EXHIBIT 10.6

                         SECURITY CAPITAL ASSURANCE LTD
                       ANNUAL INCENTIVE COMPENSATION PLAN


SECTION 1.      Purpose.

                Security Capital Assurance Ltd (the "Company") has established
this Annual Incentive Compensation Plan (the "Plan") in order to provide the
Company with an additional means to attract and retain executive officers by
providing them with an opportunity to earn annual incentive compensation,
contingent on the achievement of certain performance goals, as an incentive and
reward for their contributions to the growth, profitability and success of the
Company from year to year.

                The Company intends that compensation payable under the Plan
will constitute "qualified performance-based compensation" under Section 162(m)
of the Code (as hereinafter defined). The Plan shall be interpreted and
construed in a manner consistent with such intent.

SECTION 2.      Definitions.

                2.1.    "Award" means the amount of incentive compensation to
which a Participant is entitled for each Plan Year as determined by the
Committee pursuant to Sections 4 and 5 of the Plan.

                2.2.    "Board" means the Company's Board of Directors.

                2.3.    "Code" means the Internal Revenue Code of 1986, as
amended, including applicable regulations thereunder.

                2.4.    "Committee" means the Compensation Committee of the
Board, which shall be comprised solely of at least two persons who, to the
extent required to satisfy the exception for performance-based compensation
under Section 162(m) of the Code, are "outside directors" within the meaning of
such section. However, no act of the Committee shall be void or deemed to be
without authority due to the failure of a member to meet any qualification
requirement at the time the action is taken.

                2.5.    "Determination Date" means the day not later than the
90th day of a Plan Year or such other date by which the Committee may establish
performance goals for a Plan Year without causing an Award to be treated as
other than performance-based compensation under Section 162(m) of the Code.

                2.6.    "Eligible Employee" means any executive officer (as that
term is defined in Rule 3b-7 under the Securities Exchange Act of 1934, as
amended) or other key executive of the Company or its subsidiaries.

                2.7.    "Participant" means an Eligible Employee who has been
selected by the Committee to potentially receive an Award for a given Plan Year,
subject to achievement of one or more performance goals and satisfaction of
other conditions under the Plan or specified by the Committee.
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                2.8.    "Plan Year" means the fiscal year of the Company or such
other period established by the Committee.

SECTION 3.      Administration.

                The Plan shall be administered by the Committee. The Committee
shall have the authority to establish performance goals for the awarding of
Awards for each Plan Year; to determine the Participants for each Plan Year; to
determine whether performance goals for each Plan Year have been achieved; to
authorize payment of Awards under the Plan, including determining the form and
timing of payment and any conditions (such as further service requirements) that
will apply to such payment; to adopt, alter and repeal such administrative
rules, guidelines and practices governing the Plan as it shall deem advisable;
and to interpret the terms and provisions of the Plan. All determinations made
by the Committee with respect to the Plan and Awards thereunder shall be final
and binding on all persons, including the Company and all Eligible Employees.

SECTION 4.      Determination of Awards.

                The amount of a Participant's Award for any Plan Year shall be
an amount not greater than $3,000,000, which amount shall be determined based on
the achievement of one or more performance goals established by the Committee
with respect to a Participant. Performance goals may vary as among Participants
and shall be based upon one or more of the following criteria, as the Committee
may deem appropriate: appreciation in value of the Company's common stock; total
shareholder return; earnings per share; operating income; net income; pretax
earnings; pretax earnings before interest, depreciation and amortization; pro
forma net income; return on equity; return on designated assets; return on
capital; economic value created or economic profit; earnings per share and/or
growth thereof; book value; revenues; expenses (including expense ratio); loss
ratio; new business production; capital markets and/or acquisition transactions;
investment programs initiated; operating profit margin; operating cash flow;
free cash flow; cash flow return on investment; operating margin; and net profit
margin. Performance goals may be expressed as absolute goals, goals compared to
past performance, goals compared to the performance of a published or special
index or benchmark deemed applicable by the Committee, or otherwise as
determined by the Committee. The performance goals may be determined by
reference to the performance of the Company and/or a subsidiary or affiliate of
the Company, or of a division or unit of any of the foregoing. No later than the
Determination Date for a Plan Year, the Committee shall designate (i) the
Participants for such Plan Year, (ii) the performance goals for such Plan Year
and (iii) the corresponding Award amounts payable to each Participant under the
Plan upon achievement of such performance goals and satisfaction of other
conditions under the Plan or specified by the Committee. So long as an Award is
fully contingent upon a measure of performance as specified in this Section 4,
the Committee may consider other measures of performance or other circumstances
in its exercise of discretion ("negative discretion") to reduce the final Award.
The Committee may specify at the time an Award opportunity is authorized or at
any other time such other performance measures or other terms upon which it will
exercise negative discretion.

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SECTION 5.      Payment of Award.

                An Award (if any) to a Participant for a Plan Year shall be paid
following the end of the Plan Year; PROVIDED, HOWEVER, that the Committee shall
have first certified in writing (i) that the applicable performance goal or
goals with respect to such Participant for such Plan Year were satisfied and the
level of the attainment of such goal or goals, (ii) that all other material
terms upon which payment of the Award is conditioned were satisfied and (iii)
the amount of each Participant's Award. The Committee, unless it determines
otherwise, may exercise negative discretion to reduce the amount that would
otherwise be payable under an Award by reason of the applicable performance
goal's having been achieved. Payments will be in cash, subject to any conditions
the Committee may impose; PROVIDED, HOWEVER, that the Committee may also provide
that an Award will be paid in whole or in part in shares of the Company's common
shares or other Company common share-based awards, including restricted shares,
restricted share units or other share awards, if and to the extent that shares
are available under a separate equity compensation plan of the Company and
permitted to be granted in connection with such incentive awards, in any case
with an aggregate fair market value at the time of payment not to exceed
$3,000,000. If a Participant dies after the end of a Plan Year but before
receiving payment of any Award, the amount of such Award shall be paid to a
designated beneficiary or, if no beneficiary has been designated, to the
Participant's estate, in the form of a lump sum payment in cash as soon as
practicable after the Award for the Plan Year has been determined and certified
in accordance with this Section 5. Notwithstanding the foregoing, the Committee
may determine, by separate agreement with any Participant or otherwise, that all
or a portion of an Award for a Plan Year shall be payable to the Participant
upon the Participant's death, disability or termination of employment with the
Company or its subsidiaries, or upon a change of control of the Company, during
the Plan Year.

SECTION 6.      Non-transferability.

                No Award or rights under this Plan may be transferred or
assigned other than by will or by the laws of descent and distribution.

SECTION 7.      Amendments and Termination.

                The Board may terminate the Plan at any time and may amend it
from time to time, provided, however, that no termination or amendment of the
Plan shall materially and adversely affect the rights of a Participant or a
beneficiary with respect to a previously certified Award except with the written
consent of such Participant or beneficiary. Amendments to the Plan may be made
without shareholder approval except as required to satisfy Section 162(m) of the
Code.

SECTION 8.      General Provisions.

                8.1.    Nothing set forth in this Plan shall prevent the Board
or the Committee from adopting other or additional compensation arrangements.
Neither the adoption of the Plan or any Award hereunder shall confer upon any
person any right to continued employment.

                8.2.    No member of the Board or the Committee, nor any officer
or employee of the Company acting on behalf of the Board or the Committee, shall
be personally liable for any action, determination or interpretation taken or
made with respect to the Plan, and all members of

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the Board or the Committee and all officers or employees of the Company acting
on their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation.

                8.3.    The Committee is authorized to make adjustments in the
terms and conditions of, and the criteria included in, the authorization of
Awards and performance goals in recognition of unusual or nonrecurring events,
including stock splits, stock dividends, reorganizations, mergers,
consolidations, large, special and non-recurring dividends, and acquisitions and
dispositions of businesses and assets, affecting the Company and its
subsidiaries or any business unit thereof, or the financial statements of the
Company or any subsidiary, or in response to changes in applicable laws,
regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee's assessment of the business strategy of
the Company, any subsidiary or affiliate or business unit thereof, performance
of comparable organizations, economic and business conditions, and any other
circumstances deemed relevant; PROVIDED, HOWEVER, that no such adjustment shall
be authorized or made if and to the extent that the existence or exercise of
such authority would cause an Award potentially grantable hereunder to fail to
qualify as "performance-based compensation" under Section 162(m) of the Code.

                8.4.    The Company shall deduct from any payment in settlement
of a Participant's Award or other payment to the Participant any Federal, state,
or local withholding or other tax or charge which the Company is then required
to deduct under applicable law with respect to the Award.

                8.5.    The validity, construction, and effect of the Plan and
any rules and regulations or document hereunder shall be determined in
accordance with the laws (including those governing contracts) of New York,
without giving effect to principles of conflicts of laws.

SECTION 9.      Effective Date of Plan; Shareholder Approval

                The Plan shall become effective as of August 1, 2006. The
Company currently intends that this Plan will be submitted for approval by its
shareholders prior to the first regularly scheduled meeting of shareholders of
the Company that occurs more than twelve months after consummation of the
initial public offering of the common shares of the Company. The Company also
currently intends that the Plan will subsequently be submitted for reapproval of
shareholders no later than the first meeting of shareholders that occurs in the
fifth year following the year in which shareholders of the Company previously
approved the Plan.