and (B) the corresponding applicable agreements relating to
         the issuance by each of National Auto Finance 1995-1 Trust, National
         Auto Finance 1996-1 Trust, National Auto Finance 1997-1 Trust and
         National Auto Finance 1998-1 Trust of a Series, the Transferor is not
         engaged in any business transactions with NAFI or any of its
         Affiliates.


                                       17
<PAGE>   21


                           (iii) At least one co-trustee of the Transferor shall
         be a Person who is not, and will not be, a director, officer, employee
         or holder of any partnership interests or equity securities or other
         beneficial ownership interests of NAFI or any of its Affiliates.

                           (iv) The Transferor's funds and assets are not, and
         will not be, commingled with the funds of any other Person.

                           (v) The trust agreement of the Transferor requires it
         to maintain (A) correct and complete books and records of account, and
         (B) minutes of the meetings and other proceedings of its holders of
         beneficial ownership interests and trustees (including any
         co-trustees).

                  (o) Solvency; Fraudulent Conveyance. Each of NAFI and the
         Transferor is solvent and will not be rendered insolvent by the
         Transaction and, after giving effect to such Transaction, neither NAFI
         nor the Transferor will be left with an unreasonably small amount of
         capital with which to engage in its business. Neither NAFI nor the
         Transferor intends to incur, or believes that it has incurred, debts
         beyond its ability to pay such debts as they mature. Neither NAFI nor
         the Transferor is contemplating the commencement of insolvency,
         bankruptcy, liquidation or consolidation proceedings or the appointment
         of a receiver, liquidator, conservator, trustee or similar official in
         respect of NAFI or the Transferor, as the case may be, or any of their
         respective assets. The amount of consideration being received by the
         Transferor upon the sale of the Receivables and related Other Trust
         Property to the Trust constitutes reasonably equivalent value and fair
         consideration for such Receivables and related Other Trust Property.
         The amount of consideration being received by the Master Trust upon the
         sale of the Receivables and related Other Trust Property to Funding
         Trust II constitutes reasonably equivalent value and fair consideration
         for such Receivables and related Other Trust Property. The amount of
         consideration being received by Funding Trust II upon the sale of the
         Receivables and related Other Trust Property to the Transferor
         constitutes reasonably equivalent value and fair consideration for such
         Receivables and related Other Trust Property. The amount of
         consideration received by NAFI upon the transfer of the Receivables and
         related Other Trust Property to Funding Trust II constituted reasonably
         equivalent value and fair consideration for such Receivables and
         related Other Trust Property. Neither (i) the Master Trust, with
         respect to the Receivables and related Other Trust Property transferred
         by it to Funding Trust II nor (ii) Funding Trust II, with respect to
         the Receivables and related Other Trust Property transferred by it to
         the Transferor, is transferring any of the above-mentioned Receivables
         and related Other Trust Property with any intent to hinder, delay or
         defraud any of their respective creditors. The Transferor is not
         transferring the Receivables and related Other Trust Property to the
         Trust or selling the Securities and the Class B Notes , as provided in
         the Transaction Documents, with any intent to hinder, delay or defraud
         any of the Transferor's creditors.


                                       18

<PAGE>   22

                  (p) Investment Company Act Compliance. Neither NAFI nor the
         Transferor is required to be registered as an "investment company"
         under the Investment Company Act.

                  (q) Good Title; Valid Transfer; Absence of Liens; Security
         Interest.

                           (i) Immediately prior to the sale of the Receivables
                  and related Other Trust Property by the Transferor to the
                  Trust pursuant to the Sale and Servicing Agreement on the
                  Closing Date, the Transferor was the owner of, and had good
                  and marketable title to, such property free and clear of all
                  Liens and Restrictions on Transferability, and had full right,
                  power and lawful authority to assign, transfer and pledge such
                  Receivables and related Other Trust Property. The Sale and
                  Servicing Agreement constitutes a valid sale, transfer and
                  assignment of the Receivables and related Other Trust Property
                  to the Trust, enforceable against creditors of and purchasers
                  of the Transferor. In the event that, in contravention of the
                  intention of the parties, the transfer of such Receivables and
                  related Other Trust Property by the Transferor to the Trust is
                  characterized as other than a sale, such transfer shall be
                  characterized as a secured financing, and the Trust shall have
                  a valid and perfected first priority security interest in the
                  Receivables and related Other Trust Property free and clear of
                  all Liens and Restrictions on Transferability.

                           (ii) Immediately prior to the pledge of the
                  Collateral by the Trust to the Trust Collateral Agent pursuant
                  to the Indenture, the Trust was the owner of, and had good and
                  marketable title to, the Receivables and related Other Trust
                  Property free and clear of all Liens and Restrictions on
                  Transferability, and had full right, trust power and lawful
                  authority to assign, transfer and pledge such property. The
                  Indenture constitutes a valid pledge of the Collateral to the
                  Trust Collateral Agent, and the Trust Collateral Agent shall
                  have a valid and perfected first priority security interest in
                  the Collateral, free and clear of all Liens and Restrictions
                  on Transferability.

                  (r) Perfection of Liens and Security Interest. On the Closing
         Date, the Lien and security interest in favor of the Trust Collateral
         Agent with respect to the Collateral will be perfected by the delivery
         of the Receivable Files to the Custodian, which Receivable Files the
         Custodian will hold on behalf of the Trust Collateral Agent, the filing
         of financing statements on Form UCC-1 in each jurisdiction where such
         recording or filing is necessary for the perfection of the security
         interest in favor of the Trustee and the establishment of the
         Collection Account, the Distribution Account, the Class A Note
         Distribution Account, the Class B Note Distribution Account and the
         Lockbox 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 Trustee Collateral Agent's first priority Lien on and security
         interest in the Collateral as against any third parties.


                                       19
<PAGE>   23

                  (s) Security Interest in Funds and Investments. Assuming the
         retention of funds in the Trust Accounts and the acquisition of
         Eligible Investments 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 Trust
         Collateral Agent on behalf of the Indenture Trustee (on behalf of the
         holders of the Securities) and Financial Security. Assuming the
         retention of funds in the Spread Account and the acquisition of
         Eligible Investments in accordance with the Spread Account Agreement,
         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.

                  (t) Taxes. Each of NAFI and the Transferor, and each of their
         respective Subsidiaries, has filed all Federal and state tax returns
         which are required to be filed and paid all taxes, including any
         assessments received by it, to the extent that such taxes have become
         due. Any taxes, fees and other governmental charges payable by the
         Transferor or NAFI in connection with the Transaction, the execution
         and delivery of the Transaction Documents and the issuance of the
         Securities, the Class B Notes and the Certificate have been paid or
         shall have been paid at or prior to the Date of Issuance.

         Section 2.05. Affirmative Covenants of NAFI and the Transferor. NAFI
hereby agrees with respect to itself and with respect to the Transferor, and the
Transferor hereby agrees with respect to itself, that during the Term of this
Agreement, unless Financial Security shall otherwise expressly consent in
writing:

                  (a) Compliance With Agreements and Applicable Laws. Each of
         the Transferor and NAFI shall perform each of its respective
         obligations under the Transaction Documents and shall comply with all
         material requirements of, and the Securities, the Class B Notes and the
         Certificate 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.

                  (b) Financial Statements; Accountants' Reports; Other
         Information. Each of NAFI and the Transferor shall keep or cause to be
         kept in reasonable detail books and records of account of its
         respective assets and business and, in the case of the Transferor,
         shall clearly reflect therein the transfer of the Receivables and
         related Other Trust Property to the Trust. NAFI shall cause the Master
         Trust to keep in reasonable detail books and records of account of its
         assets and business and to clearly reflect therein the transfer of the
         Receivables to Funding Trust II. NAFI shall cause Funding Trust II to
         keep in reasonable detail books and records of account of its assets
         and business and to clearly reflect therein the transfer of the
         Receivables to the Transferor. Each of NAFI and the Transferor shall
         furnish or cause to be furnished to Financial Security:



                                       20
<PAGE>   24

                           (i) Annual Financial Statements. As soon as
         available, and in any event within 90 days after the close of each
         fiscal year of NAFI and the Transferor, the audited balance sheets of
         NAFI and the Transferor, as the case may be, as of the end of such
         fiscal year and the audited statements of income, changes in equity and
         cash flows of NAFI and the Transferor, as the case may be, 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 NAFI's and the Transferor's independent accountants (who
         shall be, in each case, a nationally recognized firm or otherwise
         acceptable to Financial Security) and by the certificate specified in
         Section 2.05(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 NAFI and the
         Transferor, as the case may be, the unaudited balance sheets of NAFI
         and the Transferor, as the case may be, as of the end of such quarter
         and the unaudited statements of income, changes in equity and cash
         flows of NAFI and the Transferor, as the case may be, 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 2.05(c) hereof.

                           (iii) Accountants' Reports. Copies of any reports
         submitted to NAFI or the Transferor by their respective independent
         accountants in connection with any examination of the financial
         statements of NAFI or the Transferor, 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 NAFI or the Transferor
         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 NAFI nor the Transferor shall 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. NAFI and the
         Transferor shall, upon the request of Financial Security, permit
         Financial Security or its authorized agents (A) to inspect the books
         and records of NAFI and the Transferor as they may relate to the
         Securities, the Class B Notes, the Certificate, the Receivables and the
         Other Trust Property, the obligations of NAFI or of the Transferor
         under the Transaction Documents, the Transaction and NAFI's business;
         (B) to discuss the affairs, finances and accounts of NAFI or the
         Transferor with its respective Chief Operating Officer and Chief
         Financial Officer, no more frequently than annually, unless a Special
         Event has occurred; and (C) to discuss the affairs, finances and


                                       21
<PAGE>   25


         accounts of NAFI or the Transferor with its independent accountants,
         provided that an officer of NAFI or the Transferor, as the case may be,
         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 NAFI or the
         Transferor, as the case may be. In addition, NAFI 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 NAFI and the Transferor will be maintained at the
         respective addresses designated herein for receipt of notices, unless
         NAFI or the Transferor shall otherwise advise the parties hereto in
         writing.

                           (v) NAFI shall provide or cause to be provided to
         Financial Security an executed original copy of each document executed
         in connection with the Transaction within 10 days after the Closing
         Date.

                           (vi) Subject to Section 2.05(l) hereof, promptly
         after the filing or sending thereof, copies of all proxy statements,
         financial statements, reports and registration statements which NAFI or
         the Transferor files, or delivers to, the IRS, the Commission, or any
         other Federal, state or foreign government agency, authority or body
         which supervises the issuance of securities by NAFI or the Transferor
         or any national securities exchange.

         (c) Compliance Certificate. Each of NAFI and the Transferor shall
         deliver to Financial Security concurrently with the delivery of the
         financial statements required pursuant to Section 2.05(b)(i) hereof and
         concurrently with the delivery of the financial statements required
         pursuant to Section 2.05(b)(ii) hereof, a certificate signed by the
         Chief Financial Officer of each of NAFI and the Transferor stating
         that:

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

                           (ii) to the best of such individual's knowledge, no
         Special Event, Default or Event of Default has occurred, or if a
         Special Event, Default or Event of Default has occurred, specifying the
         nature thereof and, if NAFI or the Transferor 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 NAFI or the
         Transferor, as the case may be, 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


                                       22
<PAGE>   26

                           (iii) the attached financial reports submitted in
         accordance with Section 2.05(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 NAFI or the
         Transferor, as the case may be, 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. Each of NAFI and the Transferor shall
         promptly inform (unless, in the case of clause (i) only, prohibited by
         applicable law) 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 NAFI or the Transferor 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 NAFI's or the
         Transferor's principal office or any change in the location of NAFI's
         or of the Transferor's books and records;

                           (iii) the occurrence of any Default, Event of Default
         or Special Event; or

                           (iv) any other event, circumstance or condition that
         has resulted, or has a material possibility of resulting in a Material
         Adverse Change in respect of NAFI or of the Transferor.

                  (e) Further Assurances. Each of NAFI and the Transferor will
         file or cause to be filed 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 first priority security interest in, and
         all rights of the Trust Collateral Agent with respect to the Collateral
         under the Indenture. In addition, each of NAFI and the Transferor
         shall, upon the request of Financial Security, from time to time,
         execute, acknowledge and deliver, or cause to be executed, acknowledged
         and delivered, within ten (10) 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 Trust Collateral Agent with respect to the Collateral under the
         Indenture, free and clear of all Liens and Restrictions on
         Transferability except the Lien in favor of the Trust Collateral Agent
         under the Indenture. In addition, each of NAFI and the Transferor
         agrees to cooperate with



                                       23
<PAGE>   27

         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) Retirement of Securities. Each of NAFI and the Transferor
         shall cause the Trust Collateral Agent, upon retirement of the
         Securities pursuant to the Indenture or otherwise, to furnish to
         Financial Security a notice of such retirement, and, upon retirement of
         the Securities and the expiration of the Term Of The Policy, to
         surrender the Policy to Financial Security for cancellation.

                  (g) Third-Party Beneficiary. Each of NAFI and the Transferor
         agrees that Financial Security shall have all rights of a third-party
         beneficiary in respect of each of the Transaction Documents and hereby
         incorporates and restates its representations, warranties and covenants
         as set forth therein for the benefit of Financial Security.

                  (h) Preservation of Existence. Except as provided in Section
         2.06(h), each of NAFI and the Transferor shall maintain its existence
         as a corporation organized under the laws of the State of Delaware and
         as a statutory business trust organized the laws of the State of
         Delaware, respectively, and shall at all times continue to be duly
         organized under the laws of the jurisdiction of its formation and duly
         qualified and duly authorized (as described in Sections 2.04(a), (b)
         and (c) hereof) and shall conduct its business in accordance with the
         terms of its certificate of incorporation and by-laws or Certificate of
         Trust and trust agreement or other applicable governing documents, as
         the case may be.

                  (i) Disclosure Document. (1) Each Offering Document 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, each Offering Document 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 accounting 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 whether 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.


                                       24
<PAGE>   28

                           (2) Each Offering Document delivered subsequent to
                  the Date of Issuance shall be in form and substance
                  satisfactory to Financial Security in its sole discretion as
                  evidenced by Financial Security's prior written consent to the
                  use thereof.

                  (j) Special Purpose Entity.

                           (i) The Transferor 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
         officers are concerned, and particularly will use its best efforts to
         avoid the appearance of conducting business on behalf of NAFI or any
         Affiliate thereof or that the assets of the Transferor are available to
         pay the creditors of NAFI or any Affiliate thereof. Without limiting
         the generality of the foregoing, all oral and written communications,
         including, without limitation, letters, invoices, purchase orders,
         Receivables, statements and loan applications, will be made solely in
         the name of the Transferor.

                           (ii) The Transferor shall maintain records and books
         of account separate from those of NAFI and the Affiliates thereof. The
         Transferor's books and records shall clearly reflect the transfer of
         the Receivables to the Trust as a sale of the Transferor's interest in
         the Receivables. The books of account and records of the Transferor
         will be separate from those of NAFI and its Affiliates and will be
         maintained at the address designated herein for receipt of notices,
         unless the Transferor shall otherwise advise the parties hereto in
         writing with respect to such address.

                           (iii) The Transferor shall obtain proper
         authorization of all action requiring approval of the co-trustees or
         holders of beneficial ownership interests of the Transferor, as the
         case may be. Meetings of the holders of beneficial ownership interests
         of the Transferor shall be held not less frequently than one time per
         annum and copies of each such authorization and the minutes of each
         such meeting shall be delivered to Financial Security within two weeks
         of such authorization or meeting, as the case may be.

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

                           (v) The annual financial statements of the Transferor
         shall disclose the effects of the Transferor's transactions in
         accordance with generally accepted accounting principles and shall
         disclose that the assets of the Transferor are not available to pay
         creditors of NAFI or any Affiliate thereof.

                           (vi) The resolutions, agreements and other
         instruments of the Transferor underlying the transactions described in
         this Insurance Agreement and


                                       25
<PAGE>   29

         the other Transaction Documents shall be continuously maintained by the
         Transferor as official records of the Transferor separately identified
         and held apart from the records of NAFI and each Affiliate thereof.

                           (vii) The Transferor shall maintain an arm's-length
         relationship with NAFI and the Affiliates thereof and will not hold
         itself out as being liable for the debts of NAFI or any Affiliate
         thereof.

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

                  (k) Maintenance of Licenses. NAFI and the Transferor shall
         each maintain all licenses, permits, charters and registrations which
         are material to the performance by NAFI or the Transferor, as the case
         may be, of its business and of its respective obligations under this
         Insurance Agreement and each other Transaction Document.

                  (l) Registration Statements for the Securities. Each of NAFI
         and the Transferor shall (i) provide Financial Security with written
         notice at least 30 days prior to the filing of any registration
         statement relating to the Securities, the Class B Notes or the
         Certificate, (ii) provide Financial Security with a copy of such
         registration statement to be filed at least 15 days prior to such
         filing, (iii) prior to such filing, obtain the written consent of
         Financial Security with respect to the filing of such registration
         statement and (iv) provide Financial Security with any opinions of
         counsel as Financial Security may request in connection with the
         registration of the Securities, the Class B Notes or the Certificate
         under the Securities Act, which opinions shall be addressed to
         Financial Security and shall be in form and substance satisfactory to
         Financial Security.

                  (m) Incorporation of Covenants. NAFI and the Transferor shall
         each 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.

                  (n) Release of Liens. NAFI and the Transferor shall each duly
         file or cause to be duly filed with respect to itself and on behalf of
         the Master Trust and Funding Trust II and other relevant parties, no
         later than the Closing Date, (i) the amendments to, and/or terminations
         of, UCC financing statements, evidencing the release by NAFI, the
         Transferor, the Master Trust and Funding Trust II and other relevant
         parties of any Liens, security interests and/or ownership interests in
         the Receivables and Other Trust Property and (ii) the financing
         statements on Form UCC-1 in each jurisdiction where such recording or
         filing is necessary for the perfection of Liens and security interest
         of the Trust Collateral Agent in favor of the Collateral.


                                       26
<PAGE>   30

                  (o) Notice of Default. In the event any notice is delivered to
         the Transferor under Section 5.01(d) concerning a failure in the
         performance or observance of any covenant or agreement on the part of
         the Servicer, NAFI or the Trust, the Transferor shall immediately
         deliver such notice to the Servicer, Financial Security, the Trust and
         NAFI.

                  (p) ERISA. NAFI shall give Financial Security prompt notice of
         each of the following events (but in no event more than 30 days after
         the occurrence of the event): (i) an Accumulated Funding Deficiency,
         (ii) the failure to make a required contribution to a Plan or
         Multiemployer Plan, (iii) a Reportable Event, (iv) any action by a
         Commonly Controlled Entity to terminate any Plan or withdraw from any
         Multiemployer Plan, (v) any action by the PBGC to terminate or appoint
         a trustee to administer a Plan, (vi) the reorganization of insolvency
         of any Multiemployer Plan and (vii) an aggregate Underfunding for all
         Underfunded Plans in excess of $100,000. In addition, NAFI shall
         promptly (but in no case more than 30 days following issuance or
         receipt by the 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 of the events described in the
         preceding sentence or the underfunded status, termination or possible
         termination of a Plan or Multiemployer Plan.

                  (q) Systems Protection. NAFI has taken, or will by September
         30, 1999, use its best efforts to take, and will by January 1, 2000
         take, all actions necessary and appropriate to prevent any material
         problems in its computer systems, auto-dialer system, or other data
         processing or information management systems arising from or in
         connection with the advent of calendar year 2000, and will provide
         Financial Security, with reasonable promptness upon request, such
         reports and other information as may be requested by Financial Security
         from time to time evidencing the actions taken or to be taken as
         aforesaid.

                  (r) Securities Laws. The Trust and NAFI shall comply in all
         material respects with all applicable provisions of state and federal
         securities laws, including blue sky laws and the Securities Act, the
         Securities Exchange Act and the Investment Company Act and all rules
         and regulations promulgated thereunder for which non-compliance would
         result in a Material Adverse Change in respect of the Trust, the
         Transferor, NAFI or any Receivable.

                  (s) NAFI shall within 30 days of the Closing Date, amend all
         Securitization Agreements with respect to which Financial Security has
         issued a financial guaranty insurance policy to conform to the
         provisions of Section 4.16 of the Sale and Servicing Agreement.


                                       27
<PAGE>   31

         Section 2.06. Negative Covenants of NAFI and the Transferor. NAFI
hereby agrees with respect to itself and with respect to the Transferor and the
Transferor hereby agrees with respect to itself that during the Term of this
Agreement, unless Financial Security shall otherwise expressly consent in
writing:

                  (a) Restrictions on Liens. Neither NAFI nor the Transferor
         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 on, or Restriction on Transferability of, the
         Receivables or the Other Trust Property except for the Lien in favor of
         the Trust Collateral Agent under the Indenture for the benefit of the
         holders of the Securities and Financial Security or (ii) with respect
         to the Receivables or the Other Trust Property, sign or file under the
         Uniform Commercial Code of any jurisdiction any financing statement
         which names either NAFI or the Transferor as a debtor, or sign any
         security agreement authorizing any secured party thereunder to file
         such financing statement, except in each case any such instrument
         solely securing the rights and preserving the Lien of the Trust
         Collateral Agent, for the benefit of the holders of the Securities and
         Financial Security, under the Indenture.

                  (b) Impairment of Rights. Neither NAFI nor the Transferor
         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 Trust, the Trust Collateral Agent, the
         holders of the Securities, the holders of the Class B Notes, the
         Certificateholders or Financial Security, (ii) result in a Material
         Adverse Change in respect of the Receivables or the Other Trust
         Property or (iii) impair the ability of NAFI or of the Transferor to
         perform its obligations under the Transaction Documents, including any
         consolidation or merger with any Person or any transfer of all or any
         material amount of NAFI's or the Transferor's assets to any other
         Person if such consolidation, merger or transfer would materially
         impair the net worth of NAFI or the Transferor or any successor Person
         obligated, after such event, to perform NAFI's or the Transferor's
         obligations under the Transaction Documents.

                  (c) Waiver, Amendments, Etc. Neither NAFI nor the Transferor
         shall waive, modify or amend, permit to become effective, (to the
         extent they have the ability to do so) or consent to, any waiver,
         modification or amendment of, any of the provisions of any of the
         Transaction Documents or the Transferor's certificate of trust or trust
         agreement unless Financial Security shall have approved the form of
         such waiver, amendment or modification and consented thereto in
         writing.

                  (d) Successors. Neither NAFI nor the Transferor shall
         terminate or designate, or consent to the termination or designation
         of, the Servicer, the Backup Servicer, the Custodian, the Owner
         Trustee, the Trust Collateral Agent, the Indenture Trustee or the
         Collateral Agent or any successor thereto without the prior written
         approval of Financial Security.


                                       28
<PAGE>   32

                  (e) Creation of Indebtedness; Guarantees. Other than as
         expressly permitted in the Transaction Documents, the Transferor shall
         not create, incur, assume or suffer to exist any indebtedness other
         than indebtedness guaranteed or approved in writing by Financial
         Security. Without the prior written consent of Financial Security, the
         Transferor 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.

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

                  (g) Issuance of Additional Beneficial Ownership Interests. The
         Transferor shall not issue or allow the issuance of any additional
         beneficial ownership interests or securities convertible into or
         exchangeable for beneficial ownership interests in the Transferor.

                  (h) No Mergers. (a) The Transferor shall not consolidate with
         or merge into any Person or transfer all or any material portion of its
         assets to any Person or liquidate or dissolve; and (b) NAFI shall not
         (i) consolidate with or merge into any Person unless it complies with
         the procedures set forth in Section 9.3 of the Sale and Servicing
         Agreement with respect to the merger or consolidation of the Servicer,
         (ii) transfer all or any material portion of its assets to any Person
         or (iii) liquidate or dissolve.

                  (i) Other Activities. The Transferor shall not:

                           (i) sell, transfer, exchange or otherwise dispose of
         any of its assets except as expressly permitted under the Transaction
         Documents and under the Transferor's certificate of trust and trust
         agreement; or

                           (ii) engage in any business or activity other than as
         contemplated in the Transaction Documents and as permitted under its
         certificate of trust and trust agreement.

                  (j) Insolvency. Neither NAFI nor the Transferor shall commence
         with respect to the Transferor 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 NAFI nor the Transferor shall take
         any action in furtherance of, or indicating the consent to,


                                       29
<PAGE>   33

         approval of, or acquiescence in any of the acts set forth above. The
         Transferor shall not admit in writing its inability to pay its debts.

                  (k) ERISA. The Transferor shall not contribute or incur any
         obligation to contribute to, or incur any liability in respect of, any
         Plan or Multiemployer Plan.

                  (l) Distributions. The Transferor shall not declare or make
         payment of (i) any distribution on or in respect of any of its
         beneficial ownership interests, or (ii) any payment on account of the
         purchase, redemption, retirement or acquisition of any option, warrant
         or other right to acquire its beneficial ownership interests unless (in
         each case) at the time of such declaration or payment (and after giving
         effect thereto) no amount payable by the Transferor or the Trust under
         any Transaction Document with respect to any Series is then due and
         owing but unpaid.

                  (m) Transfer of the Certificate.

                           (i) None of the Transferor, NAFI or the Transferor
         will permit or allow the sale, transfer, assignment, conveyance or
         pledge of, the Certificate at any time subsequent to the Date of
         Issuance to any Transferee, that is an Affiliate of NAFI or the
         Transferor, unless, NAFI and the Transferor shall have received the
         prior written consent of Financial Security and, (I) such Transferee is
         structured as a special purpose bankruptcy remote entity and such
         entity is acceptable to Financial Security, (II) prior to such sale,
         transfer, assignment, conveyance or pledge, NAFI and the Transferor
         deliver to Financial Security an Opinion of Counsel substantially
         similar in form and substance to the Opinion of Counsel delivered on
         the Date of Issuance as to non-consolidation of the assets and
         liabilities of (a) the Transferor and NAFI, (b) such Transferee and
         NAFI and (c) such Transferee and its parent entity (if such parent
         entity is not NAFI) and (III) such Transferee agrees to comply with the
         restrictions contained in this Section 2.6(m)(i) and to adhere to such
         restrictions for the benefit of Financial Security.

                           (ii) The Transferor shall not sell, transfer, assign,
         convey or pledge, and neither NAFI nor the Transferor will permit or
         allow the sale, transfer, assignment, conveyance or pledge of, any
         Certificate at any time subsequent to the Date of Issuance to any
         Person that is not an Affiliate of the Transferor or NAFI, unless the
         Transferor shall have received the prior written consent of Financial
         Security and, (I) prior to such sale, transfer, assignment, conveyance
         or pledge, such Person delivers to Financial Security (A) its agreement
         in writing to the effect that so long as it has any interest in any
         Certificate such Person shall not become an Affiliate of the Transferor
         or NAFI and (B) its agreement in writing containing a nonpetition
         covenant with respect to the Transferor in form and substance
         satisfactory to Financial Security in its sole discretion, and (ii) the
         obligations of the Transferor to such Person in connection with such
         sale, transfer, assignment, conveyance or pledge shall be recourse only



                                       30
<PAGE>   34

         to the extent of amounts, if any, received by the Transferor pursuant
         to Section 3.03(b) of the Spread Account Agreement and Section 5.7 of
         the Sale and Servicing Agreement.

                           (iii) Notwithstanding clauses (i) and (ii) above,
         neither the Transferor nor NAFI shall sell, transfer, assign, convey or
         pledge, and neither the Transferor nor NAFI will permit or allow the
         sale of, any of the Class B Notes to NAFI or to the Transferor.

                           (iv) Notwithstanding anything contained herein to the
         contrary, any transfer of the Certificate shall also comply with the
         provisions of Section 3.4 of the Trust Agreement that sets forth
         certain conditions to a transfer of the Certificate.

                  (n) Neither NAFI nor the Transferor shall terminate or
         designate, or consent to the termination or designation of, the
         Transferor Owner Trustee or any Independent Co-Trustee (as defined in
         the Transferor Trust Agreement) under the Transferor Trust Agreement or
         any successor to any of such Persons without the prior written consent
         of Financial Security thereto."

         Section 2.07. Representations and Warranties of NAFI and the Transferor
with respect to the Master Trust and Funding Trust II. Each of the Transferor
and NAFI represents, warrants and covenants, as of the date hereof and as of the
Date of Issuance, with respect to itself, with respect to the Master Trust, with
respect to Funding Trust II and otherwise, as follows:

                  (a) Good Title; Valid Transfer; Absence of Liens; Security
         Interest. Immediately prior to the sale of the Receivables and related
         Other Trust Property to Funding Trust II pursuant to the Assignment
         Agreement on the Closing Date, the Master Trust was the owner of, and
         had good and marketable title to, such property free and clear of all
         Liens and Restrictions on Transferability, and had full right, power
         and lawful authority to assign, transfer and pledge such Receivables
         and related Other Trust Property. Immediately prior to the sale of the
         Receivables and related Other Trust Property to the Transferor pursuant
         to the Sale Agreement on the Closing Date, Funding Trust II was the
         owner of, and had good and marketable title to, such property free and
         clear of all Liens and Restrictions on Transferability, and had full
         right, power and lawful authority to assign, transfer and pledge such
         Receivables and related Other Trust Property. The Assignment Agreement
         constitutes a valid sale, transfer and assignment of the Receivables
         and related Other Trust Property to Funding Trust II, enforceable
         against creditors of and purchasers of the Master Trust. The Sale
         Agreement constitutes a valid sale, transfer and assignment of the
         Receivables and the related Other Trust Property to the Transferor,
         enforceable against creditors of and purchasers of Funding Trust II. In
         the event that, in contravention of the intention of the parties, (i)
         the transfer of the Receivables and related Other Trust Property by the
         Master Trust to Funding Trust II or (ii) the transfer of the
         Receivables and


                                       31
<PAGE>   35

         related Other Trust Property by Funding Trust II to the Transferor is
         characterized as other than a sale, such transfer shall be
         characterized as a secured financing, and Funding Trust II or the
         Transferor, as applicable, shall have a valid and perfected first
         priority security interest in such Receivables and related Other Trust
         Property free and clear of all Liens and Restrictions on
         Transferability other than as imposed by the Transaction Documents.

                  (b) Compliance With Agreements and Applicable Laws. Each of
         the Master Trust and Funding Trust II has performed each of its
         obligations under the Assignment Agreement and the Sale Agreement,
         respectively, and is in compliance with all material requirements of
         any law, rule or regulation applicable to it, or that are required in
         connection with its performance under the Assignment Agreement and the
         Sale Agreement, respectively. Each of the Master Trust and Funding
         Trust II has not taken any action that would interfere with the
         enforcement of any rights under the Assignment Agreement and the Sale
         Agreement, respectively.

         Section 2.08. Affirmative Covenants of NAFI and the Transferor with
respect to the Master Trust and Funding Trust II. Each of NAFI and the
Transferor hereby agrees with respect to itself, with respect to the Master
Trust, with respect to Funding Trust II and otherwise, that during the Term of
this Agreement, unless Financial Security shall otherwise expressly consent in
writing:

                  (a) Notice of Material Events. Each of NAFI and the Transferor
         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 Master Trust or Funding Trust II, as the
         case may be, (B) with respect to any of the Receivables transferred by
         the Master Trust to Funding Trust II or Funding Trust II to the
         Transferor, or (C) in which a request has been made for certification
         as a class action (or equivalent relief) that would involve any of the
         Receivables transferred by the Master Trust to Funding Trust II or
         Funding Trust II to the Transferor; or

                           (ii) any other event, circumstance or condition that
         has resulted in a material adverse change in the ability of the Master
         Trust or Funding Trust II to perform its obligations under the
         Assignment Agreement or the Sale Agreement, respectively.

                  (b) Further Assurances. Each of NAFI and the Transferor will
         file, or cause to be filed, all necessary termination 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 release the Lien
         and security interest of (i) the Master Trust in



                                       32
<PAGE>   36

         any Receivables transferred by the Master Trust to Funding Trust II or
         (ii) Funding Trust II in any Receivables transferred by Funding Trust
         II to the Transferor. In addition, each of NAFI and the Transferor
         shall, upon the written request of Financial Security, from time to
         time, execute, acknowledge and deliver, or cause to be executed,
         acknowledged and delivered, within ten (10) days of such request, such
         further instruments and take such further action as may be reasonably
         commercially necessary to protect the interest of the Transferor in the
         Receivables transferred by the Master Trust to Funding Trust II and by
         Funding Trust II to the Transferor, free and clear of all Liens and
         Restrictions on Transferability created by or for the benefit of the
         Master Trust or Funding Trust II, as the case may be.

                  (c) Third-Party Beneficiary. The Transferor and NAFI agree
         that Financial Security shall have all rights of a third-party
         beneficiary in respect of the Assignment Agreement and the Sale
         Agreement and each of NAFI and the Transferor hereby restates the
         representations, warranties and covenants of the Master Trust and
         Funding Trust II as set forth therein for the benefit of Financial
         Security.

         Section 2.09. Negative Covenants of NAFI and the Transferor with
respect to the Master Trust and Funding Trust II. Each of NAFI and the
Transferor hereby agrees with respect to itself, with respect to the Master
Trust, with respect to Funding Trust II and otherwise that during the Term of
this Agreement, unless Financial Security shall otherwise expressly consent in
writing:

                  (a) Restrictions on Liens. Neither NAFI nor the Transferor
         shall permit the execution or filing under the Uniform Commercial Code
         of any jurisdiction any financing statement naming the Master Trust or
         Funding Trust II as a debtor, or the execution of any security
         agreement authorizing any secured party thereunder to file such
         financing statement, with respect to the Receivables transferred by the
         Master Trust to Funding Trust II and by Funding Trust II to the
         Transferor, except in each case any such instrument solely securing the
         rights and preserving the Lien of the Trust Collateral Agent, for the
         benefit of the holders of the Securities and Financial Security.

                  (b) Waiver, Amendments, Etc. Neither NAFI nor the Transferor
         shall waive, modify or amend, or consent to any waiver, modification or
         amendment of, any of the provisions of the certificate of trust or
         trust agreement of Funding Trust II (including not permitting any
         Affiliate of NAFI or the Transferor to take any such action).


                                       33
<PAGE>   37

                                  ARTICLE III.

                   THE POLICY; REIMBURSEMENT; INDEMNIFICATION

         Section 3.01. Issuance of the Policy. Financial Security agrees to
issue the Policy subject to satisfaction of the conditions precedent set forth
in Appendix II hereto.

         Section 3.02. Payment of Fees and Premium.

                  (a) Inducement Letter Fees and Expenses. On the Date of
         Issuance, NAFI and the Transferor agree to pay or cause to be paid the
         amounts specified with respect to fees, expenses and disbursements in
         the Inducement Letter and as set forth on the Premium Letter unless
         otherwise agreed between NAFI and Financial Security.

                  (b) Legal Fees. On the Date of Issuance, NAFI shall pay or
         cause to be paid legal fees and disbursements incurred by Financial
         Security in connection with the issuance of the Policy and as set forth
         in the Premium Letter.

                  (c) Rating Agency Fees. The initial fees of S&P and Moody's
         with respect to the Securities and the transactions contemplated hereby
         shall be paid by the Transferor 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 shall be for the account of, and
         shall be billed to, NAFI. 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 rating the Securities, in which case the cost
         for such agency shall be paid by the Transferor.

                  (d) Auditors' Fees. NAFI shall pay on demand any additional
         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 NAFI.

                  (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 (i) in the case of Premium due on or before the Date of
         Issuance, directly from the Transferor and (ii) in the case of Premium
         due after the Date of Issuance, first, from monies available for such
         payment in accordance with Section 5.7 of the Sale and Servicing
         Agreement and second, to the extent that such monies are
         insufficient, from NAFI. 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


                                       34
<PAGE>   38

         provision being made for payment of the Securities prior to maturity.
         Although the Premium is fully earned by Financial Security as of the
         Closing Date, the Premium shall be payable in periodic installments as
         provided in the Premium Letter. Anything herein or in any of the
         Transaction Documents notwithstanding, upon the occurrence of an Event
         of Default, the entire outstanding balance of further installments of
         the Premium shall be immediately due and payable. All payments of
         Premium shall be made by wire transfer to an account designated from
         time to time by Financial Security by written notice to the Transferor
         and NAFI.

         Section 3.03. Reimbursement Obligation. Notwithstanding any of the
following provisions of this Section 3.03 to the contrary, the payment
obligations set forth in Sections 3.03(a), 3.03(b) (other than in respect of
amounts due from NAFI), 3.03(c) (other than in respect of amounts due from NAFI
and other amounts that, after due notice and any required passage of time, would
not be payable as a "Scheduled Payment" under the Policy), and 3.03(d)(v) shall
be non-recourse obligations with respect to NAFI, the Transferor or any
Affiliate of either (other than the Trust) and shall be payable only from monies
available for such payment in accordance with Section 5.7 of the Sale and
Servicing Agreement (except to the extent that any such payment obligation
arises from a failure to perform or default of NAFI, the Transferor or any of
their respective Affiliates under any Transaction Document or by reason of
negligence, willful misconduct or bad faith on the part of NAFI, the Transferor
or any of their respective Affiliates in the performance of its duties and
obligations thereunder or reckless disregard by NAFI, the Transferor or any of
their respective Affiliates of its duties and obligations thereunder). NAFI, the
Transferor and the Trust agree 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) interest on any and all amounts described in this Section
         3.03 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;

                  (c) any payments made by Financial Security on behalf of, or
         advanced to, NAFI, in its capacity as Servicer, the Trust, the Owner
         Trustee, the Custodian, the Trust Collateral Agent, the Backup
         Servicer, the Collateral Agent or the Indenture Trustee, including,
         without limitation, any amounts payable by NAFI, in its capacity as
         Servicer, the Trust, the Owner Trustee, the Custodian, the Trust
         Collateral Agent, the Backup Servicer, the Collateral Agent or the
         Indenture 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; and


                                       35
<PAGE>   39

                  (d) 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 Policy, (ii) the administration, 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, (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, (v) the foreclosure against, sale or other disposition of
         any collateral securing any obligations under any of the Transaction
         Documents or otherwise in the discretion of Financial Security, or
         pursuit of any other remedies under any of the Transaction Documents,
         to the extent such costs and expenses are not recovered from such
         foreclosure, sale or other disposition, (vi) preparation of bound
         volumes of the Transaction Documents, and (vii) any Federal, state or
         local tax (other than taxes payable in respect of the gross income of
         Financial Security) or other governmental charge imposed in connection
         with the issuance of the Policy.

                  All such amounts are to be immediately due and payable without
         demand, in full, without any requirement on the part of Financial
         Security to seek reimbursement of such amounts from any other source of
         reimbursement or indemnity or to allocate such amount to any other
         transaction that may have benefited from the expenditure of such
         amounts.

         Section 3.04. Indemnification.

                  (a) Indemnification by NAFI and the Transferor. In addition to
         any and all rights of reimbursement, indemnification, subrogation and
         any other rights pursuant hereto or under law or in equity, each of
         NAFI and the Transferor, jointly and severally, 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 Securities
         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


                                       36
<PAGE>   40

         reasonable costs of investigations) of any nature arising out of or
         relating to the transactions contemplated by the Transaction Documents
         by reason of:

                           (i) any statement, omission or action (other than of
         or by Financial Security) in connection with the offering, issuance,
         sale, remarketing or delivery of the Securities, the Class B Notes or
         the Certificate;

                           (ii) the negligence, bad faith, willful misconduct,
         misfeasance, malfeasance or theft committed by any director, officer,
         employee or agent of the Trust, the Transferor or NAFI, as the case may
         be;

                           (iii) the breach by the Trust, the Transferor or
         NAFI, as the case may be, of any representation, warranty or covenant
         under any of the Transaction Documents or the occurrence, in respect of
         the Trust, the Transferor or NAFI, as the case may be, under any of the
         Transaction Documents of any "event of default" or any event which,
         with the giving of notice or the lapse of time or both, would
         constitute any "event of default";

                           (iv) the violation by the Trust, the Transferor or
         NAFI of any federal, state or foreign law, rule or regulation, or any
         judgment, order or decree applicable to it; or

                           (v) any untrue statement or alleged untrue statement
         of a material fact contained in the Registration Statement or any
         Offering Document or in any amendment or supplement thereto 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 the Financial Security
         Information, it being understood that in respect of the Offering
         Document, the Financial Security Information is limited to information
         included under the caption "THE NOTE INSURER" and the financial
         statements of Financial Security attached thereto as Exhibit [ ].

                  (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 the Transferor and NAFI (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 be at the expense of the



                                       37
<PAGE>   41


         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 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
         written consent to the extent that any such settlement shall be
         prejudicial to the Indemnifying Party 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 Sale and Servicing Agreement, each of the Trust, the
Transferor and NAFI 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 holders of the Securities to any moneys paid
or payable in respect of the Securities under the Transaction Documents or
otherwise. Each of the Trust, the Transferor and NAFI 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



                                       38
<PAGE>   42

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.

                                  ARTICLE IV.

                               FURTHER AGREEMENTS

         Section 4.01. Effective Date; Term of Agreement. This Insurance
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 holders of the Securities under the Transaction Documents and under the
Securities have been paid in full; provided, however, that the provisions of
Sections 3.02, 3.03, 3.04 and 4.02 hereof shall survive any termination of this
Insurance Agreement.

         Section 4.02. Further Assurances and Corrective Instruments. To the
extent permitted by law, each of the Trust, the Transferor, and NAFI agrees that
it will, from time to time, execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, such supplements hereto and such further
instruments as Financial Security may reasonably request and as may be required
in Financial Security's reasonable judgment to effectuate the intention of or
facilitate the performance of this Insurance Agreement and the intent of the
parties hereto.

         Section 4.03. Obligation Absolute. The payment obligations of the
Trust, the Transferor and NAFI hereunder shall be absolute and unconditional,
and shall be paid strictly in accordance with this Insurance Agreement under all
circumstances irrespective of the following:

                           (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 the Trust, the Transferor or
         NAFI 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 Transferor or the Trust to
         receive the proceeds from the sale of the Securities;


                                       39
<PAGE>   43

                           (vi) any breach by the Trust, the Transferor or NAFI
         of any representation, warranty or covenant contained in any of the
         Transaction Documents;

                           (vii) any payment by Financial Security under the
         Policy against presentation of a certificate or other document which
         does not strictly comply with the terms of the Policy; or

                           (viii) any other circumstances, other than payment in
         full, which might otherwise constitute a defense available to, or
         discharge of the Trust, the Transferor or NAFI in respect of any
         Transaction Document.

                  (b) Each of the Trust, the Transferor and NAFI and any and all
         others who are now or may become liable for all or part of the
         obligations of any of them under this Insurance Agreement agree to be
         bound by this Insurance 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 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 the Trust, the Transferor
         or NAFI; (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 the
         Trust, NAFI or the Transferor from pursuing any rights or remedies it
         may have against any Person other than Financial Security in a separate
         legal proceeding.

         Section 4.04. Assignments; Reinsurance; Third-Party Rights. This
Insurance Agreement shall be a continuing obligation of the parties hereto and
shall be binding


                                       40
<PAGE>   44

upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. None of the Trust, the Transferor nor NAFI may
assign its rights under this Insurance Agreement, or delegate any of its duties
hereunder, without the prior written consent of Financial Security. Any
assignment made in violation of this Insurance Agreement shall be null and void.

                  (a) Financial Security shall have the right to give
         participations in its rights under this Insurance 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.

                  (b) 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.

                  (c) Except as provided herein with respect to participants and
         reinsurers, nothing in this Insurance Agreement shall confer any right,
         remedy or claim, express or implied, upon any Person, including,
         particularly, any holder of the Notes or Certificateholder other than
         Financial Security, against the Trust, the Transferor or NAFI, and all
         the terms, covenants, conditions, promises and agreements contained
         herein shall be for the sole and exclusive benefit of the parties
         hereto and their successors and permitted assigns. None of the Trust
         Collateral Agent, the Indenture Trustee, the Owner Trustee, any holder
         of the Notes or any Certificateholder shall have any right to payment
         from any premiums paid or payable hereunder or from any other amounts
         paid by NAFI or the Transferor pursuant to Section 3.02, 3.03 or 3.04
         hereof.

         Section 4.05. 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 Trust
Collateral Agent or for any acts or omissions of the Trust Collateral Agent 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.



                                       41
<PAGE>   45

                                   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 the Trust, the
         Transferor, the Servicer or NAFI 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 the Trust, the Transferor,
         the Servicer or NAFI, as applicable, 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) the Trust, the Transferor, the Servicer or NAFI shall
         fail to pay when due any amount payable by the Trust, the Transferor,
         the Servicer or NAFI 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)
         the Trust, the Transferor, the Servicer, Funding Trust II, the Master
         Trust or NAFI shall have asserted that any 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 or rule that any material
         provision of any of the Transaction Documents is not valid and binding
         on the parties thereto;

                  (d) the Trust, the Transferor, the Servicer, Funding Trust II,
         the Master Trust or NAFI 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 clause
         (n) below) and such failure shall continue for a period of 30 days
         after written notice given to either the Trust or the Transferor;

                  (e) the Trust, NAFI, the Servicer or the Transferor 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 the Trust, NAFI, the
         Servicer or the Transferor under


                                       42
<PAGE>   46

         the United States Bankruptcy Code or similar law, domestic or foreign,
         or any proceeding shall be instituted against any of the Trust, NAFI,
         the Servicer or the Transferor 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 the Trust, NAFI, the Servicer or the
         Transferor 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) as of any Reporting Date, the Average Delinquency Ratio
         shall have been equal to or greater than 12.00%;

                  (g) as of any Reporting Date, the Average Default Rate is
         equal to or greater than 25.00%;

                  (h) as of any Reporting Date, the Average Net Loss Rate is
         equal to or greater than 13.00%;

                  (i) the Trust becomes taxable as an association (or publicly
         traded partnership) or taxable as a corporation for Federal or state
         income tax purposes;

                  (j) the occurrence of a Servicer Termination Event under the
         Sale and Servicing Agreement;

                  (k) the occurrence of an "Event of Default" under and as
         defined in any Insurance and Indemnity Agreement or similar agreement
         among (x) Financial Security and (y) NAFI and/or the Transferor and/or
         any other Affiliate of NAFI, entered into with respect to another
         Series.

                  (l) any default in the observance or performance of any
         covenant or agreement of the Trust made in the Indenture (other than a
         default in the payment of the interest or principal of any security
         when due) or any representation or warranty of the Trust made in the
         Indenture or in any certificate or other writing delivered pursuant
         thereto or in connection therewith proving to have been incorrect in
         any material respect as of the time when the same shall have been made,
         and such default shall continue or not be cured, or the circumstance or
         condition in respect of which such misrepresentation or warranty was
         incorrect shall not have been eliminated or otherwise cured, for a
         period of 30 days after there shall have been given, by registered or
         certified mail, to the Trust and the Indenture Trustee by Financial
         Security, a written notice specifying such default or incorrect
         representation or warranty and requiring it to be remedied;

                  (m) on any Payment Date, the sum of Available Amount with
         respect to such Distribution Date and the amounts available in the
         Series 1999-1 Spread Account (prior to withdrawals therefrom in
         accordance with the terms of the


                                       43
<PAGE>   47

         Spread Account Agreement and prior to any deposits into such Spread
         Account from Spread Accounts, if any, related to any other Series (as
         defined in the Spread Account Agreement)) is less than the sum of
         amounts payable on such Distribution Date pursuant to clauses (i)
         through (vi) of Section 5.7(a) of the Sale and Servicing Agreement;

                  (n) the failure to file in the appropriate jurisdictions any
         of the financing statements described in Section 2.01(q), 2.04(r) or
         2.05(n) by the Date of Issuance or if a filing service is used, the
         failure to deliver any of the financing statements described in Section
         2.01(q), 2.04(r) or 2.05(n) by the Date of Issuance to such filing
         service for prompt filing in the appropriate jurisdictions;

                  (o) the Securities or the Class B Notes not being treated as
         debt for federal or applicable state income tax purposes and such
         characterization having a material adverse effect on the Trust, the
         holders of the Securities, the holders of the Class B Notes or
         Financial Security;

                  (p) any event of default under NAFI's Restructuring Agreement,
         Junior Subordination Agreement, or the Revolving Credit Facility and a
         party has exercised any of its remedies thereunder; and

                  (q) (i) NAFI shall fail to file (or cause to be filed) in the
         aggregate jurisdiction(s) within 2 Business Days of the Closing Date
         UCC-3 termination statements with respect to the security interest of
         the Master Trust (or any other Person) in the Receivables and (ii) NAFI
         shall fail to (A) file (or cause to be filed) or (B) provide to
         Financial Security written evidence of filing acceptable to Financial
         Security, in each case within 5 Business Days of the Closing Date,
         UCC-3 termination statements with respect to the security interest of
         the Master Trust (or any other Person) in any pools of Receivables (as
         defined in the related Securitization Agreements) in connection with
         NAFI's 1996-1, 1997-1 and 1998-1 securitization transactions.

         Section 5.02. Remedies; Waivers. 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 all or a portion of the Premium
         Supplement that has accrued or will accrue payable, and the same shall
         thereupon (A) be immediately due and payable to the extent then accrued
         and (B) become immediately due and payable upon accrual to the extent
         accruing thereafter, 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 Controlling Party under
         the Transaction Documents,


                                       44
<PAGE>   48

         including, without limitation, its right to accelerate the Securities
         or to terminate NAFI as Servicer and to appoint a substitute servicer;
         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 the Trust, the Transferor or NAFI 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 Insurance 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.

                  (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 the Trust,
         the Transferor and NAFI. 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.


                                       45
<PAGE>   49

                                  Article VI.

                                  MISCELLANEOUS

         Section 6.01. Amendments, Etc. This Insurance 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 (with telephonic confirmation of receipt if telecopied) to the
recipient as follows:

<TABLE>
<S>                                                 <C>
                  (a)      To Financial Security:   Financial Security Assurance Inc. 350 Park Avenue New York, NY 10022 Attention:
                                                    Transaction Oversight Department (with a copy to the General Counsel) Re:
                                                    National Auto Finance 1999-1 Trust, $48,000,000 7.26% Class A Automobile
                                                    Receivables Backed Notes, 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 the Transferor:       National Financial Auto
                                                        Funding Trust
                                                    c/o Chase Manhattan Bank
                                                        Delaware
                                                    1201 Market Street
                                                    Wilmington, Delaware  19801
</TABLE>


                                       46
<PAGE>   50


<TABLE>
<S>                                                          <C>
                                                              Attention:  Corporate Trust
                                                                  Administration
                                                              Telecopy No:  (302) 984-4903
                                                              Confirmation: (302) 428-3375

                  (c)      To NAFI:                           National Auto Finance Company, Inc.
                                                              10302 Deerwood Park Boulevard
                                                              Suite 100
                                                              Jacksonville, Florida  32256

                                                              Attention:  President
                                                              Telecopy No:  (904) 996-2575
                                                              Confirmation: (904) 996-2500

                 (d)      To the Trust:                       National Auto Finance 1999-1 Trust
                                                              c/o Wilmington Trust Company
                                                              Rodney Square North
                                                              1100 North Market Street
                                                              Wilmington, DE  19890

                                                              Attention:  Corporate Trust
                                                                  Administration
                                                              Telecopy No: (302) 651-8882
                                                              Confirmation: (302) 651-1000
</TABLE>

                  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 above, each of the Trust, the Transferor and NAFI 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 Insurance 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 12:00 p.m. (New York, New York time) on the date when due or as Financial
Security shall otherwise direct by written notice to the Trust, the Transferor
and NAFI. 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 Insurance
Agreement shall bear interest at the Late Payment Rate from the date due to the
date paid.


                                       47
<PAGE>   51

         Section 6.04. Confidentiality. Any information obtained by Financial
Security pursuant to this Insurance Agreement shall be held in confidence by
Financial Security unless (i) such information has become available to the
public other than as a result of a disclosure by or through Financial Security,
(ii) such information was available to Financial Security on a nonconfidential
basis prior to its disclosure to Financial Security hereunder, (iii) Financial
Security shall be required in connection with any legal or regulatory proceeding
to disclose such information, or (iv) Financial Security, in its sole
discretion, deems it necessary to disclose such information to the Rating
Agencies; provided, that, in any such instance, Financial Security will use its
best efforts to notify the Trust, the Transferor or NAFI of its intention to
make any such disclosure prior to making any such disclosure and, in the case of
disclosure to a Rating Agency, Financial Security shall notify such Rating
Agency that such information is confidential and should be treated as such by
such Rating Agency.

         Section 6.05. Severability. In the event that any provision of this
Insurance 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.

         Section 6.06. Governing Law. THIS INSURANCE AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICT OF LAW PROVISIONS THEREIN.

         Section 6.07. Consent to Jurisdiction. 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/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 OR,
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,



                                       48
<PAGE>   52

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.

                  (a) 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.

                  (b) Each of the Trust, the Transferor and NAFI 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 the Trust, the Transferor and NAFI agrees that
         service of such process upon such Person shall constitute personal
         service of such process upon it.

                  (c) Nothing contained in this Insurance 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 the Trust, the Transferor or NAFI
         or its respective property in the courts of any jurisdiction.

         Section 6.08. 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 6.09. Counterparts. This Insurance Agreement may be executed in
counterparts by the parties hereto, and all such counterparts shall constitute
one and the same instrument.

         Section 6.10. 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


                                       49
<PAGE>   53

TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THIS
WAIVER.

         Section 6.11. 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
Insurance Agreement.

                  It is expressly understood and agreed by the parties hereto
that (a) this Insurance Agreement is executed and delivered by Wilmington Trust
Company, not individually or personally but solely as trustee of the Trust, in
the exercise of the powers and authority conferred and vested in it under the
Trust Agreement, (b) each of the representations, undertakings and agreements
herein made on the part of the Trust is made and intended not as personal
representations, undertakings and agreements by Wilmington Trust Company but is
made and intended for the purpose of binding only the Trust and (c) under no
circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Trust or be liable for the breach
or failure of any obligation, representation, warranty or covenant made or
undertaken by the Trust under this Insurance Agreement or the other Transaction
Documents.

                  It is expressly understood and agreed by the parties hereto
that (a) this Insurance Agreement is executed and delivered by Chase Manhattan
Bank Delaware, not individually or personally but solely as trustee of the
Trust, in the exercise of the powers and authority conferred and vested in it
under the Trust Agreement, (b) each of the representations, undertakings and
agreements herein made on the part of the Trust is made and intended not as
personal representations, undertakings and agreements by Chase Manhattan Bank
Delaware, but is made and intended for the purpose of binding only the Trust and
(c) under no circumstances shall Chase Manhattan Bank Delaware, be personally
liable for the payment of any indebtedness or expenses of the Trust or be liable
for the breach or failure of any obligation, representation, warranty or
covenant made or undertaken by the Trust under this Insurance Agreement or the
other Transaction Documents.



                                       50
<PAGE>   54

         Section 6.12. Entire Agreement. This Insurance Agreement, the Premium
Letter, the Inducement Letter and the Policy set forth the entire agreement
between the parties with respect to the subject matter thereof, and this
Insurance 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.




                                       51
<PAGE>   55



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

                                       FINANCIAL SECURITY ASSURANCE INC.


                                        By:  /s/ AUTHORIZED SIGNATURE
                                           ------------------------------------
                                             Name:
                                             Title:


                                       NATIONAL AUTO FINANCE 1999-1 TRUST
                                        By:    Wilmington Trust Company, not
                                               in its individual capacity, but
                                               solely in its capacity as owner
                                               trustee for National Auto Finance
                                               Trust 1999-1 Trust


                                        By:  /s/ PATRICIA A. EVANS
                                           ------------------------------------
                                             Name:   Patricia A. Evans
                                             Title:  Financial Services Officer


                                       NATIONAL FINANCIAL AUTO FUNDING TRUST
                                        By:    Chase Manhattan Bank
                                               Delaware, not in its individual
                                               capacity, but solely in its
                                               capacity as owner trustee for
                                                   National Financial Auto
                                               Funding Trust


                                        By:  /s/ DENIS KELLY
                                           ------------------------------------
                                             Name:   Denis Kelly
                                             Title:  Assistant Vice President



                                       NATIONAL AUTO FINANCE COMPANY, INC.

                                        By:  /s/ STEPHEN R. VETH
                                           ------------------------------------
                                             Name:   Stephen R. Veth
                                             Title:  Vice President, Secretary
                                                     and General Counsel



                                       52
<PAGE>   56

                                   APPENDIX I

                                   DEFINITIONS

                  "Accumulated Funding Deficiency" has the meaning provided in
Section 412 of the Code and Section 302 of ERISA, whether or not waived.

                  "Affiliate" means, as to any Person, any other Person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person within the meaning of control under Section 15 of the
Securities Act.

                  "Assignment Agreement" means the Assignment Agreement, dated
as of September 1, 1999, between the Master Trust and Funding Trust II, as the
same may be amended, amended and restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof.

                  "Backup Servicing Agreement" means the Backup Servicing
Agreement, dated as of March 31, 1998, among the Transferor, NAFI and Harris
Trust and Savings Bank, in its capacities as Trustee and Standby Servicer under
the Pooling and Servicing Agreements (as defined in such Backup Servicing
Agreement) and Trustee and Backup Servicer under the Sale and Servicing
Agreements (as defined in such Backup Servicing Agreement), as the same may be
amended, amended and restated, supplemented or otherwise modified or substituted
or replaced from time to time in accordance with the terms thereof.

                  "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,
Wilmington, Delaware, Chicago, Illinois or the State of Florida are authorized
or obligated by law or executive order to be closed.

                   "Certificate" means the Asset Backed Certificate issued and
executed by the Trust and authenticated by the Owner Trustee, in substantially
the form set forth in Exhibit A to the Trust Agreement.

                  "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.

                  "Collateral" has the meaning specified in the Indenture.

                  "Commission" means the Securities and Exchange Commission.

                  "Commonly Controlled Entity" means, with respect to the Trust,
the Transferor or NAFI, as the case may be, and each entity, whether or not
incorporated, which is affiliated with the Trust, the Transferor or NAFI
pursuant to Section 414(b), (c), (m) or (o) of the Code.


                                      I-1

<PAGE>   57

                   "Custodian Agreement" means the Custodial Agreement, dated as
of September 1, 1999, between NAFI and Harris Trust and Savings Bank as
custodian, as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof.

                  "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 this 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.

                  "Financial Security Information" has the meaning provided in
Sections 2.01(i) and 2.04(j) of this Insurance Agreement.

                  "Financial Statements" means with respect to NAFI and the
Transferor, as the case may be, the balance sheet as of December 31, 1998 and
the statements of income, retained earnings and cash flows for the 12-month
period then ended and the notes thereto and the balance sheet as of June 30,
1999 and the statement of income, retained earnings and cash flows for the three
months then ended and the notes thereto.

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

                  "Funding Trust II" means National Financial Auto Funding Trust
II, a business trust formed by NAFI under the laws of the State of Delaware.

                   "Indenture" means the Indenture, dated as of September 1,
1999, between National Auto Finance 1999-1 Trust and Harris Trust and Savings
Bank, as Indenture Trustee and Trust Collateral Agent, as the same may be
amended, amended and restated, supplemented or otherwise modified from time to
time in accordance with the terms thereof.


                                      I-2
<PAGE>   58

                  "Indenture Trustee" means Harris Trust and Savings Bank, an
Illinois banking corporation, as indenture trustee under the Indenture, and any
successor thereto as indenture trustee under the Indenture.

                  "Inducement Letter" means that letter dated August 3, 1999,
from NAFI to Financial Security.

                  "Initial Purchase Agreement" means the Class A Note Purchase
Agreement, dated as of September 1, 1999, among the 1999-1 Trust, NAFI, Funding
Trust, and the Initial Purchasers.

                  "Initial Purchasers" mean Prudential Insurance Company of
America, Pruco Life Insurance Company and Pruco Life Insurance Company of New
Jersey.

                  "Insurance Agreement" means this Insurance and Indemnity
Agreement dated as of September 1, 1999, among Financial Security, the Trust,
the Transferor and NAFI, as the same may be amended, amended and restated,
supplemented or otherwise modified from time to time in accordance with the
terms hereof.

                  "Insurance Agreement Indenture Cross Default" means an Event
of Default specified in clauses (a), (e), (i), (l), (m), (o), (p) and (q) of
Section 5.01 of this Insurance Agreement.

                  "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.

                  "Junior Subordination Agreement" means the Amended and
Restated Junior Subordination Agreement, dated as of April 7, 1999, by and among
NAFI, The 1818 Mezzanine Fund, L.P., PC Investment Company, Manufacturers Life
Insurance Company, The Structured Finance High Yield Fund, LLC, Nova Financial
Corporation, Nova Corporation, Stephen L. Gurba, Edgar A. Otto and Gary Shapiro.

                  "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 Chase
Manhattan 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 Chase Manhattan 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 360 days.

                  "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


                                      I-3
<PAGE>   59

or arises by contract, operation of law, legal process or otherwise: (a) any
mortgage, lien, 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.

                  "Master Trust" means National Financial Auto Receivables
Master Trust, a trust formed by Funding Trust II under the laws of the State of
New York.

                  "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
Affiliates, or (ii) the ability of such Person to perform its obligations under
any of the Transaction Documents to which it is a party, (b) in respect of any
Receivable, a material adverse change in (i) the value or marketability of such
Receivable, or (ii) the probability that amounts now or hereafter due in respect
of such Receivable will be collected on a timely basis or (c) a material adverse
change in the ability of Financial Security or the Trust to realize the benefits
of the security afforded under the Transaction Documents.

                  "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.

                  "NAFI" means National Auto Finance Company, Inc., a Delaware
corporation.

                  "National Auto Finance 1995-1 Trust" means the National Auto
Finance 1995-1 Trust.

                  "National Auto Finance 1996-1 Trust" means the National Auto
Finance 1996-1 Trust.

                  "National Auto Finance 1997-1 Trust" means the National Auto
Finance 1997-1 Trust.

                  "National Auto Finance 1998-1 Trust" means the National Auto
Finance 1998-1 Trust.


                                      I-4
<PAGE>   60

                  "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 the Offering Memorandum dated
September 24, 1999, in respect of the Securities and the Class B Notes and any
amendment or supplement thereto and any other offering document of the
Transferor or an Affiliate thereof in respect of the Securities or the Class B
Notes that makes reference to the Policy.

                   "Other Trust Property" means the Trust Property and the
property and proceeds conveyed by the Transferor to the Trust pursuant to
Section 2.1 of the Sale and Servicing Agreement exclusive of the Policy.

                  "Owner Trust Estate" has the meaning provided in the Trust
Agreement.

                  "Owner Trustee" means Wilmington Trust Company, as owner
trustee, not in its individual capacity but solely as owner trustee under the
Trust Agreement, and any successor thereto as owner trustee under the Trust
Agreement.

                  "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, limited liability company, limited liability partnership or other
organization or entity (whether governmental or private).

                  "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 Annex I to this Insurance
Agreement.

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

                  "Premium Letter" means the side letter dated September 1,
1999, among Financial Security, NAFI, the Transferor and the Trust Collateral
Agent in respect of the premium payable 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(e) of this
Insurance Agreement, accruing to Financial Security in monthly installments
commencing on the Premium Supplement Commencement Date and on each monthly
anniversary in accordance with


                                      I-5
<PAGE>   61

the terms set forth in the Premium Letter and payable upon and in accordance
with a declaration under Section 5.02(a)(i) of this Insurance Agreement.

                  "Premium Supplement Commencement Date" means the date of
occurrence of an Event of Default whether or not an "Event of Default" shall
have been declared.

                  "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 the Trust, the Transferor or NAFI with respect to
itself, its Subsidiaries or Affiliates, the Receivables or the Transaction.

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

                  "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.

                  "Restructuring Agreement" means the Restructuring Agreement
dated as of April 7, 1999 by and among National Auto Finance Company, Inc. (the
"Company"), National Auto Finance Company, L.P., National Auto Finance
Corporation, the Partners, The 1818 Mezzanine Fund, L.P., PC Investment Company,
Progressive Investment Company, Inc., Manufacturers Life Insurance Company and
The Structured Finance High Yield Fund, LLC.

                  "Revolving Credit Facility" means the Revolving Credit, Term
Loan and Security Agreement dated as of March 31, 1999.

                  "Sale Agreement" means the Sale Agreement, dated as of
September 1, 1999, between the Transferor and Funding Trust II, as the same may
be amended, amended and restated, supplemented or otherwise modified from time
to time in accordance with the terms thereof.

                  "Sale and Servicing Agreement" means the Sale and Servicing
Agreement, dated as of September 1, 1999, among the Trust, the Transferor, the
Servicer, the Backup Servicer and the Trust Collateral Agent, as the same may be
amended,


                                      I-6
<PAGE>   62

amended and restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof.

                  "Securities" means the $48,000,000 of National Auto Finance
1999-1 Trust, 7.26% Class A Automobile Receivables-Backed Notes issued pursuant
to the Indenture.

                  "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.

                  "Securitization Agreement" has the meaning provided in
paragraph C of the Introductory Statements to this Insurance Agreement.

                  "Series 1999-1" means the Series issued on the date hereof
pursuant to the Indenture.

                  "Series 1999-1 Supplement" means the Series 1999-1 Supplement
to the Spread Account Agreement.

                  "Series of Securities" or "Series" means Series 1999-1 or any,
or as the context may require, all, additional series of securities,
certificates, notes or other obligations issued or arising as described in
paragraph C of the Introductory Statements hereto.

                  "Servicer Termination Side Letter" means the letter from
Financial Security to the Trust Collateral Agent, the Transferor and NAFI dated
as of September 1, 1999, with regard to the renewal term of the Servicer.

                  "S&P" means Standard & Poor's Ratings Group, 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 this Insurance Agreement has occurred
and is continuing, (b) a Trigger Event has occurred and is continuing, (c) any
legal proceeding or binding arbitration is instituted with respect to the
Transaction or (d) any governmental or administrative investigation, action or
proceeding is instituted that would, if adversely decided, result in a Material
Adverse Change in respect of the Trust, NAFI, the Transferor or the Receivables.


                                      I-7
<PAGE>   63

                  "Spread Account" means the "Series 1999-1 Spread Account", as
such term is defined in Series 1999-1 Supplement.

                  "Spread Account Agreement" means the Amended and Restated
Master Spread Account Agreement, dated as of March 31, 1998 among the
Transferor, the Collateral Agent named therein and Financial Security as the
same has been previously supplemented and as it may be further amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.

                  "Subsidiary" means, with respect to any Person (herein
referred to as the "parent"), any corporation, partnership, association or other
business entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or more than 50% of the general partnership interests are, at the time any
determination is being made, owned, controlled or held by the parent or (b) that
is, at the time any determination is being made, otherwise controlled, by the
parent or one or more subsidiaries of the parent or by the parent and one or
more subsidiaries of the parent.

                  "Supplement to the Backup Servicing Agreement" means the
Supplement to the Backup Servicing Agreement, dated as of September 1, 1999, by
and among the Transferor, NAFI and the Backup Servicer.

                  "Term of this Agreement" shall be determined as provided in
Section 4.01 of this Insurance Agreement.

                  "Term Of The Policy" has the meaning provided in the Policy
for the term "Term Of This Policy".

                  "Transaction" means the transactions contemplated by the
Transaction Documents, including the transactions described in the Offering
Document.

                  "Transaction Documents" means the Securities, the Certificate,
this Insurance Agreement, the Lockbox Agreement, the Custodian Agreement, the
Sale and Servicing Agreement, the Indenture, the Premium Letter, the
Indemnification Agreement, any Sub-Servicing Agreement, the Inducement Letter,
the Sale Agreement, the Assignment Agreement, the Servicer Termination Side
Letter, the Initial Purchase Agreement, the Spread Account Agreement, Series
1999-1 Supplement, the Backup Servicing Agreement, the Supplement to the Backup
Servicing Agreement, the Transferor Trust Agreement, the certificate of trust of
the Trust and the Trust Agreement and any other financing document executed in
connection with Series 1999-1

                  "Transferor" means National Financial Auto Funding Trust, a
business trust formed by NAFI under the laws of the State of Delaware.

                  "Transferor Owner Trustee" means Chase Manhattan Bank
Delaware, a Delaware banking corporation, not in its individual capacity but
solely in its capacity as


                                      I-8
<PAGE>   64

the owner trustee under the Transferor Trust Agreement, and any successor
thereto in such capacity.

                  "Transferor Trust Agreement" means the First Amended and
Restated Trust Agreement dated as of December 8, 1994, among NAFI, as depositor,
the Transferor Owner Trustee, the persons identified therein as the Co-Trustees,
and the other persons party thereto, as amended by Amendments to Trust
Agreements, dated as of October 1, 1997, and Amendment No. 2 to First Amended
and Restated Trust Agreement, dated as of March 31, 1998, in each case among
NAFI, the Transferor Owner Trustee, the persons identified therein as the
Co-Trustees, and the other persons party thereto, if any, as the same may be
further amended and restated, amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof.

                  "Trigger Event" has the meaning provided in the Series 1999-1
Supplement.

                  "Trust" means the trust created under the Trust Agreement.

                  "Trust Accounts" means the Collection Account, the
Distribution Account, the Class A Note Distribution Account, the Class B Note
Distribution Account and the Lockbox Account.

                  "Trust Agreement" means the Amended and Restated Trust
Agreement, dated as of September 1, 1999, between the Transferor and the Owner
Trustee with respect to the Trust, as the same may be amended, amended and
restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof.

                  "Trust Collateral Agent" means Harris Trust and Savings Bank,
an Illinois banking corporation, as trust collateral agent under the Indenture
and as trust collateral agent under the Sale and Servicing Agreement, as
applicable, and any successor thereto as trust collateral agent under the
Indenture or trust collateral agent the Sale and Servicing Agreement, as the
case may be.

                  "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.


                                      I-9
<PAGE>   65


                                   APPENDIX II

                      TO INSURANCE AND INDEMNITY AGREEMENT

                 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 NAFI, a nonrefundable Premium
and shall have been reimbursed, by or on behalf of NAFI, for other fees and
expenses identified in Section 3.02 of this 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 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 relating to the payment to Financial Security of the 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 trust and the trust agreement for each
of the Trust, the Transferor and Funding Trust II, (ii) the certificate of
incorporation and by-laws of NAFI, (iii) the consent, if necessary, of the
co-trustees and/or holders of beneficial interests of each of the Transferor and
Funding Trust II, and (iv) the resolutions of the Board of Directors of NAFI, in
each case authorizing the issuance of the Securities, the Class B Notes and the
Certificate, and the execution, delivery and performance by the Trust, the
Transferor, Funding Trust II and NAFI, as applicable, of the Transaction
Documents and the transactions contemplated thereby, certified by a Secretary or
Assistant Secretary of the Trust, the Transferor, Funding Trust II and NAFI, as
applicable (which certificate shall state that such certificate of trust and
trust agreement or certificate of incorporation and by-laws, as the case may be,
are in full force and effect without modification on the Date of Issuance).

         (d) Incumbency Certificate. Financial Security shall have received a
certificate of a Secretary or Assistant Secretary of each of the Transferor,
Funding Trust II, the Owner Trustee, the Trust Collateral Agent, the Indenture
Trustee and NAFI, respectively, certifying the name and signatures of the
officers of the Funding Trust II, Owner Trustee, the Trust Collateral Agent, the
Indenture Trustee and NAFI, as the case may be, authorized to execute and
deliver the Transaction Documents and that all consents necessary to execute and
deliver such documents have been obtained.

         (e) Representations and Warranties; Certificate. The representations
and warranties of the Trust, the Transferor and NAFI in this Insurance Agreement
shall be true and correct as of the Date of Issuance with respect to such Person
as if made on the


                                      A-1
<PAGE>   66

Date of Issuance and Financial Security shall have received a certificate of an
appropriate officer of the Owner Trustee, the Transferor and NAFI, 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 the Trust, the Owner Trustee, the Indenture Trustee, the Transferor, NAFI,
Funding Trust II, the other parties to the Transaction Documents and the
Transaction in form and substance satisfactory to Financial Security, addressing
such matters as Financial Security may reasonably request, including without
limitation, the items set forth in Appendix A hereto, 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 co-trustees of each of the Transferor
and Funding Trust II, the holders of beneficial ownership interests in each of
the Transferor and Funding Trust II and the board of directors of NAFI, 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) Satisfaction of Conditions of the Initial Purchase Agreement. All
conditions in the Initial Purchase Agreement to the Initial Purchasers'
obligation to purchase the Securities (other than the issuance of the Policy)
shall have been satisfied.

         (k) 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 and that the Securities, when
issued, will be rated "AAA" by S&P and "Aaa" by Moody's.

         (l) Maintenance of Receivables Files; Filings and Recordings. Financial
Security shall have received evidence satisfactory to it that: (i) the
Receivables Files are being maintained by and held in the custody of the
Custodian pursuant to the Sale and Servicing Agreement and the Custodian
Agreement; (ii) all filings necessary to perfect the interest of the Trust
Collateral Agent in the Collateral have been made; and (iii) all taxes, fees and
other changes payable in connection with such filings shall have been paid.


                                      A-2
<PAGE>   67

         (m) Perfection Certificate. A duly authorized officer of NAFI shall
have executed and delivered to Financial Security on or prior to the Closing
Date a certificate in the form attached as Exhibit B hereto, which shall contain
the representation of NAFI that each of the financing statements listed in the
schedule attached thereto have, or in the case of any such financing statement
on Form UCC-3 or UCC-2 within 2 Business Days after the Closing Date will be,
filed in the applicable filing office and jurisdiction, bearing (as applicable)
the applicable filing index number, specified in such schedule with respect to
such financing statement.

         (n) No Default. No Default or Event of Default shall have occurred.

         (o) Absence of Liens. Financial Security shall have received evidence
satisfactory to it in its sole discretion that all Liens of Funding Trust II and
the Master Trust and Restrictions on Transferability relating to the Receivables
transferred by the Master Trust to Funding Trust II and by Funding Trust II to
the Transferor have been released or removed on or prior to the Date of
Issuance.

         (p) 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.





                                      A-3
<PAGE>   68





                                     ANNEX I

                                       TO

                        INSURANCE AND INDEMNITY AGREEMENT

                   FORM OF FINANCIAL GUARANTY INSURANCE POLICY



                                      A-1

<PAGE>   69



                                                                       EXHIBIT-B


                              OFFICER'S CERTIFICATE

         Reference is made to the Sale and Servicing Agreement, dated as of
September 1, 1999 (the "Securitization Agreement"), among National Auto Finance
Trust 1999-1, as Issuer, National Auto Funding Trust, as Seller, National Auto
Finance Company Inc. ("NAFI"), in its individual capacity and as Servicer and
Harris Trust and Savings Bank, as Back-up Servicer and Trust Collateral Agent
(capitalized terms used and not defined herein having the meanings assigned
thereto in the Securitization Agreement). The undersigned, hereby certifies that
he is the Chairman of the Board and CEO of NAFI, and that, as such, is
authorized to deliver this certificate on behalf of NAFI and further certifies
that the financing statements listed in Schedule 1 attached hereto represent all
of the Uniform Commercial Code financing statements that have been, as of the
Closing Date, filed in connection with the execution and delivery of the
Securitization Agreement and the other Transaction Documents, and that each such
financing statement has been filed in the filing office and jurisdiction,
bearing (as applicable) the filing index number, specified in such schedule with
respect to such financing statement.




                  [remainder of page intentionally left blank]


                                  Exhibit B-1


<PAGE>   70




         IN WITNESS WHEREOF, I have hereunto set my hands this ___th day of
September __, 1999.



                                 NATIONAL AUTO FINANCE
                                 COMPANY, INC.



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



                                  Exhibit B-2

<PAGE>   71



                                   SCHEDULE 1

                               Schedule of Filings



                                  Exhibit B-3

<PAGE>   72


                                   APPENDIX A

                               OPINIONS OF COUNSEL

           There shall be delivered to Financial Security, Moody's and
S&P opinions of counsel satisfactory in form and substance to Financial Security
and its counsel, including, without limitation, opinions as follows:

         (i) opinions to the effect that the Securities, the Class B Notes and
the Certificate have been duly issued, and the Transaction Documents have been
duly executed and delivered, and each constitutes legal, valid and binding
obligations, enforceable in accordance with its respective terms;

         (ii) opinions as to compliance with applicable securities laws,
including, but not limited to, opinions to the effect that:

                  (A) no filing or registration with or notice to or consent,
         approval, authorization or order of any court or governmental authority
         or agency is required for the consummation of the Transaction, except
         such as may be required and have been obtained under the Securities Act
         and state securities or "blue sky" laws;

                  (B) none of the Transferor, NAFI, the Trust or the Trust
         Estate is required to be registered under the Investment Company Act;
         and

                  (C) none of the Indenture, the Trust Agreement or the Sale and
         Servicing Agreement is required to be qualified under the Trust
         Indenture Act;

         (iii) an opinion to the effect that (A) the Trust Collateral Agent has
a first priority perfected security interest in the Collateral and the proceeds
thereof (covering perfection by possession and by filing UCC-1 financing
statements) under the applicable Uniform Commercial Code; (B) the Receivables
and the Other Trust Property would not be included as part of the estate of NAFI
or Funding Trust II in the event of any receivership or insolvency proceedings
in respect thereof; (C) the transfer of the Receivables and the Other Trust
Property would be characterized by a court of competent jurisdiction as a sale
of such Receivables and Other Trust Property by Funding Trust II to the
Transferor, and not as a borrowing by or Funding Trust II, as applicable, or a
relationship of joint ownership, partnership, joint venture or similar
arrangement; and (D) the assets and liabilities of each of the Trust and the
Transferor would not be substantively consolidated with those of NAFI in the
event of any receivership or insolvency proceeding in respect of NAFI;

         (iv) the Collateral Agent under the Spread Account Agreement has a
valid, perfected first priority perfected security interest in the collateral
held thereunder for the benefit of secured parties thereunder;



                                  Appendix A-1
<PAGE>   73

         (v) a title and perfection opinion with respect to the Financed
Vehicles from California, Georgia, South Carolina and North Carolina;

         (vi) opinions with respect to United States federal tax law and ERISA;

         (vii) general corporate and enforceability opinions with respect to
NAFI, the Master Trust, Funding Trust II, the Transferor, the Trust, the
Collateral Agent, the Owner Trustee, the Trust Collateral Agent and the
Indenture Trustee;

         (viii) an opinion to the effect that the forms of Receivables used
comply with the disclosure requirements of the Federal Truth-in-Lending Act and
Regulations Z and B of the Federal Reserve Board;

         (ix) the Offering Document does not contain any untrue statement of a
material fact or limit to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading;

         (x) in the event that the transfer of the Receivables and the Other
Trust Property to the Trust is not characterized as a sale by a court of
competent jurisdiction, such court would characterize such transfer as a grant
of a security interest to the Trust in the Receivables and the Other Trust
Property, which security interest has been perfected as a first priority
security interest; and

         (xi) such other opinions as Financial Security shall request.



                                  Appendix A-2