Document:

Exhibit
10.36

 

REINSURANCE
AGREEMENT

 

Effective: January 1, 2001

 

between

 

Westchester Fire Insurance
Company

New York, New York

(the “Company”)

 

and

 

ACE Capital Re Overseas Ltd.

Hamilton, Bermuda

(the “Reinsurer”)

 

Preamble

 

Whereas, the Reinsurer will be assuming
facultative reinsurance from the Company on lines of business for which the
Company is duly licensed under Section 1113 and Section 4102(c) of the
Insurance Laws of the State of New York; and

 

Whereas, by this Agreement, the Company
wishes to cede to the Reinsurer and the Reinsurer is willing to assume
reinsurance on a facultative basis on certain Policies to be underwritten by
the Company, in an amount and limit to be determined on a policy-by-policy
basis; and

 

Whereas, the Reinsurer and the Company
intend to execute and deliver all of the Facultative Certificates in accordance
with terms and conditions of this Agreement.

 

Now Therefore, in consideration of the mutual
covenants hereinafter contained and upon the terms and conditions hereinafter set
forth, the Company and Reinsurer agree as follows:

 

Article I -
Intercompany Facultative Reinsurance

 

1.1  The Company hereby cedes as reinsurance to
the Reinsurer and the Reinsurer hereby accepts as reinsurance from the Company
the share of each Policy that is specified and agreed to by the parties in a
Facultative Certificate (such reinsurance is referred to individually and
collectively herein as “Intercompany Facultative Reinsurance”). The terms of
each Intercompany Facultative Reinsurance (including, without limitation, the
premium, retention and limits thereof) will be determined by the Company and
the Reinsurer on a policy-by-policy basis and evidenced by a duly executed
Facultative Certificate between the Reinsurer and the Company.  In all cases, Company and Reinsurer hereby
acknowledge that a full-time employee or officer of Company will retain final
decision making authority with respect to all reinsurance ceded hereunder.

 

1.2  On each Intercompany Facultative
Reinsurance, the Reinsurer agrees to reimburse the Company for its share of the
following:

 

 

1.2.1        All
Loss payments made by the Company on the Policy ceded pursuant to such
Intercompany Facultative Reinsurance; and

 

1.2.2        Allocated
Loss Expense with respect to such Policy.

 

1.3  Subject to the terms, conditions and
limitations of this Agreement, the Intercompany Facultative Reinsurance
provided with respect to a Policy ceded hereunder shall be in effect
concurrently with such Policy, unless otherwise provided in the Facultative
Certificate relating to such Policy. To the extent of its interest, the
Reinsurer shall follow the fortunes of the Company in all matters coming within
the scope of this Agreement, which shall be liberally construed.

 

Article II -
Commencement and Termination

 

2.1  This Agreement shall be effective as of the
date hereof and shall remain in effect unless terminated in accordance with
this Article.

 

2.2  Either party to this Agreement may elect to
terminate its participation in this Agreement on thirty (30) days’ prior
written notice to the other party.

 

2.3  Notwithstanding any other provision of this
Agreement, any party may terminate this Agreement immediately upon written
notice to the other party in the event that the other party (i) becomes
insolvent or bankrupt, or admits in writing its inability to pay its debts as
they become due, or makes an assignment for the benefit of creditors, or
applies for or consents to the appointment of a trustee or receiver for the
major part of its property; (ii) becomes the subject of bankruptcy,
reorganization, rearrangements, insolvency or liquidation proceedings, or other
proceedings for relief of creditors and such proceedings are not stayed or
discharged within ninety (90) days after being commenced; (iii) is acquired by
another entity, unless such acquiring entity is wholly owned, directly or
indirectly, by ACE Limited; (iv) fails to obtain or maintain any licenses,
permits or other qualifications that are required by law to fulfill its
obligations under this Agreement and such failure remains uncured after fifteen
(15) days; or (v) commits abandonment, fraud or willful misconduct in
connection with the provision of services under this Agreement.

 

2.4  Termination of this Agreement shall not
relieve either party of its obligations under this Agreement up to the
effective date of termination.  Further,
termination of this Agreement shall not relieve either party of its obligations
with respect to Policies ceded hereunder prior to the effective date of
termination of this Agreement.

 

2.5  Notwithstanding the foregoing, if any law or
regulation of the Federal or State or Local Government of any jurisdiction in
which the Company or Reinsurer is doing business should render the enforcement
of this Agreement, in whole or in part, illegal within a given jurisdiction,
the affected party may, upon written notice to the other party, suspend,
abrogate, or amend this Agreement insofar as it applies to such jurisdiction,
to the extent necessary to comply with such law or regulation.  Such cancellation, suspension, abrogation or
amendment of this Agreement shall in no way affect any other portion thereof.

 

2

 

Article III - Other
Reinsurance

 

The
Company is permitted, but not required, to purchase facultative and/or treaty
reinsurance on business subject to this Agreement.

 

Article IV -
Definitions

 

The
following terms have the respective meanings set forth below, Other terms are
defined elsewhere in this Agreement.

 

4.1  “Allocated Loss Expense” means expenses
allocable to the investigation, defense, resistance to and/or settlement of
claims and losses, including litigation expenses, interest on judgments and
legal expenses incurred in connection with coverage questions and legal
actions, including declaratory judgment actions, connected thereto, but
excluding the normal office expenses and salary charges of regular employees or
officials of the Company except in the case of claim adjusters or staff
attorneys, and then only when the time spent and any expenses of the adjuster
or staff attorney is definitely allocable to a specific claim.

 

4.2  “Company” means Westchester Fire Insurance
Company, a New York domesticated insurance company.

 

4.3  “Effective Date” means the date this
Agreement took effect as designated in the title on Page 1.

 

4.4  “Facultative Certificate” means the
certificate to be executed and delivered by the Reinsurer and the Company to
evidence each Intercompany Facultative Reinsurance, which certificate shall be
substantially in the form of Exhibit “A” hereto.

 

4.5  “Loss” and “Losses” means the amount paid by
the Company or for which the Company has become liable to pay for any claim,
settlement, award, or judgment under a Policy ceded hereunder, after making
deductions for all recoveries, salvages and subrogations actually collected,
and inuring reinsurance, whether collected or not.

 

4.6  “Policy” and “Policies” mean any policies,
contracts, binders of insurance or reinsurance issued or renewed by the
Company.

 

4.7  “Reinsurer” means ACE Capital Re Overseas
Ltd., a Bermuda insurance company.

 

4.8  “Required Amount” means the market value of
assets the Reinsurer is required to maintain in the Trust Account to satisfy
purposes (a) through (c) in Section 11.8.

 

Article V - Claims and
Loss  Adjustment Expenses

 

5.1  In the event of a Loss which in the
Company’s opinion is likely to give rise to a claim under a Facultative
Certificate, notice thereof shall be given to the Reinsurer.

 

3

 

5.2  The Company will be the sole judge as to
what constitutes a claim or loss covered under the Policies ceded hereunder and
as to the Company’s liabilities thereunder. The Company shall, at its sole
discretion, adjust, investigate, settle, compromise or defend all claims and
losses. All loss settlements made by the Company shall be binding upon the
Reinsurer, and amounts falling to the share of the Reinsurer shall he payable
by it upon reasonable evidence of the amount paid or to be paid being given by the
Company.

 

5.3  When requested by the Reinsurer, the Company
shall permit the Reinsurer, at the expense of the Reinsurer, to be associated
with the Company in the defense of any claim, loss, or legal proceeding which
involves, or is likely to involve, the Reinsurer.

 

Article VI - Salvage
and Subrogation

 

6.1  The Company hereby agrees to enforce its
rights to salvage or subrogation relating to any loss, a part of which loss was
sustained by the Reinsurer, and to prosecute all claims arising out of such rights.
In the event the Company shall refuse or neglect to enforce its rights to
salvage or subrogation, the Reinsurer is authorized and empowered to bring any
appropriate action in the name of the Company or its policyholder or otherwise
to enforce those rights, and the Company shall cooperate fully with the
Reinsurer in its efforts to enforce those rights.

 

6.2  The Company and the Reinsurer shall share in
the cost and expense of any unsuccessful salvage or subrogation efforts in the
same proportion that the Company and the Reinsurer shared in the loss giving
rise to those salvage or subrogation efforts.

 

6.3  The Reinsurer shall be credited with
subrogation and salvage (i.e., reimbursement obtained or recovery made by the
Company, less the actual cost, excluding salaries of officials and employees of
the Company and sums paid to attorneys as retainer, of obtaining such
reimbursement or making such recovery) on account of claims and settlements
involving reinsurance hereunder.  With
respect to all excess of loss Intercompany Facultative Reinsurance, subrogation
and salvage shall be used to reimburse the Reinsurer for its portion of the
loss before being used to reimburse the Company for its portion of the loss
under its retention. With respect to all proportional Intercompany Facultative
Reinsurance, subrogation and salvage shall be shared between die Company and
the Reinsurer in accordance with their proportionate shares.

 

Article VII - Original Conditions

 

7.1  Except as otherwise provided in a
Facultative Certificate, all Intercompany Facultative Reinsurance under this
Agreement shall be subject to the same rates, terms, conditions and waivers,
and to the same modifications and alterations, as the respective Policies of
the Company.

 

7.2  Nothing herein shall in any manner create
any obligations or establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Agreement.

 

4

 

Article VIII - Reports
and Remittances

 

Within
thirty (30) days of the last day of each quarter, the Company shall provide the
Reinsurer with such reports as are specified in the Facultative Certificates.

 

Losses
payable under any Intercompany Facultative Reinsurance shall be paid within the
time period specified in the applicable Facultative Certificate.

 

Article IX - Access to
Books and Records

 

9.1  The Company and the Reinsurer and their
respective duly authorized representatives shall, at all reasonable times, each
be permitted access to all books and records of the other pertaining to the
Intercompany Facultative Reinsurance which is issued pursuant to the provisions
of this Agreement.

 

9.2  Reinsurer shall keep, in a manner and form
approved by Company, accurate and complete books of account, records and files,
in either written or electronic form, of all business conducted under and
pursuant to this Agreement (the “Books and Records”).

 

9.3  Reinsurer and Company shall make all of the
Books and Records available to the other for examination and inspection by duly
authorized representatives of Company or Reinsurer, upon reasonable notice, at
any time during ordinary business hours.

 

9.4  Company shall make all of the Books and
Records available for examination and inspection by the Superintendent of
Insurance of the State of New York or his duly authorized representatives, upon
reasonable notice, at any time during ordinary business hours.

 

9.5  The Company and Reinsurer hereby acknowledge
that nothing in this Agreement is intended to change, diminish or in any way
modify its commitments which the Company made to the New York Insurance
Department in connection with its acquisition by ACE Limited, as set forth in
letters dated November 14, 1997, December 5, 1997 and December 23, 1997.

 

Article X - Regulatory
Matters

 

10.1         No
services shall be provided under this Agreement unless the entity or natural
person who performs such services possesses all licenses, permits and other
qualifications that are required by law to perform such services.

 

Article XI - Security

 

11.1         The
Reinsurer may enter into a trust agreement with the Company (the “Trust
Agreement”) and a Qualified United States Financial Institution (the “Trustee”)
in a form acceptable to the Company and establish a trust account (the “Trust
Account”) for the benefit of the Company with respect to the liabilities
assumed by the Reinsurer hereunder. The Trust

 

5

 

Agreement
shall be in strict compliance with the terms of Regulation 114 promulgated pursuant
to the New York Insurance Laws.

 

11.2         The
Reinsurer agrees to deposit and maintain in said Trust Account assets to be
held in trust by the Trustee for the benefit of the Company as security for the
payment of the Reinsurer’s obligations to the Company under this Agreement, as
specified in Section 11.8 of this Agreement. Such assets shall be maintained in
the Trust Account by the Reinsurer as long as the Reinsurer continues to remain
liable for any Policy ceded hereunder as provided in Section 2.4 of this
Agreement.

 

11.3         The
Reinsurer agrees that the assets so deposited shall consist only of cash
(United States legal tender), certificates of deposit (issued by a United
States Bank and payable in United States legal tender), and investments of the
types permitted by the New York Insurance Law or any combination of the
previously mentioned.

 

11.4         The
Reinsurer, prior to depositing assets with the Trustee, shall execute all
assignments, endorsements in blank, and transfer legal title to the Trustee of
all shares, obligations or any other assets requiring assignments, in order
that the Company, or the Trustee upon direction of the Company, may whenever
necessary negotiate any such assets without consent or signature from the
Reinsurer or any other entity.

 

11.5         The
Reinsurer shall deposit into the Trust Account an amount sufficient to cover
the Reinsurer’s obligations to the Company as set forth in Section 11.8 of this
Agreement.

 

11.6         At the
end of each quarter, the Company shall determine if the Trust Account is
adequately funded with respect to the Company’s liabilities reinsured
hereunder.  If the Company determines
that the Trust Account is not adequately funded, i.e., the Trust Account
contains less than the Required Amount, the Company shall send the Reinsurer a
notice specifying the amount of the inadequacy and the Reinsurer shall deposit
such amount in the Trust Account within thirty (30) days of receipt of such
notice.

 

11.7         All
settlements of account under the Trust Agreement between the Company and the
Reinsurer shall be made in cash or its equivalent.

 

11.8         The
Company and the Reinsurer agree that the assets in the Trust Account may be
withdrawn by the Company at any time, notwithstanding any other provision in
this Agreement, provided such assets are applied and utilized by the Company or
any successor of the Company by operation of law, including, without
limitation, any liquidator, rehabilitator, receiver or conservator of the
Company, without diminution because of the insolvency of the Company or the
Reinsurer, only for the following purposes:

 

(a)           to
reimburse the Company for the Reinsurer’s share of any Losses paid by the
Company with respect to Policies reinsured hereunder, if not otherwise paid by
the Reinsurer;

 

(b)           to
fund an account with the Company in an amount at least equal to the deduction,
for reinsurance retroceded, from the Company’s liabilities with respect to
Policies

 

6

 

reinsured
hereunder.  Such account shall include,
but not be limited to, amounts for policy reserves, claims and losses incurred
(including losses incurred but not reported), and unearned premium reserves;
and

 

(c)           to pay
any other amount the Company claims are due under this Agreement.

 

11.9         The
Reinsurer shall have the right to seek the Company’s approval to withdraw all
or any part of the assets from the Trust Account and transfer such assets to
the Reinsurer, provided that:

 

(a)           the
Reinsurer shall, at the time of withdrawal, replace the withdrawn assets with
other assets of a type permitted hereunder having a market value equal to the
market value of the assets withdrawn, so as to maintain the Trust Account in
the Required Amount, or

 

(b)           after
such withdrawal and transfer, the market value of the Trust Account is no less
than 102% of the Required Amount.

 

In
the event that the Reinsurer seeks the Company’s approval hereunder, the
Company shall not unreasonably or arbitrarily withhold its approval.

 

11.10       In the
event that the Company withdraws assets from the Trust Account for the purposes
set forth in Section 11.8 (a) or (b) in excess of actual amounts required to
meet the Reinsurer’s obligations to the Company, or in excess of amounts
determined to be due under Section 11.8 (c), the Company will return such excess
to the Reinsurer, plus interest at the prime (or base) rate or interest.  In the event of a dispute arising under this
Article XI, the arbitration panel established pursuant to Article XIII of this
Agreement shall have the right to award interest at a rate that is determined
to be equitable, and may award attorney’s fees, arbitration costs and other
expenses.

 

11.11       At the
option of the Reinsurer, letters of credit meeting the requirements of New York
Insurance Regulation 133 (“Letters of Credit” or, in the singular, “Letter of
Credit”) may be substituted in whole or in part for the Trust Account. Any such
Letter of Credit will be procured from a Qualified United States Financial
Institution, and may be drawn down at any time by the Company, only for the purposes
set forth in Section 11.8 (a), (b) or (c) of this Agreement, without diminution
because of the insolvency of the Company or the Reinsurer. If the Company
receives notification of nonrenewal of a Letter of Credit and if Reinsurer’s
entire obligations under this Agreement remain unliquidated and undischarged
ten (10) days prior to such expiration date, the Company may obtain a cash
deposit equal to such obligations, without diminution because of the insolvency
of the Company or Reinsurer, and deposit such amount in the name of the
Reinsurer in any United States bank or trust company, apart from its general
assets, in trust for such uses and purposes as specified in Section 11.8 of
this Agreement. If the Letter of Credit is drawn down, the provisions of section
11.8 shall apply to the amount so drawn and the Company shall immediately
return to Reinsurer any amounts drawn down on the Letter of Credit that are
subsequently determined not to be due.

 

7

 

11.12       If
Letters of Credit are substituted in whole or in part for the Trust Account, as
permitted by Section 11.11 of this Agreement, there shall be an adjustment
after receipt of each quarterly report to ensure that the collective security
provided by the Trust Account and any such Letters of Credit is equal to (but
not greater or less man) the Required Amount. 
If such collective security is determined to be less than the Required
Amount, the Reinsurer, shall, within thirty (30) days after receipt of notice
of such excess, secure delivery to the Company of an amendment of the Letter of
Credit or additional Letters of Credit, increasing the amount of credit by the
amount of such deficiency.  If such
collective security is determined to be more than the Required Amount, the
Company shall, within thirty (30) days after receipt of a written request from
the Reinsurer, release such excess credit by consenting to an amendment to the
Letter or Letters of Credit, reducing the amount of credit available by the
amount of such excess credit.

 

11.13       The
issuing bank will have no responsibility whatsoever in connection with the
propriety of withdrawals made by the Company or the disposition of funds
withdrawn, except to ensure that withdrawals are made only upon the order of properly
authorized representatives of the Company.

 

Article XII -
Insolvency

 

12.1         In the
event of insolvency of the Company, payments under this Intercompany
Facultative Reinsurance shall be made by the Reinsurer immediately upon demand
to the conservator, liquidator, receiver or statutory successor of the Company,
or to such other person as shall be legally responsible or entitled to receive
such payments, on the basis of the liability of the Company under any Policy
ceded hereunder, without diminution because of the insolvency of the Company or
because such conservator, liquidator, receiver or statutory successor has
failed to pay all or a portion of any claims. The foregoing sentence shall not
apply to any Intercompany Facultative Reinsurance the Facultative Certificate
for which specifies another payee in the event of the insolvency of the
Company. In the event of the Company’s insolvency, the conservator, liquidator,
receiver, or statutory successor of the Company shall give the Reinsurer
written notice of the pendency of any claim against the Company involving a
Policy ceded hereunder within a reasonable time after such claim is filed in
the insolvency proceeding, and during the pendency of such claim, the Reinsurer
may investigate such claim and interpose, at its own expense, in the proceeding
where the claim is to be adjudicated any defense or defenses which it may deem
available to the Company or its conservator, liquidator, receiver or Statutory
successor. Subject to court approval, the expense thus incurred by the
Reinsurer shall be chargeable against the Company as part of the expense of
liquidation to the extent of a proportionate share of the benefit which may
accrue to the Company solely as a result of the defense undertaken by the
Reinsurer.

 

Article XIII -
Arbitration

 

13.1         Any
dispute or difference arising with reference to the applicable interpretation
or effect of this Agreement or any Intercompany Facultative Reinsurance, or any
part thereof, shall be referred to a Board of Arbitration (the “Board”) of two
(2) arbitrators and an umpire.

 

8

 

13.2         The
members of the Board shall be active or retired disinterested officers of
insurance or reinsurance companies. One arbitrator shall be chosen by the party
initiating the arbitration and designated in the letter requesting arbitration.
The other party shall respond, within thirty (30) days, advising of its
arbitrator. The umpire shall thereafter be chosen by the two (2) arbitrators.

 

13.3         In the
event either party fails to designate its arbitrator as indicated above, the
other party is hereby authorized and empowered to name the second arbitrator,
and the party which failed to designate its arbitrator shall be deemed to have
waived its right to designate an arbitrator and shall not be aggrieved
thereby.  The two (2) arbitrators shall
then have thirty (30) days within which to choose an umpire. If they are unable
to do so, the umpire shall be chosen by the manager of the American Arbitration
Association who shall be a person meeting the qualifications set forth above.
Each party shall submit its case to the Board within one (1) month from the
date of the appointment of the umpire, but this period of time may be extended
by unanimous written consent of the Board.

 

13.4         The
sittings of the Board shall take place in New York, New York, unless otherwise
agreed in writing by the parties.  The
Board shall make its decision with regard to the custom and usage of the
insurance and reinsurance business.  The
Board is released from all judicial formalities and may abstain from the strict
rules of law. The written decision of a majority of the Board shall be rendered
within sixty (60) days following the termination of the Board’s hearings,
unless the parties consent to an extension. Such majority decision of the Board
shall be final and binding upon the parties both as to law and fact, and may
not be appealed to any court of any jurisdiction.  Judgment may be entered upon the final decision of the Board in
any court of proper jurisdiction.

 

13.5         Each
party shall bear the fees and expenses of the arbitrator selected by or on its
behalf, and the parties shall bear the fees and expenses of the umpire as
determined by the Board.

 

13.6         The
arbitration section of this Agreement shall survive termination of this
Agreement and be deemed to be an obligation of the parties which is independent
of, and without regard to, the validity of this Agreement.

 

Article XIV -
Severability

 

14.1         In the
event any provision of this Agreement shall be held invalid or unenforceable by
a court of competent jurisdiction, such holding shall not invalidate or render
unenforceable any other provision of this Agreement.

 

Article XV – Offset

 

15.1         The
Company and the Reinsurer may offset any balance(s) or other amount(s) due from
one party to the other under this Agreement or any other reinsurance agreement
heretofore or hereafter entered into between the Company and the Reinsurer,
whether acting as assuming reinsurer or ceding company, provided, however, that
in the event of the insolvency of a party hereto, offsets shall only be allowed
in accordance with the provisions of Section 7427 of the Insurance Law of the
State of New York.

 

9

 

Article XVI – Miscellaneous

 

16.1         This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.  Neither this Agreement nor any right
hereunder may be assigned by any party without the prior written consent of the
other party affected thereby.

 

16.2         This
Agreement has been made pursuant to, and shall be governed by and construed in
accordance with, the laws of the State of New York without regard to conflicts
of laws doctrine.

 

16.3         This
Agreement (and any written amendments to it) constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
oral or written, relating to the subject matter hereof.

 

16.4         This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original for all purposes and all of which shall be deemed,
collectively, one and the same instrument and agreement.

 

10

 

IN
WITNESS WHEREOF, this Agreement is hereby executed by duly authorized officers
of the parties hereto as of the date first above written.

 

	
   

  	
  WESTCHESTER
  FIRE INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert E. Omahne

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Robert
  E. Omahne

  
	
   

  	
   

  	
  Title:

  	
  Atty in Fact

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ACE
  CAPITAL RE OVERSEAS LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Rebecca L. Carne

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Rebecca L. Carne

  
	
   

  	
   

  	
  Title:

  	
  Director

  
					

 

11

 

EXHIBIT
A

 

FACULTATIVE CERTIFICATE

 

EVIDENCING AN

 

INTERCOMPANY FACULTATIVE
REINSURANCE

 

PURSUANT TO

 

REINSURANCE AGREEMENT EFFECTIVE
JANUARY 1, 2001

 

BETWEEN

 

WESTCHESTER FIRE INSURANCE
COMPANY

 

AND

 

ACE CAPITAL RE OVERSEAS LTD.

 

 

	
  Facultative
  Certificate Number:

  
	
   

  
	
  Original
  Insured:

  
	
   

  
	
  Covered
  Policy:

  
	
   

  
	
  Effective
  Date of Reinsurance (if different from Covered Policy):

  
	
   

  
	
  Expiration
  Date of Reinsurance (if different from Covered Policy)

  
	
   

  
	
  Reinsurance
  Premium:

  
	
   

  
	
  Ceding
  Commission:

  
	
   

  
	
  Form
  of Reinsurance (QS or EOL):

  
	
   

  
	
  Reinsurer’s
  Quota Share Percentage (if applicable):

  
	
   

  
	
  Reinsurer’s
  Attachment Point (if applicable):

  
	
   

  
	
  Reinsurer’s
  Limit of Liability (if applicable):

  
	
   

  
	
  Location
  of Risk (if different from Covered Policy):

  

 

12

 

	
  Deviations
  from coverage provided under Covered Policy:

  
	
   

  
	
  Reports
  and Loss Payments:

  
	
   

  
	
  Other
  Terms:

  

 

The
cession evidenced by this Facultative Certificate shall be subject to all the
terms and conditions contained in the Reinsurance Agreement referenced above.

 

 

	
  Signed
  at New York, New York, on behalf of

  Westchester Fire Insurance Company

  	
   

  	
  Counter-Signed
  at Hamilton, Bermuda, on

  behalf of ACE Capital Re Overseas Ltd.

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  By:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Authorized
  Representative

  	
   

  	
  Authorized
  Representative

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  Date:

  
					

 

13

 

FACULTATIVE CERTIFICATE

 

EVIDENCING AN

 

INTERCOMPANY FACULTATIVE
REINSURANCE

 

PURSUANT TO

 

REINSURANCE AGREEMENT EFFECTIVE
JANUARY 1, 2001

 

BETWEEN

 

WESTCHESTER FIRE INSURANCE
COMPANY (THE “COMPANY”)

 

AND

 

ACE CAPITAL RE OVERSEAS LTD.
(THE “REINSURER”)

 

	
  Facultative
  Certificate Number:

  	
   

  	
  2001-1

  
	
   

  	
   

  	
   

  
	
  Original
  Insured:

  	
   

  	
  Chase
  Manhattan Automotive Finance Corporation

  900 Stewart Avenue

  Garden City, New York 11530

  
	
   

  	
   

  	
   

  
	
  Covered
  Policy:

  	
   

  	
  Residual
  Value Insurance Policy effective as of December 31, 2000 issued by the
  Company to the Original Insured, a copy of which is attached hereto as
  Exhibit A.

  
	
   

  	
   

  	
   

  
	
  Effective Date of Reinsurance (if
  different from Covered Policy):

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Expiration Date of Reinsurance (if
  different from Covered Policy)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Reinsurance
  Premium:

  	
   

  	
  $84,000,000,
  payable up front. The premium is net of the Reinsurer’s share of all taxes
  and brokerage.

  
	
   

  	
   

  	
   

  
	
  Ceding
  Commission:

  	
   

  	
  None.

  
	
   

  	
   

  	
   

  
	
  Form
  of Reinsurance (QS or EOL):

  	
   

  	
  Quota
  share. For the avoidance of doubt, the Reinsurer is liable for the
  Reinsurer’s Quota Share Percentage of the Profit Share Amount (if any), as
  well as the Reinsurer’s Quota Share Percentage of Covered Losses (subject, in
  the case of Covered Losses, to the Reinsurer’s Limit of Liability).

  

 

 

	
  Reinsurer’s
  Quota Share Percentage (if applicable):

  	
   

  	
  75%.

  
	
   

  	
   

  	
   

  
	
  Reinsurer’s
  Attachment Point (if applicable):

  	
   

  	
  Covered
  Losses equal to $280 million.

  
	
   

  	
   

  	
   

  
	
  Reinsurer’s
  Limit of Liability (if applicable):

  	
   

  	
  Covered
  Losses equal to $165 million.

  
	
   

  	
   

  	
   

  
	
  Location
  of Risk (if different from Covered Policy):

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Deviations
  from coverage provided under Covered Policy:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Reports
  and Loss Payments:

  	
   

  	
  The
  Company will promptly provide to the Reinsurer copies of all reports received
  pursuant to the terms of the Covered Policy. Covered Losses and Profit Share
  Amounts payable by the Reinsurer hereunder shall be paid to or at the
  direction of the Company no later than the date such amounts are payable by
  the Company to the Original Insured. The Reinsurer shall pay Allocated Loss
  Expenses promptly following receipt of an invoice therefor.

  
	
   

  	
   

  	
   

  
	
  Other
  Terms:

  	
   

  	
  The
  Company shall not amend the Covered Policy without the prior written consent
  of the Reinsurer.

  

 

The
cession evidenced by this Facultative Certificate shall be subject to all the
terms and conditions contained in the Reinsurance Agreement referenced above.

 

	
  Signed
  at New York, New York, on behalf of

  Westchester Fire Insurance Company

  	
   

  	
  Counter-Signed
  at Hamilton, Bermuda, on

  behalf of ACE Capital Re Overseas Ltd.

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  By:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/
  Robert E. Omahne

  	
   

  	
   

  	
  /s/ Rebecca L. Carne

  	
   

  
	
  Authorized
  Representative

  	
   

  	
  Authorized
  Representative

  
	
   

  	
   

  	
   

  
	
  Date:
  August 27, 2001

  	
   

  	
  Date: Aug 23, 01

  
					

 

2

 

Exhibit
A

 

ace usa

 

WESTCHESTER FIRE INSURANCE COMPANY

1133 Avenue of the Americas

New York, New York 10036

This Policy is issued by the stock insurance company
listed above (herein “Insurer”).

 

FREE TRADE ZONE

 

NOTICE: THESE POLICY FORMS AND THE APPLICABLE RATES ARE
EXEMPT FROM THE FILING REQUIREMENTS OF THE NEW YORK STATE INSURANCE DEPARTMENT.
HOWEVER, SUCH FORMS AND RATES MUST MEET THE MINIMUM STANDARDS OF THE NEW YORK
INSURANCE LAW AND REGULATIONS.

 

DECLARATIONS

 

	
  Policy
  No.

  	
  CRS D3 407305 3

  
	
   

  	
   

  
	
  Item 1.

  	
  Insured: Chase Manhattan
  Automotive Finance Corporation

  Address: 900 Stewart Avenue, Garden City, New York, 11530

  
	
   

  	
   

  
	
  Item 2.

  	
  Policy Period: From 11:59
  p.m. on December 31, 2000 until the Final Payment Date.

  (Local time at the address shown in Item 1)

  
	
   

  	
   

  
	
  Item 3.

  	
  Limit of Liability: $220
  million in the absolute aggregate excess of $280 million.

  
	
   

  	
   

  
	
  Item 4.

  	
  Policy Premium:
  $121,000,000

  
	
   

  	
   

  
	
  Item 5.

  	
  Endorsements to the
  General Conditions and Limitations Effective at Inception: N/A

  
			

 

 

Execution Copy

 

 

IN WITNESS WHEREOF, the Insurer has caused this Policy to be
signed by its President and Secretary and countersigned by a duly authorized
representative of the Insurer.

 

	
   

  	
   

  
	
   

  	
  /s/ [ILLEGIBLE]

  	
   

  	
  /s/ George D. Mulligan

  	
   

  
	
   

  	
  President

  	
   

  	
  GEORGE D. MULLIGAN, Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
  POLICY
  ISSUANCE DATE:
  02/05/01

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Robert E. Omahne

  	
   

  
	
   

  	
  AUTHORIZED
  REPRESENTATIVE

  
	
   

  	
  Atty in
  Fact

  

 

2

 

ace usa

 

RESIDUAL VALUE INSURANCE POLICY

 

In
consideration of the payment of the Premium (as defined below) and in reliance
upon the statements and representations made to Westchester Fire Insurance Company
(the “Insurer”) by Chase Manhattan Automotive Finance Corporation (the
“Insured”) in its Submission (as defined below), and subject to the terms,
conditions, exclusions and limitations contained herein or in any endorsements
added hereto, all of which collectively constitute the “Policy”, the Insurer
and the Insured agree as follows:

 

ARTICLE 1. TERM

 

This
Policy shall be effective as of 11:59 p.m., Eastern Standard Time, on December
31, 2000 (the “Effective Date”) and shall continue in force until the Final
Payment Date (as defined below) (the “Term”).

 

ARTICLE 2. PREMIUM AND
ADDITIONAL PREMIUM

 

The
premium payable to the Insurer hereunder (the “Premium”) is $121 million. The
Premium is gross of all taxes and brokerage commissions. The Premium is payable
on March 5, 2001 (the “Premium Payment Date”). In the event Covered Losses
exceed $435 million, the Insured will pay to the Insurer, on a funds withheld
basis, an additional premium in the amount of $30 million (the “Additional
Premium”). The Additional Premium is net of all taxes and gross of all
brokerage commissions.

 

ARTICLE 3. INSURING
CLAUSE

 

The
Insurer will pay 100% of Covered Losses in excess of the Attachment Point
subject to the Limit of Liability.

 

ARTICLE 4. PROFIT
SHARING

 

In
the event Covered Losses are less than $405 million, the Insurer will pay the
Insured a profit sharing amount equal to the lesser of (i) $125 million or (ii)
$405 million less Covered Losses (the “Profit Sharing Amount”). The Profit
Sharing Amount will be paid in accordance with Article 7 hereof.

 

ARTICLE 5. DEFINITIONS

 

The
following terms shall have the respective meanings ascribed to them below.

 

 

	
  Actual
  Maturity Date:

  	
   

  	
  With
  respect to a Returned Vehicle, “Actual Maturity Date” means the date the
  Insured receives notification from its authorized agent that it has obtained
  possession of the vehicle on behalf of the Insured. With respect to a
  Purchase Option Vehicle or a Chase Financed Purchase Option Vehicle, “Actual
  Maturity Date” means the date the Insured receives the proceeds from the sale
  of the vehicle.

  
	
   

  	
   

  	
   

  
	
  Amortized
  Value:

  	
   

  	
  At
  any date and with respect to a vehicle that is the subject of a Covered
  Lease, the adjusted lease balance specified in the Insured’s LeMans system
  for such vehicle at such date, which amount equals the Initial Adjusted
  Capitalized Cost less depreciation calculated by the Insured on a monthly
  basis (as specified in the Insured’s LeMans system). The parties acknowledge
  and agree that, with respect to Extended Leases, monthly depreciation will be
  calculated as follows: (i) the Initial Adjusted Capitalized Cost of the
  Potentially Covered Lease minus the amount set forth in the Final Data Base
  with respect to such vehicle under the field entitled “Bor-Res-On-Lease”
  divided by (ii) the original term of the Potentially Covered Lease.

  
	
   

  	
   

  	
   

  
	
  Attachment
  Point:

  	
   

  	
  $280
  million.

  
	
   

  	
   

  	
   

  
	
  Black
  Book Adjustment Amount:

  	
   

  	
  

  The greater of (i) zero or (ii) (A) the difference between (x) the sum of the
  Black Book Values one calendar month after the Sales Date for each Returned
  Vehicle for which a Black Book Value is available multiplied by 0.99 and (y)
  the sum of the Net Realized Values for each Returned Vehicle for which a
  Black Book Value is available multiplied by (B) a fraction, the numerator of
  which is equal to the aggregate Book Cost on all Returned Vehicles and the
  denominator of which is equal to the aggregate Book Cost on all Returned
  Vehicles for which Black Book Values are available.

  
	
   

  	
   

  	
   

  
	
  Black
  Book Value:

  	
   

  	
  With
  respect to a vehicle that is the subject of a Covered Lease, the “average
  wholesale” value established by the Black Book Official Used Car Market
  Guide, Monthly National Edition, for a vehicle of the same make and model as
  such vehicle, without adjustments for options installed by the manufacturer and/or
  the automobile dealer. In the event that Black Book either ceases to exist or
  no longer publishes a Monthly National Edition during the Term, the Insured
  and Insurer shall mutually agree to another recognized nationally published
  used car market guide.

  
	
   

  	
   

  	
   

  
	
  Book
  Cost:

  	
   

  	
  With
  respect to a vehicle that is the subject of a Covered Lease that has an
  Actual Maturity Date which occurs on or after the

  

 

2

 

	
   

  	
   

  	
  Scheduled
  Maturity Date, “Book Cost” means Amortized Value at the Actual Maturity Date.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With
  respect to a vehicle that is the subject of a Covered Lease that has an
  Actual Maturity Date which occurs prior to the Scheduled Maturity Date, “Book
  Cost” means: (i) for a Returned Vehicle, the Amortized Value at the Actual
  Maturity Date less an amount equal to the remaining scheduled lease payments;
  and (ii) for a Purchase Option Vehicle or a Chase Financed Purchase Option
  Vehicle, the Amortized Value at the Actual Maturity Date.

  
	
   

  	
   

  	
   

  
	
  Chase
  Financed Purchase Option Vehicle:

  	
   

  	
  

  A vehicle that is purchased from the Insured pursuant to the purchase option
  provision of the related lease contract by either the lessee or a purchaser
  other than the lessee, where the financing for such purchase is provided by
  the Insured or one of its affiliates. The sale transaction may take place at
  a physical location, via an Internet site, and/or via phone, fax and/or mail.

  
	
   

  	
   

  	
   

  
	
  Covered
  Lease:

  	
   

  	
  Each
  Potentially Covered Lease that has an Actual Maturity Date occurring no
  earlier than 180 days prior to the Scheduled Maturity Date for such
  Potentially Covered Lease and no later than 29 days after the Scheduled
  Maturity Date for such Potentially Covered Lease (or, if such Potentially
  Covered Lease is an Extended Lease, no later than 24 months following the
  Scheduled Maturity Date for such Potentially Covered Lease).

  
	
   

  	
   

  	
   

  
	
  Covered
  Losses:

  	
   

  	
  The
  greater of (i) zero or (ii) (A) the sum of the Book Costs for the Covered
  Leases less (B) the sum of the Net Realized Values for the Covered Leases
  less (C) the Black Book Adjustment Amount less (D) the Sales Expense
  Adjustment Amount; provided, however, that clauses (C) and (D) shall only be
  considered in the calculation of Covered Losses performed as of the Final
  Payment Date.

  
	
   

  	
   

  	
   

  
	
  Disposition
  Fee:

  	
   

  	
  With
  respect to a Covered Lease, the disposition fee listed on the lease contract
  for such Covered Lease, whether or not billed or recovered.

  
	
   

  	
   

  	
   

  
	
  Excess
  Mileage:

  	
   

  	
  With
  respect to a Covered Lease, the billable excess mileage in accordance with
  the lease contract for such Covered Lease, whether or not billed or
  recovered.

  
	
   

  	
   

  	
   

  
	
  Excess
  Wear and Tear:

  	
   

  	
  With
  respect to a Covered Lease, the billable excess wear and tear in accordance
  with the lease contract for such Covered Lease, whether or not billed or recovered.

  

 

3

 

	
  Extended
  Lease:

  	
   

  	
  A
  Potentially Covered Lease that satisfies the following criteria: (i) the
  Actual Maturity Date is no less than one Month and no greater than 24 Months
  following the Scheduled Maturity Date and (ii) the lease payment during such
  period remains the same as during the original lease period.

  
	
   

  	
   

  	
   

  
	
  Final
  Data Base:

  	
   

  	
  The
  electronic file provided to the Insurer by the Insured on January 17, 2001
  entitled “GALUIN.zip”, composed of records for 207,147 leases.

  
	
   

  	
   

  	
   

  
	
  Gross
  Sales Price:

  	
   

  	
  With
  respect to a Returned Vehicle, a Purchase Option Vehicle or a Chase Financed
  Purchase Option Vehicle, “Gross Sales Price” means the purchase price for
  such vehicle. For purposes of calculating the Gross Sales Price, every
  Returned Vehicle, Purchase Option Vehicle and Chase Financed Purchase Option
  Vehicle shall be sold in a commercially reasonable manner appropriate for
  such form of sale.

  
	
   

  	
   

  	
   

  
	
  Initial
  Adjusted Capitalized Cost:

  	
   

  	
  

  With respect to a vehicle that is the subject of a Covered Lease, the gross
  capitalized cost of such vehicle less any capitalized cost reduction payments
  made by or on behalf of the lessee, as specified in the Insured’s LeMans
  system at the inception of the Covered Lease.

  
	
   

  	
   

  	
   

  
	
  Insured
  Losses:

  	
   

  	
  The
  lesser of (i) Covered Losses in excess of the Attachment Point and (ii) the
  Limit of Liability.

  
	
   

  	
   

  	
   

  
	
  Limit
  of Liability:

  	
   

  	
  The
  Insurer shall not pay more than $220 million of Covered Losses.

  
	
   

  	
   

  	
   

  
	
  Month:

  	
   

  	
  Month
  shall mean a 30-day month.

  
	
   

  	
   

  	
   

  
	
  Net
  Realized Value:

  	
   

  	
  With
  respect to a Purchase Option Vehicle or a Chase Financed Purchase Option
  Vehicle, “Net Realized Value” means the Gross Sales Price for such vehicle.
  With respect to a Returned Vehicle, “Net Realized Value” means the Gross
  Sales Price for such vehicle plus Excess Mileage, Excess Wear and Tear and
  Disposition Fee minus Sales Expenses. With respect to a vehicle that has a
  Sales Date that is more than 90 days after the Actual Maturity Date, “Net
  Realized Value” means the Black Book Value two Months after the Actual
  Maturity Date.

  
	
   

  	
   

  	
   

  
	
  Potentially
  Covered Lease:

  	
   

  	
  Each
  lease transaction included in the Final Data Base that (i) is in force at the
  Effective Date, (ii) has a Scheduled Maturity Date occurring on or after
  January 1, 2001 and (iii) at the Effective Date

  

 

4

 

	
   

  	
   

  	
  is
  not insured under any other insurance program. Potentially Covered Lease
  shall include the replacement of a vehicle that is the subject of a lease
  that is included in the Final Data Base, provided that such vehicle is
  replaced by a vehicle of the same make of greater or equal value and the
  terms of the existing lease as listed on the Final Data Base remains in force
  (a “Collateral Substitution”). The Insured shall report any Collateral
  Substitution to the Insurer within 30 days following the end of the calendar
  month of such occurrence via a method and in a format that is mutually agreed
  to by the Insurer and the Insured. Potentially Covered Lease shall also
  include the flat cancellation of a lease contract that is the subject of a
  lease transaction included in the Final Data Base and the substitution of
  another lease contract on the same vehicle that is the subject of such lease
  transaction provided that the Residual Value set forth in the new lease
  contract is the same as the Residual Value set forth on the Final Data Base
  for such vehicle (a “Flat Cancelled Lease”). The Insured shall report any
  Flat Cancelled Lease to the Insurer within 30 days following the end of the calendar
  month of such occurrence via a method and in a format that is mutually agreed
  to by the Insurer and the Insured.

  
	
   

  	
   

  	
   

  
	
  Purchase
  Option Vehicle:

  	
   

  	
  A
  vehicle that is purchased from the Insured pursuant to the purchase option
  provision of the related lease contract by either the lessee, a purchaser
  other than the lessee or an automobile dealer. The sale transaction may take
  place at a physical location, via an Internet site and/or via phone, fax
  and/or mail.

  
	
   

  	
   

  	
   

  
	
  Residual
  Value:

  	
   

  	
  With
  respect to a vehicle that is the subject of a Covered Lease, the amount set
  forth in the Final Data Base with respect to such vehicle under the field
  entitled “Bor-Res-On-Lease”.

  
	
   

  	
   

  	
   

  
	
  Returned
  Vehicle:

  	
   

  	
  A
  vehicle that is returned to the Insured by the lessee pursuant to the lessee’s
  exercise of the return option under the lease contract. The Insured may
  subsequently sell such vehicle at an auction that has bidding or fixed priced
  sales, or may sell such vehicle to a purchaser other than the lessee, dealer,
  or employee of the Insured. The sale may take place at a physical location,
  via an Internet site and/or via phone, mail and/or fax.

  
	
   

  	
   

  	
   

  
	
  Sales
  Date:

  	
   

  	
  The
  date the Insured reports the sale of a vehicle that is the subject of a
  Covered Lease on the Insured’s LeMans system.

  
	
   

  	
   

  	
   

  
	
  Sales
  Expense Adjustment Amount:

  	
   

  	
  An
  amount equal to the greater of (i) zero or (ii) “A” minus “B” minus “C”,
  where

  

 

5

 

	
   

  	
   

  	
  “A”
  equals the sum of the Sales Expenses for all Returned Vehicles

  
	
   

  	
   

  	
  “B”
  equals the sum of all Disposition Fees for all Returned Vehicles, and

  
	
   

  	
   

  	
  “C”
  equals $330 multiplied by the total number of all Returned Vehicles.

  
	
   

  	
   

  	
   

  
	
  Sales
  Expenses:

  	
   

  	
  Auction
  and other third party expenses actually incurred by or on behalf of the
  Insured that are (i) directly related to the sale of a Returned Vehicle and
  (ii) either (A) reasonably classifiable as one of the following categories of
  expenses: reconditioning expenses, transportation expenses, auction expenses
  and appraisal fees or (B) expenses directly related to the sale of a Returned
  Vehicle via the Internet.

  
	
   

  	
   

  	
   

  
	
  Scheduled
  Maturity Date:

  	
   

  	
  With
  respect to a Potentially Covered Lease, the date specified with respect to
  such Potentially Covered Lease in the Final Data Base under the fields
  entitled “BOR-LSE-MAT-CCYY, BOR-LSE-MAT-MM, BOR-LSE-MAT-DD”.

  
	
   

  	
   

  	
   

  
	
  Submission:

  	
   

  	
  The
  following electronic files provided by the Insured to the Insurer either
  directly or through Leadenhall Insurance Brokers: “GALUIN”; “ChaseEWT”;
  “chasefees2”; “ScheduledMaturityEF”; and “ScheduledMaturity 1231”.

  

 

ARTICLE 6. ACCOUNTS
AND REPORTS

 

Within
30 calendar days following the end of each calendar month during the Term, the
Insured will provide the Insurer with an electronic report containing the
information set forth in Exhibit A attached hereto (the “Monthly Loss
Account”).

 

Within
30 days following the end of each calendar quarter during the Term, the Insured
will provide the Insurer with an electronic report containing the information
set forth in Exhibit B attached hereto.

 

The
Insurer acknowledges that the Insured will not be able to comply with the
reporting requirements set forth in this Article 6 or the reporting
requirements with respect to any Flat Cancelled Leases or Collateral
Substitutions for a period of time after the Effective Date, and that such
failure to comply shall not be deemed a breach of the Insured’s obligations
under this Policy. The Insured will use commercially reasonable efforts to
develop the reports required by this Article 6 within 120 days after the
Premium Payment Date. Upon the Insured’s successful development of the reports
necessary to comply with this Article 6, the Insured will provide such reports
to the Insurer retroactive to January 1, 2001 as well as information with
respect to any Flat Cancelled Leases and Collateral Substitutions that have
occurred since January 1, 2001.

 

6

 

ARTICLE 7.  SETTLEMENTS

 

Any
payment in respect of the Profit Sharing Amount shall be due on the later to
occur of (i) the date that is 60 days following the last Scheduled. Maturity
Date to occur and (ii) the date that is five years and 60 days following the
Premium Payment Date (such later date to occur is referred to as the “Profit
Sharing Payment Date”).

 

Insured
Losses shall be paid on a funds withheld basis with final settlement to be made
on the latest to occur of (i) the date that is 60 days following the last
Scheduled Maturity Date to occur, (ii) the date that is 60 days following the
last revised scheduled maturity date to occur with respect to an Extended Lease
and (iii) the date that is five years and 60 days following the Premium Payment
Date (such latest date to occur is referred to as the “Final Payment Date”).
Notwithstanding the preceding sentence, in the event Insured Losses exceed $155
million, the Insurer will make provisional payments to the Insured in respect
of Insured Losses in excess of $155 million on a quarterly basis within 10 days
following receipt of the Monthly Loss Account for the last month of each
calendar quarter; provided, however, that the Insurer shall offset Insured
Losses in excess of $155 million but less than $185 million against the
Additional Premium on a dollar for dollar basis, and the amounts so offset
(collectively, the “Offset Amount”) shall not be considered provisional
payments hereunder. On the Final Payment Date, the Insurer shall calculate
Insured Losses. In the event the aggregate provisional payments actually paid
to the Insured by the Insurer in respect of Insured Losses are in excess of the
Insured Losses less the Offset Amount (if any), the Insured shall refund to the
Insurer on the Final Payment Date an amount equal to such excess. In the event
the Insured Losses less the Offset Amount (if any) are in excess of the aggregate
provisional payments actually paid to the Insured by the Insurer in respect of
Insured Losses, the Insurer shall pay to the Insured on the Final Payment Date
an amount equal to such excess. In addition and notwithstanding anything to the
contrary contained in Article 2 hereof, in the event Insured Losses are greater
than $155 million but less than $185 million, the Insured shall be entitled to
retain the portion of the Additional Premium not offset by Insured Losses.

 

Notwithstanding
anything to the contrary contained herein, in the event a Profit Sharing Amount
is paid and the Profit Sharing Payment Date precedes the Final Payment Date,
the Insurer shall be entitled to reduce Insured Losses payable on the Final
Payment Date (if any) by an amount equal to the lesser of the Profit Sharing
Amount paid to the Insured and the amount of Insured Losses reported subsequent
to the Profit Sharing Payment Date. Notwithstanding anything to the contrary
contained herein, in the event the Profit Sharing Payment Date precedes the
Final Payment Date and Covered Losses at the Final Payment Date are less than
Covered Losses at the Profit Sharing Payment Date, on the Final Payment Date
the Insurer will recalculate the Profit Sharing Amount based on Covered Losses
at the Final Payment Date and, if the Profit Sharing Amount as so recalculated
exceeds the Profit Sharing Amount paid on the Profit Sharing Payment Date, the
Insurer will pay to the Insured on the Final Payment Date an amount equal to
such excess.

 

7

 

ARTICLE 8.  ACCESS TO RECORDS

 

The
Insurer and its authorized representatives shall have access to the books and
records of the Insured (including, without limitation, all electronic data)
upon prior reasonable notice and during normal business hours for the sole
purpose of obtaining information concerning this Policy or its subject matter
and the right to make copies thereof (at its own expense), subject to
applicable laws, rules and regulations, including, without limitation,
applicable federal or state privacy laws. For the avoidance of doubt, the
Insurer’s reinsurers and retrocessionaires with respect to this Policy (if any)
shall be considered authorized representatives of the Insurer when accompanying
the Insurer on visits to the Insured for the purposes stated above in this
Article.

 

ARTICLE 9.  REPRESENTATIONS AND COVENANTS OF THE INSURED

 

The
Submission was accurate in all material respects as of the date of delivery.

 

In
consideration of the coverage provided to it under this Policy, the Insured
covenants to the Insurer as follows:

 

During
the Term, the Insured shall not sell, transfer or assign all or substantially
all of the Potentially Covered Leases to other than its affiliates without the
written consent of the Insurer, which consent shall not be unreasonably
withheld. For the avoidance of doubt, this covenant relates to sale, transfer
and assignment of leases, not to sale, transfer or assignment of vehicles. For
the further avoidance of doubt, this covenant does not apply to dealer lease
and/or vehicle repurchases in connection with breaches under Chase dealer
agreements. The Insured will provide prompt written notice to the Insurer of
any sale, transfer or assignment of all or substantially all the Potentially
Covered Leases to any affiliate.

 

During
the Term, the interest rate charged on Chase Financed Purchase Option Vehicles
will be based on the same return on equity and profitability models that Chase
establishes for its used vehicle loans made directly to consumers.

 

During
the Term, the Insured shall maintain a dealer asset remarketing effort and a
consumer asset remarketing effort with respect to Purchase Option Vehicles and
Chase Financed Purchase Option Vehicles, and the Insured’s remarketing practices
with respect to such efforts shall conform to or exceed standard industry
practices, subject, however, to the Insured’s compliance with the terms and
conditions of this Policy.

 

The
Insured shall not change its current methodology or practices with respect to
its LeMans system as it relates to the determination of Initial Adjusted
Capitalized Cost, Amortized Value, Book Cost or depreciation.

 

ARTICLE 10.  COVENANTS OF THE INSURER

 

The
Insurer shall issue an endorsement to this Policy (the “Liability Endorsement”)
increasing the Limit of Liability by $200 million (the “Additional Limit”)
(resulting in a revised Limit of Liability of $420 million) in the event
Leadenhall Insurance Brokers (i)

 

8

 

place
reinsurance coverage that is reasonably acceptable to the Insurer on the entire
Additional Limit by April 30, 2001 with reinsurers rated at least A IX by AM
Best and (ii) procure reinsurance cut-through endorsements in the form of Annex
I hereto from such reinsurers for the entire Additional Limit (in the
aggregate). In the event the Liability Endorsement is not issued by April 30,
2001 or such later date as the Insured and the Insurer shall agree to in
writing, the Insurer promptly shall refund $6 million of Premium to the Insured
with interest from the Premium Payment Date to the date of refund at an annual
rate equal to 5.5%.

 

ARTICLE 11. GENERAL
PROVISIONS

 

1.             Offset.  The Insured and the Insurer have the right
to offset any balance(s) due from one to the other hereunder.

 

2.             Governing
Law.  This Policy shall be governed by and
interpreted in accordance with the laws of the State of New York, without
regard to its conflict of law principles.

 

3.             Assignment.  This Policy shall be binding upon and inure
to the benefit of the Insurer and the Insured and their respective successors
and assigns. This Policy may not be assigned by either party (other than by the
Insured to an affiliate of the Insured or by the Insurer to an affiliate of the
Insurer that has an AM Best rating of at least A IX at the time of assignment)
without the prior written consent of the other party; provided, if the AM Best
rating of the Insurer falls below A IX during the Term, the Insurer shall use
best efforts to promptly substitute for the Insurer another company within the
ACE Group of Companies whose AM Best rating is equal to or better than A IX
(for the avoidance of doubt, such substitution will be in respect of the
Insurer’s gross exposure under this Policy, including, without limitation, exposure
in respect of the Profit Sharing Amount); provided, further if such assignment
is impractical to effect because of tax, regulatory or accounting issues, the
Insurer will reinsure its gross exposure under this Policy (including, without
limitation, exposure in respect of the Profit Sharing Amount) to a member of
the ACE Group of Companies that has an AM Best rating equal to or better than A
IX or a Standard & Poor’s rating in the AA category or better and procure a
reinsurance cut-through endorsement in the form of Annex I hereto from such
reinsurer in favor of the Insured. In the event a substitution of insurers is
made in accordance with the second sentence of this Section 3 and during the
Term the AM Best rating of the company substituted for the Insurer falls below
A IX, the substituted company shall be obligated to comply with the second
sentence of this Section 3. In the event reinsurance and a reinsurance
cut-through endorsement is effected in accordance with the second sentence of
this Section 3 and the AM Best rating or Standard & Poor’s rating of the
company providing the reinsurance and the reinsurance endorsement falls below A
IX or the AA category, respectively, the Insurer shall be obligated to comply
once again with the second sentence of this Section 3.  The Insurer recognizes that the Insurer’s
compliance with this Section 3 is of a special, unique and extraordinary
character, which gives it peculiar value, the loss of which may not be
reasonably or adequately compensated in damages in any action at law, and that
a breach by the Insurer of

 

9

 

the provisions of this Section 3 may
cause the Insured irreparable injury and damage. The Insurer agrees that the
Insured shall be entitled to the remedies of specific performance and other
equitable relief to prevent a breach of this Section 3 by the Insurer without
the necessity of proving damages and that the Insured shall not be required to
post bond or any other form of guarantee as a condition of such relief. This
previous sentence shall not, however, be construed as a waiver of any rights
which the Insured may have for damages or otherwise, nor shall it limit in any
way any other remedies which may result from the breach of this Policy.

 

4.             Amendment.  No amendment or modification of this Policy
shall be effective except when made by a written endorsement to this Policy
that is agreed to in writing by the Insured and signed by an authorized
representative of the Insurer.

 

5.             Headings.  The headings used in this Policy are
intended and inserted solely for convenience of reference and shall not effect
the meaning, interpretation, construction or effect of this Policy.

 

6.             Entire
Agreement.  This Policy
constitutes the entire agreement between the parties with respect to the
contents of this Policy, and supersedes all prior agreements, understandings
and negotiations, oral and written, with respect hereto.

 

7.             Waiver.  No waiver of this Policy shall be effective
unless in writing and signed by a duly authorized officer of the party granting
the waiver. The failure of a party to enforce any provision of this Policy
shall not constitute a waiver by such party of such provision. The past waiver
of a provision by a party shall not constitute a course of conduct or waiver in
the future of that same provision.

 

8.             Taxes
and Brokerage.  Except as provided
in the following sentence, any taxes and brokerage payable with respect to this
Policy shall be borne by the Insurer and shall be paid directly by the Insurer
to the applicable taxing authorities. Any taxes payable with respect to the
Additional Premium shall be payable by the Insured to the Insurer, and the
Insurer shall pay such taxes to the applicable taxing authorities.

 

9.             Cancellation.  This Policy may be canceled by the Insurer
for non-payment of the Premium, but shall not be cancelable for any other
reason by either party.

 

10.           Loss
Payee.  The following
entity is named as loss payee under this Policy: Chase Vehicle Exchange, Inc.,
P.O. Box 5230, New Hyde Park, New York, 11742.

 

11.           No
Reliance.  The Insured has
reviewed the terms, conditions and significance of this Policy with its legal
counsel, tax counsel and accountants and is accepting this Policy with full
knowledge of its terms, conditions and significance. In accepting this Policy,
the Insured is not relying upon any representation or warranty by the Insurer
regarding the legal, tax or accounting implications for the Insured in
purchasing the insurance provided by this Policy. It is understood and

 

10

 

agreed that this Policy is a manuscript
policy that has been negotiated at arm’s length and on equal footing as between
the Insured and Insurer, and that both parties fully understood and agreed to
all the terms and conditions contained in this Policy.

 

12.           Consent
to Jurisdiction; Service of Suit.  It is agreed that, in the event of failure of the Insurer to pay
any amount claimed to be due hereunder, the Insurer, at the request of the
Insured, will submit to the jurisdiction of a court of competent jurisdiction
within the United States.  Nothing in
this condition constitutes or should be understood to constitute a waiver of
the Insurer’s right to commence an action in any court of competent jurisdiction
in the United States, to remove an action to a United States District Court or
to seek a transfer of a case to another court as permitted by the laws of the
United States or of any state in the United States. It is further agreed that
service of process in such suit may be made upon Counsel, Legal Department,
Westchester Fire Insurance Company, or his or her representative, and that in
any suit instituted against the Insurer upon this Policy, the Insurer will
abide by the final decision of such court or of any appellate court in the
event of any appeal.

 

13.           Waiver
of Jury Trial.  THE INSURED AND THE INSURER EACH IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS POLICY AND ACKNOWLEDGES THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO THE ISSUANCE AND ACCEPTANCE OF THIS POLICY.

 

14.           Currency.  Whenever the word “Dollars” or the “$” sign
appear in this Policy, they shall be construed to mean United States Dollars,
and all payments made hereunder shall be made in United States Dollars.

 

15.           Notices.  All notices under any provision of this
Policy shall be in writing and given by a nationally recognized overnight
courier service or certified mail properly addressed to the appropriate party.  Notices shall be sent to the Insurer and the
Insured at the addresses listed in the Declarations (attention: General
Counsel, in the case of notices sent to the Insurer, and attention; Jeffrey
Levine, in the case of notices sent to the Insured). Notices sent by courier
shall be deemed received and effective one day after such notice is sent.
Notices sent by certified mail shall be deemed received and effective three
days after such notice is sent.

 

11

 

Exhibit A

 

Monthly Loss Account

 

Number
of Vehicles in each Status Type at month end

Covered
Losses from Effective Date to month end

Aggregate
Residual Value by Status Type and in total

 

The
above information will be summarized by Scheduled Maturity Dates falling within
a calendar month and Status Type (i.e., Active, Not Covered, Returned Vehicle,
Purchase Option Vehicle, Chase Financed Purchase Option Vehicle).

 

12

 

Exhibit B

 

An
electronic file that includes the following record data for each Potentially
Covered Lease:

 

1.       Vehicle Make

2.       Vehicle Model

3.       Vehicle Year

4.       Number of Months that Lease was
Extended, if any

5.       Lease Start Date

6.       Scheduled Maturity Date

7.       Actual Maturity Date

8.       Lease Term

9.       Sales Date

10.     Residual Value disclosed on the
Final Date Base

11.     Amortized Value

12.     Monthly Lease Payment

13.     Money Factor

14.     Status (Active, Not Covered,
Returned Vehicle, Purchase Option Vehicle, Chase Financed Purchase Option
Vehicle)

15.     Gross Sales Price

16.     For Returned Vehicles only,
total Sales Expenses

17.     For Returned Vehicles only, 99%
of Black Book Value using Sales Date plus One Month

18.     For Returned Vehicles only,
Allowable Mileage

19.     For Returned Vehicles only, the
lease contract charge per excess mile

20.     For Returned Vehicles only,
mileage at the return date

21.     For Returned Vehicles only, the
billable Excess Mileage charge

22.     For Returned Vehicles only, the
billable Excess Wear and Tear charge

23.     Net Realized Value

24.     Covered Loss

25.     Adjusted MSRP as listed in the
Insured’s LeMans system

26.     ALG projected estimate, if
available

 

13

 

Annex I

 

CUT-THROUGH ENDORSEMENT

 

This
Cut-Through Endorsement is an endorsement to and forms a part of the reinsurance
agreement (the “Reinsurance Agreement”) dated as of [    ]
entered into by and between Westchester Fire Insurance Company (the “Company”)
and [insert name of reinsurer] (the “Reinsurer”) pursuant to which the
Reinsurer has reinsured the Company with respect to the Company’s liability
under a Residual Value Insurance Policy issued by the Company to Chase
Manhattan Automotive Finance Corporation (the “Insured”) with an effective date
of December 31, 2000 (the “Policy”).

 

For
value received, the Reinsurer hereby agrees that, in the event of the
occurrence of the insolvency, receivership, liquidation or reorganization of
the Company and the failure of the Company to pay any amounts payable to the
Insured under the Policy within the time provided in the Policy, (i) the
Reinsurer will immediately become liable to the Insured for the portion of such
amount that is covered under the Reinsurance Agreement (the “Covered Amount”),
(ii) the Reinsurer will have the right and the obligation to make direct payment
of the Covered Amount to the Insured within three business days of receipt by
the Reinsurer of a notice in the form attached hereto as Exhibit A and (iii)
the Insured will have a direct right of action against the Reinsurer for the
payment of the Covered Amount, in each case without diminution because of the
occurrence of any proceeding or circumstance involving the Company, including
the occurrence of the insolvency, receivership, liquidation or reorganization
of the Company, and notwithstanding any payment by the Reinsurer to the Company
or the rejection, disaffirmation, reformation or other action terminating or
modifying the Policy or the Reinsurance Agreement by any liquidator,
rehabilitator, conservator or receiver of the Company or other officer with similar
powers with respect to the Company or by operation of law. The direct payment
of any Covered Amount by the Reinsurer to the Insured pursuant to this
Endorsement will extinguish any obligation on the part of the Reinsurer under
the Reinsurance Agreement or otherwise to make any other payment in respect of
such Covered Amount.

 

This
Endorsement does not cover amounts the Insurer disputes in good faith are owed
under the Policy until such time as such dispute has been fully and finally
resolved.

 

The
undersigned covenant that, while the Policy is in force, without the prior
written consent of the Insured, the Reinsurance Agreement shall not be (i)
assigned, (ii) terminated or (iii) altered or modified in any manner adverse to
the interests of the Insured. The undersigned further covenant that this
Endorsement shall not be altered, modified or terminated while the Policy is in
force without the prior written consent of the Insured.

 

Promptly
following the execution of this Endorsement, the Company shall deliver to the
Insured a copy of the executed Endorsement. The Insured shall be a third party
beneficiary of the Reinsurance Agreement for purposes of enforcing this
Endorsement.

 

Nothing
herein contained shall be held to vary, alter, waive or extend any of the
terms, conditions, provisions, agreements or limitations of the Reinsurance
Agreement other than as above stated. In the event of any conflict between the
provisions of this Endorsement and the Reinsurance Agreement, the provisions of
this Endorsement shall govern.

 

14

 

IN
WITNESS WHEREOF, the Company and the Reinsurer have each caused this
Endorsement to be signed by duly authorized officers as of the date first above
written.

 

 

	
  WESTCHESTER
  FIRE INSURANCE COMPANY

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  
	
   

  
	
  [REINSURER]

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

15

 

EXHIBIT A

NOTICE OF CLAIM

 

[insert
date]

[insert
name and address of Reinsurer]

 

Re:
Cut-Through Endorsement to the Reinsurance Agreement between Westchester Fire
Insurance Company (the “Company”) and [insert name of reinsurer] (the
“Reinsurer”) dated as of [insert date] in respect of the Residual Value
Insurance Policy issued by the Company to Chase Manhattan Automotive Finance
Corporation (the “Insured”) with an effective date of December 31, 2000 (the
“Policy”).

 

The
undersigned, a duly authorized officer of the Insured, hereby certifies to the
Reinsurer, with reference to the Policy, that:

 

1.       The
Insured has submitted a claim to the Company in accordance with the terms and
provisions of the Policy.

 

2.       The
Insurer is obligated to and has failed to pay all or a portion of such claim
within the time and in accordance with the provisions of the Policy by reason
of the occurrence of the insolvency, receivership, liquidation or
reorganization of the Company.

 

3.       The
amount of such claim remaining unpaid as of the date of this notice is $
             (the
“Covered Amount”);

 

4.       Attached
hereto is a copy of the claim notice to sent to the Company and the report or
other document on the basis of which the Insured has made the calculation
necessary to determine the claim amount under the Policy.

 

5.       The
Covered Amount is not the subject of dispute between the Company and the Insured.

 

6.       The
Insured hereby assigns to the Reinsurer its right to receive from the Company
an amount equal to the Covered Amount, and the Reinsurer shall be subrogated to
the rights of the Insured under the Policy in relation to such amount. The
Insured shall execute all powers of attorney, consents and other instruments
necessary to effectuate such assignment.

 

7.       Payment
of the Covered Amount should be made by wire transfer directed to:

 

If
you fail to make full payment of amounts due and payable and claimed hereby,
the above instrument of assignment shall be without effect and shall be
cancelled and returned, on the date such payment is due, by you to the Insured.

 

IN
WITNESS WHEREOF, the Insured has executed and delivered this Notice of Claim to
the Reinsurer as of the         day of
                         ,
           .

 

	
  CHASE
  MANHATTAN AUTOMOTIVE FINANCE CORPORATION

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

16Exhibit
10.37

 

QUOTA
SHARE RETROCESSION AGREEMENT

 

 

This Quota Share Retrocession Agreement
(“Agreement”), effective as of January 1, 2002, is made and entered into by and
between ACE CAPITAL RE OVERSEAS LTD. (the “Retrocedent”), an insurance company
registered and licensed under the laws of the Islands of Bermuda, and ACE INA
OVERSEAS INSURANCE COMPANY LTD. (the “Retrocessionaire”), an insurance company
registered and licensed under the laws of the Islands of Bermuda.

 

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

 

ARTICLE 1

 

DEFINITIONS

 

Section
1.1.   Definitions.  For all purposes with regard to this
Agreement, (A) unless otherwise defined in this Agreement, capitalized terms
shall have the meanings assigned to them in (i) the Stop Loss Reinsurance
Agreement dated as of October 1, 1997 between Central United Life Insurance
Company (the “Original Reinsured”) and the Retrocedent and (ii) the
Retrocession Agreement dated as of October 1, 1997 between the Original
Reinsured and the Retrocedent (collectively, the “Underlying Agreements”), and
(B) all accounting terms shall have the meanings assigned to them under
generally accepted accounting principles (“GAAP”).

 

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

 

ARTICLE 2

 

TERM

 

Section
2.1.   Term.  The term of this Agreement (the “Retrocession Term”) shall
commence at 12:01 a.m., eastern standard time, on January 1, 2002 (the
“Effective Date”) and shall remain in force until all of the Retrocedent’s
obligations under the Underlying Agreements have been discharged.

 

 

ARTICLE
3

 

TYPE

 

Quota share retrocession.

 

ARTICLE 4

 

COVERAGE;
REIMBURSEMENT OF EXPENSES

 

Section
4.1.   Coverage.  The Retrocedent hereby cedes to the Retrocessionaire, and the
Retrocessionaire hereby assumes as reinsurance from the Retrocedent and agrees
to indemnify the Retrocedent for, 100% of amounts paid by the Retrocedent to
the Original Reinsured after the Effective Date in respect of the Underlying
Agreements, whether by way of settlement, in respect of a judgment or award or
otherwise.

 

Section
4.2.   Allocated Loss Adjustment Expenses.  The Retrocessionaire shall reimburse the
Retrocedent for 100% of Allocated Loss Adjustment Expenses to the extent
incurred by the Company on or after the Effective Date. “Allocated Loss
Adjustment Expenses” means those expenses of the Company relating to the
adjustment of claims under the Underlying Agreements, including without
limitation court and/or arbitration panel costs, pre-judgment interest,
interest upon judgments as it accrues, declaratory judgment expenses, security
bond costs and allocated investigation, adjustment, and legal expenses
chargeable to the investigation, negotiation, settlement or defense of a claim
or the protection and perfection of any subrogation or salvage rights.  For the avoidance of doubt, “Allocated Loss
Adjustment Expenses” does not include salaries paid to employees of the Company
or other overhead expenses.

 

Section
4.3.   Trust Account Fees and Expenses.  The Retrocessionaire shall reimburse the
Retrocedent for 100% of the fees and expenses paid by the Retrocedent with
respect to the Trust Account (as defined below), to the extent such fees and
expenses are paid directly by the Retrocedent (rather than deducted from the
income arising from Trust Account assets). “Trust Account” means trust account
#8338979300 established pursuant to the reinsurance trust agreement among the
Original Reinsured, the Retrocedent and Bank One, Texas, NA, dated December 30,
1997.

 

ARTICLE
5

 

RETROCESSION
PREMIUM

FUNDS
WITHHELD ACCOUNT

 

Section
5.1.   Retrocession Premium.  The Retrocedent shall pay to the
Retrocessionaire, as of the Effective Date, an up-front premium in the amount
of $19,593,097 (the “Up-Front Premium”). 
The Retrocedent shall also pay to the Retrocessionaire 100% of the
periodic premium, net of expense allowance, payable under the Underlying
Agreements on or after the Effective Date to the extent actually received by
the Retrocedent, within 10 business days of receipt thereof (the “Periodic
Premium” and, together with the Up-Front Premium,

 

2

 

the “Retrocession Premium”). The Retrocession
Premium shall be paid on a funds withheld basis.

 

Section
5.2.   Funds Withheld Account.  The Retrocedent shall calculate a notional
account (the “Funds Withheld Account”) and shall (A) credit thereto (i) the
Retrocession Premiums and (ii) interest at the Earned Rate on the average daily
balance of the Funds Withheld Account during each calendar quarter and (B)
debit therefrom the Permitted Debits (as defined below).  For purposes of calculating such interest,
interest shall be credited to the Funds Withheld Account on the last day of
each calendar quarter, Retrocession Premiums shall be credited to the Funds
Withheld Account on the dates payable, and Permitted Debits shall be debited on
the dates the corresponding amounts owed by the Retrocedent are withdrawn from
the Trust Account or deducted from the income arising from Trust Account
assets, as the case may be.  The balance
of the Funds Withheld Account shall be payable to the Retrocessionaire within
five (5) business days of the date on which the Retrocedent has no further
liability under the Underlying Agreements.

 

“Earned Rate” means, with respect to a
quarter, the book yield plus realized gains and losses for such quarter on the
portfolio of assets held in the Trust Account.

 

ARTICLE 6

 

RIGHTS
AND SETTLEMENTS

 

The Retrocessionaire agrees to abide by the
claim settlements of the Retrocedent. 
The Retrocedent shall be the sole judge of:

 

A.            The
interpretation of the Underlying Agreements;

 

B.            What
shall constitute a claim under the Underlying Agreements; and

 

C.            The Retrocedent’s liability under the
Underlying Agreements and the proper amounts for the Retrocedent to pay
thereunder.

 

Notwithstanding the foregoing, the
Retrocedent shall not settle any litigation or other disputes between the
Retrocedent and the Original Reinsured without the prior consent of the
Retrocessionaire, which consent shall not be unreasonably withheld.

 

ARTICLE
7

 

REPORTS
AND REMITTANCES

 

Section
7.1.   Reports Received from Original Reinsured.  Within five (5) business days of receipt by
the Retrocedent, the Retrocedent shall deliver to the Retrocessionaire copies
of all reports provided to the Retrocedent by the Original Reinsured.

 

3

 

Section
7.2.   Quarterly Report.  Within 30 days following the end of each
calendar quarter during the Retrocession Term, the Retrocedent will prepare and
deliver to the Retrocessionaire a report (the “Quarterly Report”) containing
information relevant to the calculation of the amount owed by or to the
Retrocessionaire hereunder in respect of such calendar quarter as well as a
statement of the Earned Rate in respect of such calendar quarter and the
balance of the Funds Withheld Account as at the end of such calendar quarter
(which report shall be in such form as the Retrocedent and the Retrocessionaire
shall reasonably agree).

 

Section
7.3.   Permitted Debits.  Amounts payable by the Retrocessionaire
under Section 4.1 hereof shall be debited from the Funds Withheld Account to
the extent the Retrocedent is permitted to use funds in the Trust Account to
pay amounts owed by the Retrocedent to the Original Reinsured in respect of
such amounts.  Amounts payable by the
Retrocessionaire under Section 4.3 hereof shall be debited from the Funds
Withheld Account to the extent such fees and expenses are deducted from the
income arising from Trust Account assets (rather than being paid directly by
the Retrocedent).  The amounts that may
be debited from the Funds Withheld Account in accordance with this Section 7.3
are referred to herein as the “Permitted Debits”.

 

Section
7.4.   Remittances.  Net payments owed to the Retrocessionaire
shall accompany the Quarterly Report. 
Net payments owed to the Retrocedent shall be made within five (5)  business days of delivery of the
Quarterly Report; provided, however, at the option and upon the demand of the
Retrocedent, when the amount due from the Retrocedent exceeds $100,000, the
Retrocedent shall be paid by wire transfer of same day federal funds within two
business days following the date of receipt by the Retrocessionaire of a
special loss accounting.

 

ARTICLE 8

 

GENERAL CONDITIONS

 

Section
8.1.   Follow the Fortunes.  This Agreement is based on the original
terms of the Underlying Agreements so that the Retrocessionaire’s rights and
obligations vis-à-vis the Retrocedent with respect to the reinsurance provided
under this Agreement shall, subject to the terms of this Agreement, follow the
fortunes of the Retrocedent in all respects under the Underlying Agreements.

 

Section
8.2.   No Third Party Rights.  Nothing herein shall be construed to expand
the liability of the Retrocessionaire beyond what is specifically assumed under
this Agreement by creating in any third party any rights hereunder.

 

Section
8.3.   Insolvency.  In the event of the insolvency of the
Retrocedent, this reinsurance shall be payable directly to the Retrocedent, or
its liquidator, receiver, conservator or statutory successor immediately upon
demand on the basis of the liability of the Retrocedent without diminution
because of the insolvency of the Retrocedent or because

 

4

 

the liquidator, receiver, conservator or
statutory successor of the Retrocedent has failed to pay all or a portion of
any claim.  It is agreed, however, that
within a reasonable time the liquidator, receiver, conservator or statutory
successor of the Retrocedent shall give written notice to the Retrocessionaire
of the pendency of a claim against the Retrocedent under the Underlying
Agreements.  During the pendency of such
claim, the Retrocessionaire may investigate such claim and interpose, at its
own expense, in the proceeding where such claim is to be adjudicated, any
defense or defenses that it may deem available to the Retrocedent or its
liquidator, receiver, conservator or statutory successor. The expense thus
incurred by the Retrocessionaire shall be chargeable, subject to the approval
of the court, against the Retrocedent as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may accrue
to the Retrocedent solely as a result of the defense undertaken by the
Retrocessionaire.

 

Section
8.4.   Access to Records.  The Retrocessionaire or its duly authorized
representative shall have access to and the right to inspect the books and
records of the Retrocedent at all reasonable times for the purpose of obtaining
information concerning this Agreement, the Underlying Agreements or the subject
matter hereof.

 

Section 8.5.   Offset.  The Retrocessionaire or the Retrocedent may
offset any balance(s) due from one party to the other under this Agreement or
any other agreement exclusively between the parties hereto.  The party asserting the right of offset may
exercise such right at any time whether the balance(s) due are on account of
premiums or losses or otherwise.  In the
event of the insolvency of a party hereto, offsets shall only be allowed in
accordance with applicable law.

 

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

 

Section
8.7.   Governing Law.  This Agreement shall be governed by and is
to be construed in accordance with the laws of the State of New York without
giving effect to choice of law provisions and rules thereof.

 

Section
8.8.   Arbitration.  Any dispute or other matter in question
relating to this Agreement that cannot be resolved by the Retrocedent and the
Retrocessionaire arising out of, or relating to, the formation, interpretation,
performance or breach of this Agreement, whether such dispute arises before or
after termination of this Agreement, will be subject to arbitration.  Arbitration will be initiated by the
delivery of a written notice of demand for arbitration by one party to the
other within a reasonable time after the dispute has arisen and cannot be
otherwise settled by the parties.

 

Within thirty (30) days of the date of
delivery of the notice of arbitration, each party will appoint a disinterested
individual as arbitrator and the two so appointed will then appoint a third
arbitrator who will serve as the umpire. 
If either party fails to appoint an arbitrator

 

5

 

within thirty (30) days, the other party may
appoint the second arbitrator.  If the
two arbitrators do not agree on a third arbitrator within fifteen (15) days of
the date on which the second arbitrator was appointed, the parties shall employ
the ARIAS-U.S. Umpire Appointment Procedures to appoint the third
arbitrator.  If the ARIAS-U.S. Umpire
Appointment Procedures have been terminated, the parties shall jointly petition
the American Arbitration Association to appoint the third arbitrator.  The arbitrators will be active or retired
officers of insurance or reinsurance companies who do not have a personal or
financial interest in the result of the arbitration and who are not past or
current officers, employees or directors of the Retrocedent, the
Retrocessionaire or their respective affiliates.

 

The arbitration hearings will be held in New
York, New York, or such other place as the parties may mutually agree.  Within thirty (30) days after appointment of
the third arbitrator, the panel shall meet and determine timely periods for
briefs, discovery procedures and schedules for hearings.  The decision of the panel shall be rendered
within forty-five (45) days following the termination of the hearings.

 

In making its decision, the panel shall
consider the customs and practices of the reinsurance industry.  The arbitrators will not be obliged to
follow judicial formalities or the rules of evidence except to the extent
required by the laws of the State of New York. 
Insofar as the arbitration panel looks to substantive law, it shall
consider the laws of the State of New York. 
The decision of any two arbitrators when rendered in writing shall be
final and binding.  The panel is
empowered to grant interim relief as it may deem appropriate.  Judgment upon the award may be entered in
any court having jurisdiction thereof. 
The substantive laws of the State of New York, without regard to its
conflict of laws rules, will govern any action or suit brought to compel any
such arbitration or to enforce any award rendered pursuant to such arbitration.

 

Each party shall bear the expense of its own
arbitrator and shall jointly and equally bear with the other party the cost of
the third arbitrator.  The remaining
costs of the arbitration shall be allocated by the panel.  The panel may, at its discretion, award such
further costs and expenses as it considers appropriate, including but not
limited to attorneys’ fees, to the extent permitted by law.

 

Except as provided above, arbitration will be
based, to the extent applicable, upon ARIAS-U.S. procedures.

 

The procedures specified in this Section will
be the sole and exclusive procedures for the resolution of irreconcilable
disputes between the parties arising out of or relating to the formation,
interpretation, performance or breach of this Agreement.

 

This Section shall survive the termination of
this Agreement.

 

Section
8.9.   Service of Suit.  Each party hereby irrevocably submits to the
nonexclusive jurisdiction of any Federal or State of New York court sitting in
the State of New York over any suit, action or proceeding relating to the
enforcement of the parties’ agreement to

 

6

 

arbitrate or the enforcement of an arbitral
award.  Each party irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or
proceeding brought in such court and any claim that any suit, action or
proceeding brought in such court has been brought in an inconvenient
forum.  Each party agrees that a final
judgment, not subject to any further appeal, in any such suit, action or
proceeding brought in such a court shall be conclusive and binding upon it and
will be given effect in its state or country of domicile, as applicable, to the
fullest extent permitted by applicable law and may be enforced in any Federal
or State of New York court sitting in the State of New York, by a suit upon such
judgment, provided that service of process is effected upon it as specified in
this Section or as otherwise permitted by law. 
Nothing herein shall be deemed to limit or waive a party’s right to
remove a suit, action or proceeding to Federal court.

 

Further, each party hereby designates the
Superintendent of Insurance of the State of New York, or his successor or
successors in office, as the true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the other party under this Agreement and arising out of this Agreement, and
hereby designates the person named in the “Notice” provision of this Agreement
as the person to whom the Superintendent or such successor is authorized to
mail such process or a true copy thereof.

 

Each party hereby consents to process being
served in any suit, action or proceeding of the nature referred to above in any
Federal or State of New York court sitting in the State of New York by service
of process as set forth above; provided that, to the extent lawful and
possible, written notice of said service shall be mailed by registered or
certified air mail, postage prepaid, return receipt requested, to the other
party at its address specified herein or to any other address of which such
party shall have given notice.  Each
party irrevocably waives, to the fullest extent permitted by law, ail claim of
error by reason of any such service and agrees that such service shall be deemed
in every respect effective service of process upon such party in any such suit,
action or proceeding and shall, to the fullest extent permitted by law, be
taken and held to be valid and personal service upon and personal delivery to
such party.

 

Service of process may be affected in any
other manner permitted by law.  Nothing
in this Section shall limit the right of a party to bring proceedings against
the other party in any court having jurisdiction over such other party and such
proceeding for the purpose of enforcing the parties’ agreement to arbitrate or
to enforce an arbitral award.

 

Section
8.10.   Notice.  As used in this Agreement, notice shall mean any and all notices,
requests, demands or other communications required or permitted to be given
hereunder.  All notices shall be in
writing and shall be (i) delivered personally, (ii) sent by an overnight
delivery service, or (iii) sent by confirmed facsimile transmission, addressed
to the parties at the addresses set forth below.  Any such notice shall be deemed given (i) in the case of personal
delivery, when so delivered personally, (ii) if sent by overnight delivery
service,

 

7

 

one day after delivery of such notice to such
service, and (iii) if sent by confirmed facsimile transmission, at the time of
transmission.

 

If to the Retrocedent:

 

ACE Capital Re Overseas Ltd.

Victoria Hall

11 Victoria Street

PO Box HM 1826

Hamilton, Bermuda HM HX

Facsimile:  441-292-1563

Attention: Corporate
Secretary

 

with a copy to:

 

ACE Capital Re Inc.

1325 Avenue of the Americas

New York, New York 10019

Telephone: 212-974-0100

Facsimile:  212-581-3268

Attention: General Counsel

 

If to the Retrocessionaire:

 

ACE INA Overseas Insurance
Company Ltd.

 

Clarendon House

2 Church Street

PO Box HM 1022

Hamilton, Bermuda HM 11

Fax:

Phone:

Attention: Corporate
Secretary

 

with a copy to

ACE Financial Solutions Inc.

1133 Avenue of the Americas

New York, NY 10036

Telephone:  212-642-7800

Facsimile:  212-642-7801

Attention: President

 

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

 

8

 

Section
8.11.  Assignment.  This Agreement may not be assigned by either party without the
prior written consent of the other party.

 

Section
8.12.  Amendments.  This Agreement may not be modified or amended except by mutual
written consent of the parties.

 

Section 8.13.  Changes
to Underlying Agreements.  The
Retrocedent shall not amend, modify or supplement the Underlying Agreements
without the prior written consent of the Retrocessionaire.

 

Section
8.14.  Waivers.  The terms of this Agreement may be waived only with the written
consent of the party waiving compliance. 
No failure or delay in exercising any right, power or privilege
hereunder will operate as a waiver thereof, nor will any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder.

 

Section
8.15.  Entire Agreement; Rights and Remedies.  This Agreement constitutes the entire
agreement between the parties relating to the subject matter hereof and
supersedes all prior written and oral statements with respect hereto.  The rights and remedies provided herein are
cumulative and are not exclusive or any rights or remedies that any party may
have at law or in equity.

 

9

 

Section
8.16.   Counterparts.  This Agreement may be executed in any number
or counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

 

 

IN WITNESS WHEREOF, this Agreement has been
signed by a duly authorized officer of each of the parties on the respective
dates set forth below.

 

	
  ACE CAPITAL RE OVERSEAS
  LTD.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Rebecca  L.  Carne

  	
   

  
	
   

  	
  Name:

  	
  Rebecca  L. Carne

  	
   

  
	
   

  	
  Title:

  	
  Director

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
	
   

  
	
  ACE INA OVERSEAS INSURANCE
  COMPANY LTD.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ [ILLEGIBLE]

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
  Date:

  
						

 

10

 

EXHIBIT I

 

[Underlying
Agreements]

 

11

 

STOP LOSS REINSURANCE AGREEMENT

 

 

This Stop Loss Reinsurance Agreement dated as
of October 1, 1997 (“Agreement”) is made and entered into by and between
Central United Life Insurance Company (“Central United” or the “Ceding
Company”), a Texas stock life insurance company, and KRE Reinsurance Ltd.
(“KRE” or the “Assuming Company”), an insurance company registered under the
laws of the Islands of Bermuda.

 

In consideration of the mutual covenants and
upon the terms and conditions set forth in this Agreement, Central United and
the KRE hereby agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

Section 1.1.   Definitions. 
Except as expressly defined otherwise in this Agreement, for all
purposes with regard to this Agreement, all capitalized terms in this Agreement
shall have the meanings assigned to them below.  Any definitions set forth herein shall (i) include the singular
as well as plural, and (ii) all accounting terms shall have the meanings
ascribed to them under statutory accounting principles prescribed or permitted
under the laws and regulations of the State of Texas.

 

A.    “Animal Limit of Liability” means two million
dollars ($2,000,000).

 

B.    “Annual Retention” means three million
dollars ($3,000,000).

 

C     “Covered Policies” means all policies,
contracts, binders of insurance or similar agreements issued by Central United,
in force prior to the Effective Date and classified as policies of universal
life or interest-sensitive life (all such polices are listed on Schedule A
attached hereto).

 

D.    “Effective Date” means October 1, 1997.

 

E.     “Net Liability” moans Central United’s contractual
liabilities under all Covered Polices net of all reinsurance of such
liabilities ceded by Central United to third-parties.

 

F.     “Retrocession Agreement” means the
Retrocession Agreement dated as of October 1, 1997, by and between KRE and
Central United.

 

G.    “Term” means the period during which this
Agreement is in effect as provided in Article 3

 

Section 1.2.   Headings.  All
captions, headings or titles preceding any Section or Article in this Agreement
are solely for convenience of reference and are not part of this Agreement and
shall not affect its meaning, construction or effect.

 

1

 

ARTICLE 2

 

BUSINESS RETROCEDED

 

Subject to the terms and conditions of this
Agreement, for each calendar year during the Term, Central United hereby cedes
to the Assuming Company and the Assuming Company hereby assumes as reinsurance
one hundred percent (100%) of the Net Liability of Central United under the
Covered Policies in excess of the Ceding Company’s Annual Retention.  The Assuming Company’s aggregate liability
for any calendar year during the Term of this Agreement is expressly limited to
the Annual Limit of Liability.  The
Ceding Company’s Annual Retention shall be fully paid and satisfied by Central
United before KRE shall be liable for any payment for any liability assumed
under this Agreement.  KRE shall not be
liable for any portion of Central United’s Annual Retention under any
circumstances including, but not limited to, Central United’s bankruptcy, insolvency,
inability or unwillingness to pay claims under Covered Policies for any reason
whatsoever or the uncollectability of any other insurance or reinsurance
covering any of the Covered Policies.

 

ARTICLE 3

 

TERM AND TERMINATION

 

Section 3.1.  Term.  This
Agreement shall be effective 12:01 A.M., Central Time, October 1, 1997, and
shall remain in full force and effect until the natural expiration of the
liabilities assumed hereunder or until sooner terminated as provided herein.

 

Section 3.2.  Termination

 

A.    Central United shall have the right (but not
the obligation) to terminate this Agreement at any time after the termination
of the Retrocession Agreement of even date herewith by and between Central
United and KRE, by giving at least 5 days prior written Notice to KRE.

 

B.    This Agreement may be terminated by KRE
(solely at KRE’s option) immediately upon Notice by KRE to Central United if
Central United fails to pay any Premium due to KRE within fifteen (15) days
after such Premium is due under this Agreement.

 

Section 3.3.  Effect of Termination.  Upon
termination of this Agreement under Section 3.2, Central United shall reassume
all liability ceded under this Agreement and the KRE shall transfer to Central
United any reserves maintained by KRE relating to the liabilities assumed
hereunder.

 

ARTICLE 4

 

PREMIUM

 

Section 4.1.  Premium. 
Central United shall pay to KRE a quarterly premium equal to fifty
thousand thousand dollars ($50,000) payable in advance on the first day of each
calendar quarter during the term.  KRE
shall have the right, in its sole discretion, to increase the quarterly premium
payable hereunder to a maximum of one hundred thousand dollars ($100,000) upon
giving Central United at least 15 days notice prior to first day of such
calendar quarter.

 

2

 

ARTICLE 5

 

CLAIMS

 

Section 5.1.  Claims for Loss.  The
Ceding Company agrees to provide Notice of any claim covered under this
Agreement (a “Loss Notice”) as soon as is reasonably possible.  Failure to provide such Notice shall not
relieve the Assuming Company of its obligations hereunder for any loss
resulting from such claim.

 

Section 5.2.  Rights and Settlements.  All
losses, compromises, payments and expenses and allowances in consequence of a
claim or a potential claim under the Covered Policies shall be settled by the
Ceding Company without the intervention of the Assuming Company and shall be
binding upon the Assuming Company and the Assuming Company shall allow or pay
as the case may be each settlement in accordance with the terms of this
Agreement.  The Ceding Company shall be
the sole judge of (i) the interpretation of the Covered Policies, (ii) what
shall constitute a claim or Covered Losses covered under the Covered Policies;
and (iii) the amount it shall be proper for the Ceding Company to pay under the
Covered Policies.

 

ARTICLE 6

 

ACCOUNTS

 

Within twenty (20) days following the end of
each calendar quarter the Ceding Company shall render an account to the
Assuming Company (i) all claims made and paid by the Ceding Company under the
Covered Polices and the cumulative amount of such claims during the current
calendar year, (ii) a notation advising of the statutory reserves at the end of
such calendar quarter relating to the Covered Policies, (iii) KRE’s share of
any claims based on the coverage provided under this Agreement, and (iv) such
other information as may be requested by the Assuming Company.  Claims under this Agreement shall be payable
to Central United within ten (10) business days after KRE’s receipt of each
quarterly account provided for in this Article.

 

ARTICLE 7

 

GENERAL CONDITIONS

 

Section 7.1.  Insolvency.  Any
risk or obligation assumed by the Assuming Company pursuant to this Agreement
shall be payable by the Assuming Company on the basis of its liability under
this Agreement without diminution because of any insolvency of the Ceding
Company.  In the event of the insolvency
of the Ceding Company and the appointment of a conservator, liquidator or
statutory successor of any Ceding Company, all payments due hereunder shall be
payable to such conservator, liquidator or statutory successor in accordance
with this Agreement, with reasonable provision for verification, on the basis
of claims allowed against such Ceding Company by any court of competent
jurisdiction or by any conservator, liquidator or statutory successor of such
Ceding Company having authority to allow such claims, without diminution
because of such insolvency or because such conservator, liquidator or statutory
successor has failed to pay all or a portion of any such claim.  Payments by the Assuming Company as set
forth above shall be made directly to such Ceding Company or its conservator,
liquidator or statutory successor.

 

3

 

Section 7.2.  Reinsurance
Follows Original Policies.   All reinsurance for which Assuming Company
shall be liable by subscribing to this Agreement shall be subject in all
respects to the same terms, conditions, waivers and to the same modification,
alterations and cancellations of the Covered Policies to which such reinsurance
relates, the true intent of this Agreement is that the Assuming Company shall,
in every case to which this Agreement applies, follow the fortunes of the
Ceding Company, including loss payments and the timing thereof.  Except as specifically provided in this
Agreement and any endorsement hereto, nothing herein shall be construed to
expand the liability of the Assuming Company beyond what is specifically
assumed under this Agreement by creating in any third party any rights
hereunder.

 

Section 7.3.  Errors and
Omissions.   Any
inadvertent delays, errors or omissions made in connection with this Agreement
or any transaction hereunder shall not relieve either the Ceding Company or
Assuming Company from any liability which would have attached had such delay,
error or omission not occurred, including but not limited to any error or
accidental omission by the other party in reporting any claim or loss under the
Covered Policies.

 

Section 7.4.  Access to
Records and Reports; Audits.  The Assuming
Company or its duly authorized representative shall have access to and the
right to inspect the books and records of the Ceding Company at all reasonable
times for the purpose of obtaining information concerning this Agreement, the
Covered Policies or the subject matter hereof or thereof.  The Assuming Company, at its sole expense,
shall have the right to audit all of the Ceding Company’s records and procedures
relating to the Covered Policies at the office of the Ceding Company during
regular business hours.

 

Section 7.5.  Arbitration; Service of Process and Jurisdiction.  As a condition
precedent to any right of action hereunder, if any dispute shall arise between
the parties hereto with reference to the interpretation of this Agreement or
their rights with respect to any transaction involved, whether such dispute
arises before or after termination of this Agreement, such dispute, upon the
written request of either party, shall be submitted to three arbitrators, one
to be chosen by each party, and the third by the two arbitrators so
chosen.  If either party refuses or
neglects to appoint an arbitrator within thirty (30) days after the receipt of
written notice from the other party requesting it to do so, the requesting
party may appoint two arbitrators.  If
the two arbitrators fail to agree in the selection of a third arbitrator within
thirty (30) days of their appointment, each of them shall name two, of whom the
other shall decline one and the decision shall be made by drawing lots.  All arbitrators shall be active or retired
disinterested officers of insurance or reinsurance companies or underwriters at
Lloyd’s of London not under the control of either party hereto.

 

Except as may be otherwise provided herein,
the arbitrators shall promulgate rules to interpret this Agreement based upon
the Commercial Arbitration Rules of the American Arbitration Association
applicable to commercial disputes and the Convention on Recognition and
Enforcement of Foreign Arbitral Awards (June 10, 1958).  The arbitrators shall interpret this
Agreement as an honorable engagement rather than as a legal obligation and will
make their award with the view to effecting the general purpose and intent of
this Agreement, rather than in accordance with the literal interpretation of
the Agreement.

 

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

 

4

 

The decision in writing of any two
arbitrators, when filed with the parties hereto, shall be final and binding on
both parties.  Judgment may be entered
upon the final decision of the arbitrators in any court having
jurisdiction.  Each party shall bear the
expense of its own arbitrator and shall jointly and equally bear with the other
party the expense of the third arbitrator and arbitration.  Said arbitration shall take place in
Houston, Texas unless some other place is mutually agreed upon by the parties
hereto.

 

The Assuming Company hereby irrevocably
submits to the nonexclusive jurisdiction of any Federal or State of Texas court
sitting in the State of Texas over any suit, action or proceeding arising out
of or relating to this Agreement.  The
Assuming Company irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of the venue of
any such suit, action or proceeding brought in such court and any claim than
any suit, action or proceeding brought in such court has been brought in an
inconvenient forum.  The Assuming
Company agrees that a final judgment, not subject to any further appeal, in any
such suit, action or proceeding brought in such a court shall be conclusive and
binding upon it and will be given effect in the country of domicile of the
Assuming Company to the fullest extent permitted by applicable law and may be
enforced in any Federal or State of Texas court sitting in the State of Texas,
by a suit upon such judgment, provided that service of process is effected upon
it as specified in this Section or as otherwise permitted by law.

 

Further, pursuant to any statute of any
state, territory or district of the United States that makes provision
therefor, the Assuming Company hereby designates the superintendent,
Commissioner or Director of Insurance or other officer specified for the
purpose in the statute, or his successor or successors in office, as the true
and lawful attorney upon whom may be served any lawful process in any action,
suit or proceeding instituted by or on behalf of the Assuming Company under
this Agreement, and hereby designates the person named in this Agreement in
Section 7.12 as the person whom the officer is authorized to mail such process
or a true copy thereof.

 

The Assuming Company consents to process
being served in any suit, action or proceeding of the nature referred to above
in any Federal or State of New York court sitting in the State of New York by
service of process as set forth above, provided that, to the extent lawfully
possible, written notice of said service shall be mailed by registered or
certified air mail, postage prepaid, return receipt requested, to the Assuming
Company at its address specified herein or to any other address of which the
Assuming Company shall have given notice to the Ceding Company.  The Assuming Company irrevocably waives, to
the fullest extent permitted by law, all claim of error by reason of any such
service and agrees that such service shall be deemed in every respect effective
service of process upon the Assuming Company in any such suit, action or
proceeding and shall, to the fullest extent permitted by law, be taken and held
to be valid and personal service upon and personal delivery to the Assuming
Company.

 

Nothing in this Section shall affect the
right of the Assuming Company from receiving service of process in any other
manner permitted by law or limit the right of the Ceding Company to bring
proceedings against the Assuming Company in any court having jurisdiction over
the Assuming Company and such proceeding.

 

Section 7.6.  Offset and
Remittances.  The Ceding Company and the Assuming Company hereby
grant each other the right to offset any amounts owed by one party to the other
under this Agreement, including but not limited to amounts owed hereunder as
Premiums, claims for loss payments, or under any judgment entered upon any
arbitration award made pursuant to the provisions of Section 6.4 hereof.  Accordingly, the amount of any payments to
be made to either party pursuant to the terms of this Agreement shall be
reduced by offsetting all amounts payable

 

5

 

by such party to the other party so there
shall be a single net payment due under this Agreement from one party to the
other.  In the event of the insolvency
of a party hereto, offsets shall only be allowed in accordance with applicable
law.  If any payment due under this
Agreement is not timely made, then the amount thereof shall be increased by
interest at a rate equal to the average daily one-year U.S. Treasury Bill rate
in effect during the period from the time such payment was due through the date
of the payment thereof.

 

Section 7.7.  Applicable Law.  This Agreement
shall be governed by and construed in accordance with the laws of the State of
Texas, without regard to principles regarding choice of law.  Any arbitration under this Agreement, or any
dispute regarding the right to arbitration shall be governed by the Federal
Arbitration Act (9 USC Section I, et  seq.).

 

Section 7.8.  Reserves.  The Assuming
Company shall establish maintain all statutory reserves relating to the
liabilities assumed hereunder as may be required by the Covered Policies and
applicable law and regulation.  The
reinsurance provided by this Agreement shall not be affected or invalidated by
reason of any action or interpretation by any commissioner or superintendent of
insurance of any jurisdiction with respect to the establishment or maintenance
of any of the reserves described in this Article.  The Ceding Company shall furnish to the Assuming Company such
information respecting its Coinsurance Share of liabilities assumed hereunder
as the Assuming Company shall reasonably require in order to accurately compute
or verify the amount of any such reserves.

 

The Assuming Company agrees to take all steps
necessary to comply with all applicable laws and regulations so as to permit
the Ceding Company to obtain full statutory financial statement credit for the
reinsurance provided by this Agreement in all relevant jurisdictions, including
but not limited to the establishment of reserves, trusts or letters of credit
necessary for the Ceding Company to receive such credit

 

Section 7.9.  Currency.  All
payments under this Agreement and all accounts and reports pursuant to this
Agreement and any arbitration awards or court judgments arising out of this
Agreement shall be in United States currency.

 

Section 7.10. Confidentiality.  The Assuming
Company and the Ceding Company shall maintain the confidentiality of all
information related to the Covered Policies and all other information
denominated as confidential by the other party provided to it in connection
with this Agreement and shall not disclose such information to any third
parties without the prior written consent of the other party, except as may be
required by governmental or regulatory authorities, rating agencies, or pursuant
to legal process.

 

Section 7.11.  Entire
Agreement.  This Agreement supersedes all prior
discussions and agreements between the parties with respect to the subject
matter of this Agreement, and this Agreement, including any Schedules or
Exhibits hereto, contains the sole and entire agreement between the Ceding
Company and the Assuming Company with respect to the subject matter hereof.

 

Section 7.12.  Notice.  As used in
this Agreement, Notice shall mean any and all notices, requests, demands or
other communications required or permitted to be given hereunder, and all
Notices shall be given or mailed by first class certified mail, return receipt
requested, or by an overnight courier service, addressed to the parties at the
addresses set forth below:

 

6

 

If to the Ceding Company, to:

 

Central United Life
Insurance Company

2727 Allen Parkway, 6th
Floor

Houston, Texas 77019-2115

Attn: President

 

If to the Assuming Company, to:

 

KRE Reinsurance Ltd.

Victoria Hall, Victoria
Street

P.O. Box HM 1826

Hamilton HM HX

Bermuda

Attn: Account Executive

 

With a copy to:

 

Capital Re Management
Corporation

1326 Avenue of the Americas

18th Floor

New York, New York 10019

Attn: General Counsel

 

Section 7.13.  Taxes.

 

A.    The Ceding Company shall be liable for all
premium and other taxes in connection with the Covered Policies.

 

B.    KRE and Central United agree to the following
pursuant to Section 1.848-2(g)(8) of the Income Tax Regulations under Section
848 of the Internal Revenue Code of 1986, as amended:

 

(i)            The term “party” shall refer to either KRE or
Central United, as appropriate.  The
terms used in this subsection B are defined by reference to Federal Income Tax
Regulation 1.848-2 and the term “net consideration” shall refer to either the
net consideration as defined in Federal Income Tax Regulation 1.848-2(f) or the
gross amount of premiums and other consideration as defined in Federal Income
Tax Regulation l-848-3(b), as appropriate;

 

(ii)           Each party shall attach a schedule to its Federal income tax return
which identifies the relevant Reinsurance Agreements for which the joint
election has been made;

 

(iii)          The party with net positive consideration, as defined in the Income Tax
Regulations promulgated under Section 848, for such Reinsurance
Agreements for each taxable year shall capitalize specific policy acquisition
expenses with respect to such Reinsurance Agreements without regard to the
general deductions limitation ofSection 848(c)(1) of the Internal Revenue
Code;

 

7

 

(iv)          Each party agrees to exchange information pertaining to the amount of
net consideration under such Reinsurance Agreements each year to ensure
consistency; and

 

(v)           The joint election agreed to hereunder shall be effective beginning
with the Effective Date of this Agreement.

 

Section 7.14.  Wire Transfers.
 The Ceding Company and the Assuming Company
shall each promptly notify each other of the bank accounts into which wire
transfers of money are to be made for any and all payments due under this
Agreement.

 

Section 7.15.  No Third Party
Beneficiaries.  This Agreement constitutes an indemnity
reinsurance agreement solely between the Assuming Company and the Ceding
Company, and is intended solely for the benefit of the parties hereto and their
permitted successor and assigns, and it is not the intention of the parties to
confer any rights as a third-party beneficiary to this Agreement upon any other
person.

 

Section 7.16.  Severability.  If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law or if
determined by a court of competent jurisdiction to be unenforceable, and it f
the rights or obligations of the Assuming Company or Ceding Company under this
Agreement will not be materially and adversely affected thereby, such provision
shall be fully severable, and this Agreement will be construed and enforced as
if such illegal, invalid or unenforceable provision had never comprised a part
of this Agreement, and the remaining provisions of this Agreement shall remain
in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.

 

Section 7.17.  Good Faith.  The parties
agree to deal with each other fairly and in utmost good faith in the
performance of this Agreement.

 

Section 7.18.  Not Assignable.
 This Agreement may not be assigned by either
party.

 

Section 7.19.  Counterparts.
 This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

 

Section 7.20.  Waivers and Amendments.  Any term or
condition of this Agreement may be waived at any time by the party that is
entitled to the benefit thereof.  Such
waiver must be in writing and must be executed by a duly authorized officer of
such party.  A waiver on one occasion
will not be deemed to be a waiver of the same or any other term or condition on
a future occasion.  This Agreement may
not be altered or changed except by a writing executed by the Ceding Company
and the Assuming Company

 

8

 

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

 

	
  CENTRAL UNITED LIFE
  INSURANCE COMPANY

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ David W. Harris

  	
   

  	
   

  
	
  Name:

  	
  DAVID W. HARRIS

  	
   

  	
   

  
	
  Title:

  	
  CHAIRMAN

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
  3/31/1998

  	
   

  
	
   

  	
   

  
	
  KRE REINSURANCE LTD.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Rebecca L Carne

  	
   

  	
   

  
	
  Name:

  	
  REBECCA CARNE

  	
   

  	
   

  
	
  Title:

  	
  Assistant Secretary

  	
   

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
  3/31/1998

  	
   

  
							

 

9

 

RETROCESSION
AGREEMENT

 

 

This Retrocession Agreement dated as of October 1, 1997 (“Agreement”)
is made and entered into by and between Central United Life Insurance Company
(“Central United” or the “Ceding Company”), a Texas stock life insurance
company, and KRE Reinsurance Ltd. (“KRE” or the “Assuming Company”), an
insurance company registered under the laws of the Islands of Bermuda.

 

In consideration of the mutual covenants and upon the terms and
conditions set forth in this Agreement, Central United and the KRE hereby agree
as follows:

 

ARTICLE
1

 

definitions

 

Section 1.1.  Definitions.  Except
as expressly defined otherwise in this Agreement, for all purposes with regard
to this Agreement, all capitalized terms in this Agreement shall have the
meanings assigned to them below.  Any
definitions set forth herein shall (i) include the singular as well as plural,
and (ii) all accounting terms shall have the meanings ascribed to them under
statutory accounting principles prescribed or permitted under the laws and
regulations of the State of Texas.

 

A.    “Assumption Agreement” means
the Assumption Reinsurance Agreement, dated July 14, 1997, by and between
Commonwealth National Life Insurance Company, a Mississippi stock life
insurance company and Central United (a copy of which is attached hereto as Exhibit B).

 

B.    “Closing Date” means the date on which the Placement Slip for the
reinsurance coverage provided under this Agreement was executed by Central
United.

 

C.    “Coinsurance Agreement” means the Coinsurance Reinsurance
Agreement, dated July 14, 1997, and effective October 1, 1997, by and between
Commonwealth National Life Insurance Company, a Mississippi stock life
insurance company and Central United (a copy of which is attached hereto as
Exhibit A).

 

D.    “Earned Rate” means the rate of return (net of trustee fees),
including amortization of premium or discount, and realized and unrealized
gains and losses on the portfolio of assets held in trust for the benefit of
Central United as provided for under Section 8.8 of this Agreement.

 

E.     “Effective Date” means October 1, 1997.

 

F.     “Excluded Liabilities” shall have the meaning assigned to it in
Section 1.19 of the Coinsurance Agreement

 

G.    “Portfolio Indemnity Benefits” means KRE’s benefit payments to
Central United related to its Coinsurance Share of the liability assumed under
the Underlying Agreements.

 

H.    “Recapture Account” means the notional account established under
Section 3.5 of this Agreement.

 

I.      “Statutory Reserves” means
the sum of all reserves required to be maintained by Central United for the
liabilities assumed under the Underlying Agreements calculated consistent with
the reserve requirements, statutory accounting rules and actuarial principles prescribed or
permitted by applicable law and regulation.

 

1

 

J.     “Stop Loss Benefits” means the payments of
death benefits made by KRE to Central United under and in accordance with the
Stop Loss Reinsurance Agreement.

 

K.    “Stop Loss Reinsurance Agreement” means the
Stop Loss Reinsurance Agreement dated as of October 1, 1997 by and between KRE and Central United.

 

L.     “Term” means the period during which this
Agreement is in effect as provided in Article 3

 

M.   “Underlying Agreements” means the Assumption Agreement and the Coinsurance Agreement.

 

Section 1.2.  Headings.  All captions, headings or titles preceding
any Section or Article in this Agreement are solely for convenience of
reference and are not part of this Agreement and shall not affect its meaning,
construction or effect.

 

ARTICLE 2

 

BUSINESS RETROCEDED

 

Subject to the terms and conditions of this
Agreement, Central United hereby cedes to the Assuming Company and the Assuming
Company hereby assumes as reinsurance, on a quota share basis, thirty-seven and
one half percent (37.5%) (the “Coinsurance Share”) of the interests and
liabilities (other than the Excluded Liabilities) of Central United under each
of the Underlying Agreements.

 

ARTICLE 3

 

TERM AND TERMINATION

 

Section 3.1.  Term.  This
Agreement shall be effective 12:01 A.M., Central Time, October 1, 1997, and
shall remain in full force and effect until the natural expiration of the
liabilities assumed hereunder or until sooner terminated as provided herein.

 

Section 3.2.  Termination

 

A.    Central United shall have the right (but not
the obligation) to terminate this Agreement (i) at any time after the fourth
anniversary of the Effective Date (i.e., October 1, 2001) up to, but not
including, the fifteenth anniversary of the Effective Date of this Agreement
(i.e., October 1, 2012) by giving at least 90 days prior written Notice to KRE
and paying to KRE on the effective date of such termination an amount equal to
the positive balance, if any, of the Recapture Account calculated in accordance
with Section 3.5 as of the effective date of termination, (ii) on the fifteenth
anniversary of the Effective Date of this Agreement (i.e., October 1, 2012) by
giving at least 90 days prior written Notice to KRE.  If Central United terminates this Agreement in accordance with
subsection (ii), Central United shall have no obligation to pay KRE any amount
based on the balance in the Recapture Account and (iii) at any time prior to
the fourth anniversary of the Effective Date (i.e., October 1, 2001)) by giving
at least 90 days prior written Notice to KRE if the balance in the Recapture
Account is zero.

 

B.    This Agreement may be terminated by KRE
(solely at KRE’s option) immediately upon Notice by KRE to Central United if Central United fails to pay any Periodic Premium (defined below) due to KRE
within fifteen (15) days after such Premium is due under this Agreement.   If KRE terminates this Agreement in
accordance with this paragraph, Central United shall be obligated to pay KRE an
amount equal to the positive balance of the Recapture Account calculated as of
the end of the preceding calendar quarter, and that obligation shall survive
the termination of this Agreement.

 

2

 

Section 3.3.  Effect of
Termination.   Upon termination of this Agreement under
Section 3.2, Central United shall reassume all liability ceded under this
Agreement and the KRE shall transfer to Central United the Statutory Reserves
maintained by KRE relating to KRE’s Coinsurance Share of the liabilities under
the Underlying Agreements.

 

Section 3.4.  Notice of
Termination.  The Notice of termination required by Section
3.2A(i) and (ii) shall specify the effective date termination and otherwise
comply with the requirements of Section 3.2 and 8.12 of this Agreement.

 

Section 3.5.  Recapture
Account Balance.  For the purpose of determining
the amount due KRE, if any, upon termination of this Agreement under Section
3.2A. a notional Recapture Account shall be established and maintained with
respect to the coverage provided under this Agreement.  As of the Effective Date, the balance in the
Recapture Account shall equal the Initial Expense Allowance (defined
below).  Thereafter, the balance in the
Recapture Account shall be equal to the result of the following formula as of
the end of each calendar quarter:

 

Recapture Account Balance = A + B – C, where

 

A =
the balance of the Recapture Account as of the end of the immediately preceding
calendar quarter plus interest on that amount accrued for a calendar quarter at
the Earned Rate, and

 

B =
the sum of (i) Portfolio Indemnity Benefits and Stop Loss Benefits, plus (ii)
all Periodic Expense Allowance payments, (iii) plus the increase, or minus
decrease, from the immediately preceding calendar quarter in KRE’s Coinsurance
Share of the Statutory Reserves associated with the Underlying Agreements, plus
(iv) the greater of (x) 0.625% of the balance of the Recapture Account as of
the end of the immediately preceding calendar quarter and (y) $7,500, and

 

C =
the sum of (i) the Initial Premium and all Periodic Premiums paid, plus (ii)
interest income (accrued at the Earned Rate) for a calendar quarter on KRE’s
Coinsurance Share of the Statutory Reserves associated with the Underlying
Agreements.

 

ARTICLE 4

 

PREMIUM AND EXPENSE ALLOWANCE

 

Section 4.1.  Premium.  Central United shall pay to KRE as premium (i) on the Closing
Date, an amount (the “Initial Premium”) equal to KRE’s Coinsurance Share of the
Statutory Reserves associated with the Underlying Agreements as of the Closing
Date, (ii) as and when received by Central United, KRE’s Coinsurance Share of
the gross premiums Central United receives for the coverage provided under the
Underlying Agreements, net of all premiums paid by Central United by the
Effective Date for other reinsurance of liabilities ceded under the Underlying
Agreements (the “Periodic Premium”).

 

Section 4.2.  Expense
Allowance.  KRE shall pay to Central United an expense
allowance (i) on the Closing Date, an amount (the “Initial Expense Allowance”)
equal to the lesser of (x) $4,500,000, and (y) twenty-eight percent (28%) of
KRE’s Coinsurance Share of the Statutory Reserves associated with the
Underlying Agreements as of the Effective Date of this Agreement and (ii) as
and when received by KRE, an amount (the “Periodic Expense Allowance”) equal to
twenty-five percent (25%) of the Periodic Premium.

 

3

 

ARTICLE 5

 

RIGHTS AND SETTLEMENTS

 

All losses, compromises, payments and
expenses and allowances in consequence of a claim or a potential claim under
the Underlying Agreements shall be settled by the Ceding Company without the
intervention of the Assuming Company and shall be binding upon the Assuming
Company and the Assuming Company shall allow or pay as the case may be each
settlement in accordance with the terms of this Agreement.  The Ceding Company shall be the sole judge
of (i) the interpretation of the Underlying Agreements, (ii) what shall
constitute a claim or Covered Losses covered under the Underlying Agreements;
and (iii) the amount it shall be proper for the Ceding Company to pay under the
Underlying Agreements.

 

ARTICLE 6

 

PROGRAM OF INTERNAL REPLACEMENT

 

Should Central United, Commonwealth National
Life Insurance Company (“Commonwealth National”), or any of their affiliates,
successors or assigns, initiate a Program of Internal Replacement (as defined
below) that would include any of the Assumed Policies (as defined in the
Coinsurance Agreement) reinsured under this Agreement, Central United will
immediately notify KRE.  For each
Assumed Policy reinsured under this Agreement that has been replaced under a
Program of Internal Replacement, KRE shall have the option, at its sole
discretion, of either treating the liability thereon as recaptured or
continuing reinsurance on the new policy under this Agreement.

 

The term “Program of Internal Replacement”
shall mean any program offered to a class of policyowners in which an Assumed
Policy or any portion of the Assumed Policy is exchanged for another policy or
contract, not reinsured under this Agreement, which is written by the Central
United, Commonwealth National, or any of their affiliates, successors or
assigns.  For the purposes of this
Agreement, a  Program of Internal
Replacement includes new polices made or issued either (i) in compliance with
the terms of the original Assumed Policy, (ii) without the same new
underwriting information that Central United or Commonwealth National would
obtain in the absence of the original Assumed Policy or (iii) without an
exclusion period or contestable period of equal duration as those contained in
the new issues by Central United or Commonwealth National.

 

ARTICLE 7

 

ACCOUNTS

 

Within twenty (20) days following the end of
each calendar quarter the Ceding Company shall render an account to the
Assuming Company showing (i) gross premium received by the Ceding Company and
Periodic Premium due and paid to KRE, (ii) Period Expense Allowance due and
paid to Central United, (iii) all claims made and paid by the Ceding Company
under the Underlying Agreements and KRE’s Coinsurance Share thereof, (iv) a
notation advising of the Statutory Reserves at the end of such calendar quarter
and KRE’s Coinsurance Share thereof, and (v) such other information as is
necessary to calculate the balance of the Recapture Account or as may be
requested by the Assuming Company. 
KRE’s Coinsurance Share of any claims for benefits under the Underlying
Agreements shall be payable to Central United within ten (10) business days
after KRE’s receipt of each quarterly account provided for in this Article.

 

4

 

ARTICLE 8

 

GENERAL CONDITIONS

 

Section 8.1.  Insolvency.  Any
risk or obligation assumed by the Assuming Company pursuant to this Agreement
shall be payable by the Assuming Company on the basis of its liability under
this Agreement without diminution because of any insolvency of the Ceding
Company.  In the event of the insolvency
of the Ceding Company and the appointment of a conservator, liquidator or
statutory successor of any Ceding Company, all payments due hereunder shall be
payable to such conservator, liquidator or statutory successor in accordance
with this Agreement, with reasonable provision for verification, on the basis
of claims allowed against such Ceding Company by any court of competent
jurisdiction or by any conservator, liquidator or statutory successor of such
Ceding Company having authority to allow such claims, without diminution
because of such insolvency or because such conservator, liquidator or statutory
successor has failed to pay all or a portion of any such claim.  Payments by the Assuming Company as set forth
above shall be made directly to such Ceding Company or its conservator,
liquidator or statutory successor.

 

Section 8.2.  Retrocession
Follows Original Cession.  All reinsurance for which
Assuming Company shall be liable by subscribing to this Agreement shall be
subject in all respects to the same terms, conditions, waivers and to the same
modification, alterations and cancellations of the Underlying Agreements to
which such reinsurance relates, the true intent of this Agreement is that the
Assuming Company shall, in every case to which this Agreement applies, follow
the fortunes of the Ceding Company, including benefit payments and the timing
thereof.  Except as specifically
provided in this Agreement and any endorsement hereto, nothing herein shall be
construed to expand the liability of the Assuming Company beyond what is
specifically assumed under this Agreement by creating in any third party any
rights hereunder.

 

Section 8.3.  Errors and Omissions.  Any inadvertent delays, errors or omissions
made in connection with this Agreement or any transaction hereunder shall not
relieve either the Ceding Company or Assuming Company from any liability which
would have attached had such delay, error or omission not occurred, including
but not limited to any error or accidental omission by the other party in
reporting any claim or loss under the Underlying Agreements.

 

Section 8.4.  Access to Records and Reports; Audits.  The
Assuming Company or its duly authorized representative shall have access to and
the right to inspect the books and records of the Ceding Company at all
reasonable times for the purpose of obtaining information concerning this
Agreement, the Underlying Agreements or the subject matter hereof or
thereof.  Upon the request of the
Assuming Company, the Ceding Company shall forward to the Assuming Company any
reports received by the Ceding Company pursuant to Section 4.8 of the
Coinsurance Agreement.  The Assuming
Company, at its sole expense, shall have the right to audit all of the Ceding
Company’s records and procedures relating to the Underlying Agreements at the
office of the Ceding Company during regular business hours.

 

Section 8.5.  Arbitration;
Service of Process and Jurisdiction.  As
a Condition precedent to any right of action hereunder, if any dispute shall
arise between the parties hereto with reference to the interpretation of this
Agreement or their rights with respect to any transaction involved, whether
such dispute arises before or after termination of this Agreement, such
dispute, upon the written request of either party, shall be submitted to three
arbitrators, one to be chosen by each party, and the third by the two
arbitrators so chosen.  If either party
refuses or neglects to appoint an arbitrator within thirty (30) days after the
receipt of written notice from the other party requesting it to do so, the
requesting party may appoint two arbitrators. 
If the two arbitrators fail to agree in the selection of a third
arbitrator within thirty (30) days of their appointment, each of them shall
name two, of whom the other shall decline one and the decision shall be made by
drawing lots.  All arbitrators shall be
active or retired disinterested officers of insurance or reinsurance companies
not under the control of either party hereto.

 

Except as may be otherwise provided herein, the arbitrators shall
promulgate rules to interpret this Agreement based upon the Commercial
Arbitration Rules of the American Arbitration Association applicable to
commercial disputes and the Convention on Recognition and Enforcement of
Foreign Arbitral

 

5

 

Awards (June 10, 1958).  The
arbitrators shall interpret this Agreement as an honorable engagement rather
than as a legal obligation and will make their award with the view to effecting
the general purpose and intent of this Agreement, rather than in accordance
with the literal interpretation of the Agreement.

 

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

 

The Assuming Company hereby irrevocably submits to the nonexclusive
jurisdiction of any Federal or State of Texas court sitting in the State of
Texas over any suit, action or proceeding arising out of or relating to this
Agreement.  The Assuming Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in such court and any claim than any suit, action
or proceeding brought in such court has been brought in an inconvenient
forum.  The Assuming Company agrees that
a final judgment, not subject to any further appeal, in any such suit, action
or proceeding brought in such a court shall be conclusive and binding upon it
and will be given effect in the country of domicile of the Assuming Company to
the fullest extent permitted by applicable law and may be enforced in any
Federal or State of Texas court sitting in the State of Texas, by a suit upon
such judgment, provided that service of process is effected upon it as
specified in this Section or as otherwise permitted by law.

 

Further, pursuant to any statute of any state, territory or district of
the United States that makes provision therefor, the Assuming Company hereby
designates the superintendent, Commissioner or Director of Insurance or other
officer specified for the purpose in the statute, or his successor or
successors in office, as the true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Assuming Company under this Agreement, and hereby designates the person
named in this Agreement in Section 8.12 as the person whom the officer is
authorized to mail such process or a true copy thereof.

 

The Assuming Company consents to process being served in any suit,
action or proceeding of the nature referred to above in any Federal or State of
New York court sitting in the State of New York by service of process as set
forth above, provided that, to the extent lawfully possible, written notice of
said service shall be mailed by registered or certified air mail, postage
prepaid, return receipt requested, to the Assuming Company at its address
specified herein or to any other address of which the Assuming Company shall
have given notice to the Ceding Company. 
The Assuming Company irrevocably waives, to the fullest extent permitted
by law, all claim of error by reason of any such service and agrees that such
service shall be deemed in every respect effective service of process upon the
Assuming Company in any such suit, action or proceeding and shall, to the
fullest extent permitted by law, be taken and held to be valid and personal
service upon and personal delivery to the Assuming Company.

 

Nothing in this Section shall affect the right of the Assuming Company
from receiving service of process in any other manner permitted by law or limit
the right of the Ceding Company to bring proceedings against the Assuming
Company in any court having jurisdiction over the Assuming Company and such
proceeding.

 

Section 8.6.  Offset
and Remittances.  The
Ceding Company and the Assuming Company hereby grant each other the right to
offset any amounts owed by one party to the other under this Agreement,
including but not limited to amounts owed hereunder as Premiums, claims for
loss payments, or under any judgment entered upon any arbitration award made
pursuant to the provisions of Section 6.4 hereof.  Accordingly, the amount of any payments to be made to either
party pursuant to the terms of this Agreement shall be reduced by offsetting
all amounts payable by such party to the other party so there shall be a single
net

 

6

 

payment due under this Agreement from one party to the other.  In the event of the insolvency of a party
hereto, offsets shall only be allowed in accordance with applicable law.  If any payment due under this Agreement is
not timely made, then the amount thereof shall be increased by interest at a
rate equal to the average daily one-year U.S. Treasury Bill rate in effect
during the period from the time such payment was due through the date of the
payment thereof.

 

Section 8.7.  Applicable
Law.  This Agreement
shall be governed by and construed in accordance with the laws of the State of
Texas, without regard to principles regarding choice of law.  Any arbitration under this Agreement, or any
dispute regarding the right to arbitration shall be governed by the Federal
Arbitration Act (9 USC Section 1, et  seq.).

 

Section 8.8.  Reserves.  The Assuming Company shall establish and
maintain all Statutory Reserves relating to its Coinsurance Share of
liabilities assumed hereunder as may be required by the Underlying Agreements
and applicable law and regulation.  The
reinsurance provided by this Agreement shall not be affected or invalidated by
reason of any action or interpretation by any commissioner or superintendent of
insurance of any jurisdiction with respect to the establishment or maintenance
of any of the reserves described in this Article.  The Ceding Company shall furnish to the Assuming Company such
information respecting its Coinsurance Share of liabilities assumed hereunder
as the Assuming Company shall reasonably require in order to accurately compute
or verify the amount of any such reserves.

 

The Assuming Company agrees to take all steps necessary to comply with
all applicable laws and regulations so as to permit the Ceding Company to
obtain full statutory financial statement credit for the reinsurance provided
by this Agreement in all relevant jurisdictions, including but not limited to
the establishment of reserves, trusts or letters of credit necessary for the
Ceding Company to receive such credit or amending this Agreement to comply with
such laws.  Any trust agreement
established by the Assuming Company for the benefit of the Ceding Company shall
comply in all respects with all applicable law for the purpose of providing the
Ceding Company with statutory credit for Statutory Reserves ceded hereunder.

 

Section 8.9.  Currency.  All payments under this Agreement and all
accounts and reports pursuant to this Agreement and any arbitration awards or
court judgments arising out of this Agreement shall be in United States
currency.

 

Section 8.10.  Confidentiality.  The Assuming Company and the Ceding Company
shall maintain the confidentiality of all information related to the Underlying
Agreements and all other information denominated as confidential by the other
party provided to it in connection with this Agreement and shall not disclose
such information to any third parties without the prior written consent of the
other party, except as may be required by governmental or regulatory
authorities, rating agencies, or pursuant to legal process.

 

Section 8.11.  Entire Agreement.  This
Agreement supersedes all prior discussions and agreements between the parties
with respect to the subject matter of this Agreement, and this Agreement,
including any Schedules or Exhibits hereto, contains the sole and entire
agreement between the Ceding Company and the Assuming Company with respect to
the subject matter hereof.

 

Section 8.12.  Notice.  As
used in this Agreement, Notice shall mean any and all notices, requests,
demands or other communications required or permitted to be given hereunder,
and all Notices shall be given or mailed by first class certified mail, return
receipt requested, or by an overnight courier service, addressed to the parties
at the addresses set forth below:

 

If to the Ceding Company, to:

 

Central United Life Insurance Company

2727 Allen Parkway, 6th  Floor

Houston, Texas 77019-2115

Attn: President

 

7

 

If to the Assuming Company, to:

 

KRE Reinsurance Ltd.

Victoria Hall, Victoria Street

P.O. Box HM 1826

Hamilton HM HX

Bermuda

Attn: Account Executive

 

With a copy to:

 

Capital Re Management Corporation

1326 Avenue of the Americas

18th Floor

New York, New York 10019

Attn: General Counsel

 

Section 8.13.  Taxes.

 

A.    The Ceding Company shall be
liable for all premium and other taxes in connection with the Covered Policies.

 

B.    KRE and Central United agree
to the following pursuant to Section 1.848-2(g)(8) of the Income Tax
Regulations under Section 848 of the Internal Revenue Code of 1986, as amended:

 

(i)            The term “party” shall
refer to either KRE or Central United, as appropriate.  The terms used in this subsection B are
defined by reference to Federal Income Tax Regulation 1.848-2 and the term “net
consideration” shall refer to either the net consideration as defined in
Federal Income Tax Regulation l.848-2(f) or the gross amount of premiums and
other consideration as defined in Federal Income Tax Regulation 1-848-3(b), as
appropriate;

 

(ii)           Each party shall attach
a schedule to its Federal income tax return which identifies the relevant
Reinsurance Agreements for which the joint election has been made;

 

(iii)          The party with net positive consideration, as defined in the Income Tax
Regulations promulgated under Section 848, for such Reinsurance Agreements for
each taxable year shall capitalize specific policy acquisition expenses with
respect to such Reinsurance Agreements without regard to the general deductions
limitation ofSection 848(c)(1) of the Internal Revenue Code;

 

(iv)          Each party agrees to exchange information pertaining to the amount of
net consideration under such Reinsurance Agreements each year to ensure consistency;
and

 

(v)           The joint election agreed to hereunder shall be effective beginning
with the Effective Date of this Agreement.

 

Section 8.14.  Wire Transfers.
 The Ceding Company and the Assuming Company
shall each promptly notify each other of the bank accounts into which wire
transfers of money are to be made for any and all payments due under this
Agreement.

 

Section 8.15.  No Third Party
Beneficiaries.  This Agreement constitutes an indemnity
reinsurance agreement solely between the Assuming Company and the Ceding
Company, and is intended solely for the benefit of the parties hereto and their
permitted successor and assigns, and it is not the intention of the parties to
confer any rights as a third-party beneficiary to this Agreement upon any other
person.

 

8

 

Section 8.16.  Severability.  If any
provision of this Agreement is held to be illegal, invalid or unenforceable
under any present or future law or if determined by a court of competent
jurisdiction to be unenforceable, and it f the rights or obligations of the
Assuming Company or Ceding Company under this Agreement will not be materially
and adversely affected thereby, such provision shall be fully severable, and
this Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of this Agreement shall remain in full force and effect
and will not be affected by the illegal, invalid or unenforceable provision or
by its severance herefrom.

 

Section 8.17.  Good Faith.
 The parties agree to deal with each other
fairly and in utmost good faith in the performance of this Agreement.

 

Section 8.18.  Not Assignable.  This Agreement may not be assigned by either
party.

 

Section 8.19.  Counterparts.
 This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

 

Section 8.20.  Waivers and
Amendments.  Any term or condition of this Agreement may
be waived at any time by the party that is entitled to the benefit
thereof.  Such waiver must be in writing
and must be executed by a duly authorized officer of such party.  A waiver on one occasion will not be deemed
to be a waiver of the same or any other term or condition on a future
occasion.  This Agreement may not be
altered or changed except by a writing executed by the Ceding Company and the
Assuming Company

 

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

 

	
  CENTRAL UNITED LIFE
  INSURANCE COMPANY

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
    /s/ David W. Harris

  	
   

  	
   

  
	
  Name:

  	
    DAVID W.
  HARRIS

  	
   

  	
   

  
	
  Title:

  	
    CHAIRMAN

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
  3/31 1998

  	
   

  
	
   

  	
   

  
	
  KRE REINSURANCE LTD.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
    /s/ Rebecca L
  Carne

  	
   

  	
   

  
	
  Name:

  	
    REBECCA CARNE

  	
   

  	
   

  
	
  Title:

  	
    Assistant
  Secretary

  	
   

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
  March 31 1998

  	
   

  
						

 

9

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00064-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00064-of-00352.parquet"}]]