Document:

Exhibit 10.1

    Exhibit
      10.1

    

    
      

      

    

     

     

    EXCESS
      OF
      LOSS REINSURANCE AGREEMENT

    dated
      as
      of December 12, 2006

    

    by
      and
      among

    

    XL
      INSURANCE (BERMUDA) LTD

    XL
      INSURANCE SWITZERLAND

    XL
      EUROPE
      LIMITED

    XL
      INSURANCE COMPANY LIMITED 

    XL
      RE
      LATIN AMERICA LTD

    XL
      INSURANCE ARGENTINA S.A. COMPANIA DE SEGUROS

    XL
      INSURANCE COMPANY LTD

    XL
      RE
      LTD

    XL
      RE
      EUROPE LIMITED

    VITODURUM
      REINSURANCE COMPANY

    UNDERWRITING
      MEMBERS OF LLOYD’S SYNDICATE #1209

     

    and

     

     

     

    STONEHEATH
      RE

     

     

    

     

    
      

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    EXCESS
      OF
      LOSS REINSURANCE AGREEMENT

     

    
      	
              ARTICLE

               

            	
              PAGE

               

            
	
              COVERAGE

            	
              3

            
	
              TERM

            	
              3

            
	
              EXTENDED
                EXPIRATION

            	
              4

            
	
              TERRITORY

            	
              4

            
	
              DEFINITIONS

            	
              4

            
	
              RETENTION
                AND LIMIT

            	
              7

            
	
              NET
                RETAINED LIABILITY

            	
              8

            
	
              ULTIMATE
                NET LOSS

            	
              8

            
	
              PREMIUM

            	
              9

            
	
              EXTRA
                CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY

            	
              10

            
	
              REPORTS
                AND REMITTANCES

            	
              10

            
	
              COMMUTATION
                AND QUANTUM DISPUTE RESOLUTION

            	
              11

            
	
              TRUST
                ACCOUNT

            	
              13

            
	
              NOTICE
                OF LOSS AND LOSS SETTLEMENTS

            	
              13

            
	
              SALVAGE
                AND SUBROGATION

            	
              14

            
	
              ENTIRE
                AGREEMENT

            	
              14

            
	
              DELAYS,
                ERRORS, OR OMISSIONS

            	
              14

            
	
              AMENDMENTS

            	
              15

            
	
              ACCESS
                TO RECORDS

            	
              15

            
	
              CONFIDENTIALITY

            	
              15

            
	
              INSOLVENCY

            	
              15

            
	
              ARBITRATION

            	
              16

            
	
              GOVERNING
                LAW

            	
              17

            
	
              TAXES

            	
              17

            
	
              CURRENCY

            	
              17

            
	
              AGENCY

            	
              18

            
	
              AFFILIATED
                COMPANIES

            	
              18

            
	
              NON-ASSIGNMENT;
                THIRD PARTIES

            	
              18

            
	
              SEVERABILITY

            	
              18

            

    

    

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    EXCESS
      OF LOSS REINSURANCE AGREEMENT

     

    THIS
      AGREEMENT (“Agreement”) is made and entered into by and among XL INSURANCE
      (BERMUDA) LTD and/or XL INSURANCE SWITZERLAND and/or XL EUROPE LIMITED and/or
      XL
      INSURANCE COMPANY LIMITED and/or XL RE LATIN AMERICA LTD and/or XL INSURANCE
      ARGENTINA S.A. COMPANIA DE SEGUROS and/or XL RE LTD and/or XL INSURANCE COMPANY
      LTD and/or XL RE EUROPE LIMITED and/or VITODURUM REINSURANCE COMPANY and/or
      UNDERWRITING MEMBERS OF LLOYD’S SYNDICATE #1209 (collectively, with their
      respective successors and assigns, hereinafter called the “Company”) of the one
      part, and Stoneheath Re (hereinafter called the “Reinsurer”) of the other part.

     

    The
      parties hereto agree as set forth below, in consideration of the mutual
      covenants contained in the following Articles and upon the terms and conditions
      set forth therein:

     

    COVERAGE

     

    Subject
      to
      the Retention and Limit Article and all other provisions of this Agreement,
      the
      Reinsurer will indemnify the Company for any Ultimate Net Loss incurred
      attributable to Loss Occurrences occurring during the term of this Agreement
      arising from Covered Perils under all Policies underwritten and issued by the
      Company.

     

    Notwithstanding
      any other provision of this Agreement, in no event will the Reinsurer’s
      aggregate liability under this Agreement in respect of all periods covered
      hereby (including the Original Term, all Extension Terms and any Optional
      Extension Terms), whether in respect of Loss Occurrences or otherwise, exceed
      the Policy Aggregate Limit.

     

    TERM

     

    This
      Agreement will apply to all Loss Occurrences during the term extending from
      the
      effective date hereof through June 30, 2007, both days inclusive (“Original
      Term”). Subject to the Policy Aggregate Limit, and for so long as the Policy
      Aggregate Limit has not been completely exhausted, the Company and the Reinsurer
      shall extend the term for four continuous one-year increments (each an
“Extension Term”) through and including a one-year term ending June 30,
      2011.

     

    If
      the
      Policy Aggregate Limit has not been completely exhausted on or prior to June
      30,
      2011, the Company shall have the option of further extending the term hereof
      for
      an unlimited number of continuous calendar quarters (each twelve-month period
      commencing July 1, or the portion of such period prior to expiry of this
      Agreement, being an “Optional Extension Term”) by giving written notice to the
      Reinsurer prior to the end of any calendar quarter of extension of the term
      for
      the following calendar quarter.

     

    Notwithstanding
      the expiration of this Agreement as hereinabove provided, the provisions of
      this
      Agreement will continue to apply to all obligations and liabilities of the
      parties incurred hereunder such that all obligations and liabilities will be
      fully performed and discharged, 

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    unless
      and
      until there is an Early Termination Event or obligations are commuted as
      prescribed below.

     

    Notwithstanding
      the foregoing, in the event of an Early Termination Event, (i) the term of
      this Agreement shall end, (ii) this Agreement shall expire immediately,
      (iii) all rights and obligations of the parties under this Agreement shall
      cease immediately, and (iv) irrespective of any differential between the
      amounts of Ultimate Net Loss and payments made hereunder, neither the Company
      nor the Reinsurer have any further rights or obligations hereunder; provided,
      however,
      that the
      Reinsurer at its option (to be exercised in writing within 10 Business Days
      of
      such event) may elect to give to the Company an (otherwise timely) notice of
      dispute, and/or to continue outstanding proceedings in respect of a previously
      given (otherwise timely) notice of dispute, under the Commutation and Quantum
      Dispute Resolution Article below. 

     

    EXTENDED
      EXPIRATION

     

    Should
      this Agreement expire while a Loss Occurrence covered hereunder is in progress,
      the Reinsurer will be responsible for its portion of the entire loss or damage
      caused by such Loss Occurrence, subject to the other conditions of this
      Agreement, and provided that no part of said Loss Occurrence is claimed against
      any renewal or replacement of this Agreement. Should the Original Term, any
      Extension Term or Optional Extension Term end while a Loss Occurrence covered
      hereunder is in progress, the entire loss or damage caused by such Loss
      Occurrence will be deemed to have occurred during such period, subject to the
      other conditions of this Agreement, and no part of said Loss Occurrence shall
      be
      deemed to have occurred during any subsequent period.

     

    TERRITORY

     

    Worldwide
      as respects the Covered Perils.

     

    DEFINITIONS

     

    The
      following definitions will apply to this Agreement:

     

    	A.  	
            “Aggregate
              Retention Amount” means $350,000,000 or such other amount (which may be
              zero) as may be determined by the Company in its discretion (subject
              to
              any limitations regarding erosion or exhaustion thereof which may be
              determined by the Company) for each six-month period commencing January
              1
              or July 1 and set forth by written endorsement hereto prior to such
              date.
              

          

     

    	B.  	
            “Attachment
              Point” means for any Loss Occurrence as respects each Covered Peril means
              the difference (but not less than zero for the avoidance of doubt)
              between
              the amount respectively set forth below (or such other respective amounts
              points as may be determined by the Company in its discretion for each
              six-month period commencing January 1 or July 1 and set forth by written
              endorsement hereto prior to such date) and the Non-Ceded Ultimate Net
              Loss
              in respect of such Loss Occurrence:

          

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    

     

    
      	
              Covered
                Peril

               

            	
              Amount

               

            
	
              (i)
                United States wind

               

            	
              $320,000,000

               

            
	
              (ii)
                European wind

               

            	
              $150,000,000

               

            
	
              (iii)
                California earthquake

               

            	
              $320,000,000

               

            
	
              (iv)
                Terrorism

               

            	
              $300,000,000

               

            

    

    

    	C.  	
            “Business
              Day” means a day on which commercial banks and foreign exchange markets
              settle payments and are open for general business (including dealings
              in
              foreign exchange and foreign currency deposits) in Bermuda, the Cayman
              Islands, New York City and London.

          

     

    	D.  	
            “Control”
              means the possession, directly or indirectly, of the power to direct
              or
              cause the direction of the management or policies of any corporation,
              limited liability company, trust, joint venture, association, company,
              partnership or other entity, whether through the ability to exercise
              voting power, by contract or otherwise 

          

     

    	E.  	
            “Covered
              Peril” means (i) United States wind (onshore and offshore, including the
              Gulf of Mexico, the Caribbean Sea and the North Atlantic Ocean), (ii)
              European wind (onshore and offshore, including the North Sea), (iii)
              California earthquake, and (iv) Terrorism worldwide, and/or (v) such
              other
              Covered Perils as may be determined by the Company in its discretion
              for
              each six-month period commencing January 1 or July 1 and set forth
              by
              written endorsement hereto prior to such date.

          

     

    	F.  	
            “Declaratory
              Judgment Expense” means all expenses incurred by the Company in direct
              connection with declaratory judgment actions brought to determine the
              Company’s obligations that are allocable to specific Policies and claims
              subject to this Agreement. Declaratory Judgment Expense will be deemed
              to
              have been incurred by the Company on the date of the actual or alleged
              Loss Occurrence giving rise to the action.

          

     

    	G.  	
            “Early
              Termination Event” means that an Early Termination of the XL Preference
              Share Agreement (as such term is defined therein) shall have
              occurred.

          

     

    	H.  	
            “Excess
              Limits Liability” has the meaning ascribed in the Extra Contractual
              Obligations Article.

          

     

    	I.  	
            “Extension
              Term” has the meaning ascribed in the Term
              Article.

          

     

    	J.  	
            “Extra
              Contractual Obligations” has the meaning ascribed in the Extra Contractual
              Obligations Article.

          

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    

     

    	K.  	
            “Final
              Redemption Date” has the meaning ascribed in the XL Preference Share
              Agreement.

          

     

    	L.  	
            “Loss
              Occurrence” means the aggregation of all individual losses occasioned by
              any one disaster, accident, or loss or series of disasters, accidents,
              or
              losses arising out of an event and/or originating cause. The duration
              and
              extent of any one Loss Occurrence will be determined by the Company.
              

          

     

    	M.  	
            “Non-Ceded
              Ultimate Net Loss” means as respects any Loss Occurrence the sum of (i)
              the amount of loss sustained with respect to such Loss Occurrence by
              XL
              Reinsurance America Inc.
              (on
              its own behalf and as
              pool leader on behalf of itself and its members of the pool in which
              XL
              Reinsurance America Inc. and certain of its affiliates are members),
              which
              would have been Ultimate Net Loss, net of collectible reinsurance
              (including XL Capital group intra-company reinsurance), if such entity
              were included within the definition of “Company” hereunder, and (ii) the
              product of (a) amount of loss sustained with respect to such Loss
              Occurrence by any insurance or reinsurance company in which XL Capital
              maintains a direct or indirect beneficial equity ownership less than
              or
              equal to 90% and equal to or greater than 20% which would have been
              Ultimate Net Loss, net of collectible reinsurance (including XL Capital
              group intra-company reinsurance), were such company included within
              the
              definition of “Company” hereunder, and (b) the percentage of XL Capital’s
              direct or indirect beneficial equity ownership in such
              company.

          

     

    	N.  	
            “Optional
              Extension Term” has the meaning ascribed in the Term
              Article.

          

     

    	O.  	
            “Original
              Term” has the meaning ascribed in the Term
              Article.

          

     

    	P.  	
            “Policies”
              means all policies, binders, contracts, or agreements of or for insurance
              or reinsurance, whether written or oral, and shall include reinsurance
              and
              retrocessions assumed, whether treaty or facultative, including, without
              limitation, XL Capital group intra-company
              reinsurance.

          

     

    	Q.  	
            “Policy
              Aggregate Limit” means $350,000,000.

          

     

    	R.  	
            “Remaining
              Aggregate Limit” means, at any date, an amount equal to the Policy
              Aggregate Limit minus the sum of (i) all payments theretofore made by
              the Reinsurer to the Company pursuant to the Reports and Remittances
              Article, and (ii) all amounts distributed from the Trust Account
              prior to such date to pay Extraordinary Expenses (as defined in the
              XL
              Preference Share Agreement).

          

     

    	S.  	
            “Terrorism”
              means any act, or preparation in respect of action, or threat of action,
              which appears to have been designed to influence the government de
              jure or
              de facto of any nation or any political division thereof, or in pursuit
              of
              political, religious, ideological, or similar purposes to intimidate
              the
              public or a section of the public of any nation by any person or group(s)
              of persons whether acting alone or 

          

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    on
      behalf
      of or in connection with any organization(s) or government(s) de jure or de
      facto, and which action or threatened or contemplated action:

     

    	(i)  	
            involves
              violence against one or more persons; or

          

     

    	(ii)  	
            involves
              damage to property; or

          

     

    	(iii)  	
            endangers
              life other than that of the person committing the action;
              or

          

     

    	(iv)  	
            creates
              a risk to health or safety of the public or a section of the public;
              or

          

     

    	(v)  	
            is
              designed to interfere with or disrupt an electronic
              system.

          

     

    	T.  	
            “Trust
              Account” means the trust account established pursuant to the Trust
              Agreement.

          

     

    	U.  	
            “Trust
              Agreement” means the Trust Agreement dated as of the date hereof, among
              the Reinsurer, Bank of New York as Trustee, Goldman Sachs International,
              as Asset Swap Counterparty, IXIS Financial Products Inc., as Interest
              Rate
              Swap Party, and the Company, as amended, modified and supplemented
              from
              time to time in accordance with its
              terms.

          

     

    	V.  	
            “Ultimate
              Net Loss” has the meaning ascribed in the Ultimate Net Loss
              Article.

          

     

    	W.  	
            “XL
              Capital” means XL Capital Ltd, a Cayman Islands exempted company and its
              successors and assigns.

          

     

    	X.  	
            “XL
              Preference Share Agreement” means the Securities Issuance Agreement, dated
              as of the date hereof, between XL Capital and Reinsurer, as amended,
              modified and supplemented from time to time in accordance with its
              terms.

          

     

    RETENTION
      AND LIMIT

     

    No
      claim
      may be made hereunder unless the Company has first incurred, by reason of any
      one Loss Occurrence during the Original Term or any Extension Term or Optional
      Extension Term, Ultimate Net Loss in excess of the respectively applicable
      Attachment Point. Further, no claim may be made hereunder unless such Ultimate
      Net Loss in excess of the Attachment Point exceeds, in addition, an aggregate
      retention equal to the Aggregate Retention Amount (subject to any applicable
      limitations regarding erosion or exhaustion thereof) for such Original Term,
      Extension Term or Optional Extension Term, as the case may be, otherwise
      recoverable under this Agreement in respect of one or more other Loss
      Occurrences (in excess of the respectively applicable Attachment Point(s) as
      respects each such Loss Occurrence) during such Original Term, Extension Term
      or
      Optional Extension Term, as the case may be. If such Aggregate Retention Amount
      is eroded but not exhausted by one or more Loss Occurrences and a subsequent
      Loss Occurrence in the Original Term or the same Extension Term or Optional
      Extension Term, as the case may be, both exhausts the Aggregate Retention Amount
      and has Ultimate Net Loss excess thereof, claim may be made hereunder in respect
      of such Loss Occurrence as respects such ex-

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    cess
      Ultimate Net Loss but not for an amount greater than the amount by which the
      aggregate retention was eroded by prior Loss Occurrence(s) (“Erosion Amount”).
      Notwithstanding the foregoing, the Company in its discretion for each six-month
      period commencing January 1 or July 1 and set forth by written endorsement
      hereto prior to such date may determine that the loss from any one Loss
      Occurrence may both exhaust the aggregate retention and, in excess thereof,
      be
      recoverable as Ultimate Net Loss hereunder up to the full remaining amount
      of
      the Policy Aggregate Limit, i.e.,
      in
      such
      case, the aggregate retention shall apply in respect of losses otherwise
      recoverable under this Agreement in respect of one or more Loss Occurrences
      (in
      excess of the respectively applicable Attachment Point(s) as respects each
      such
      Loss Occurrence) during such Original Term, Extension Term or Optional Extension
      Term, as the case may be. The Reinsurer will then be liable for the amount
      of
      Ultimate Net Loss in excess of the applicable Attachment Point for each
      subsequent Loss Occurrence during such Original Term, Extension Term or Optional
      Extension Term, as the case may be, but the limit of liability of the Reinsurer
      shall not exceed the Erosion Amount, if applicable, and in any event shall
      not
      exceed the Policy Aggregate Limit with respect to any one Loss Occurrence and
      also shall not exceed the Policy Aggregate Limit in respect of any and all
      Loss
      Occurrences during the Original Term and all Extension Terms and Optional
      Extension Terms combined.

     

    NET
      RETAINED LIABILITY

     

    This
      Agreement will apply to that portion of any insurance or reinsurance that the
      Company retains net for its own account net of any collectible reinsurance,
      and
      such retained portion will be used in calculating the amount of any loss
      hereunder as well as the amount in excess of which this Agreement attaches.
      

     

    ULTIMATE
      NET LOSS

     

    “Ultimate
      Net Loss” as used in this Agreement will mean the actual loss paid, payable or
      incurred by the Company and 100% of Extra Contractual Obligations and 100%
      of
      Excess Limits Liability, such Ultimate Net Loss to include expenses of
      litigation and subrogation, if any, claim-specific Declaratory Judgment
      Expenses, and all other loss expenses of the Company (including a pro rata
      share
      of salaries and expenses of the Company’s field employees and all in-house
      attorneys according to the time occupied in adjusting, defending, and settling
      such loss, and expenses of all of the Company’s officers and employees incurred
      in connection with the loss; except that salaries of officers and employees
      engaged in general management and located in the home office of the Company
      and
      any office expense of the Company will not be included) made in connection
      with
      the disposition of a claim, loss, or legal proceeding (including any and all
      claim-specific declaratory judgment actions; investigation, negotiation, and
      legal expenses; court costs; claim-specific statutory penalties; Prejudgment
      Interest or Delayed Damages; interest on any judgment or award; and other such
      costs and expenses) and Net Reinstatement Premiums (if positive).

     

    “Prejudgment
      Interest or Delayed Damages” means interest or damages added to a settlement,
      verdict, award, or judgment based on the period of time prior to the settlement,
      verdict, award, or judgment whether or not made part of the settlement, verdict,
      award, or judgment.

     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    

     

    “Net
      Reinstatement Premiums” means the amount by which reinstatement premiums due
      from the Company on ceded or retroceded reinsurances exceeds reinstatement
      premiums due to the Company on assumed reinsurances as respects any loss
      occurrence (exclusive of reinstatement premiums on XL Capital intra-group
      reinsurances).

     

    In
      the
      event a verdict or judgment is reduced by an appeal or a settlement subsequent
      to the entry of the judgment, thereby resulting in an ultimate saving on such
      verdict or judgment, or in the event a judgment is reversed outright, subsequent
      to a loss settlement under this Agreement, the reduced or avoided amount will
      be
      for the account of the Company, but (i) the amount thereof (net of
      expenses), received prior to commutation in respect of the period in which
      the
      pertinent Loss Occurrence took place shall be offset from Ultimate Net Loss
      subsequently due under this Agreement, and (ii) the expenses incurred in
      pursuing any such appeal or settlement prior to any such commutation shall
      constitute Ultimate Net Loss. In the event there is no reduction or reversal
      of
      a verdict or judgment, the loss expense incurred prior to any such commutation
      in attempting to secure such reduction or reversal will be added to the Ultimate
      Net Loss.

     

    Nothing
      in
      this Article will be construed to mean that losses under this Agreement are
      not
      recoverable until the Company’s Ultimate Net Loss has been ascertained.

     

    Whenever
      the Company issues a lost instrument bond or a lost instrument letter of
      indemnity for salvage purposes or in lieu of loss payment under its bond or
      policy, or where the Company posts security which is drawn in lieu of loss
      payment under its bond or policy, the Reinsurer agrees to accept liability
      under
      such bond or letter of indemnity in accordance with the terms of this
      Agreement.

     

    PREMIUM

     

    The
      Company shall pay premium during the Original Term and each Extension Term
      semi-annually in arrears on the second Business Day next preceding April 15
      and
      October 15 of each year in an amount equal to the product of (i) the average
      daily Remaining Aggregate Limit during the semi-annual period ending on (but
      not
      including) such April 15 or October 15, as applicable, (ii) 2.320% and (iii)
      a
      fraction (x) the numerator of which is 180, and (y) the denominator of which
      is
      360. 

     

    The
      Company shall pay premium during the Optional Extended Periods quarterly in
      arrears on the second Business Day next preceding January 15, April 15, July
      15
      and October 15 of each year in an amount equal to the product of (i) the average
      daily Remaining Aggregate Limit during the quarter ending on such January 15,
      April 15, July 15 or October 15, as applicable, (ii) 3.170% and (iii) a fraction
      (x) the numerator of which is the actual number of days in such quarterly
      period, and (y) the denominator of which is 360. 

     

    The
      obligation of the Company to pay premium hereunder shall end on the date of
      expiry of this Agreement or on such earlier date as this Agreement shall
      terminate by reason of the occurrence of an Early Termination Event. Following
      such expiry or termination, the Company shall pay a final premium hereunder
      on
      the second Business Day next preceding the earlier of (i) the next following
      April 15 or October
      15
      (in the case of an expiry or termination during the 

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    Original
      Term or an Extension Term) or the next following January 15, April 15, July
      15
      or October 15 (in the case of an expiry or
      termination during an Optional Extended Period), and (ii) the Final Redemption
      Date. Such final premium shall be in an amount equal to the product of (i)
      the
      average daily Remaining Aggregate Limit during the period beginning on the
      last
      date on which the Company paid premium hereunder and ending on (and including)
      the date of such expiry or termination, (ii) 2.320% (if such premium is being
      paid during the Original Term or an Extension Term) or 3.170%  (if
      such
      premium is being paid during an Optional Extended Period), and (iii) a fraction,
      the numerator of which is the actual number of days in the period referred
      to in
      the foregoing clause (i) and the denominator of which is 360.

     

    All
      premiums shall be paid to the Trust Account in the amounts prescribed above
      net
      of any applicable withholding taxes.

     

    EXTRA
      CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY

     

    This
      Agreement will protect the Company, within the limits hereof, where the Ultimate
      Net Loss includes any Extra Contractual Obligations and/or Excess Limits
      Liability.

     

    “Extra
      Contractual Obligations” will mean those liabilities not covered under any other
      provision of this Agreement and which arise from the handling of any claim
      on a
      Policy reinsured hereunder, such liabilities arising because of, but not limited
      to, the following: failure by the Company to settle within the Policy limit;
      by
      reason of alleged or actual negligence, fraud, or bad faith in rejecting an
      offer of settlement; in the preparation of the defense or in the trial of any
      action against its insured or reinsured; or in the preparation or prosecution
      of
      an appeal consequent upon such action.

     

    “Excess
      Limits Liability” will mean any amount payable in excess of the Company’s Policy
      limit on a Policy reinsured hereunder, such liabilities arising because of,
      but
      not limited to, alleged or actual negligence, fraud, or bad faith in failing
      to
      settle and/or rejecting a settlement within the Policy limit; in the preparation
      of the defense or in the trial of any action against the insured or reinsured;
      or in the preparation or prosecution of an appeal consequent upon such action.
      Excess Limits Liability is any amount which the Company would have been
      contractually liable to pay had it not been for the limit of the reinsured
      Policy.

     

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

     

    In
      no
      event will coverage be provided to the extent that such coverage is not
      permitted by applicable law.

     

    REPORTS
      AND REMITTANCES

     

    Within
      45
      days following the expiration each calendar quarter, the Company will furnish
      the Reinsurer with a report of the paid, payable and incurred Ultimate Net
      Loss
      amounts in respect of all losses hereunder and/or which contribute to erosion
      or
      exhaustion of any applicable Attachment Point or the Aggregate Retention Amount
      or which constitute Ultimate Net Loss in-

     

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

    demnifiable
      hereunder. If during the interim between such reports the Company in good faith
      estimates that Ultimate Net Loss ceded hereunder not previously indemnified
      exceeds $25,000,000, the Company in its discretion may submit an interim report
      of the paid, payable and incurred Ultimate Net Loss amounts in respect of all
      losses hereunder and/or which contribute to erosion or exhaustion of any
      applicable Attachment Point or Aggregate Retention Amount or which constitute
      Ultimate Net Loss indemnifiable hereunder. The Company will submit a copy of
      each such quarterly or interim report to the Trustee together with a duly
      executed notice in the form attached as Exhibit C to the Trust Agreement,
      specifying the amount then due and owing to the Company under this Agreement.
      Any balance shown to be due to the Company in any such quarterly or interim
      report and related notice will be paid by the Trustee in immediately available
      funds from assets available for such purpose in the Trust Account as directed
      by
      the Company within 20 Business Days following receipt of the report by the
      Reinsurer and related notice by the Trustee; provided,
      however, that
      all
      payments of Ultimate Net Loss hereunder shall be in whole number multiples
      of
      $10 million, and the excess, if any, of any Ultimate Net Loss otherwise due
      hereunder over the largest such multiple which is less than such amount shall
      be
      carried forward to the next calendar quarter (and thereafter, if applicable).
      In
      the event there is net favorable development as respects a Loss Occurrence
      prior
      to commutation in respect of the period in which such Loss Occurrence took
      place, no amount will be due from the Company at such time, but such amount
      shall be offset from Ultimate Net Loss subsequently due hereunder. 

     

    COMMUTATION
      AND QUANTUM DISPUTE RESOLUTION

     

    At
      any
      time after the delivery of the report in respect of any calendar quarter
      pursuant to the Reports and Remittances Article, the Company at its option
      may
      elect by written notice to the Reinsurer to commute its rights and the
      Reinsurer’s obligations as respects Ultimate Net Loss for Loss Occurrences
      taking place in such calendar quarter and all prior calendar quarters (not
      previously commuted) based on the Company’s paid, payable and incurred amounts
      reported for such quarters through the date of such commutation (without
      limiting coverage for Loss Occurrences in the then current and subsequent
      quarters). Such notice shall be accompanied by a report setting forth the
      Company’s calculation as to such additional amounts which may be owed by or due
      to the Reinsurer as a result of such commutation. The Company will submit a
      copy
      of such commutation report to the Trustee together with a duly executed notice
      in the form attached as Exhibit C to the Trust Agreement specifying the amount,
      if any, then due and owing to or from the Company under this Agreement. The
      Trustee shall pay to the Company the amount, if any, of payments then due to
      the
      Company and not previously paid in respect of such quarters as provided in
      the
      commutation report and related notice in immediately available funds from assets
      available for such purpose in the Trust Account as directed by the Company
      within 20 Business Days following receipt of the report by the Reinsurer and
      related notice by the Trustee, and there shall be deemed to be no carry forward
      or further loss development in respect of Loss Occurrences during such commuted
      quarters for the purposes of this Agreement. If such commutation report and
      notice shows any amount due to the Reinsurer, such amount shall not be due
      from
      the Company but shall be offset from Ultimate Net Loss subsequently due
      hereunder. Upon expiry of this Agreement, the Company shall commute its rights
      and the Reinsurer’s obligations hereunder no later than 90 days after such
      expiration, which commutation shall extinguish all of the Company’s and the
      Reinsurer’s rights and obligations hereunder as respect any subsequent favorable
      or adverse development in respect of all Loss Occurrences
      hereunder.

     

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

    

     

    If
      at the
      time of commutation upon expiry of this Agreement, as respects Loss Occurrences
      taking place subsequent to the latest calendar quarter previously commuted
      (or
      as respects all Loss Occurrences if there has been no prior commutation), the
      amount paid to the Company by the Reinsurer hereunder from the Trust Account
      in
      the aggregate as respects such Loss Occurrences (including any amounts due
      from
      the Company carried forward from any prior commutations pursuant to the previous
      paragraph) exceeds the aggregate of Ultimate Net Loss with respect to such
      Loss
      Occurrences for which the Company is entitled to indemnification hereunder
      (whether by reason of favorable development, net salvage or subrogation or
      otherwise), the Company shall pay (without duplication of any amount repaid
      pursuant to any determination by the Loss Verification Agent as provided below)
      the amount of such excess without interest, to or as directed by XL Insurance
      (Bermuda) Ltd..

     

    All
      payments of Ultimate Net Loss due hereunder or of any commutation amount (as
      described above) shall be based on actual paid and payable amounts and reserves
      established by the Company as set forth in any quarterly or interim report
      by
      the Company per the Reports and Remittances Article or in a report accompanying
      notice of commutation as described above in this Article. All calculations
      of
      Non-Ceded Ultimate Net Loss shall be based on actual paid and payable amounts
      and reserves established by the relevant subsidiary or affiliate of XL Capital,
      in each case on its books in good faith in the ordinary course of business
      using
      consistent methodology for all of its loss reserving. In the event that the
      Reinsurer within six months of receipt of a quarterly or interim report
      (pursuant to the Reports and Remittances Article) or a commutation report as
      described above (or within 10 Business Days of an Early Termination Event)
      gives
      a written notice of dispute of any such paid, payable or reserve amount,
      Deloitte & Touche LLP (“Loss Verification Agent”) shall perform an analysis
      of the paid and payable losses and reserves in question and shall determine
      the
      range of Ultimate Net Loss based upon a reasonable range of reserve estimates
      in
      accordance with standard accounting and actuarial practice. Such a notice or
      the
      pendency of such an analysis shall not delay the Company’s right to obtain
      payment as set forth in its quarterly, interim or commutation report. The Loss
      Verification Agent shall share a draft of its conclusion and workpapers with
      the
      Company and the Reinsurer and shall give them a reasonable opportunity to
      comment thereon if either or both of them wish to do so. If in the aggregate
      the
      amount of Ultimate Net Loss as determined by the Company falls within the range
      finally determined by the Loss Verification Agent, the Company’s determination
      of such amount shall be deemed final and conclusive hereunder, and the fees
      and
      expenses of the Loss Verification Agent shall be paid from the Trust Account
      (or, to the extent there are not sufficient funds in the Trust Account, by
      the
      Company). If in the aggregate the amount of Ultimate Net Loss determined by
      the
      Company does not fall within such range, the end point of such range which
      is
      closest to the Company’s determination shall be deemed to be the applicable
      amount of Ultimate Net Loss and final and conclusive hereunder, and the Company
      shall pay the fees and expenses of the Loss Verification Agent. In such case,
      the Company shall hold in trust the amount of any overpayment hereunder to
      be
      (i) applied to future Ultimate Net Loss due hereunder, if any, (ii) if the
      overpayment exceeds the aggregate of subsequent Ultimate Net Loss due hereunder,
      if any, through the time of commutation upon expiry of this Agreement (or
      termination of this Agreement upon the occurrence of an Early Termination Event)
      by $25 million or more, then, notwithstanding the provision above providing
      for
      payment to or at the direction of XL Insurance (Bermuda) Ltd, the Company
      promptly shall repay (without duplication of any repayment of excess amounts
      above Ultimate Net Loss as provided above) the amount of any such excess,
      without 

     

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

    interest,
      into the Trust Account, or (iii) if the overpayment exceeds the aggregate of
      subsequent Ultimate Net Loss due hereunder, if any, at the time of commutation
      upon expiry of this Agreement (or termination of this Agreement upon the
      occurrence of an Early Termination Event) by less than $25 million, then,
      subject to the provision above providing for payment to or at the direction
      of
      XL Insurance (Bermuda) Ltd, the difference is to be retained by the Company
      (or,
      if applicable as provided above, paid to or as directed by XL Insurance
      (Bermuda) Ltd). If no such notice of dispute is given with such six-month period
      (or within 10 Business Days of an Early Termination Event), the Ultimate Net
      Loss determined by the Company shall be final and conclusive hereunder (subject
      to subsequent payments and changes in any reserve estimates for periods for
      which there has been no commutation). 

     

    TRUST
      ACCOUNT

     

    The
      Reinsurer shall establish the Trust Account pursuant to the Trust Agreement
      and
      shall contribute cash or eligible securities (as defined in such Trust
      Agreement) to such Trust Account in an amount no less than the Policy Aggregate
      Limit. The Trust Agreement will not be amended, modified or supplemented without
      the prior written consent of the Company. 

     

    All
      obligations of and any claims against the Reinsurer under this Agreement shall
      be with recourse solely to the Trust Account and the Reinsurer’s assets (other
      than its ordinary share capital of U.S.$5,000, the amount equal to U.S.$1,500
      paid to the Reinsurer as a transaction fee, any interest income earned on such
      excluded amounts and the Cayman Islands bank account in which such amounts
      are
      held). 

     

    Notwithstanding
      anything to the contrary in this Agreement, but without limiting the Company’s
      rights as respects the Trust Account and the assets therein, all obligations
      of
      and any claims against the Reinsurer under this Agreement shall be extinguished
      and shall not thereafter revive in the event that, at any time, the Reinsurer’s
      assets (other than its ordinary share capital of U.S.$5,000, the amount equal
      to
      U.S.$1,500 paid to the Reinsurer as a transaction fee, any interest income
      earned on such excluded amounts and the Cayman bank account in which such
      amounts are held) are exhausted. In such case, the Company shall have no further
      claim thereafter against the Reinsurer, its directors, officers or shareholders
      for any shortfall. 

     

    The
      Company, by entering into this Agreement, hereby covenants and agrees that
      it
      will not at any time institute against the Reinsurer, or join in any institution
      against the Reinsurer, of any bankruptcy, reorganization, arrangement,
      insolvency or liquidation proceedings, or other proceedings under any federal,
      state or foreign bankruptcy or similar law in connection with any obligations
      hereunder until the expiration of one year and one day (or, if longer, the
      applicable preference period then in effect (plus one day) under any applicable
      law) from the effective date of the termination of this Agreement.

     

    The
      provisions of this Section shall survive the termination of this
      Agreement.

     

    NOTICE
      OF LOSS AND LOSS SETTLEMENTS

     

    The
      Company will give notice to the Reinsurer, as soon as reasonably practicable,
      of
      any Loss Occurrence that results in, or is likely to result in, a claim against
      this Agreement; and the 

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

    Company
      will keep the Reinsurer advised of all subsequent developments. Inadvertent
      omission in dispatching the aforementioned notices will in no way affect the
      obligation of the Reinsurer under this Agreement, but the Company shall inform
      the Reinsurer of such omission promptly upon discovery.

     

    The
      Company will be the sole judge as to what will constitute a claim covered under
      the Company’s Policy and as to the Company’s liability thereunder. The Company
      will, at its sole discretion, adjust, settle, or compromise all claims and
      losses. All such adjustments, settlements, and compromises will be
      unconditionally binding on the Reinsurer in proportion to their participation
      hereon, provided they are within the terms and conditions of this
      Agreement.

     

    The
      Company will likewise, at its sole discretion, commence, continue, defend,
      or
      withdraw from actions, suits or proceedings and generally handle all matters
      related to all claims and losses. 

     

    The
      Reinsurer agrees to abide by the loss settlements of the Company. 

     

    SALVAGE
      AND SUBROGATION

     

    The
      Reinsurer will be credited with its share of salvage and/or subrogation in
      respect of claims and settlements under this Agreement as respects any Loss
      Occurrence, less recovery expense, if and only if such salvage or subrogation
      is
      received prior to loss settlement, but (i) the amount of any salvage or
      subrogation recovery received thereafter (net of expenses) and prior to
      commutation in respect of the period in which such Loss Occurrence took place
      (and for the avoidance of doubt not to exceed Ultimate Net Loss paid hereunder
      in respect of such Loss Occurrence), shall be offset from Ultimate Net Loss
      subsequently due under this Agreement and (ii) the expenses incurred in pursuing
      any such salvage or recovery prior to any such commutation shall constitute
      Ultimate Net Loss. 

     

    ENTIRE
      AGREEMENT

     

    This
      Agreement, the XL Preference Share Agreement and the Trust Agreement constitute
      the entire agreement between the parties with respect to the business being
      reinsured hereunder and no understandings exist between the parties other than
      those expressed in this Agreement, the XL Preference Share Agreement and the
      Trust Agreement, including any letters of understanding issued by the Company
      from time to time relating to underwriting methods and practices employed by
      the
      Company in respect of business reinsured hereunder.

     

    DELAYS,
      ERRORS, OR OMISSIONS

     

    Any
      inadvertent delay, error, or omission will not be held to relieve either party
      hereto from any liability that would attach to it hereunder if such delay,
      error, or omission had not been made. Any error or omission will be rectified
      upon discovery except to the extent it would reduce any prior loss settlement.
      Nothing herein will be deemed to override any other term, clause or condition
      of
      this Agreement.

     

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

    

     

    AMENDMENTS

     

    This
      Agreement may be altered or amended in any of its terms and conditions by mutual
      written consent of the Company and the Reinsurer either by endorsement(s) hereto
      or by an exchange of letters; such addenda or letters will then constitute
      a
      part of this Agreement. As set forth above, the Company may unilaterally elect
      to extend the term of this Agreement for one or more Extension Terms and may
      determine the Covered Perils, Attachment Points and Aggregate Retention Amounts
      with respect thereto by endorsement hereto.

     

    ACCESS
      TO RECORDS

     

    The
      Company’s books and records related to this Agreement and any Loss Occurrences
      hereunder will be open to inspection by authorized representatives of the
      Reinsurer at any reasonable time during the existence of this Agreement or
      of
      any liability hereunder. The Reinsurer is required to give at least 14 days
      notice of an inspection. A request by the Reinsurer to carry out an inspection
      will not be a reason for non-payment or delayed payment.

     

    CONFIDENTIALITY

     

    Materials
      contained in this Agreement and in the treaty prospectus, or marketing package
      contain confidential, proprietary information of the Company. These statements
      and representations, either written or oral, are intended for the sole use
      of
      the parties to this Agreement (or their retrocessionaires, shareholders,
      auditors, or legal counsel, as may be necessary) in analyzing and/or accepting
      a
      participation in this Agreement. Copying, duplicating, disclosing or using
      this
      information for any purpose beyond this expressed purpose is forbidden without
      the prior consent of the Company.

     

    INSOLVENCY

     

    In
      the
      event of the Company’s insolvency, the reinsurance afforded by this Agreement
      will be payable by the Reinsurer on the basis of the Company’s liability under
      the policies reinsured without diminution because of the Company’s insolvency or
      because its liquidator, receiver, conservator, or statutory successor has failed
      to pay all or a portion of any claims, subject however to the right of the
      Reinsurer to offset against such funds due hereunder, any sums that may be
      payable to them by said insolvent Company in accordance with applicable law.
      The
      reinsurance will be payable by the Reinsurer directly to the Company, or to
      its
      liquidator, receiver, conservator, or statutory successor except (a) where
      this
      Agreement specifically provides another payee of such reinsurance in the event
      of the Company’s insolvency or (b) where the Reinsurer, with the consent of the
      direct insured or insureds, have assumed such policy obligations of the Company
      as direct obligations of themselves to the payees under such policies in
      substitution for the Company’s obligation to such payees. Then, and in that
      event only, the Company is entirely released from its obligation and the
      Reinsurer will pay any loss directly to payees under such policies.

     

    The
      Company’s liquidator, receiver, conservator, or statutory successor will give
      written notice of the pendency of a claim against the Company under the policies
      reinsured within a reasonable time after such claim is filed in the insolvency
      proceeding. During the pendency of such 

     

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

    claim,
      the
      Reinsurer may investigate said claim and interpose in the proceeding where
      the
      claim is to be adjudicated, at their own expense, any defense that they may
      deem
      available to the Company, or to its liquidator, receiver, conservator, or
      statutory successor. The expense thus incurred by the Reinsurer will be
      chargeable against the Company, subject to court approval, as part of the
      expense of conservation or liquidation to the extent that such proportionate
      share of the benefit will accrue to the Company solely as a result of the
      defense undertaken by the Reinsurer. Where two or more Reinsurer are involved
      in
      the same claim, and a majority in interest elect to interpose defense to such
      claim, the expense will be apportioned in accordance with the terms of this
      Agreement as though such expense had been incurred by the Company.

     

    ARBITRATION

     

    
      	 	
              A.

            	
              Except
                as provided in the Commutation and Quantum Dispute Resolution Article
                above, any dispute, controversy or claim arising out of or relating
                to
                this Contract or the breach, termination or invalidity thereof will
                be
                finally and fully determined in London, England under the provisions
                of
                the Arbitration Act 1996 and/or any statutory modifications or amendments
                thereto, for the time being in force, by a Board composed of three
                arbitrators to be selected for each controversy as
                follows:

            

    

     

    
      	 	
              1.

            	
              Any
                party may, in the event of such a dispute, controversy or claim,
                notify
                the other party or parties to such dispute, controversy or claim
                of its
                desire to arbitrate the matter, and at the time of such notification
                the
                party desiring arbitration will notify any other party or parties
                of the
                name of the arbitrator selected by it. The other party who has been
                so
                notified will within 30 calendar days thereafter select an arbitrator
                and
                notify the party desiring arbitration of the name of such second
                arbitrator. If the party notified of a desire for arbitration will
                fail or
                refuse to nominate the second arbitrator within 30 calendar days
                following
                receipt of such notification, the party who first served notice of
                a
                desire to arbitrate will, within an additional period of 30 calendar
                days,
                apply to a judge of the High Court of Justice in England and Wales
                for the
                appointment of a second arbitrator and in such a case the arbitrator
                appointed by such a judge will be deemed to have been nominated by
                the
                party or parties who failed to select the second arbitrator. The
                two
                arbitrators, chosen as above provided, will within 30 calendar days
                after
                the appointment of the second arbitrator choose a third arbitrator.
                In the
                event of the failure of the first two arbitrators to agree on a third
                arbitrator within said 30 calendar day period, either of the parties
                may
                within 30 calendar days thereafter, after notice to the other party
                or
                parties, apply to a judge of the High Court of Justice of England
                and
                Wales for the appointment of a third arbitrator and in such case
                the
                person so appointed will be deemed and will act as the third arbitrator.
                Upon acceptance of the appointment by said third arbitrator, the
                Board of
                Arbitration for the controversy in question will be deemed fixed.
                All
                claims, demands, denials of claims and notices pursuant to this Article
                will be given in writing and given by hand, prepaid express courier,
                airmail or 

            

    

     

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

    telecopier
      properly addressed to the appropriate party and will be deemed as having been
      effected only upon actual receipt.

     

    
      	 	
              2.

            	
              The
                Board of Arbitration will fix, by a notice in writing to the parties
                involved, a reasonable time and place for the hearing and may prescribe
                reasonable rules and regulations governing the course and conduct
                of the
                arbitration proceeding, including without limitation discovery by
                the
                parties.

            

    

     

    
      	 	
              3.

            	
              The
                Board of Arbitration will, within 90 calendar days following the
                conclusion of the hearing, render its decision on the matter or matters
                in
                controversy in writing and will cause a copy thereof to be served
                on all
                the parties thereto. In case the Board fails to reach a unanimous
                decision, the decision of the majority of the members of the Board
                will be
                deemed to be the decision of the Board and the same will be final
                and
                binding on the parties thereto. Such decision will be a complete
                defense
                to any attempted appeal or litigation of such decision of the Board
                of
                Arbitration by, any court or other body to the fullest extent permitted
                by
                applicable law.

            

    

     

    
      	 	
              4.

            	
              Any
                order as to the costs of the arbitration will be in the sole discretion
                of
                the Board of Arbitration, who may direct to whom and by whom and
                in what
                manner they will be paid.

            

    

     

    GOVERNING
      LAW

     

    Save
      as
      otherwise set out above, this Agreement, including all matters relating to
      formation, validity and performance thereof, will be governed by the internal
      Laws of England and Wales without reference to choice of law
      principles.

     

    TAXES

     

    The
      Company will pay all applicable taxes (including, if applicable, Federal Excise
      Tax as imposed under Section 4371 of the Internal Revenue Code), if any, on
      premiums reported to the Reinsurer on this Agreement, which taxes shall be
      in
      addition to the premiums due hereunder (i.e.,
      to
      the
      extent necessary, the Company shall gross up premiums due hereunder so that
      the
      Reinsurer receives the amount specified herein net of taxes).

     

    CURRENCY

     

    All
      limits
      and retentions hereunder are expressed in United States currency, and all
      payments hereunder will be made in that currency. For the purposes of this
      Agreement, amounts paid or received by the Company in currencies other than
      United States currency will be converted into United States Dollars at the
      actual rates of exchange at which they are entered in the Company’s
      books.

     

    
      
         

      

      
        -17-

        
          

        

      

      
         

      

    

    

     

    AGENCY

     

    The
      reinsured company that is set forth first in the definition of “Company” in the
      Preamble to this Agreement will be deemed the agent of all other reinsured
      companies referenced in the Preamble for the purpose of this Agreement, the
      Trust Agreement and all related transactions. In no event, however, will any
      reinsured company be deemed the agent of another with respect to the terms
      of
      the Insolvency Article.

     

    AFFILIATED
      COMPANIES

     

    Whenever
      the word “Company” is used in this Agreement, such term will be held to include
      any and/or all of the subsidiary operating insurance or reinsurance companies
      which may hereafter come under the Control of the XL Capital group upon prior
      written notice from the Company to the Reinsurer; provided,
      however, that
      any
      such company in which XL Capital maintains a direct or indirect beneficial
      equity ownership less than or equal to 90% shall not be deemed to be a “Company”
except for the purposes of “Non-Ceded Ultimate Net Loss” and as provided in the
      definition of such term. 

     

    If
      XL
      Capital shall cease to control any entity included within the Company, any
      Policies or Loss Occurrences arising out of the operations of such entity for
      which no other Company has liability shall cease to be covered
      hereunder.

     

    The
      retention of the Company and the liability of the Reinsurer and all other
      benefits accruing to the Company as provided in this Agreement or any amendments
      hereto, will apply to the affiliated companies comprising the Company as a
      group
      and not separately to each of the affiliated companies.

     

    NON-ASSIGNMENT;
      THIRD PARTIES

     

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

     

    Nothing
      herein will in any manner create any obligations or establish any rights against
      the Company in favor of any third parties or any persons not parties to this
      Agreement.

     

    Neither
      the Company nor the Reinsurer may assign to any third parties or any persons
      not
      parties to this Agreement any rights or obligations hereunder without the prior
      written consent of the other.

     

    SEVERABILITY

     

    In
      the
      event any provision of this Agreement is rendered illegal or unenforceable
      in
      any jurisdiction, such provision will be considered void as respects that
      jurisdiction only, and such a consideration will not affect the validity or
      enforceability of any provision of this Agreement in any other
      jurisdiction.

     

    
      
         

      

      
        -18-

        
          

        

      

      
         

      

    

    IN
      WITNESS
      WHEREOF this Agreement is executed in duplicate by the parties’ duly authorized
      officers on the dates indicated below with an effective date of December 12,
      2006.

     

    XL
      INSURANCE (BERMUDA) LTD

    on
      behalf
      of itself and as Attorney-in-Fact for:

    XL
      INSURANCE (BERMUDA) LTD

    XL
      INSURANCE SWITZERLAND

    XL
      EUROPE
      LIMITED

    XL
      INSURANCE COMPANY LIMITED 

    XL
      RE
      LATIN AMERICA LTD

    XL
      INSURANCE ARGENTINA S.A.  COMPANIA
      DE SEGUROS

    XL
      INSURANCE COMPANY LTD

    XL
      RE
      LTD

    XL
      RE
      EUROPE LIMITED

    VITODURUM
      REINSURANCE  COMPANY

    UNDERWRITING
      MEMBERS OF LLOYD’S SYNDICATE #1209

     

    By /s/
      C.
      Stanley Lee

    Name:
      C.
      Stanley Lee

    Title:
      SVP, Chief Financial Officer

    Date:
      December 12, 2006

     

    

    Attest:
      /s/
      Georgette Barit 

    Name:
      Georgette Barit

    Title:
      Asst. Secretary

    Date:
      December 12, 2006

    

    

    

    

    Reinsurance
      Agreement

     

    
      
         

      

      
        -19-

        
          

        

      

      
         

      

    

    STONEHEATH
      RE 

     

    By /s/
      Linda Haddleton

    Name:
      Linda Haddleton

    Title:
      Director

    Date:
      December 12, 2006

     

    

     

    Attest: /s/
      Liz
      Frederick

    Name:
      Liz
      Frederick

    Title:
      Assistant Manager

    Date:
      December 12, 2006 

    

    

    

    

    

    

    

    

    Reinsurance
      Agreement

     

     

     

    -20-Exhibit 10.2

    Exhibit
      10.2

    

    EXECUTION
      COPY

    

    

    SECURITIES
      ISSUANCE AGREEMENT

     

    

     

    between

     

    

     

    XL
      CAPITAL LTD

     

    

     

    and

     

    

     

    STONEHEATH
      RE

     

    

     

    Dated
      December 12, 2006

     

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Preamble

     

    This
      Securities Issuance Agreement, dated as of December 12, 2006 (the “Agreement”),
      is by
      and between XL CAPITAL LTD, a Cayman Islands exempted company (including its
      permitted successors and assigns, “XL
      Capital”),
      and
      STONEHEATH RE, a Cayman Islands exempted company (“Stoneheath”).

     

    Recitals

     

    WHEREAS,
      XL Capital is authorized to and has reserved for issue an aggregate of 350,000
      Series D Preference Ordinary Shares, liquidation preference of U.S. $1,000
      per
      share, having an aggregate liquidation preference as of the date hereof of
      U.S.
      $350,000,000 (“XL
      Preferred Securities”),
      which
      XL Preferred Securities shall not be registered under the Securities Act of
      1933, as amended (the “Securities
      Act”),
      on or
      before the date on which XL Preferred Securities are issued and delivered
      pursuant to the terms of this Agreement, and may, but are not required to be,
      so
      registered thereafter;

     

    WHEREAS,
      Stoneheath has entered into that certain Excess of Loss Reinsurance Agreement,
      dated as of the date hereof (as amended, supplemented or otherwise modified
      from
      time to time in accordance with its terms, the “Reinsurance
      Agreement”),
      with
      XL Insurance (Bermuda) Ltd (“XLIB”)
      and the
      other Ceding Insurers (as defined below) from time to time party thereto,
      pursuant to which Stoneheath has agreed to indemnify the Ceding Insurers against
      net paid, payable and incurred losses from certain covered perils, subject
      to
      certain limitations; and

     

    WHEREAS,
      in consideration for Stoneheath entering into the Reinsurance Agreement and
      other transactions relating thereto and the payment by Stoneheath on the date
      hereof of U.S. $350,000,000 in respect of the par value of the XL Preferred
      Securities that are issuable hereunder, XL Capital and Stoneheath desire to
      enter into a binding agreement pursuant to which (i) XL Capital shall issue
      and
      deliver to Stoneheath certain XL Preferred Securities upon the payment by
      Stoneheath of certain amounts under the Reinsurance Agreement or upon the
      occurrence of certain events and (ii) XL Capital shall have the option to issue
      and deliver to Stoneheath certain XL Preferred Securities upon the occurrence
      of
      certain other events.

     

    NOW
      THEREFORE, for good and valuable consideration the receipt of which is hereby
      acknowledged, the parties hereto agree as follows:

     

    1.  Definitions;
      Interpretation

    1.1.  The
      words
“herein,”
      “hereof”
and
      “hereunder”
and
      other words of similar import refer to this Agreement as a whole and not to
      any
      particular section, clause or other subdivision, and references to “Sections”
      refer to
      Sections of this Agreement except as otherwise expressly provided.

     

    1.2.  In
      this
      Agreement:

     

    “Account
      Trustee”
means
      the Trustee under the Trust Agreement and any successor trustee appointed in
      accordance with the terms thereof.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    

     

    “Administration
      Agreement” means
      that
      certain Administrative Services Agreement, dated as of the date hereof, between
      Stoneheath and HSBC Financial Services (Cayman) Limited, as amended,
      supplemented or otherwise modified from time to time in accordance with the
      terms thereof and hereof.

     

    “Agreement”
has
      the
      meaning set forth above in the Preamble.

     

    “Asset
      Swap Agreement”
means
      that certain 1992 ISDA Master Agreement (Multicurrency-Cross Border), as
      supplemented by a schedule and confirmation thereto, dated as of the date
      hereof, between Stoneheath and the Asset Swap Counterparty, and as further
      amended, supplemented or otherwise modified from time to time in accordance
      with
      the terms thereof and hereof.

     

    “Asset
      Swap Counterparty”
means
      Goldman Sachs International, as the initial counterparty under the Asset Swap
      Agreement, and any permitted successor, assign or replacement counterparty
      which
      assumes the obligations of the initial counterparty in accordance with the
      terms
      thereof and hereof.

     

    “Business
      Day”
means
      a
      day on which commercial banks and foreign exchange markets settle payments
      and
      are open for general business (including dealings in foreign exchange and
      foreign currency deposits) in Bermuda, the Cayman Islands, New York City and
      London.

     

    “Ceding
      Insurers”
means
      XLIB and such other insurance and reinsurance subsidiaries of XL Capital that
      are party to the Reinsurance Agreement from time to time.

     

    “Closing
      Date”
means
      the date of this Agreement.

     

    “Covered
      Expenses”
      means all
      expenses incurred by Stoneheath from time to time except for (i) amounts payable
      by Stoneheath under the Asset Swap Agreement, (ii) amounts payable by Stoneheath
      under the Interest Rate Swap Agreement, (iii) amounts payable by Stoneheath
      under the Reinsurance Agreement, (iv) Extraordinary Expenses, (v) amounts
      distributable under the Trust Agreement (other than to the Account Trustee),
      (vi) any dividends or distributions declared or paid, or redemption or
      liquidation payment made, on any of Stoneheath’s securities including, without
      limitation, the Issuer Preferred Securities and (vii) any expenses reimbursable
      pursuant to Section
      3.3
      which
      have previously been paid to Stoneheath by XL Capital.

     

    “Dividend
      Payment Date”
      means,
      with respect to any outstanding Issuer Preferred Securities, the date on which
      a
      divided is scheduled to be paid. During the Fixed Rate Period, dividends on
      the
      Issuer Preferred Securities will be payable semi-annually on April 15 and
      October 15 of each year, commencing on April 15, 2007. In the event that a
      Dividend Payment Date during the Fixed Rate Period is not a Business Day, any
      dividend then due and payable will instead be paid on the immediately following
      Business Day and no further sum will be payable in respect of such delay. During
      the Floating Rate Period, dividends on the Issuer Preferred Securities will
      be
      payable quarterly on January 15, April 15, July 15 and October 15 of each year,
      commencing on January 15, 2012. In the event that a Dividend Payment Date during
      the Floating Rate Period would otherwise fall on a day that is not a Business
      Day, such Dividend 

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    Payment
      Date will be postponed to the immediately following Business Day and the
      applicable Dividend Period will end on, but exclude, such immediately following
      Business Day.

     

    “Dividend
      Period”
      means,
      with respect to any Issuer Preferred Securities issued and outstanding, the
      period from and including a Dividend Payment Date (or the date of the original
      issuance if there has not been a Dividend Payment Date) to but excluding the
      immediately succeeding Dividend Payment Date. 

     

    “Early
      Termination”
      has the
      meaning set forth in Section
      6.1.

     

    “Extraordinary
      Expenses” means
      (i)
      any fees and expenses (and any judgment, damages, penalties and interest thereon
      or settlement related thereto) relating to the investigation, defense or
      assertion of any claim which arises out of, relates to or results from any
      dispute by or among any one or more of Stoneheath, one or more holders of
      Stoneheath’s securities, the Asset Swap Counterparty, the Interest Rate Swap
      Counterparty, the Account Trustee, XL Capital and one or more Ceding Insurers,
      (ii) any interest on unpaid amounts, if any, under the Interest Rate Swap
      Agreement or the Asset Swap Agreement, (iii) any interest on collateral posted,
      if any, by the Interest Rate Swap Counterparty or the Asset Swap Counterparty
      under the Interest Rate Swap Agreement or the Asset Swap Agreement, as the
      case
      may be, (iv) any fees, expenses or other amounts relating to or arising out
      of
      any breach by Stoneheath of any contract, agreement, commitment or undertaking
      to which it is a party, (v) any Loss Verification Agent Expenses to be borne
      by
      Stoneheath pursuant to Section
      3.3,
      (vi) any
      withholding or other taxes and (vii) any losses on investments made with the
      assets held in the Trust Account.

     

    “Final
      Redemption Date”
      means the
      date specified in the notice of redemption by Stoneheath to the holders of
      record of the outstanding Issuer Preferred Securities following (i) the date
      of
      termination of the Reinsurance Agreement (whether upon its expiry or as a result
      of the occurrence of an Early Termination of this Agreement) and (ii) the date
      when, if required by the terms of the Reinsurance Agreement, the commutation
      of
      the rights and obligations of Stoneheath and the Ceding Insurers under the
      Article entitled “Commutation and Quantum Dispute Resolution” of the Reinsurance
      Agreement occurred.

     

    “Fixed
      Rate”
means
      6.868% per annum.

     

    “Fixed
      Rate Period”
means
      the period from and including the Closing Date to but excluding October 15,
      2011.

     

    “Floating
      Rate”
means,
      with respect to any Dividend Period, a per annum rate equal to the sum of (i)
      the Three-Month LIBOR Rate for such Dividend Period plus (ii) the Floating
      Rate
      Spread Percentage.

     

    “Floating
      Rate Period”
means
      the period from and after October 15, 2011.

     

    “Floating
      Rate Spread Percentage”
means
      3.120%.

     

    “Interest
      Rate Swap Agreement”
means
      that certain long form transaction confirmation incorporating by reference
      the
      1992 ISDA Master Agreement (Multicurrency-Cross Border), dated as of the date
      hereof, between Stoneheath and the Interest Rate Swap Counterparty, as

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

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

     

    “Interest
      Rate Swap Counterparty”
means
      IXIS Financial Products Inc., as the initial counterparty under the Interest
      Rate Swap Agreement, and any permitted successor, assign or replacement
      counterparty which assumes the obligations of the initial counterparty in
      accordance with the terms thereof and hereof.

     

    “Investment
      Account”
      means the
“Investment Account” as such term is defined in the Trust
      Agreement.

     

    “Issuer
      Preferred Securities”
means
      the non-cumulative perpetual preferred shares, liquidation preference U.S.
      $1,000 per share, of Stoneheath.

     

    “LIBOR
      Business Day”
means
      any day on which commercial banks are open for general business (including
      dealings in deposits in U.S. dollars) in London.

     

    “LIBOR
      Determination Date”
means,
      with respect to any Dividend Period, the date that is two LIBOR Business Days
      prior to the first day of such period.

     

    “Lien”
means
      any mortgage, pledge, hypothecation, deposit, encumbrance, lien (statutory
      or
      otherwise), charge, security interest or preference, priority or other security
      agreement or preferential arrangement of any kind or nature
      whatsoever.

     

    “Liquidation
      Date”
means
      the date on which Stoneheath is liquidated and its assets, if any, distributed
      in accordance with its Memorandum and Articles of Association, the Stoneheath
      Board Resolutions and applicable law.

     

    “Loss
      Verification Agent”
      means the
“Loss Verification Agent” as such term is defined in, and determined in
      accordance with the provisions of, the Reinsurance Agreement.

     

    “Loss
      Verification Agent Expenses”
      has the
      meaning set forth in Section
      3.3.

     

    “Make
      Whole Amount”
      means the
“Make Whole Amount” as such term is defined in, and determined in accordance
      with the provisions of, the XL Capital Board Resolutions.

     

    “Moody’s”
means
      Moody’s Investors Service, Inc. or any successor thereto.

     

    “Paying
      Agency Agreement”
      means
      that certain Paying Agency Agreement, dated as of the date hereof, among
      Stoneheath, as Issuer, XL Capital, as Third Party, and The Bank of New York,
      as
      Preferred Security Paying Agent and Preferred Security Registrar, as amended,
      supplemented or otherwise modified from time to time in accordance with the
      terms thereof and hereof.

     

    “Person”
      means any
      person, firm, partnership, corporation, limited liability company or other
      entity.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

     

    “Policy
      Aggregate Limit”
means
      the “Policy Aggregate Limit” as such term is defined in, and determined in
      accordance with the provisions of, the Reinsurance Agreement.

     

    “Put
      Premium”
has
      the
      meaning set forth in Section
      3.1(a).

     

    “Put
      Premium Certificate”
has
      the
      meaning set forth in Section
      3.2.

     

    “Put
      Premium Payment Date”
has
      the
      meaning set forth in Section
      3.1(a).

     

    “Put
      Premium Payment Period”
has
      the
      meaning set forth in Section
      3.1(a).

     

    “Register
      of Members”
means
      XL
      Capital’s Register of Members.

     

    “Reimbursement
      Notice”
      has the
      meaning set forth in Section
      3.3.

     

    “Reimbursement
      Payment Date”
      has the
      meaning set forth in Section
      3.3.

     

    “Reinsurance
      Agreement”
has
      the
      meaning set forth in the Recitals to this Agreement.

     

    “Reinsurance
      Premium”
means
      the “Reinsurance Premium” as such term is defined in, and determined in
      accordance with the provisions of, the Reinsurance Agreement.

     

    “Remaining
      Aggregate Limit”
      means, on
      any date, an amount equal to the Policy Aggregate Limit as reduced as of such
      date by any payments made by Stoneheath under the Reinsurance Agreement and
      any
      distributions from the Trust Account made to Stoneheath to permit it to pay
      Extraordinary Expenses.

     

    “Replacement
      Cost”
      means the
“Replacement Cost” as such term is defined in, and determined in accordance with
      the provisions of, the Asset Swap Agreement or the Interest Rate Swap Agreement,
      as the case may be.

     

    “Replacement
      Cost Funding Date”
      has the
      meaning set forth in Section
      3.4.

     

    “Replacement
      Cost Funding Notice”
      has the
      meaning set forth in Section
      3.4.

     

    “Replacement
      Cost Payment Date”
      means the
      day on which any Replacement Cost payment is due and payable to the Asset Swap
      Counterparty or the Interest Rate Swap Counterparty.

     

    “S&P”
means
      Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
      Inc., or any successor thereto.

     

    “Securities
      Act”
has
      the
      meaning set forth in the Recitals to this Agreement.

     

    “Shareholder
      Proposal Redemption Event”
means
      the occurrence of an event that would permit XL Capital to redeem XL Preferred
      Securities pursuant to Section 3(d)(ii) (Redemption upon Submission of Certain
      Shareholder Proposals) of the XL Capital Board Resolutions.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    

     

    “Stoneheath”
has
      the
      meaning set forth in the Preamble to this Agreement.

     

    “Stoneheath
      Board Resolutions”
      means the
      resolutions adopted by Stoneheath, attached hereto as Annex
      D,
      establishing the terms and preferences of the Issuer Preferred
      Securities.

     

    “Tax
      Redemption Event”
means
      the occurrence of an event that would permit XL Capital to redeem XL Preferred
      Securities pursuant to Section 3(d)(iii) (Redemption on Tax Event) of the XL
      Capital Board Resolutions.

     

    “Three-Month
      LIBOR Rate”
means,
      with respect to any Dividend Period, a rate determined by the applicable
      calculation agent on the basis of the offered rates for U.S. dollar deposits
      for
      a period of three months, as applicable, commencing on the first day of such
      Dividend Period, which appears on US LIBOR Telerate Page 3750 as of
      approximately 11:00 a.m., London time, on the LIBOR Determination Date for
      such
      Dividend Period. If on any LIBOR Determination Date no rate appears on US LIBOR
      Telerate Page 3750 as of approximately 11:00 a.m., London time, the applicable
      calculation agent will on such LIBOR Determination Date request four major
      banks
      in the London interbank market selected by the calculation agent to provide
      the
      calculation agent with a quotation of the rate at which U.S. dollar deposits
      for
      a three-month period, commencing on the first day of such Dividend Period,
      are
      offered by them to prime banks in the London interbank market as of
      approximately 11:00 a.m., London time, on such LIBOR Determination Date and
      in a
      principal amount equal to U.S. $1 million or more. If at least two such
      quotations are provided, LIBOR for such Dividend Period will be the arithmetic
      mean (rounded upward, if necessary, to the nearest .00001 of 1%) of such
      quotations as calculated by the calculation agent. If fewer than two quotations
      are provided, LIBOR for such Dividend Period will be the arithmetic mean
      (rounded upward, if necessary, to the nearest .00001 of 1%) of the rates quoted
      as of approximately 11:00 am., New York time, on the first day of such Dividend
      Period by major banks in New York City, New York selected by the calculation
      agent for loans in U.S. dollars to leading European banks, for a three-month
      period commencing on the first day of such Dividend Period and in a principal
      amount of not less than U.S. $1 million.

     

    “Trust
      Account”
means
      the “Trust Account” as such term is defined in the Trust Agreement.

     

    “Trust
      Agreement”
means
      that certain Trust Agreement, dated as of the date hereof, among Stoneheath,
      as
      grantor and beneficiary, the Asset Swap Counterparty, the Ceding Insurers and
      XL
      Capital, as beneficiaries, and the Account Trustee, as trustee, as amended,
      supplemented or otherwise modified from time to time in accordance with the
      terms thereof and hereof.

     

    “U.S.
      Person”
      has the
      meaning given to such term in Regulation S under the Securities
      Act.

     

    “XL
      Capital”
has
      the
      meaning set forth in the Preamble to this Agreement.

     

    “XL
      Capital Board Resolutions”
means
      the resolutions adopted by XL Capital, attached hereto as Annex
      E,
      establishing the terms and preferences of the XL Preferred
      Securities.

     

    “XL
      Preferred Securities”
has
      the
      meaning set forth in the Recitals to this Agreement.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

     

    “XLIB”
has
      the
      meaning set forth in the Recitals to this Agreement.

     

    In
      this
      Agreement, any reference to a “company”
shall
      be
      construed so as to include any corporation, trust, partnership, limited
      liability company or other legal entity, wheresoever incorporated or
      established.

     

    1.3.  In
      this
      Agreement, save where the contrary is indicated, any reference to:

     

    (a)  this
      Agreement or any other agreement or document shall be construed as a reference
      to this Agreement or, as the case may be, such other agreement or document
      as
      the same may have been, or may from time to time be, amended, varied, novated
      or
      supplemented in accordance with its terms; and

     

    (b)  a
      statute
      shall be construed as a reference to such statute as the same may have been,
      or
      may from time to time be, amended or re-enacted.

     

    1.4.  In
      this
      Agreement, any definition shall be equally applicable to both the singular
      and
      plural forms of the defined terms.

     

    2.  Issuance
      of XL Preferred Securities

    2.1.  Aggregate
      Number of XL Preferred Securities.
      The
      maximum amount of XL Preferred Securities that may be issued pursuant to this
      Agreement shall have an aggregate liquidation preference, upon issuance, of
      U.S. $350,000,000.

     

    2.2.  Mandatory
      Issuance.

     

    (a)  Subject
      to
      applicable legal requirements, XL Capital hereby agrees to issue and deliver
      XL
      Preferred Securities to Stoneheath as follows:

     

    (i)  on
      each
      date on which a Ceding Insurer receives a distribution of funds from the Trust
      Account (other than pursuant to clause (ii) of this Section
      2.2(a)
      or
      pursuant to Section
      2.3(a)),
      XL
      Capital shall issue and deliver to Stoneheath (against such distribution from
      the Trust Account) an amount of XL Preferred Securities having an aggregate
      liquidation preference that is equal to the amount of funds so distributed
      from
      the Trust Account; and

     

    (ii)  upon
      the
      occurrence of any of the following events, XL Capital shall issue and deliver
      to
      Stoneheath an amount of XL Preferred Securities having an aggregate liquidation
      preference that is equal to the lesser of (x) the Remaining Aggregate Limit
      under the Reinsurance Agreement at such time and (y) the cash proceeds of the
      assets in the Trust Account available for distribution to XLIB or its designee
      (such issuance and delivery to be made only against the distribution to or
      as
      directed by XLIB of an amount of funds from the Trust Account equal to the
      aggregate liquidation preference of the XL Preferred Securities so issued and
      delivered):

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    

     

    (A)  a
      failure
      by a Ceding Insurer to pay any Reinsurance Premium owed by it (and any interest
      accrued thereon) when due and such payment default is not cured within five
      Business Days thereafter; provided,
      that no
      XL Preferred Securities shall be issued pursuant to this clause (ii)(A) if
      XL
      Capital shall have paid to Stoneheath within such five Business Day period
      an
      equivalent amount of Put Premium (and accrued interest thereon) in accordance
      with Section
      3.1(b)(ii)
      of this
      Agreement;

     

    (B)  a
      failure
      by XL Capital to pay any Put Premium (and any interest accrued thereon) or
      other
      amounts, if any, payable by it under this Agreement when due and such payment
      default is not cured within five Business Days thereafter;

     

    (C)  a
      failure
      by the Account Trustee to (1) make distributions to the Asset Swap Counterparty,
      the Interest Rate Swap Counterparty or Stoneheath in accordance with the Trust
      Agreement or (2) effect a purchase or sale of an asset in the Investment Account
      in accordance with any notice received from the Asset Swap Counterparty and
      the
      investment guidelines set forth in the Trust Agreement, in each case within
      the
      period specified in the Asset Swap Agreement;

     

    (D)  a
      breach
      of Section
      4.1
      of this
      Agreement;

     

    (E)  a
      termination of the Asset Swap Agreement, unless Stoneheath shall have, at the
      time of termination, (1) entered into a new asset swap with a permitted
      successor, assign or replacement Asset Swap Counterparty that has terms that
      are
      identical in all material respects to the then-applicable terms of the Asset
      Swap Agreement (other than the counterparty thereto) and (2) paid to the Asset
      Swap Counterparty all amounts due under the Asset Swap Agreement;

     

    (F)  a
      termination of the Interest Rate Swap Agreement prior to October 15, 2011,
      unless Stoneheath shall have, at the time of termination, (1) entered into
      a new
      interest rate swap with a permitted successor, assign or replacement Interest
      Rate Swap Counterparty that has terms that are identical in all material
      respects to the then-applicable terms of the Interest Rate Swap Agreement (other
      than the counterparty thereto) and (2) paid to the Interest Rate Swap
      Counterparty all amounts due under the Interest Rate Swap Agreement;
      or

     

    (G)  a
      downgrading of the rating assigned to the senior unsecured indebtedness of
      XL
      Capital to below “BBB-” by S&P or below “Baa3” by Moody’s.

     

    (b)  Upon
      the
      occurrence of an event described in Section
      2.2(a)(ii)(D) or (G), XL
      Capital
      shall promptly, but no later than one Business Day after obtaining knowledge
      thereof, notify Stoneheath, the Asset Swap Counterparty, the Interest Rate
      Swap

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    Counterparty
      and the Account Trustee in writing of the occurrence of such event stating
      the
      date on which the event occurred. Upon the occurrence of an event described
      in
Section 2.2(a)(ii)(A),
      (B),
      (C), (E)
      or
(F),
      Stoneheath shall promptly, but no later than one Business Day after obtaining
      knowledge thereof, notify XL Capital, the Asset Swap Counterparty, the Interest
      Rate Swap Counterparty and the Account Trustee in writing of the occurrence
      of
      such event stating the date on which the event occurred. 

     

    2.3.  Optional
      Issuance.

     

    (a)  At
      any
      time that XL Capital would be permitted to redeem any XL Preferred Securities
      upon the occurrence of (i) a Shareholder Proposal Redemption Event or (ii)
      a Tax
      Redemption Event (assuming, in each case, that some or all of the XL Preferred
      Securities were then outstanding), XL Capital shall have the option to issue
      and
      deliver to Stoneheath an amount of XL Preferred Securities having an aggregate
      liquidation preference that is equal to the lesser of (x) the Remaining
      Aggregate Limit under the Reinsurance Agreement at such time and (y) the cash
      proceeds of the assets in the Trust Account available for distribution to XLIB
      or its designee. Such issuance and delivery of XL Preferred Securities shall
      be
      made against a distribution to or as directed by XLIB of an amount of funds
      from
      the Trust Account equal to the aggregate liquidation preference of the XL
      Preferred Securities so issued and delivered.

     

    (b)  XL
      Capital
      shall promptly notify Stoneheath, the Asset Swap Counterparty, the Interest
      Rate
      Swap Counterparty and the Account Trustee if it elects to exercise the option
      to
      issue and deliver XL Preferred Securities pursuant to this Section
      2.3.
      A notice
      delivered in accordance with this Section
      2.3(b)
      shall
      specify the aggregate liquidation preference of the XL Preferred Securities
      to
      be issued and the date of issuance. Upon the issuance of XL Preferred Securities
      pursuant to this Section
      2.3,
      XL
      Capital shall have the right to redeem such XL Preferred Securities in
      accordance with their terms.

     

    2.4.  Upon
      the
      occurrence of any of the events described in Sections
      2.2(a)
      or
2.3.(a),
      XL
      Capital shall cause the applicable number of XL Preferred Securities to be
      issued and delivered to Stoneheath against the distribution of an amount of
      funds from the Trust Account equal to the aggregate liquidation preference
      of
      the XL Preferred Securities so issued and delivered and shall take all other
      actions necessary to issue and deliver such number of XL Preferred Securities,
      including the registration of the issuance of such shares in XL Capital’s
      Register of Members. The XL Preferred Securities so issued, delivered and
      registered in XL Capital’s Register of Members shall be duly authorized, validly
      issued, fully paid and non-assessable and shall be delivered free and clear
      of
      any defect in title, together with all transfer and registration documents
      (or
      all notices, instructions or other communications) and the payment of any
      transfer taxes as are necessary to convey title to the XL Preferred Securities
      to Stoneheath.

     

    2.5.  Prepayment
      of Issue Price.
      XL
      Capital and Stoneheath hereby agree and acknowledge that Stoneheath has fully
      paid for the XL Preferred Securities issuable under this Agreement at an issue
      price of U.S. $0.01 per security and that such payment was made on the date
      hereof. On the second Business Day following an Early Termination, XL Capital
      shall pay

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    to
      Stoneheath an amount equal to the product of (i) U.S. $0.01 multiplied by
      (ii) a fraction, the numerator of which is the difference between U.S. $300
      million and the aggregate liquidation preference of the XL Preferred Securities
      issued and delivered to Stoneheath under this Agreement and the denominator
      of
      which is U.S. $1,000.

     

    3.  Put
      Premium and Other Amounts Payable

    3.1.  (a)
      XL
      Capital hereby agrees to pay Stoneheath a cash amount in U.S. dollars (the
      “Put
      Premium”)
      with
      respect to (i) each Dividend Period for the Issuer Preferred Securities (other
      than a period, if any, contemplated by the following clause (ii)) and (ii)
      the
      period from and including the Dividend Payment Date for the Issuer Preferred
      Securities that immediately precedes the earlier of the Final Redemption Date
      and the Liquidation Date to but excluding the Final Redemption Date or the
      Liquidation Date, as applicable (each such period, a “Put
      Premium Payment Period”).
      The
      Put Premium payable with respect to any Put Premium Payment Period shall be
      paid
      on the Business Day immediately preceding each Dividend Payment Date and the
      Final Redemption Date or the Liquidation Date, as the case may be (such date,
      a
“Put
      Premium Payment Date”).

     

    (b)  Subject
      to
      the adjustments made pursuant to Section
      3.1(c),
      the
      amount of the Put Premium payable on each Put Premium Payment Date shall be
      equal to the sum of:

     

    (i)  the
      aggregate amount of any Reinsurance Premiums (including accrued interest
      thereon) that are due and payable by the Ceding Insurers under the Reinsurance
      Agreement with respect to the applicable Put Premium Payment Period and which
      are not paid by the Ceding Insurers on the Put Premium Payment Date;
      and

     

    (ii)  if
      the
      Reinsurance Agreement has expired or been terminated prior to the applicable
      Put
      Premium Payment Date without the Remaining Aggregate Limit being reduced to
      zero, the aggregate amount of any Reinsurance Premiums that would have been
      payable by the Ceding Insurers with respect to the then-current Put Premium
      Payment Period had the Reinsurance Agreement remained in effect during such
      period with a Remaining Aggregate Limit equal to the Remaining Aggregate Limit
      at the time of the termination or expiration, as applicable, minus the amount
      of
      distributions, if any, from the Trust Account thereafter made to Stoneheath
      to
      permit it to pay Extraordinary Expenses.

     

    (c)  The
      amount
      of the Put Premium shall be adjusted at the end of the Fixed Rate Period to
      the
      extent necessary to provide the Floating Rate to the holders of the Issuer
      Preferred Securities during the Floating Rate Period, after giving effect to
      (i)
      any increase in the Reinsurance Premium occurring during the Floating Rate
      Period and (ii) any adjustments applicable to floating rate payments payable
      under a new asset swap with a successor or replacement Asset Swap Counterparty.
      This adjustment shall not, however, be used to offset any shortfall in the
      amount of dividends paid to the holders of Issuer Preferred Securities resulting
      from distributions from the Trust Account following 

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    a
      liquidation of assets in the Investment Account to Stoneheath to permit it
      to
      pay Extraordinary Expenses.

     

    3.2.  Put
      Premium Certificate.
      The
      applicable amount of the Put Premium payable pursuant to Section
      3.1
      shall be
      calculated by Stoneheath and set forth in a certificate substantially in the
      form attached hereto as Annex
      A
      (the
“Put
      Premium Certificate”).
      Such
      Put Premium Certificate shall be delivered to XL Capital no later than 3 p.m.
      New York time on the fourth Business Day preceding the applicable Put Premium
      Payment Date.

     

    3.3.  Payment
      of Certain Expenses.
      In
      addition to the Put Premium, payable to Stoneheath pursuant to Section
      3.1,
      and any
      Replacement Cost payments, payable pursuant to Section
      3.4,
      XL
      Capital hereby agrees to pay (i) the fees and expenses of the Loss Verification
      Agent that are payable by Stoneheath from time to time under the Reinsurance
      Agreement subject to a limit of U.S. $100,000 in the aggregate with respect
      to
      each review for which the Loss Verification Agent has been engaged to act in
      such capacity (the “Loss
      Verification Agent Expenses”)
      and (ii)
      all Covered Expenses incurred by Stoneheath from time to time until the
      Liquidation Date. XL Capital shall pay such amounts to Stoneheath no later
      than
      20 Business Days (the “Reimbursement
      Payment Date”)
      following the receipt by XL Capital of a written certificate substantially
      in
      the form attached hereto as Annex
      B
      (the
“Reimbursement
      Notice”)
      specifying the nature and amount of each expense and the date when such expenses
      were incurred. Any Reimbursement Notice shall include a true and correct copy
      of
      the invoice for each expense in respect of which a payment is stated to be
      due.
      Stoneheath hereby agrees to apply any amounts that it receives from XL Capital
      pursuant to this Section
      3.3
      to pay
      its expenses promptly upon receiving such amounts from XL Capital. 

     

    3.4.  Payment
      of Replacement Cost.
      In
      addition to the Put Premiums, payable pursuant to Section
      3.1,
      and any
      Loss Verification Agent Expenses or Covered Expenses, payable pursuant to
Section
      3.3,
      XL
      Capital hereby agrees to pay to Stoneheath an amount equal to any Replacement
      Cost payments (including any accrued interest thereon) that Stoneheath is
      required to make to the Asset Swap Counterparty or the Interest Rate Swap
      Counterparty. Such payments by XL Capital shall be due on the second Business
      Day immediately preceding the Replacement Cost Payment Date (the “Replacement
      Cost Funding Date”).
      Stoneheath shall promptly provide to XL Capital a written certificate
      substantially in the form attached hereto as Annex
      C
      (the
“Replacement
      Cost Funding Notice”)
      setting
      forth the amount of Replacement Cost payments (including any accrued interest
      thereon) that is payable to the Asset Swap Counterparty or the Interest Rate
      Swap Counterparty, as applicable. In exchange for XL Capital’s agreement to make
      payments to Stoneheath pursuant to this Section
      3.4,
      Stoneheath hereby agrees to pay to XL Capital any Replacement Cost payments
      (including any accrued interest thereon) that Stoneheath receives from the
      Asset
      Swap Counterparty or the Interest Rate Swap Counterparty, as applicable, upon
      receipt thereof.

     

    3.5.  Accrual
      of Interest on Unpaid Amounts.
      Interest
      on any due and unpaid Put Premium and other amounts, if any, due under this
      Agreement shall accrue and be payable from and including the original date
      on
      which such amounts were due to but excluding the date such unpaid amounts are
      paid by XL Capital (i) during the Fixed Rate Period, at the Fixed Rate and
      (ii)
      during the Floating Rate Period, at the Floating Rate, in each case calculated
      on the basis of daily compounding and the actual number of days elapsed;
provided,
      however,
      that
      with respect 

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    to
      past
      due amounts payable under Section
      3.3
      or
Section
      3.4,
      the rate
      of interest on past due amounts relating to any Covered Expenses, Loss
      Verification Agent Expenses and Replacement Cost payments shall be that stated
      on the applicable agreement pursuant to which the same is payable.
      Notwithstanding the foregoing, interest shall not accrue or be payable with
      respect to any portion of the Put Premium that is payable pursuant to
Section
      3.1(b)(ii)
      to the
      extent that such portion of the Put Premium is attributable to interest accrued
      and unpaid on any unpaid Reinsurance Premiums.

     

    3.6.  Resolution
      of Disputed Amounts.
      In the
      event that XL Capital disputes in good faith any portion of the Put Premium,
      Loss Verification Agent Expenses, Covered Expenses or Replacement Cost payments
      reflected in any Put Premium Certificate, Reimbursement Notice or Replacement
      Cost Funding Notice, XL Capital shall pay the undisputed portion of the Put
      Premium, Loss Verification Agent Expenses, Covered Expenses or Replacement
      Cost
      payments and shall provide written notice to Stoneheath identifying the disputed
      portion of such Put Premium, Loss Verification Agent Expenses, Covered Expenses
      or Replacement Cost payments and the nature of the dispute no later than the
      Put
      Premium Payment Date, the Reimbursement Payment Date or the Replacement Cost
      Funding Date, as applicable. The parties will consult with one another in an
      attempt to resolve the dispute and, in the event that the dispute cannot be
      resolved within 20 Business Days following such Put Premium Payment Date,
      Reimbursement Payment Date or Replacement Cost Funding Date, as applicable,
      the
      parties shall appoint an arbitrator in accordance with Section
      3.7
      to
      resolve the dispute. The disputed portion of such Put Premium, Loss Verification
      Agent Expenses, Covered Expenses or Replacement Cost payments shall not be
      deemed due and payable for purposes of Section
      3.5
      until the
      Business Day following the date on which the parties resolve the dispute or
      such
      dispute is resolved by a court of competent jurisdiction (in each case, to
      the
      extent that the dispute is resolved in favor of Stoneheath). To the extent
      that
      any such dispute is resolved in favor of Stoneheath, interest shall be deemed
      to
      have accrued on such unpaid amount pursuant to Section
      3.5
      from and
      after the applicable Put Premium Payment Date, Reimbursement Payment Date or
      Replacement Cost Funding Date, and such interest shall be payable by XL
      Capital.

     

    3.7.  Notwithstanding
      any other provision contained in this Agreement, any controversy or claim
      arising out of or relating to Sections
      3.1,
      3.3,
      3.4
      or
3.5
      shall be
      resolved by binding arbitration administered by the American Arbitration
      Association, pursuant to its Commercial Arbitration Rules. This agreement to
      arbitrate shall be enforceable under the Federal Arbitration Act, 9 U.S.C.
§1 et
      seq. The arbitration shall be held in New York, New York before three
      arbitrators selected in accordance with the Commercial Arbitration Rules, with
      one selected by Stoneheath, one selected by XL Capital and the third selected
      by
      such two arbitrators or, in the absence of their agreement, by the American
      Arbitration Association in accordance with Section 12 of the Commercial
      Arbitration Rules. The arbitrators may hear and rule on dispositive motions
      as
      part of the arbitration proceeding, including motions for judgment on the
      pleadings, summary judgment and partial summary judgment. The arbitration award
      shall be in writing and shall state the findings of fact and conclusions of
      law
      upon which it is based. Judgment upon the award rendered by the arbitrators
      may
      be entered in any court having competent jurisdiction. The parties covenant
      that
      they will participate in the arbitration in good faith and that they will share
      equally its costs (which, in the case of Stoneheath, shall constitute
      Extraordinary Expenses). The provisions of this Section
      3.7
      shall be
      enforceable in any court of competent jurisdiction, and the parties hereto
      shall
      bear their own costs (which, in the case of 

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    Stoneheath,
      shall constitute Extraordinary Expenses) in the event of any proceeding to
      enforce Sections
      3.1,
      3.3,
      3.4
      or
3.5
      of this
      Agreement. The decision of the arbitrators shall be final and conclusive and
      shall not be subject to appeal absent manifest error. In no event shall the
      arbitrators award any party punitive, special, consequential or exemplary
      damages. By agreeing to arbitration, the parties hereto do not intend to deprive
      any court with jurisdiction of its ability to issue a preliminary injunction,
      attachment or other form of provisional remedy in aid of the arbitration and
      a
      request for such provisional remedies by a party to a court shall not be deemed
      a waiver of this agreement to arbitrate, and in addition to the authority
      conferred upon the panel by the rules specified above, the panel shall also
      have
      the authority to grant provisional remedies, including injunctive
      relief.

     

    4.  Covenants
      by XL Capital

     

    4.1.  XL
      Capital
      hereby covenants and agrees that, at all times prior to the Final Redemption
      Date, neither (i) XL Capital’s Memorandum and Articles of Association nor (ii)
      the XL Capital Board Resolutions will be amended in a manner that would
      adversely affect the rights of the holders of XL Preferred Securities, without
      the prior consent of Stoneheath given in accordance with the Paying Agency
      Agreement. If any such amendment is made other than with the prior consent
      of
      Stoneheath given in accordance with the Paying Agency Agreement, XL Capital
      shall immediately notify Stoneheath of such action in writing. Upon the issuance
      of XL Preferred Securities as a result of such amendment, the holders of XL
      Preferred Securities (including Stoneheath, to the extent that it holds XL
      Preferred Securities, but in such case acting at the direction of the holders
      of
      the Issuer Preferred Securities) will have the right (subject to applicable
      legal requirements) to have their XL Preferred Securities redeemed by XL Capital
      for cash at a redemption price per security equal to the Make Whole Amount,
      plus
      any accrued but unpaid dividends with respect to the then-current dividend
      period (whether or not declared) to the date of redemption, without interest
      on
      such unpaid dividends and without accumulation of dividends for any prior
      dividend period to the extent not declared and payable in respect of such
      dividend period, and the XL Preferred Securities will have the additional
      rights, preferences, limitations and other terms contained in, and shall be
      subject to, the XL Capital Board Resolutions. XL Capital and Stoneheath agree
      that, for the purpose of this Section
      4.1,
      the
      issuance by XL Capital of one or more series of preference ordinary shares
      that
      rank pari passu with or junior to the XL Preferred Securities (as set forth
      in
      the terms of issuance of such preference ordinary shares and the XL Capital
      Board Resolutions) shall not constitute such an amendment.

     

    4.2.  XL
      Capital
      hereby covenants and agrees that it will not register any XL Preferred
      Securities under the Securities Act before the date on which any XL Preferred
      Securities are issued and delivered and will maintain an adequate reserve of
      XL
      Preferred Securities for the issuance and delivery thereof in connection with
      this Agreement.

     

    4.3.  XL
      Capital
      hereby covenants and agrees that any XL Preferred Securities issued and
      delivered to Stoneheath under this Agreement shall rank, at the time of delivery
      and issuance, (a) senior to the ordinary shares of XL Capital and (b) pari
      passu
      with the most senior preference ordinary shares of XL Capital then issued and
      outstanding (as set forth in the terms of issuance of such preference ordinary
      shares and the XL Capital Board Resolutions).

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    

     

    4.4.  XL
      Capital, by entering into this Agreement, hereby covenants and agrees that
      it
      will not at any time institute against Stoneheath, or join in any institution
      against Stoneheath of, any bankruptcy, reorganization, arrangement, insolvency
      or liquidation proceedings, or other proceedings under U.S. federal or state
      or
      any non-U.S. bankruptcy or similar law in connection with any obligations
      hereunder until the expiration of one year and one day (or, if longer, the
      applicable preference period then in effect (plus one day) under any applicable
      law) from the effective date of the termination of this Agreement. The
      provisions of this Section
      4.4
      shall
      survive the termination of this Agreement.

     

    5.  Covenants
      by Stoneheath

     

    5.1.  Stoneheath
      hereby covenants and agrees that, at all times prior to the Final Redemption
      Date:

     

    (a)  it
      shall
      not amend, restate, revise or otherwise alter the rights, terms and preferences
      of the Issuer Preferred Securities whether by operation of merger,
      reorganization or otherwise, other than in accordance with Stoneheath’s
      Memorandum and Articles of Association, and it will not register the Issuer
      Preferred Securities under the Securities Act;

     

    (b)  it
      shall
      not amend, modify or supplement, or waive any right or remedy available to
      it
      under, or fail to enforce, the Asset Swap Agreement, the Interest Rate Swap
      Agreement, the Paying Agency Agreement, the Trust Agreement or the
      Administration Agreement; 

     

    (c)  it
      shall
      provide, as promptly as possible, to XL Capital and XLIB, but no later than
      two
      Business Days following receipt thereof, a copy of all notices and
      correspondence addressed to it from any of the parties to the Asset Swap
      Agreement, the Interest Rate Swap Agreement, the Paying Agency Agreement or
      the
      Administration Agreement, except to the extent such notices have otherwise
      been
      provided to XL Capital and XLIB;

     

    (d)  no
      amendment shall be made to its Memorandum and Articles of Association, without
      the prior consent of XL Capital; and if any such amendment is made other than
      with the prior consent of XL Capital, Stoneheath shall immediately notify XL
      Capital of such action in writing;

     

    (e)  it
      shall
      provide to XL Capital (i) copies of its annual and quarterly financial
      statements promptly upon such statement becoming available, (ii) upon request
      by
      XL Capital, to the extent not included in such financial statements or otherwise
      provided to XL Capital by the Account Trustee, a report, dated as of the end
      of
      the most recent fiscal quarter or fiscal year, of the Remaining Aggregate Limit
      under the Reinsurance Agreement and a description of the assets in the Trust
      Account that includes a statement of their fair market value and (iii) such
      other information as XL Capital may reasonably request from time to time;
      and

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    

     

    (f)  it
      shall
      hold any XL Preferred Securities issued and delivered to Stoneheath pursuant
      to
Section
      2
      of this
      Agreement until the Final Redemption Date; provided
      that
      Stoneheath shall be permitted to (i) redeem XL Preferred Securities at any
      time
      in accordance with their terms, (ii) dispose of XL Preferred Securities at
      any
      time to the extent necessary to pay Extraordinary Expenses and (iii) dispose
      of
      XL Preferred Securities at any time to the extent necessary to avoid the
      distribution of fractional XL Preferred Securities in connection with a
      redemption of the outstanding Issuer Preferred Securities on the Final
      Redemption Date.

     

    5.2.  Stoneheath
      hereby covenants and agrees that it will redeem the Issuer Preferred Securities
      in accordance with their terms, as in effect on the date hereof, and that it
      will use its commercially reasonable efforts to commence a liquidation
      proceeding as soon as is reasonably practicable after the Final Redemption
      Date.

     

    6.  Term

    6.1.  This
      Agreement shall terminate upon the Liquidation Date for Stoneheath, except
      that
      the provisions of Section
      2
      shall
      each terminate (an “Early
      Termination”)
      on the
      earliest of:

     

    (a)  the
      issuance and delivery, under this Agreement, to Stoneheath by XL Capital of
      an
      amount of XL Preferred Securities having an aggregate liquidation preference
      of
      U.S. $350,000,000;

     

    (b)  the
      expiration of the Reinsurance Agreement in accordance with its terms and, if
      required under the Reinsurance Agreement, the commutation of the rights and
      obligations of Stoneheath and the Ceding Insurers thereunder in accordance
      with
      the procedures set forth in the Article entitled “Commutation and Quantum
      Dispute Resolution” thereof;

     

    (c)  the
      commencement of any proceeding for the winding up, liquidation, dissolution
      or
      insolvency-related reorganization of XL Capital or Stoneheath; and

     

    (d)  the
      reduction of the Remaining Aggregate Limit to zero.

     

    6.2.  XL
      Capital
      shall promptly notify Stoneheath in writing of the occurrence of an Early
      Termination.

     

    7.  Representations
      and Warranties

    7.1.  Stoneheath
      represents and warrants to XL Capital that, as of the date hereof:

     

    (a)  it
      is duly
      organized and validly existing as an exempted company under the laws of the
      Cayman Islands and has full corporate power and authority to own its assets
      and
      to conduct the activities which it conducts;

     

    (b)  its
      entry
      into, exercise of its rights, performance of, or compliance with its obligations
      under this Agreement do not and will not violate (i) any law to which it is
      

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    subject,
      (ii) any of its constitutional documents or (iii) any agreement to which it
      is a
      party or which is binding on it or its assets;

     

    (c)  it
      has the
      corporate power to enter into, exercise its rights and perform and comply with
      its obligations under this Agreement and has taken all necessary action to
      authorize the execution, delivery and performance of this
      Agreement;

     

    (d)  it
      will
      obtain and maintain in effect and comply with the terms of all necessary
      consents, registrations and the like of or with any government or other
      regulatory body or authority applicable to this Agreement;

     

    (e)  it
      has
      duly authorized, executed and delivered this Agreement and the Agreement is
      fully enforceable against it, except that the enforceability thereof is subject
      to (i) the effects of bankruptcy, insolvency, fraudulent conveyance,
      reorganization, moratorium and other similar laws relating to or affecting
      creditors’ rights generally, (ii) general equitable principles (whether
      considered in a proceeding in equity or at law) and
      (iii)
      an implied covenant of good faith and fair dealing;

     

    (f)  its
      obligations under this Agreement are valid, binding and enforceable at
      law;

     

    (g)  it
      is not
      in default under any agreement to which it is a party or by which it or its
      assets is or are bound or under its Memorandum and Articles of Association
      and
      no litigation, arbitration or administrative proceedings are pending, which
      default, litigation, arbitration or administrative proceedings would materially
      and adversely affect its ability to perform its obligations under this
      Agreement;

     

    (h)  it
      is not
      necessary or advisable in order to ensure the validity, effectiveness,
      performance or enforceability of this Agreement that any document be filed,
      registered or recorded in any public office or elsewhere; and

     

    (i)  no
      consent, approval, authorization or order of any court or governmental
      authority, agency, commission or commissioner or other regulatory authority
      is
      required for the consummation by Stoneheath of the transactions contemplated
      by
      this Agreement.

     

    7.2.  Stoneheath
      further represents and warrants to and agrees with XL Capital that:

     

    (a)  the
      XL
      Preferred Securities have not been registered under the Securities Act and
      may
      not and will not be registered under the Securities Act prior to the time any
      XL
      Preferred Securities are issued and delivered to Stoneheath;

     

    (b)  XL
      Capital
      will not be required to register any XL Preferred Securities under the
      Securities Act at any time;

     

    (c)  Stoneheath
      will not offer, sell, pledge, distribute or otherwise dispose of any XL
      Preferred Securities, except in a transaction that complies with, or is exempt
      from, the registration requirements of the Securities Act;

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    

     

    (d)  Stoneheath
      has not offered or sold, and will not offer or sell, the Issuer Preferred
      Securities at any time, except (i) in an offshore transaction in accordance
      with
      Regulation S under the Securities Act and (ii) to persons who are not U.S.
      Persons and who are not acting for the account or benefit of a U.S. Person;
      

     

    (e)  Stoneheath
      will cause each certificate representing an Issuer Preferred Security to bear
      a
      legend stating that such Issuer Preferred Securities have not been, and will
      not
      be, registered under the Securities Act and may not be offered or sold within
      the United States or to, or for the account or benefit of, U.S. Persons at
      any
      time; and

     

    (f)  Stoneheath
      shall not register the transfer of any Issuer Preferred Securities to the name
      of any Person that it knows is a U.S. Person.

     

    7.3.  XL
      Capital
      represents and warrants to Stoneheath that, as of the date hereof:

     

    (a)  it
      is duly
      organized and validly existing as an exempted company under the laws of the
      Cayman Islands and has full corporate power and authority to own its assets
      and
      to conduct the activities which it conducts;

     

    (b)  its
      entry
      into, exercise of its rights, performance of, or compliance with its obligations
      under this Agreement do not and will not violate (i) any law, rule, regulation
      or order to which it is subject, (ii) any of its constitutional documents or
      (iii) any agreement to which it is a party or which is binding on it or its
      assets;

     

    (c)  it
      has the
      corporate power to enter into, exercise its rights and perform and comply with
      its obligations under this Agreement and has taken all necessary action to
      authorize the execution, delivery and performance of this
      Agreement;

     

    (d)  it
      will
      obtain and maintain in effect and comply with the terms of all necessary
      consents, registrations and the like of or with any government or other
      regulatory body or authority applicable to this Agreement;

     

    (e)  it
      has
      duly authorized, executed and delivered this Agreement and the Agreement is
      fully enforceable against it except that the enforceability thereof is subject
      to (i) the effects of bankruptcy, insolvency, fraudulent conveyance,
      reorganization, moratorium and other similar laws relating to or affecting
      creditors’ rights generally, (ii) general equitable principles (whether
      considered in a proceeding in equity or at law) and
      (iii)
      an implied covenant of good faith and fair dealing;

     

    (f)  its
      obligations under this Agreement are legal, valid, binding and enforceable
      at
      law;

     

    (g)  it
      is not
      in default under any agreement to which it is a party or by which it or its
      assets is or are bound or under its Memorandum and Articles of Association
      and
      no litigation, arbitration or administrative proceedings are pending, which
      default, litigation, arbitration or administrative proceedings would materially
      and adversely affect its ability to perform its obligations under this
      Agreement;

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    

     

    (h)  it
      is not
      necessary or advisable in order to ensure the validity, effectiveness,
      performance or enforceability of this Agreement that any document be filed,
      registered or recorded in any public office or elsewhere;

     

    (i)  no
      consent, approval, authorization or order of any court or governmental
      authority, agency, commission or commissioner or other regulatory authority
      is
      required for the consummation by XL Capital of the transactions contemplated
      by
      this Agreement and the issuance and delivery of the XL Preferred Securities
      to
      Stoneheath pursuant to the terms hereof; and

     

    (j)  as
      of the
      date hereof XL Capital has, and as of any date on which XL Preferred Securities
      will be issued under this Agreement, XL Capital will have, sufficient authorized
      share capital to comply with this Agreement, the XL Preferred Securities will
      be
      duly authorized for issuance and delivery to Stoneheath pursuant to this
      Agreement and, when issued, delivered and registered in XL Capital’s Register of
      Members by XL Capital pursuant to this Agreement, as prescribed in Section
      2.4,
      the XL
      Preferred Securities will be validly issued, fully paid and nonassessable;
      the
      XL Preferred Securities will conform in all respects to the terms of the XL
      Preferred Securities set forth in XL Capital’s Memorandum and Articles of
      Association and the XL Capital Board Resolutions; and the XL Preferred
      Securities will not be subject to preemptive or other similar
      rights.

     

    8.  Payments

    8.1.  Any
      amounts payable or distributable under this Agreement shall not be due from
      any
      party until it has received written notice thereof and any time for payment
      shall begin to run on the date specified in such notice. In addition, any such
      amounts due and payable shall be paid in U.S. dollars free and clear of any
      Liens (other than the Trust Agreement) and be made by wire transfer of
      immediately available funds to or as directed from time to time by the party
      entitled thereto.

     

    9.  Severability

    9.1.  Any
      provision of this Agreement which is or becomes illegal, invalid or
      unenforceable in any jurisdiction may be severed from the other provisions
      of
      this Agreement without invalidating the remaining provisions hereof; and any
      such illegality, invalidity or unenforceability shall not invalidate or render
      illegal or unenforceable such provision in any other jurisdiction.

     

    10.  Notices

    10.1.  Except
      as
      otherwise provided, all notices, requests, demands and other communications
      required or permitted under this Agreement shall be in writing and shall be
      deemed to have been duly given, made and received when delivered against receipt
      or upon actual receipt of (i) personal delivery, (ii) delivery by reputable
      overnight courier, (iii) delivery by facsimile transmission with telephonic
      confirmation or (iv) delivery by registered or certified mail, postage prepaid,
      return receipt requested, addressed as set forth below:

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    

     

    If
      to XL
      Capital at:

     

    XL
      Capital
      Ltd

    XL
      House

    One
      Bermudiana Road

    Hamilton,
      HM 11 Bermuda

    Attention:
      Executive Vice President-General Counsel

    -Corporate
      Affairs-Secretary

    Facsimile:
      (441)-295-2840

     

    If
      to
      Stoneheath:

     

    Stoneheath
      Re

    c/o
      HSBC
      Financial Services (Cayman) Limited

    Strathvale
      House, North Church Street

    P.O.
      Box
      1109

    Georgetown

    Grand
      Cayman KY1-1102

    Cayman
      Islands

    Facsimile:
      (345) 949-7634

    Attention:
      The Directors

     

    If
      to the
      Asset Swap Counterparty at:

     

    Goldman
      Sachs International

    Peterborough
      Court

    133
      Fleet
      Street

    London
      EC4A 2BB

    England

    Facsimile:
      44-(20)-7774-4123

    Attention:
      IBD Legal

     

    If
      to the
      Interest Rate Swap Counterparty at:

     

    IXIS
      Financial Products Inc.

    9
      West
      57th
      Street,
      35th
      Floor

    New
      York,
      New York 10019

    United
      States of America

    Facsimile:
      001-(212)-891-0660

    Attention:
      Swaps Administration

     

    Each
      party
      hereto may alter the address to which notices, requests, demands and other
      communications are to be sent to such party by giving notice of such change
      of
      address in conformity with the provisions of this Section
      10.1.

     

    10.2.  No
      failure
      or delay of Stoneheath or XL Capital to deliver a written notice required under
      the terms of this Agreement shall relieve either party of any of its obligations
      under this Agreement or operate as a waiver of its rights hereunder and, subject
      to the 

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    termination
      of this Agreement not having occurred, XL Capital and Stoneheath may continue
      to
      exercise their rights hereunder at any time.

     

    11.  Counterparts

    11.1.  This
      Agreement may be executed in any number of counterparts and by the different
      parties hereto on separate counterparts each of which when executed and
      delivered shall constitute an original, but all the counterparts shall together
      constitute but one and the same instrument.

     

    12.  Benefit
      of Agreement and Disclaimer

    12.1.  This
      Agreement shall inure to the benefit of each party hereto, and each of their
      respective permitted successors and assigns and transferees.

     

    13.  Amendment
      and Assignment

    13.1.  This
      Agreement may not be amended or modified in any respect, nor may any provision
      be waived, without the written consent of both parties hereto, the Asset Swap
      Counterparty and the Interest Rate Swap Counterparty. Any consent by Stoneheath
      to an amendment, modification or waiver shall be effective only if given in
      accordance with the Paying Agency Agreement. No waiver by one party of any
      obligation of the other hereunder shall be considered a waiver of any other
      obligation of such party. No failure or delay by XL Capital or Stoneheath in
      exercising its rights hereunder shall operate as a waiver of its rights
      hereunder and, subject to the termination of this Agreement not having occurred,
      XL Capital and Stoneheath may continue to exercise their rights hereunder at
      any
      time.

     

    13.2.  Neither
      Stoneheath nor XL Capital may assign its respective rights or obligations under
      this Agreement to any other person, except that XL Capital may assign its rights
      and obligations under this Agreement to another person as a result of a merger,
      consolidation or amalgamation of XL Capital with or into such other person,
      if
      such person is the surviving entity, or as a result of a sale of all or
      substantially all of the assets of XL Capital to such other person if such
      other
      person expressly assumes all of the rights and obligations of XL Capital under
      this Agreement at such time; and immediately following the merger,
      consolidation, amalgamation or sale of all or substantially all of its assets,
      the rating of the preferred stock or the unsecured debt obligations of the
      other
      person is at least as high as the credit rating of the XL Preferred Securities
      or the senior unsecured debt obligations of XL Capital, as the case may be,
      immediately prior to the merger or sale.

     

    14.  Limited
      Recourse

    14.1.  All
      obligations of, and any claims against, Stoneheath under this Agreement shall
      be
      with recourse solely to the assets of Stoneheath (other than its ordinary share
      capital of U.S. $5,000, the amount equal to U.S. $1,500 paid to Stoneheath
      as a
      transaction fee, any interest income earned on such excluded amounts and the
      Cayman Islands bank account in which such amounts are held) for satisfaction
      of
      Stoneheath’s obligations hereunder. 

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    

     

    All
      obligations of and any claims against Stoneheath under this Agreement shall
      be
      extinguished and shall not thereafter revive in the event that, at any time,
      Stonheath’s assets (other than the cash amounts representing its ordinary share
      capital of U.S. $5,000, the amount equal to U.S. $1,500 paid to
      Stoneheath as a transaction fee, any interest income earned on such excluded
      amounts and the Cayman bank account in which such amounts are held) are
      exhausted. XL Capital shall have no further claim thereafter against Stoneheath,
      its directors, officers or shareholders for any shortfall.

     

    The
      provisions of this Section
      14.1
      shall
      survive the termination of this Agreement.

     

    15.  Governing
      Law

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

     

    16.  Jurisdiction

    16.1.  Each
      of
      the parties hereto irrevocably and unconditionally submits to the exclusive
      jurisdiction of the courts of the State of New York or the courts of the United
      States of America located in the Southern District of New York in New York
      County, Borough of Manhattan in respect of any action or proceeding arising
      out
      of or in connection with this Agreement (and the parties agree not to commence
      any proceedings except in such courts). Each of the parties hereto irrevocably
      and unconditionally waives, to the fullest extent permitted by applicable law,
      any objection that it may now or hereafter have to the laying of the venue
      of
      any such proceedings in the courts of the State of New York or the courts of
      the
      United States of America located in the Southern District of New York and any
      claim that any Proceeding brought in any such court has been brought in an
      inconvenient forum. Each of Stoneheath and XL Capital agrees that it shall
      at
      all times have an authorized agent in the State of New York upon whom process
      may be served in connection with any proceedings, and each of Stoneheath and
      XL
      Capital hereby authorizes and appoints CT Corporation, 111 Eighth Avenue, New
      York, New York 10011, United States of America, to accept service of all legal
      process arising out of or connected with this Agreement in the State of New
      York
      and service on such person (or substitute) shall be deemed to be service on
      Stoneheath or XL Capital, as the case may be. Except upon such a substitution,
      Stoneheath and XL Capital shall not revoke any such authority or appointment
      and
      shall at all times maintain an agent for service of process in the State of
      New
      York. If for any reason such person shall cease to act as agent for the service
      of process, Stoneheath and XL Capital shall promptly appoint another such agent,
      and shall forthwith notify each other of such appointment. 

     

    [Remainder
      of page intentionally left blank.]

     

    

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    IN
      WITNESS
      WHEREOF the parties hereto have caused this Agreement to be duly executed on
      the
      day and year first above written.

     

    Executed
      for and on behalf of

    STONEHEATH
      RE

    

    

    By:
      /s/
      Linda Haddleton    

    Name:
      Linda Haddleton

    Title:
      Director

    

    

    Executed
      for and on behalf of

    XL
      CAPITAL
      LTD

    

    

    By:
      /s/
      Jerry de St. Paer    

    Name:
      Jerry de St. Paer

    Title:
      EVP, CFO

    

     

    [Securities
      Issuance Agreement]

     

    

     

    

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    ANNEX
      A

     

    Put
      Premium Certificate

    XL
      Capital Ltd

    Series
      D Preference Ordinary Shares

     

    

    

    

    

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    ANNEX
      B

     

    Form
      of
      Reimbursement Notice for Reimbursement of

    Loss
      Verification Agent Expenses and Covered Expenses

     

    

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    ANNEX
      C

     

    

     

    Form
      of
      Replacement Cost Funding Notice

    for
      the
      Payment of Replacement Cost

     

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    ANNEX
      D

     

    Stoneheath
      Board Resolutions

    

     

    

     

    

     

    

     

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

    ANNEX
      E

     

    XL
      Capital Board Resolutions

    
 

     

     

    27

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}]]