Document:

Exhibit 10.38

 

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 AMERICAN INSURANCE COMPANY (the
“Retrocessionaire”), a Pennsylvania insurance company.

 

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, (i) unless otherwise defined in this Agreement, capitalized terms
shall have the meanings assigned to them in the Individual Disability Income
Stop Loss Reinsurance Treaty dated as of January 1, 1999 by and between
Guardian Life Insurance Company of America (the “Original Reinsured”) and the
Retrocedent, as the same may be amended, modified or supplemented from time to
time in accordance with the terms thereof (the “Underlying Treaty”, a copy of
which is attached hereto as Exhibit I), and (ii) 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 Treaty have been discharged.

 

ARTICLE 3

 

TYPE

 

Quota share retrocession.

 

 

ARTICLE
4

 

COVERAGE;
REIMBURSEMENT OF EXPENSES

 

The Retrocedent hereby cedes
to the Retrocessionaire, and the Retrocessionaire hereby assumes as reinsurance
from the Retrocedent and agrees to pay Retrocedent, (i) 100% of Reinsurance
Amounts paid by the Retrocedent under the Underlying Treaty in respect of
Retroceded Claim Inception Years, net of reinsurance paid by the Excess
Retrocessionaires under the Excess Agreements to the extent such reinsurance is
attributable to Retroceded Claim Inception Years, (ii) 100% of Return Premiums
paid by the Retrocedent under the Underlying Treaty in respect of Retroceded
Claim Inception Years, (iii) the portion of any Downgrade Amount paid by the
Retrocedent under the Underlying Treaty that is attributable to Retroceded
Claim Inception Years and (iv) the portion of any Experience Refund paid by the
Retrocedent under the Underlying Treaty that is attributable to Retroceded
Claim Inception Years.

 

The Retrocessionaire shall
reimburse the Retrocedent for 100% of allocated loss adjustment expenses,
expenses paid with respect to the Premium Trust Account and expenses paid with
respect to trust accounts established or letters of credit delivered in
accordance with Article 10 of the Underlying Treaty, in each case, to the
extent such expenses are incurred on or after the Effective Date.

 

The Retrocessionaire shall
also reimburse the Retrocedent for 100% of the retrocession premium paid to the
Excess Retrocessionaires in respect of the Retroceded Claim Inception Years
under the Excess Agreements.

 

“Retroceded Claim Inception
Years” means the 2002 Claim Inception Year and each subsequent Claim Inception
Year during the Term of the Underlying Treaty.

 

“Excess Retrocessionaires”
means ACE Bermuda Insurance Ltd. and London Life & Casualty Reinsurance
Corporation.

 

“Excess Agreements” means (i) the Excess of Loss
Reinsurance Agreement dated as of January 1, 1999 between the Retrocedent and
ACE Bermuda Insurance Limited and (ii) the Excess of Loss Reinsurance Agreement
dated as of January 1, 1999 between the Retrocedent and London Life & Casualty Reinsurance Corporation,
copies of which have been delivered to the Retrocessionaire.

 

2

 

ARTICLE 5

 

RETROCESSION PREMIUM; FUNDS WITHHELD ACCOUNT; EXCESS AMOUNT

 

Section
5.1. Retrocession
Premium. The Retrocedent
shall pay to the Retrocessionaire for each Retroceded Claim Inception Year
during the Retrocession Term a retrocession premium (the “Retrocession
Premium”) equal to the Reinsurance Premium paid to the Retrocedent under the
Underlying Treaty in respect of each such Retroceded Claim Inception Year. The Retrocession
Premium shall be payable on the date that the Retrocedent receives the
Reinsurance Premium from the Original Reinsured, but 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 to the Original Reinsured are
withdrawn from the Premium Trust Account. 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 Treaty.

 

“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 Premium Trust Account.

 

Section
5.3. Excess Amount. In the event the Original Reinsured pays
any Excess Amount to the Retrocedent, the Retrocedent shall promptly pay to the
Retrocessionaire the portion of the Excess Amount that is attributable to
Retroceded Claim Inception Years.

 

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 Treaty;

 

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

 

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

 

3

 

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 the reports
required under Article 9 of the Underlying Treaty.

 

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 hereunder in respect of Return Premiums, Downgrade Amount
and/or Experience Refund shall be debited from the Funds Withheld Account to
the extent the Retrocedent is permitted to use funds in the Premium Trust
Account to pay amounts owed by the Retrocedent to the Original Reinsured in
respect of such Return Premiums, Downgrade Amount and/or Experience Refund
(such amounts, 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.

 

ARTICLES 8

 

GENERAL
CONDITIONS

 

Section
8.1. Follow the
Fortunes. This Agreement is
based on the original terms of the Underlying Treaty 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 Treaty.

 

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.

 

4

 

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 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 Treaty. 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 Treaty 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

 

5

 

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
receipt of 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 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 this
Agreement.

 

6

 

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 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, 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 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 parlies’ 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.

 

7

 

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, 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 American Insurance
Company

c/o 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.

 

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

 

8

 

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 Treaty. The Retrocedent shall not amend, modify or
supplement the Underlying Treaty 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.

 

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:

  	
  4/2/02

  	
   

  

 

ACE
AMERICAN INSURANCE COMPANY

 

 

	
  By:

  	
  /s/ [ILLEGIBLE]

  	
   

  
	
   

  	
  Name:

  	
  [ILLEGIBLE]

  	
   

  
	
   

  	
  Title:

  	
  [ILLEGIBLE]

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  

 

9

 

EXHIBIT
I

 

[Underlying
Treaty]

 

10

 

Exhibit
I

 

INDIVIDUAL DISABILITY INCOME

STOP LOSS REINSURANCE TREATY

 

This Individual Disability Income Stop Loss
Reinsurance Treaty (this “Treaty”), dated as of January 1, 1999, is made and entered into by and
between The Guardian Life Insurance Company of America (the “Company”) and KRE
Reinsurance Ltd. (the “Reinsurer”).

 

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

 

ARTICLE 1

DEFINITIONS

 

For all purposes with regard to this Treaty, (i) the
following terms shall have the respective meanings assigned to them and shall
include the plural as well as the singular, (ii) all accounting terms,
including those involving premium and claim calculations, shall have the
meanings assigned to them under generally accepted accounting principles and
(iii) all premium and claim calculations shall be computed net of any
reinsurance covering the Covered Policies (other than the reinsurance provided
hereunder), whether or not recoverable:

 

A.           “Actual Claims Incurred” means, with respect to a Claim Inception Year,
the sum of (i) the present value of disability benefits (excluding premiums
waived on account of disability) paid by the Company in respect of Claims
Incepted in such Claim Inception Year during the period commencing on January 1
of such Claim Inception Year and ending five years following the December 31 of
such Claim Inception Year and (ii) the present value of the Claim Reserve
established by the Company as of the date five years following the December 31
of such Claim Inception Year with respect to Claims Incepted in such Claim
Inception Year, where all present values are computed as of January 1 of such
Claim Inception Year at a 6% annual effective rate of interest.

 

B.             “Attachment Point” means, with respect to a
Claim Inception Year, 150% of Planned Claims for such Claim Inception Year.

 

C.             “Automatic Termination Date” has the meaning
set forth in Article 4.

 

D.            “Claim Inception Year” means a calendar year
during the Term.

 

E.              “Claim Reserve” means, with respect to Claims
Incepted in a Claim Inception Year, the actuarial present value of future
benefit amounts due on claims, computed (i) at an effective annual rate of
interest of 6% and (ii) using 100% of the 1985 Commissioners’ Individual
Disability Income Table A for claim termination rates, as

 

 

such actuarial
present value is reduced or increased in accordance with such adjustments as
are agreed in writing by the parties hereto from time to time.

 

F.              “Claims Incepted”
means, with respect to a Claim Inception Year, all claims under Covered
Policies for disabilities that occur in such Claim Inception Year with respect
to which the Company admits liability for payment, whether or not any payment
is made by the Company in such Claim Inception Year.

 

G.             “Company” has the
meaning set forth in the introductory paragraph.

 

H.            “Covered Policies” has
the meaning set forth in Article 2.

 

I,                 “Deposit Premium”
has the meaning set forth in Article 5.

 

J,                “Downgrade Amount”
has the meaning set forth in Article 4.

 

K.            “Downgrade Termination
Date” has the meaning set forth in Article 4.

 

L.              “Early Termination
Date” has the meaning set forth in Article 4.

 

M.         “Effective Date” means
12:01 a.m., eastern standard time, on January 1, 1999.

 

N.            “Excess Amount” has
the meaning set forth in Article 4.

 

O.            “Excluded Claim
Inception Year” has the meaning set forth in Article 5.

 

P.              “Final Amount” has
the meaning set forth in Article 4.

 

Q.            “Maximum Benefits”
means the maximum disability benefits under Covered Policies in force at the
Effective Date or issued during the Term (inclusive of any future increases in
benefits permitted under the terms of any Covered Policy), as set forth in
Appendix A hereto.

 

R.             “New Policy Exclusion
Right” has the meaning set forth in Article 2.

 

S.              “Non-Payment
Termination Date” has the meaning set forth in Article 4.

 

T.             “Planned Claims”
means, (i) with respect to the 1999 Claim Inception Year, 192% of the
arithmetic average of the amounts obtained by applying, in a manner consistent
with actuarial standards of practice, the 1985 Commissioners’ Individual
Disability Table A at 5.5% interest (computed from the beginning of calendar
year 1999) to the census of Covered Policies in force as of the end of calendar
year 1999 and to the census of Covered Policies in force as of the beginning of
calendar year 1999 and (ii) with respect to all subsequent Claim Inception
Years, the amount obtained pursuant to a method (x) developed by the Company
and communicated to the Reinsurer no later

 

2

 

than June 30,
2000 (which method shall be consistent with actuarial standards of practice)
and (y) agreed to by the Reinsurer no later than July 31, 2000.

 

U.            “Premium Trust
Account” means the account established with the Trustee to hold all Reinsurance
Premiums payable under this Treaty.

 

V.             “Premium Trust
Agreement” means the agreement among the Company, the Reinsurer and the Trustee
concerning the Premium Trust Account, in substantially the form attached hereto
as Appendix B.

 

W.        “Reinsurance Amount” has
the meaning set forth in Article 3.

 

X.            “Reinsurance Premium”
has the meaning set forth in Article 5.

 

Y.             “Reinsurance Premium
Settlement Date” has the meaning set forth in Article 5.

 

Z.             “Reinsurer” has the
meaning set forth in the introductory paragraph.

 

AA.      “Reinsurer Downgrade” means
the Reinsurer’s financial strength rating by Standard & Poors Rating Group,
a division of McGraw Hill, Inc., is downgraded below “A-”.

 

BB. “Reserve Amount” has the meaning set
forth in Article 10.

 

CC. “Return Premium” has the meaning set
forth in Article 5.

 

DD. “Term” has the meaning set forth in
Article 4.

 

EE. “Treaty” has the meaning set forth in the
introductory paragraph.

 

FF. “Trustee” means The Chase Manhattan Bank.

 

ARTICLE 2

BUSINESS REINSURED

 

The business reinsured hereunder consists of
(i) all individual disability income insurance policies issued by the Company
and in force as of the Effective Date and (ii) all individual disability income
insurance policies issued by the Company during the Term, other than such
policies that are issued during a calendar year in which the Reinsurer
exercises its New Policy Exclusion Right or any calendar year thereafter (the
“Covered Policies”).

 

The Reinsurer shall have the right (the “New
Policy Exclusion Right”), exercisable upon written notice delivered to the
Company at least 90 days prior to the beginning of a calendar year, to exclude
from Covered Policies all individual disability income insurance

 

3

 

policies issued by the Company during such
calendar year and during each subsequent calendar year of the Term.

 

ARTICLE 3

COVERAGE

 

A.           In the event Actual
Claims Incurred in any Claim Inception Year is in excess of the Attachment
Point for such Claim Inception Year, the Reinsurer shall pay to the Company the
amount of such excess, subject to (i) a limit of liability equal to 75% of
Planned Claims for such Claim Inception Year and (ii) a limit of liability
equal to $150 million for the Term; provided, however, that the Reinsurer shall
have no liability for Actual Claims Incurred in any Excluded Claim Inception
Year (such excess, subject to such limits, is referred to herein as the
“Reinsurance Amount”).  In no event
shall the Reinsurer be obligated to pay more than $150 million to the Company
under this Treaty.

 

B.             The Reinsurance
Amount in respect of each Claim Inception Year shall be payable by the
Reinsurer no later than 60 days following the December 31 which is five years
following the December 31 of such Claim Inception Year.

 

ARTICLE 4

TERM

 

A.           The term of this Treaty
(the “Term”) shall commence on the Effective Date and terminate on the earliest
to occur of (i) 11:59 p.m., eastern standard time, on December 31, 2008, (ii)
the Early Termination Date, (iii) the Non-Payment Termination Date, (iv) the
Automatic Termination Date and (v) the Downgrade Termination Date. The
provisions of this Treaty that provide for the performance of obligations at a
date subsequent to the end of the Term shall survive the termination of this
Treaty.

 

B.             The Reinsurer shall
have the right, exercisable as of any December 31 occurring on or after
December 31, 2001, to terminate coverage hereunder for all calendar years
commencing thereafter, by giving at least 180 days’ prior written notice to the
Company thereof (such December 31 is referred to herein as the “Early
Termination Date”). The exercise of such right shall not relieve the Reinsurer
of liability for the Reinsurance Amount in respect of Claim Inception Years
ended on or prior to the Early Termination Date.

 

C.             In the event the
Company fails to transfer the Reinsurance Premium to the Trustee for deposit in
the Premium Trust Account in accordance with Article 5 and such failure is not
remedied within 30 days of the date written notice of such failure is delivered
to the Company by the Reinsurer, the Reinsurer shall have the right (but not
the

 

4

 

obligation) to terminate
coverage as of the December 31 immediately preceding the date of delivery of
such notice (such December 31 is referred to herein as the “Non-Payment
Termination Date”). The exercise of such right shall not relieve the Reinsurer
of liability for the Reinsurance Amount in respect of Claim Inception Years ended
on or prior to the Non-Payment Termination Date. In the event the Reinsurer
exercises such right, it shall direct the Trustee to return to the Company any
portion of Reinsurance Premium previously transferred by the Company to the
Trustee for deposit in the Premium Trust Account in respect of such Claim
Inception Year. The Company shall not be relieved of its obligation to pay the
Reinsurance Premium in accordance with Article 5 in the event the Reinsurer
does not exercise its right to terminate coverage as provided in this Section
C.

 

D.            In the event (i) the Company fails to develop
and communicate to the Reinsurer, on or before June 30, 2000, a methodology for
determining “Planned Claims” for all Claim Inception Years subsequent to the
1999 Claim Inception Year or (ii) the Company develops such a methodology but
the Reinsurer gives written notice to the Company that it does not agree with
such methodology (which notice shall be provided no later than July 31, 2000),
this Treaty shall automatically terminate with respect to all Claim Inception
Years subsequent to the 1999 Claim Inception Year (June 30, 2000, in the case
of clause (i), or the date of such written notice, in the case of clause (ii),
being referred to herein as the “Automatic Termination Date”).  Such termination shall not relieve the
Reinsurer of liability for the Reinsurance Amount in respect of the 1999 Claim
Inception Year.  In the event of such a
termination, the Reinsurer shall direct the Trustee to return to the Company
any Reinsurance Premium previously transferred by the Company to the Trustee
for deposit in the Premium Trust Account in respect of Claim Inception Years
subsequent to the 1999 Claim Inception Year.

 

E.              In the event the Reinsurer fails to deliver,
in accordance with Section C of Article 8, a guarantee, evidence that a third
party reinsurer has agreed to assume or reinsure the obligations of the
Reinsurer hereunder on a stand-by basis, or a letter of credit securing the
obligations of the Reinsurer under this Treaty within 30 days of the date of a
Reinsurer Downgrade, the Company shall have the right (but not the obligation)
to terminate coverage as of such 30th day (such 30th day
is referred to herein as the “Downgrade Termination Date”).  In the event of such a termination, (x) the
Reinsurer shall direct the Trustee to make a payment to the Company in an
amount equal to (i) the Reinsurance Premiums previously transferred by the
Company to the Trustee for deposit in the Premium Trust Account in respect of
Claim Inception Years (other than Excluded Claim Inception Years) that have not
settled prior to the Downgrade Termination Date plus (ii) interest thereon at
the rate of 6% compounded annually from the date of deposit to the Downgrade
Termination Date and (y) the Company shall be entitled to draw on any letters
of credit established pursuant to Article 10B hereof, withdraw the assets from
any trust account established pursuant to Article 10B hereof and/or reduce to
zero any amount deposited by the Reinsurer with the Company pursuant to Article
10B hereof.  Upon receipt by the Company
of the amounts described in the preceding sentence, the Reinsurer shall be
released from all

 

5

 

further liability hereunder,
other than the obligation of the Reinsurer to pay the Experience Refund to the
Company in accordance with Article 6 hereof. No later than 60 days following
December 31 of the fifth year following the last Claim Inception Year completed
prior to the Downgrade Termination Date, the Company shall calculate the Final
Amount. In the event the amount received by the Company pursuant to clauses (x)
and (y) of the second sentence of this Section (the “Downgrade Amount”) exceeds
the Final Amount, the Company shall pay such excess (the “Excess Amount”) to
the Reinsurer.  “Final Amount” means the
sum of the Reinsurance Amounts for Claim Inception Years (other than Excluded
Claim Inception Years) completed prior to the Downgrade Termination Date that
would have been payable after the Downgrade Termination Date but for the
termination pursuant to this Section.

 

ARTICLE 5

PREMIUM TRUST ACCOUNT; REINSURANCE PREMIUM

 

A.           The Reinsurer and the Company shall enter into the Premium Trust
Agreement contemporaneously with or promptly following the execution of this
Treaty.  All Reinsurance Premium shall
be transferred by the Company to the Trustee for deposit in the Premium Trust
Account. For the avoidance of doubt, no Reinsurance Premium shall be payable
directly to the Reinsurer.  All amounts
held in the Premium Trust Account shall be payable to the Company or the
Reinsurer in accordance with the terms hereof and of the Premium Trust
Agreement.  Withdrawals from, and
substitutions of assets held in, the Premium Trust Account shall be effected in
accordance with the procedures set forth in Section 2 of the Premium Trust
Agreement.  The Reinsurer shall be
entitled to direct the investment of the assets in the Premium Trust Account.
Upon satisfaction of the Reinsurer’s obligations hereunder, all amounts remaining
in the Premium Trust Account shall be payable to the Reinsurer, and the Company
shall direct the Trustee to promptly pay such amounts to the Reinsurer.

 

B.             The reinsurance premium payable with respect
to each Claim Inception Year (the “Reinsurance Premium”) shall be equal to the
greater of (i) $2.5 million and (ii) an amount equal to 2% of the premiums
earned by the Company during such Claim Inception Year with respect to Covered
Policies. The Reinsurance Premium shall be payable at the times and in the
manner described in Sections C and D of this Article 5.  Premiums shall be deemed to be earned by the
Company in accordance with generally accepted accounting principles.

 

C.             No later than 10 days following the date of
execution of the Premium Trust Agreement by both parties (with respect to the
1999 Claim Inception Year) and no later than 30 days after the commencement of
each Claim Inception Year (with respect to all other Claim Inception Years),
the Company shall transfer to the Trustee, for deposit in the Premium Trust
Account, a deposit premium (the “Deposit

 

6

 

Premium”). The Deposit
Premium for any Claim Inception Year shall be equal to the greatest of (i) $2.5
million, (ii) an amount equal to 2% of the Company’s good faith estimate of the
premiums to be earned by it during such Claim Inception Year with respect to
Covered Policies and (iii) for all Claim Inception Years other than the 1999
Claim Inception Year, an amount equal to 2% of 90% of the premiums earned by
the Company during the immediately preceding Claim Inception Year with respect
to Covered Policies.

 

D.            No later than 60 days after the end of each
Claim Inception Year (the “Reinsurance Premium Settlement Date”), the Company
shall, if necessary, transfer funds to the Trustee for deposit in the Premium
Trust Account, or if necessary, the Reinsurer shall direct the Trustee to make
a payment to the Company from the Premium Trust Account so as to reconcile the
difference between the Deposit Premium paid with respect to such Claim
Inception Year and the Reinsurance Premium payable with respect to such Claim
Inception Year.

 

E.              The Company shall have the right, but not the
obligation, to release the Reinsurer from all liability to pay the Reinsurance
Amount with respect to any Claim Inception Year by delivering written notice
thereof to the Reinsurer no later than 60 days following the end of such Claim
Inception Year; provided, however, that the Company may exercise such right
with respect to the 1999 Claim Inception Year without condition but may
exercise such right with respect to any Claim Inception Year subsequent to the
1999 Claim Inception Year only if the Company has exercised such right with
respect to the immediately preceding Claim Inception Year (any Claim Inception
Year with respect to which the Company has exercised such right is referred to
herein as an “Excluded Claim Inception Year”). In the event the Company
exercises such right with respect to a Claim Inception Year, the Reinsurer
shall direct the Trustee to make a payment to the Company from the Premium
Trust Account, on or before the later to occur of (i) the Reinsurance Premium
Settlement Date with respect to such Claim Inception Year and (ii) that date
that is 30 days following the date of such notice, in an amount (the “Return
Premium”) equal to 25% of the Reinsurance Premium payable in respect of such
Claim Inception Year. The exercise by the Company of such right shall not
relieve either party of its obligation to comply with Section D of this
Article.

 

ARTICLE 6

EXPERIENCE REFUND

 

No later than 60 days following the December 31
which is five years following the last day of the Term (or, in the event the
Term terminates pursuant to Section E of Article 4, no later than 60 days
following December 31 of the fifth year following the last Claim Inception Year
completed prior to the Downgrade Termination Date), the Reinsurer shall pay to
the Company an Experience Refund, calculated as set forth below, plus interest
at the rate of 6% compounded annually from the last day of the Term to the date
of

 

7

 

payment. To
the extent funds remain in the Premium Trust Account on the date the Experience
Refund is to be paid, the Reinsurer shall direct the Trustee to make a payment
to the Company from the Premium Trust Account in an amount equal to the
Experience Refund. To the extent the Experience Refund exceeds the funds
remaining in the Premium Trust Account, the Reinsurer shall make direct payment
to the Company of such excess. The Experience Refund is equal to:

 

1)              all Reinsurance
Premium payable by the Company under this Treaty, minus

 

2)              all Return Premiums
payable by the Reinsurer under this Treaty, minus

 

3)              all Reinsurance
Amounts payable by the Reinsurer under this Treaty, minus

 

4)              in the event the
Term terminates pursuant to Section E of Article 4, the Downgrade Amount, plus

 

5)              in the event the
Term terminates pursuant to Section E of Article 4, the Excess Amount, minus

 

6)              an amount equal to
1.6% of premiums earned by the Company with respect to the Covered Policies
during each Claim Inception Year that is not an Excluded Claim Inception Year
(or, in the event the Term terminates pursuant to Section E of Article 4, an
amount equal to 1.6% of premiums earned by the Company with respect to the
Covered Policies during each Claim Inception Year that has settled prior to the
Downgrade Termination Date).

 

ARTICLE 7

EXCLUSIONS

 

This Treaty does not
cover:

 

A.           individual disability
income policies purchased by the Company or assumed by the Company as
reinsurance, unless the Reinsurer gives its prior written consent to the
inclusion of such policies;

 

B.             policies issued by
the Company not included in Covered Policies;

 

C.             provisions contained
in Covered Policies (including in riders to Covered Policies) issued after the
Effective Date that provide coverage for risks other than disability risks, to
the extent that, in the Reinsurer’s reasonable opinion, coverage for such other
risks constitutes more than a de minimus portion
of the total coverage provided by such Covered Policies;

 

D.            disability benefits in
excess of the Maximum Benefits;

 

8

 

E.              bad faith, punitive damages or any other
extra-contractual liability asserted against the Company, its officers,
directors, employees or agents;

 

F.              allocated or unallocated claim adjustment
expenses;

 

G.             any payment by the Company in excess of its
contractual obligations under the Covered Policies; and

 

H.            all liability of the Company arising by
contract, operation of law, or otherwise from its participation or membership,
whether voluntary or involuntary, in any Insolvency Fund. “Insolvency Fund”
includes any guaranty fund, insolvency fund, plan, pool, association, fund or
other arrangement, howsoever denominated, established or governed, which
provides for any assessment of or payment or assumption by the Company of part
or all of any claim, debt, charge, fee or other obligation of any insurer, or
its successors or assigns, which has been declared by the competent authority
to be insolvent, or which is otherwise deemed unable to meet any claim, debt,
charge, fee or other obligation in whole or in part.

 

ARTICLE 8

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

A.           Prior to the date which is five years following the end of the Term,
the Company shall not recapture, amend, modify or terminate any reinsurance
covering the Covered Policies without the prior written consent of the
Reinsurer.

 

B.             Prior to the date which is five years
following the end of the Term, the Company shall not purchase any reinsurance
covering the Covered Policies without the prior written consent of the
Reinsurer, other than reinsurance which covers (i) Claims Incepted in an
Excluded Claim Inception Year or (ii) Claims Incepted in a year occurring after
the end of the Term.

 

C.             In the event of a Reinsurer Downgrade, the
Reinsurer shall deliver to the Company (i) a guarantee from Capital Re
Corporation (or other entity satisfactory to the Company), in form and
substance satisfactory to the Company, guaranteeing the obligations of the
Reinsurer under this Treaty, (ii) evidence, in form and substance satisfactory
to the Company, that a third party reinsurer, acceptable to the Company, has
agreed to assume or reinsure on a stand-by basis the obligations of the
Reinsurer under this Treaty or (iii) a letter of credit, in form and substance
satisfactory to the Company, issued by a bank satisfactory to the Company,
securing the obligations of the Reinsurer under this Treaty.

 

9

 

ARTICLE 9

REPORTS

 

Within 30 days following the end of each calendar
quarter during the Term and the five-year period following the end of the Term,
the Company shall render a bordereau to the Reinsurer showing for such calendar
quarter;

 

1)              premiums earned by the Company during such
calendar quarter with respect Covered Policies (provided that this information
need only be provided for calendar quarters during the Term);

 

2)              disability payments made by the Company
during such calendar quarter with respect to Covered Policies, segregated by
Claim Inception Year; and

 

3)              the Claim Reserve for each Claim Inception
Year as at the end of such calendar quarter.

 

ARTICLE 10

RESERVES, FINANCIAL STATEMENT CREDIT

 

A.           Reserves.  The Reinsurer shall maintain
reserves with respect to its liabilities hereunder as required by all laws and
regulations applicable to the Company. Notwithstanding anything herein to the
contrary, the Reinsurer shall have no obligation to post any reserve for
unearned premiums.  No later than 30
days following the end of each calendar quarter during the Term and the
five-year period following the end of the Term, the Company shall deliver to
the Reinsurer a report as to the amount of the reserve the Reinsurer is
required to establish with respect to this Treaty.  If the Reinsurer does not, within 10 calendar days of its receipt
of such report, provide written notice to the Company that it disputes such
amount, the Reinsurer shall be obligated to establish a reserve by the end of
the calendar quarter. If the Reinsurer provides written notice that it disputes
such amount within such 10 day period, the parties will work together in good
faith to agree upon an appropriate reserve amount; provided that if such
dispute is not resolved in 15 days it shall be submitted to arbitration. The
reserve established by the Reinsurer with respect to this Treaty is referred to
herein as the “Reserve Amount” for such year.

 

B.             Financial Statement Credit. To the extent necessary to provide
statutory financial statement credit to the Company, the Reinsurer agrees that,
no later than the end of each calendar quarter during the Term and the
five-year period following the end of the Term, the Reinsurer shall either:

 

1)              Deliver to the Company a clean, irrevocable,
unconditional and evergreen letter of credit, in form and substance
satisfactory to the Company (including a waiver by the issuing bank of its
right to delay payment under the letter of credit), in an

 

10

 

amount equal to 102% of the
Reserve Amount (or if the Reinsurer has previously delivered such a letter of
credit to the Company, the Reinsurer shall deliver an amendment thereto that
increases the letter of credit to an amount equal to 102% of the Reserve Amount
most recently communicated by the Company). Such letter of credit shall be
drawn only on those financial institutions which are (a) approved by the
National Association of Insurance Commissioners as acceptable issuers of
letters of credit, and (b) acceptable to the Company. Should the letter of
credit be issued for less than the term of this Treaty, the Reinsurer shall
cause the issuer of the letter of credit to notify the Company, not less than
30 calendar days prior to the date of expiry, of its decision to renew or its
decision not to extend the letter of credit for an additional period, or

 

2)              establish a trust account at a bank,
acceptable to the Company, and on terms that are in complete conformance with
all applicable state law and with all additional requirements of governmental
authorities having jurisdiction over the Company’s reserves, in an amount equal
to 102% of the Reserve Amount (or, if the Reinsurer has previously established
such a trust account, the Reinsurer shall deposit additional assets in the
trust account so that the market value of the assets in the trust account is at
least equal to 102% of the Reserve Amount as most recently communicated by the
Company), or

 

3)              deposit with the Company an amount equal to
102% of the Reserve Amount (or, if the Reinsurer has previously deposited funds
with the Company, the Reinsurer shall deposit additional funds so that the
total funds deposited are at least equal to 102% of the Reserve Amount as most
recently communicated by the Company).

 

The Reinsurer shall have
complete discretion to chose which of the above-described forms of reinsurance
security it shall provide. Upon the request of the Reinsurer and subject to the
approval of the Company, the amounts on deposit in the Premium Trust Account
may be used to (i) collateralize such letters of credit or (ii) fund such trust
accounts or deposits. In the event the Reinsurer elects to deliver a letter of
credit pursuant to this Treaty, such letter of credit may be drawn upon at any
time, notwithstanding any other provisions in this Treaty, and shall be
utilized by the Company or any successor by operation of law of the Company
(including, without limitation, any liquidator, rehabilitator, receiver or
conservator or the Company) only for one or more of the following purposes;

 

1)              to reimburse the Company for the Reinsurer’s
share of disability benefits paid by the Company pursuant to the provisions of
the policies ceded under this Treaty;

 

2)              to fund an account with the Company in an
amount equal to the Reserve Amount; and

 

3)              to pay any other amounts the Company claims
are due under this Treaty.

 

11

 

All of the foregoing shall
be applied without diminution because of insolvency on the part of the Company
or the Reinsurer. The Company shall credit to the Reinsurer quarterly interest
on the amounts drawn from the letter of credit and held pursuant to paragraph 2
above at the lesser of the rate earned by the Company on its general account
and the prime rate of interest as reported in the Federal Reserve Bulletin. The
Company shall return to the Reinsurer any amounts drawn on the letter of credit
in excess of the actual amounts required for paragraphs 1 and 2 above or, in
the case of paragraph 3 above, any amounts that are subsequently determined not
to be due.

 

In the event the Reinsurer
elects to establish a trust account pursuant to Section B of Article 10 of this
Treaty, the Reinsurer and the Company shall enter into a trust agreement which
establishes a trust account for the benefit of the Company. The trustee of the
trust account and the trust agreement shall comply with all applicable
requirements of regulatory authorities having jurisdiction over the Company.
The assets deposited in the trust account shall be valued according to their
current fair market value, and 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 specified in
paragraphs (1) and (2) of subsection (a) of section 1404 of the New York
Insurance Law. Prior to depositing assets with the trustee, the Reinsurer shall
execute assignments, endorsements in blank, or transfer legal title to the
trustee of all assets requiring assignments, in order that the Company, or the
trustee upon the direction of the Company, may whenever necessary negotiate any
such assets without consent or signature from the Reinsurer or any other
entity. All settlements of account between the Company and the Reinsurer shall
be made in cash or its equivalent.

 

The Reinsurer and the
Company agree that the assets in the trust account established pursuant to this
provision of this Treaty may be withdrawn by the Company at any time,
notwithstanding any other provisions in this Treaty, and shall be utilized and
applied by the Company or any successor by operation of law of the Company
(including, without limitation, any liquidator, rehabilitator, receiver or
conservator of the Company) without diminution because of insolvency on the
part of the Company or the Reinsurer only for one or more of the following
purposes:

 

1)              to reimburse the Company for the Reinsurer’s
share of disability benefits paid by the Company pursuant to the provisions of
the policies ceded under this Treaty;

 

2)              to fund an account with the Company in an
amount equal to the Reserve Amount; and

 

3)              to pay any other amounts the Company claims
are due under this Treaty.

 

The Company shall return to
the trust account any amount withdrawn in excess of the actual amounts required
for in paragraphs 1 and 2 above, or in the case of paragraph 3, any amounts
that are subsequently determined not to be due. The Company shall

 

12

 

credit quarterly to the
Reinsurer interest on the amounts drawn from the trust account and held
pursuant to paragraph 2 above at the lesser of the rate earned by the Company
on its general account and the prime rate of interest as reported in the
Federal Reserve Bulletin.

 

The Reinsurer has the right
to seek approval from the Company to withdraw from the aforementioned trust
account all or any part of the assets contained therein and transfer such
assets to the Reinsurer, provided that:

 

1)              the Reinsurer shall, at the time of such
withdrawal, replace the withdrawn assets with other qualified assets having a
market value at least equal to the market value of the assets withdrawn so as
to maintain at all times the deposit in the required amount; or

 

2)              after such withdrawal and transfer, the
market value of the trust account is not less than 102 percent of the Reserve
Amount.

 

The Company shall be the
sole judge as to the application of this provision, but shall not unreasonably
or arbitrarily withhold its approval.

 

In the event the Reinsurer
elects to deposit funds with the Company, the Company shall credit such funds
with interest at the rate earned by the Company on its general account and
shall pay such interest income to the Reinsurer upon request, but in no event
more frequently than once per calendar quarter. The Company and the Reinsurer
agree that the deposit will be in such form and held in such manner so as to
allow the Company to take financial statement credit for the reinsurance ceded
hereunder and also allow, if possible, the Reinsurer to treat the deposit as an
admitted asset in accordance with applicable law.

 

ARTICLE 11

DAC TAX

 

A.           Each of the Company and the Reinsurer agrees that, for each taxable
year during the Term and the five-year period immediately following the Term,
it will comply with the following provisions. As used below, the term “party”
refers to either the Company or the Reinsurer, as appropriate. The terms used
in this Article are defined by reference to Regulation Section ) 1.848-2 of the
Income Tax Regulations issued in December 1992 under Section 848 of the
Internal Revenue Code of 1986, as amended (the “Code”).

 

B.             The party with the net positive consideration
for this Treaty for each taxable year will capitalize specified policy
acquisition expenses with respect to this Treaty without regard to the general
deductions limitation of Section 848(c)(l) of the Code.

 

13

 

C.             The parties shall exchange information
regarding the amount of net consideration paid under this Treaty in each year
to ensure consistency.  The parties also
agree to exchange information which may otherwise be required by the Internal
Revenue Service.

 

D.            The Company will submit a schedule to the
Reinsurer by June 1 of each year of its calculation of net consideration for
the preceding year. Such schedule will be accompanied by a statement signed by
an officer of the Company stating that the Company will report such net consideration
in its tax return for the preceding calendar year.  The Reinsurer may contest such calculation by providing an
alternative calculation to the Company in writing within 30 days of the
Reinsurer’s receipt of the Company’s calculation.  If the Reinsurer does not so notify the Company, the Reinsurer
will report the net consideration as determined by the Company in the
Reinsurer’s tax return for the previous calendar year. If the Reinsurer
contests the Company’s calculation of the net consideration, the parties will
act in good faith to reach an agreement as to the correct amount within 30 days
of the date the Reinsurer submits its alternative calculation.  If the Company and the Reinsurer reach
agreement on an amount of net consideration, each party shall report such
amount in their respective tax returns for the previous calendar year.  If the parties still fail to reach
agreement, the determination of net consideration shall be submitted to
arbitration.

 

ARTICLE 12

GENERAL CONDITIONS

 

A.           Follow the Fortunes. 
Except as otherwise provided herein, (i) this reinsurance is subject to
all of the terms, clauses and conditions of the Covered Policies and (ii) the
Reinsurer shall follow the fortunes of the Company in all respects under the
Covered Policies to the extent of the Reinsurer’s share hereunder.

 

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

 

C.             Insolvency. In the event of the insolvency of the Company, this reinsurance shall
be payable by the Reinsurer directly to the Company, or its liquidator,
receiver, conservator or statutory successor, on the basis of the liability of
the Company without diminution because of the insolvency of the Company or
because the liquidator, receiver, conservator or statutory successor of the
Company 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 Company shall give written notice to the Reinsurer
of the pendency of a claim against the Company. During the pendency of such
claim, the Reinsurer may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be adjudicated,

 

14

 

any defense or defenses that
it may deem available to the Company or its liquidator, receiver, conservator
or statutory successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to the approval of the court, against the Company 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 Company solely as a result of the
defense undertaken by the Reinsurer.

 

D.            Access to Records. Each party hereto may at any time during
normal office hours inspect and take copies of such of the other party’s
records and documents that relate to any matter arising under this Treaty. It
is agreed that each party’s right of inspection shall continue as long as
either party has a claim against the other arising out of this Treaty.

 

E.              Offset. The Reinsurer or the Company may offset any balance due from one
party to the other under this Treaty.

 

F.              Premium Taxes. The Company shall be liable for the payment
of all premium taxes on the Covered Policies.

 

G.             Errors and Omissions. Any inadvertent delay, omission or error
shall not be held to relieve any 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.

 

H.            Governing Law. This Treaty is governed by and is to be
construed according to the laws of the State of New York, without giving effect
to choice of law provisions.

 

I.                 Arbitration. Any dispute, controversy or claim arising out of or relating to this
Treaty shall be submitted to arbitration to be conducted in New York City,
pursuant to the following procedures and the then-current Commercial Rules of
the American Arbitration Association (to the extent such rules are not
inconsistent with the following procedures). There must be three arbitrators
who will be active or retired disinterested officials of insurance or
reinsurance companies or persons with not less than ten years experience of
insurance or reinsurance as lawyers or professional advisors serving the
insurance or reinsurance industry; provided that no arbitrator may be a present
or former officer, director, employee, attorney or consultant of either party
or its affiliates. The Company and the Reinsurer will each appoint one of the
arbitrators and these two arbitrators will select the third. In the event that
either party is unable to chose an arbitrator within 30 days of the demand for
arbitration, the other party may choose two arbitrators who shall in turn
choose the third arbitrator before entering arbitration. If the two arbitrators
are unable to agree on the selection of a third arbitrator within 30 days
following their appointment, each arbitrator shall nominate three candidates
within 10 days thereafter, two of whom the other shall decline, and the
decision shall be made by drawing lots. Each of the parties shall bear the
expenses of its own arbitrator and shall jointly and equally bear, with the
other

 

15

 

party, the expenses of the
third arbitrator. The remaining expenses of the arbitration, if any, shall be
allocated by the arbitrators. The award of the arbitrators will be final, and
judgment may be entered upon it in any court having jurisdiction.

 

J.                Additional Information. In the event that state law or regulation
relating to this Treaty shall require either party to obtain information in
writing from the other party in order to credit reserves or unallocated
liability for purposes of any quarterly or annual statement, the other shall
provide such information within 30 days of the end of the period for which that
information is required, or 30 days from the date of the request, whichever is
later.

 

K.            Penalty Interest. An amounts due hereunder and unpaid shall
bear interest from and including the date that is 30 days after the due date to
but excluding the date of payment at a monthly rate equal to 1.5%.

 

L.              Notice. As used in this Treaty, 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 certified, registered or express mail, postage
prepaid, (iii) sent by an overnight delivery service, or (iv) 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) in the case of certified,
registered or express mail, three days after the date of deposit in the United
States mail, (iii) if sent by overnight delivery service, one day after
delivery of such notice to such service, and (iv) if sent by confirmed
facsimile transmission, at the time of transmission.

 

KRE Reinsurance Ltd.

Victoria Hall

PO Box HM 1826

Hamilton, Bermuda HM HX

Facsimile:  441-292-1563

Attention: Corporate Secretary

 

with a copy to:

 

Capital Re Solutions
Incorporated

1325 Avenue of the Americas

New York, New York 10019

Telephone: 212-974-0100

Facsimile:  212-581-3268

Attention: Corporate Secretary

 

The Guardian Life Insurance
Company of America

7 Hanover Square

 

16

 

New York, New York 10004

Telephone: 212-598-8386

Facsimile: 212-919-2944

Attention: Corporate Secretary

 

with a copy to:

 

The Guardian Life Insurance
Company of America

7 Hanover Square

New York, New York 10004

Telephone: 212-598-8295

Facsimile: 212-919-2816

Attention: Vice President, Disability

 

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

 

M.         Assignment. This Treaty may not be assigned by either party without the prior
written consent of the other party.

 

N.            Amendments. This Treaty may not be modified or amended except by mutual written
consent of the parties.

 

O.            Waivers. The terms of this Treaty 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.

 

P.              Entire Treaty; Rights and Remedies. This Treaty 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.

 

Q.            Headings. The headings used herein are intended solely for convenience of
reference and shall not effect the meaning, interpretation, construction or
effect of this Treaty.

 

R.             Counterparts. This Treaty 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.

 

S.              Severability In the event that any of the provisions
contained herein shall be declared invalid or unenforceable, such declaration
or adjudication shall in no manner affect or

 

17

 

impair the validity or
enforceability of the other and remaining provisions, which shall remain in
full force and effect as though the invalid or unenforceable provisions or
clauses had not been herein included or made apart of this Treaty.

 

IN WITNESS WHEREOF, this Treaty has been signed by a
duly authorized officer of each of the parties as of the date first above
written.

 

KRE REINSURANCE LTD.

 

	
  By:

  	
  /s/ Rebecca L. Carne

  	
   

  
	
   

  	
  Name:

  	
  REBECCA L. CARNE

  	
   

  
	
   

  	
  Title:

  	
  Asst. Sec.

  	
   

  
					

 

 

THE GUARDIAN LIFE INSURANCE COMPANY OF
AMERICA

 

	
  By:

  	
  /s/ John M. Sawyer

  	
   

  
	
   

  	
  Name:

  	
  John M. Sawyer

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  	
  Individual Disability Insurance

  	
   

  
					

 

18

 

Appendix A

 

Issue Limits for Covered
Policies

 

	
  Personal Disability Income Policies:

  	
   

  	
  $15,000/month

  
	
  Overhead Expense Disability Income Policies:

  	
   

  	
  $30,000/month

  
	
  Disability Buy-Out Policies:

  	
   

  	
  $66,667/month

  
	
  Disability Buy-Out Policies with Lump Sum Settlement:

  	
   

  	
  $625,000 aggregate

  
	
  Business Reducing Term Policies:

  	
   

  	
  $10,000/month

  

 

19

 

Appendix B

 

[Form of Premium Trust
Agreement]

 

20Exhibit
10.39

 

TERMINATION AGREEMENT

 

This Termination Agreement (this “Agreement”) is entered into by and between
ACE Capital Re Overseas Ltd. (the “Reinsurer”) and ACE INA Overseas Insurance Company
Ltd. (the “Company”) and is
effective at 12:01 A.M. Eastern Standard Time on January 1, 2002 (the “Effective Date”).

 

WITNESSETH:

 

WHEREAS, the parties have entered into a Stop Loss
Agreement dated as of January 1, 2001, a copy of which is attached hereto as
Exhibit A (the “Stop Loss Agreement”);

 

WHEREAS, pursuant to the Stop Loss Agreement, the
Reinsurer provided stop loss reinsurance with respect to the Company’s net
liabilities under the Reinsurance Agreements (as such term is defined in the
Stop Loss Agreement); and

 

WHEREAS, the parties desire to terminate the Stop
Loss Agreement on a cut-off basis as of the Effective Date hereof.

 

NOW, THEREFORE, for and in consideration of the
premises herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

 

1.               As of the Effective Date, the Stop Loss
Agreement is terminated on a cut-off basis, meaning that (A) the Reinsurer
shall have no liability (x) to pay the Stop Loss Benefit calculated with
respect to the calendar quarter commencing on the Effective Date or any
subsequent calendar quarter, (y) to deposit assets to the Trust Account (as
such term is defined in the Reinsurance Agreements) on behalf of the Company,
or (y) to pay Expenses (as defined in the Stop Loss Agreement) incurred by the
Company on or after the Effective Date, and (B) the Company shall have no
liability to pay premium or additional premium under the Stop Loss Agreement in
respect of periods commencing on or after the Effective Date.

 

2.               In consideration of the termination of the
Stop Loss Agreement, the Company’s obligation to pay the Up-Front Premium and
the Annual Premium in respect of periods ending prior to the Effective Date,
which amounts were paid on a funds withheld basis, shall be extinguished.

 

3.               The Company hereby irrevocably and
unconditionally releases and discharges the Reinsurer from and against all
liability or claim of whatsoever nature (whether present, future or contingent)
and whether known or unknown, arising out of or in any way in connection with
or relating to the Stop Loss Agreement, and from any demands, claims or
liabilities whatsoever relating thereto, it being the intention of the Company
that this Agreement shall operate as a full and final settlement of the
Reinsurer’s present and future liability to the Company under or in relation to
the Stop Loss Agreement.

 

4.               The Reinsurer hereby irrevocably and
unconditionally releases and discharges the Company from and against all
liability or claim of whatsoever nature (whether present, future or contingent)
and whether known or unknown, arising out of or in any way in connection with
or relating to the Stop Loss Agreement, and from any demands, claims or
liabilities whatsoever relating thereto, it being the intention of the Reinsurer
that this Agreement shall operate as a full and final settlement of the
Company’s present and future liability to the Reinsurer under or in relation to
the Stop Loss Agreement.

 

1

 

5.               This Agreement may not be modified or
amended, or any of its provisions waived, except by an instrument in writing
that is signed by the parties hereto.

 

6.               Any dispute, controversy or claim arising out
of or relating to this Agreement shall be subject to arbitration in accordance
with the provisions of the Stop Loss Agreement.

 

7.               This Agreement shall be governed by and
construed in accordance with the internal laws of the state of New York,
without regard to its conflict of laws doctrine.

 

8.               This Agreement may be executed and delivered
in counterparts each of which, when so executed and delivered, shall constitute
an original, and all of such counterparts shall together constitute one and the
same instrument.

 

IN WITNESS WHEREOF, this Agreement has been executed
as of the Effective Date by the following individuals duly authorized to act on
behalf of the parties:

 

ACE Capital Re Overseas Ltd.

 

 

	
  By:

  	
  /s/ Rebecca L. Carne

  	
   

  
	
   

  	
  Name:

  	
  Rebecca L. Carne

  	
   

  
	
   

  	
  Title:

  	
  Director

  	
   

  

 

ACE INA Overseas Insurance Company Ltd.

 

 

	
  By:

  	
  /s/  Robert B. Jefferson

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Jefferson

  	
   

  
	
   

  	
  Title:

  	
  President & Director

  	
   

  

 

2

 

Exhibit
A

 

STOP LOSS AGREEMENT

 

This Stop Loss Agreement (this “Agreement”), dated
as of January 1, 2001, is entered into by and between ACE Capital Re Overseas
Ltd. (the “Reinsurer”) and ACE INA Overseas Insurance Company Ltd. (the
“Company”).

 

WHEREAS, ACE Bermuda Insurance Ltd. (formerly,
A.C.E. Insurance Company, Ltd.) (“ACE”) (as the reinsurer) and The Prudential
Insurance Company of America (as the reinsured) (“Prudential”) entered into a
reinsurance agreement dated as of March 31, 1998 (as amended to date, the “1998
Reinsurance Agreement”), a copy of which is attached hereto as Exhibit A,
wherein Prudential ceded to ACE and ACE assumed from Prudential certain
liabilities of Prudential under a medical care benefits stop loss policy with a
March 31, 1998 contract date issued by Prudential to the Columbia Energy Group
and certain of its subsidiaries; and

 

WHEREAS, ACE and the Reinsurer entered into an
assignment agreement, a copy of which is attached hereto as Exhibit B, wherein
ACE assigned to the Reinsurer and the Reinsurer assumed from ACE, effective as
at 12:01 A.M. Eastern Standard Time on January 1, 2000, all of ACE’s rights and
obligations under the 1998 Reinsurance Agreement; and

 

WHEREAS, the Reinsurer (as the reinsurer) and
Prudential (as the reinsured) entered into a reinsurance agreement dated as of
September 30, 1999 (the “1999 Reinsurance Agreement”), a copy of which is
attached hereto as Exhibit C, wherein Prudential ceded to the Reinsurer and the
Reinsurer assumed from Prudential certain liabilities of Prudential under a
medical care benefits stop loss policy with a September 30, 1999 contract date
issued by Prudential to the Columbia Energy Group and certain of its
subsidiaries; and

 

WHEREAS, the Reinsurer, Prudential and State Street
Bank & Trust Company (“State Street”) entered into a trust agreement dated
as of May 1, 2000 (the “Trust Agreement”), a copy of which is attached hereto
as Exhibit D, wherein the Reinsurer established the Trust Account (as defined
in the Trust Agreement) with State Street for the benefit of Prudential to
secure the obligations of the Reinsurer to Prudential under both the 1998
Reinsurance Agreement and the 1999 Reinsurance Agreement (collectively, the
“Reinsurance Agreements”); and

 

WHEREAS, London Life and Casualty Reinsurance
Corporation (“London Life”) (as the reinsurer) and the Reinsurer (as the
reinsured) entered into a stop loss agreement dated as of August 1, 2000 (the
“First London Life Stop Loss Agreement”), a copy of which is attached hereto as
Exhibit E, wherein London Life reinsured, on a stop loss basis, a portion of
the liability of the Reinsurer under the 1998 Reinsurance Agreement; and

 

WHEREAS, the Reinsurer and the Company entered into
an assignment agreement, a copy of which is attached hereto as Exhibit F,
wherein the Reinsurer assigned to the Company and the Company assumed from the
Reinsurer, effective as at 12:01:01 A.M.

 

1

 

Eastern Standard Time on January 1, 2000, all of the
Reinsurer’s rights and obligations under the Reinsurance Agreements; and

 

WHEREAS, the Reinsurer, the Company, Prudential and
State Street entered into an assignment agreement, a copy of which is attached
hereto as Exhibit G, wherein the Reinsurer assigned to the Company and the
Company assumed from the Reinsurer, effective as at December 31, 2000, all of
the Reinsurer’s rights and obligations under the Trust Agreement and all of the
Reinsurer’s right, title and interest in and to the Trust Account; and

 

WHEREAS, the Reinsurer and the Company entered into
an assignment agreement, a copy of which is attached hereto as Exhibit H,
wherein the Reinsurer assigned to the Company and the Company assumed from the
Reinsurer, effective as at March 31, 2000, all of the Reinsurer’s rights and
obligations under the First London Life Stop Loss Agreement; and

 

WHEREAS, the Company and London Life entered into an
amendment to the First London Life Stop Loss Agreement dated as of March 27,
2001, a copy of which is attached hereto as Exhibit I; and

 

WHEREAS, the Company and London Life entered into a
stop loss agreement dated as of January 1, 2001 (the “Second London Life Stop
Loss Agreement”), a copy of which is attached hereto as Exhibit J, wherein
London Life reinsured, on a stop loss basis, a portion of the liability of the
Company under the 1999 Reinsurance Agreement (the Second London Life Stop Loss
Agreement and the First London Life Stop Loss Agreement (as amended) are
referred to collectively herein as the “London Life Stop Loss Agreements”); and

 

WHEREAS, the Company desires that the Reinsurer
provide stop loss reinsurance with respect to the Company’s net liabilities
under the Reinsurance Agreements, and the Reinsurer is willing to provide such
reinsurance on the terms and subject to the conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the premises and
the mutual covenants herein contained, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Reinsurer hereby agree as follows.

 

2

 

ARTICLE 1

TERM

 

The term of this Agreement (the “Term”) shall
commence on January 1, 2001 (the “Effective Date”) and continue until such time
as the Company has no further liability under the Reinsurance Agreements (the
“Termination Date”).

 

Notwithstanding the occurrence of the Termination
Date, any obligation by one party to the other which arises pursuant to this
Agreement but remains undischarged as of the Termination Date shall remain
enforceable until satisfied in full.

 

ARTICLE 2

COVERAGE

 

The Reinsurer shall be liable to the Company for the
Stop Loss Benefit calculated with respect to each calendar quarter during the
Term; provided that, until such time (if ever) as the Trust Account balance
equals zero, the Reinsurer shall be entitled to offset Stop Loss Benefits owed
to the Company against Premium payable to the Reinsurer by the Company (any
amount so offset being referred to herein as a “Stop Loss Offset Amount”). The
Stop Loss Benefit shall be paid in accordance with Article 7 hereof.

 

“Stop Loss Benefit” means an amount equal to
Accumulated Benefits minus the Attachment Point minus the London Life Payments,
but not less than zero and not greater than the Maximum Claim.

 

“Accumulated Benefits” means (x) as of December 31,
2000, zero dollars, and (y) as of the last day of each subsequent calendar
quarter during the Term, an amount equal to (i) the Accumulated Benefit as of
the last day of the immediately preceding calendar quarter multiplied by the
Earned Rate plus (ii) the total of all amounts payable by the Company under the
Reinsurance Agreements in respect of the current calendar quarter as reported
on Line 8 of the Quarterly Payment Calculation Report for the current calendar
quarter.

 

“Attachment Point” means (x) as of December 31,
2000, $96,353,247, and (y) as of the last day of each subsequent calendar
quarter, an amount equal to (i) the Attachment Point as of the last day of the
immediately preceding calendar quarter plus the Stop Loss Benefit for the
immediately preceding calendar quarter multiplied by (ii) the Earned Rate.

 

“London Life Payments” means (x) as of December 31,
2000, zero dollars, and (y) as of the last day of each subsequent calendar
quarter during the Term, an amount equal to (i) the London Life Payments as of
the last day of the immediately preceding calendar quarter multiplied by the
Earned Rate plus (ii) the total of all amounts payable by London Life under the
London Life Stop Loss Agreements in respect of the current calendar quarter,
but only to the extent such amounts are actually paid.

 

3

 

“Maximum Claim” means (x) as of December 31, 2000,
$50,000,000, and (y) as of the last day of each subsequent calendar quarter, an
amount equal to the greater of zero and (i) (A) the Maximum Claim as of the
last day of the immediately preceding calendar quarter minus (B) the Stop Loss
Benefit for the immediately preceding calendar quarter minus (C) the Trust Top
Up Amount paid by the Reinsurer during the immediately preceding calendar
quarter multiplied by (ii) the Earned Rate.

 

“Earned Rate” means, with respect to a calendar
quarter, the total rate of return for such quarter, including realized and
unrealized gains and losses, on the portfolio of assets held in the Trust
Account.

 

ARTICLE 3

EXPENSES; TRUST ACCOUNT DEPOSITS

 

The Reinsurer will reimburse the Company for 100% of
the Expenses paid by the Company in connection with the performance of its
obligations under the Reinsurance Agreements promptly following the Reinsurer’s
receipt of any invoice with respect to the same. “Expenses” means any actual
out-of-pocket charges, costs and expenses incurred by the Company (including
Trust Account fees, fees of attorneys, experts, and consultants in connection
with audits, actions, suits or proceedings pursued or defended against by or on
behalf of the Company, premiums on bonds to release attachments, premiums on
appeal bonds, and costs taxed against the Company in any claim, suit or
proceeding); provided that Expenses shall not include the overhead of the
claims department of the Company and salaries and/or benefits of personnel of
the Company.

 

In the event the Company is required to deposit
additional assets to the Trust Account pursuant to Article 6 of the Reinsurance
Agreements, the Reinsurer will deposit such assets to the Trust Account on
behalf of the Company (an amount equal to the market value of such assets on
the date of transfer is referred to herein as the “Trust Top Up Amount”);
provided that the Reinsurer shall have no obligation to deposit assets to the
Trust Account (i) if the Maximum Claim is less than or equal to zero at the
time the Company is required to make the deposit or (ii) to the extent that the
deposit of assets by the Reinsurer would cause the Maximum Claim to fall below
zero.

 

ARTICLE 4

PREMIUM; ADDITIONAL PREMIUM

 

The premium payable to the Reinsurer shall consist
of an upfront premium in the amount of $8 million (the “Upfront Premium”) and
an annual premium in an amount equal to .0009 multiplied by the average monthly
balance of the Trust Account during each calendar year during the term, payable
on December 31 of each year during the Term (the “Annual Premium” and, together
with the Upfront Premium, the “Premium”). The Premium shall be payable on a
funds withheld basis; provided, to the extent the Company is permitted to
withdraw assets from the Trust Account pursuant to Article 6 of the

 

4

 

Reinsurance Agreements and the Reinsurer requests
that the Company do so, the Company shall promptly withdraw assets with a
market value equal to the lesser of (i) the amount permitted to be withdrawn,
(ii) the amount requested and (iii) the Notional Account Balance as at such
date (such lesser amount is referred to herein as the “Paid Premium Amount”)
and promptly transfer such assets to the Reinsurer.

 

If the Notional Account Balance (as defined in
Article 5 below) as at the Termination Date is a positive amount, the Company
will pay to the Reinsurer an amount equal to the Notional Account Balance
within ten days following the Termination Date, and such payment shall satisfy
the Company’s obligation in respect of the Premium. The parties acknowledge and
agree that the Company is entitled to use Trust Account assets to pay such
amount.

 

Promptly following payment of the Premium, the
Company shall pay to the Reinsurer an additional premium in an amount equal to
the remaining balance of the Trust Account (after giving effect to the payment
of Premium).

 

ARTICLE 5

FUNDS WITHHELD NOTIONAL ACCOUNT

 

The parties will calculate a notional account (the
“Funds Withheld Notional Account”) on the Effective Date and quarterly
throughout the Term (the date as of which any such calculation is made being
referred to herein as a “Calculation Date”). At the Effective Date, the balance
of the Funds Withheld Notional Account (the “Notional Account Balance”) will
equal the Upfront Premium. The Notional Account Balance at any Calculation Date
thereafter shall be equal to:

 

1.               the Notional Account Balance at the
immediately preceding Calculation Date (the “Preceding Calculation Date”), plus

 

2.               interest credited at the Earned Rate on the
average daily Notional Account Balance during the period from but excluding the
Preceding Calculation Date to and including the Calculation Date (such period
being referred to herein as the “Calculation Period”), minus

 

3.               Paid Premium Amounts paid to the Reinsurer
during such Calculation Period, minus

 

4.               Stop Loss Offset Amounts offset by the
Reinsurer during such Calculation Period, plus,

 

5.               Annual Premium payable during such
Calculation Period.

 

For purposes of calculating the interest referred to
in subparagraph (2) above, interest shall be credited to the Funds Withheld
Notional Account on the last day of each calendar

 

5

 

quarter, Paid Premium Amounts shall be
debited from the Funds Withheld Notional Account on the date of payment, Stop
Loss Offset Amounts shall be debited from the Funds Withheld Notional Account
on the date the relevant Stop Loss Benefit was due and Annual Premium shall be
credited to the Funds Withheld Notional Account on December 31 of each year.

 

ARTICLE 6

CLAIMS SETTLEMENTS

 

When so requested, the Company will afford
the Reinsurer an opportunity to be associated with the Company at the expense
of the Reinsurer in the conduct of any audit and the defense or control of any
claim, suit, or proceeding involving the Reinsurance Agreements, and the
Company and the Reinsurer shall cooperate in every respect in the conduct of
any such audit and the defense or pursuit of any such suit, claim or proceeding.

 

Notwithstanding the foregoing, all
adjustments, settlements and compromises made by the Company shall be binding
upon the Reinsurer.

 

ARTICLE 7

REPORTS AND REMITTANCES

 

Within 30 days of the end of each calendar
quarter, the Company will provide the Reinsurer a report in the form of
Schedule A hereto (the “Quarterly Payment Calculation Report”). Subject to the
Reinsurer’s right to offset Stop Loss Benefits owed to the Company against
Premium payable to the Reinsurer, any Stop Loss Benefit payable in respect of a
calendar quarter shall be paid by the Reinsurer within 10 days following
receipt of the Quarterly Payment Calculation Report for such quarter.

 

The Company will also forward to the
Reinsurer all reports received by the Company pursuant to the terms of the
Reinsurance Agreements within 15 days of the Company’s receipt of the same.

 

ARTICLE 8

LONDON LIFE STOP LOSS AGREEMENTS

 

The Company shall not amend, modify or
terminate either of the London Life Stop Loss Agreements without the prior written
consent of the Reinsurer. In the event the First London Life Stop Loss
Agreement is terminated, the Company shall promptly pay to the Reinsurer (or
direct London Life to pay directly to the Reinsurer) the $200,000 termination
fee payable by London Life in connection with such termination. In the event
the Second London Life Stop Loss Agreement is terminated, the Company shall

 

6

 

promptly pay to the Reinsurer (or direct
London Life to pay directly to the Reinsurer) the $200,000 termination fee
payable by London Life in connection with such termination.

 

ARTICLE 9

NOTICES

 

Any notice required or permitted hereunder
shall be in writing and shall be delivered personally, sent by facsimile
transmission, sent by prepaid air courier or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed delivered (i) if
delivered personally, when so delivered, (ii) if sent by facsimile
transmission, upon confirmation of such transmission, (iii) if sent by air
courier, one business day after the date sent and (iv) if sent by mail, five
days after the date of deposit in the Bermuda mails, addressed as follows:

 

If to the
Company:

 

ACE INA
Overseas Insurance Company Ltd.

Clarendon
House

2 Church Street

PO Box HM 1022

Hamilton, Bermuda HM 11

Fax:

Phone:

Attention: Corporate Secretary

 

If to the
Reinsurer:

 

ACE Capital Re
Overseas Ltd.

Victoria Hall

11 Victoria Street

Hamilton HM 11, Bermuda

Fax: 441-297-9704

Telephone: 441-297-9730

Attn: Assistant Secretary

 

with a copy
to:

 

ACE Capital Re
Inc.

1325 Avenue of the Americas

New York, New York

Telephone:    212-974-0100

Facsimile:     212-581-3268

Attention: General Counsel

 

7

 

Any party may by notice given in accordance with
this Article to the other parties designate another address or person for
receipt of notices hereunder.

 

ARTICLE 10

ERRORS AND OMISSIONS

 

In the event of failure to comply with any terms of
this Agreement through an inadvertent error, omission or oversight by cither
party which is shown to be unintentional, this Agreement will not be deemed
abrogated thereby. The oversight will be corrected as soon as it comes to light
in such a way that both the Company and the Reinsurer will be restored to the
position they would have occupied had no such oversight or omission occurred.

 

ARTICLE 11

ACCESS TO RECORDS

 

The Company shall allow the Reinsurer to inspect or
audit, at all reasonable times, all records of the Company with respect to the
business reinsured under this Agreement, or with respect to claims, losses or
legal proceedings which involve or have a bearing upon the Reinsurer, at the
expense of the Reinsurer.

 

ARTICLE 12

ARBITRATlON

 

Any dispute arising out of the interpretation,
performance or breach of this Agreement, including the formation or validity
thereof, shall be submitted for decision to a panel of three arbitrators.
Notice requesting arbitration will be in writing and sent certified or
registered mail, return receipt requested.

 

One arbitrator shall be chosen by each party and the
two arbitrators shall, before instituting the hearing, choose an impartial
third arbitrator who shall preside at the hearing. If either party fails to
appoint its arbitrator within thirty (30) days after being requested to do so
by the other party, the latter, after ten (10) days notice by certified or
registered mail of its intention to do so, may appoint the second arbitrator.

 

If the two arbitrators are unable to agree upon the
third arbitrator within thirty (30) days of their appointment, they shall
prepare a slate of six candidates, three from each arbitrator, and then
petition the American Arbitration Association to select the third arbitrator
from this slate.

 

All arbitrators shall be disinterested active or
former officers of insurance or reinsurance companies or Underwriters at
Lloyd’s, London.

 

8

 

Within thirty (30) days after notice of appointment
of all arbitrators, the panel shall meet and determine timely periods for
briefs, discovery procedures and schedules for hearings.

 

The panel shall be relieved of all judicial
formality and shall not be bound by the strict rules of procedure and evidence.
The arbitration shall take place in New York, NY.

 

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. The panel shall make its decision
considering the custom and practice of the applicable insurance and reinsurance
business within forty-five (45) days following the termination of the hearings.
Judgment upon the award may be entered in any court having jurisdiction
thereof.

 

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.

 

ARTICLE 13

GOVERNING LAW

 

This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to its
conflict of laws doctrine.

 

ARTICLE 14

OFFSET

 

The parties hereto have the right to offset any
balance(s) due from one to the other under this Agreement. The party asserting
the right of offset may exercise such right at any time whether the balance(s)
due are on account of premiums, losses, salvage or otherwise. This provision
shall not be affected by the insolvency of either party hereto.

 

ARTICLE 15

NO THIRD PARTY BENEFICIARIES

 

This is an agreement solely between the Company and
the Reinsurer. The acceptance of reinsurance hereunder shall not create any
right or legal relation whatever between the Reinsurer and the insured or
beneficiary under any business reinsured hereunder, and the Company shall
remain solely liable to such insured or beneficiary.

 

9

 

ARTICLE 16

SEVERAB1LITY

 

To the extent that this Agreement may be in conflict
with any applicable law or regulation, this Agreement shall be amended, at the
mutual agreement of both the Company and the Reinsurer, to the extent possible,
to comply with such law and regulation. If any term or provision of this
Agreement shall be found by a court of competent jurisdiction to be illegal or
otherwise unenforceable, the same shall not invalidate the whole of this
Agreement, but such term or provision shall be deemed modified to the extent
necessary in the court’s opinion to render such term or provision enforceable,
and the rights and obligations of the parties shall be construed and enforced
accordingly preserving to the fullest permissible extent the intent and
agreements of the parties set forth herein.

 

ARTICLE 17

INTEGRATION, AMENDMENT, WAIVER AND ASSIGNMENT

 

This Agreement (including the Schedules and Exhibits
hereto) constitutes the entire agreement between the parties with respect to
the subject matter hereof and supercedes all oral statement and prior writings
with respect thereto.

 

This Agreement may not be altered, modified or in
any way amended except by an instrument in writing duly executed by the proper
officials of both parties.

 

A breach of, or other non-compliance with, 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 an executive officer of the party. A waiver on one occasion shall
not operate or be effective as a waiver of any other similar or different
breach or instance of non-compliance on any other occasion.

 

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

 

ARTICLE 18

CURRENCY

 

The currency for the purpose of this Agreement will
be US dollars, and the premiums and liabilities shall be expressed and payable
in that currency.

 

10

 

ARTICLE 19

HEADINGS

 

The headings preceding the text of the
Articles of this Agreement are intended and inserted solely for convenience of
reference and shall not effect the meaning, interpretation, construction or
effect of this Agreement.

 

ARTICLE 20

COUNTERPARTS; FACSIMILE SIGNATURES

 

This Agreement may be executed in any number
of counterparts, and by the parties on separate counterparts, but will not be
effective until each party has executed at least one counterpart. Each
counterpart will constitute an original of this Agreement, but all the
counterparts will together constitute but one and the same instrument.

 

All signatures of the parties to this
Agreement may be transmitted by facsimile, and such facsimile will, for all
purposes, be deemed to be the original signature of such party whose signature
it reproduces and will be binding upon such party.

 

IN WITNESS WHEREOF, this Agreement has been
executed by duly authorized officers of the Company and the Reinsurer as of the
date first above written.

 

 

ACE INA OVERSEAS INSURANCE COMPANY LTD.

 

 

	
  By:

  	
  /s/ Robert B. Jefferson

  	
   

  
	
   

  	
   Name:

  	
  Robert B. Jefferson

  	
   

  
	
   

  	
   Title:

  	
  President & Director

  	
   

  

 

 

ACE CAPITAL RE OVERSEAS LTD.

 

 

	
  By:

  	
  /s/ Rebecca L. Carne

  	
   

  
	
   

  	
   Name:

  	
  Rebecca L. Carne

  	
   

  
	
   

  	
   Title:

  	
  Director

  	
   

  

 

11

 

Schedule A

Quarterly Payment Calculation Report

 

Report for the Calendar Quarter
Ended                                        

 

 

	
  1.

  	
  X = Accumulated Benefits at end of prior quarter:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Y = Stop Loss Benefit paid for prior quarter:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Z = Attachment Point at end of prior quarter:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  L = London Life Payment at end of prior quarter:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  W = Maximum Claim at end of prior quarter:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  T = Trust Top Up Amount for prior quarter:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  R = Earned Rate:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  E = Amounts payable under Reinsurance Agreements in respect of
  current calendar quarter:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Q = Amounts payable under London Life Stop Loss Agreements in respect
  of current calendar quarter, to the extent paid:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  A = Accumulated Benefits for current quarter:

  = R x X plus E =

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  B = Attachment Point at end of current quarter:

  = R x [Y + Z] =

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  C = London Life Payment for current quarter:

  = R x L plus Q =

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  D = Maximum Claim at end of current quarter:

  = R x [W – Y – T] =

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  Stop Loss Benefit for current quarter:

  = Min {Max[(A – B – C), 0], D} =

  	
   

  	
   

  

 

12

 

Index of Exhibits

 

	
  Exhibit A:

  	
   

  	
  1998 Reinsurance Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit B:

  	
   

  	
  Assignment Agreement between ACE and ACRO

  
	
   

  	
   

  	
   

  
	
  Exhibit C:

  	
   

  	
  1999 Reinsurance Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit D:

  	
   

  	
  Trust Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit E:

  	
   

  	
  First London Life Stop Loss Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit F:

  	
   

  	
  Assignment Agreement between AIOIC and ACRO relating to Reinsurance
  Agreements

  
	
   

  	
   

  	
   

  
	
  Exhibit G:

  	
   

  	
  Assignment Agreement relating to Trust Account

  
	
   

  	
   

  	
   

  
	
  Exhibit H:

  	
   

  	
  Assignment Agreement relating to First London Life Stop Loss
  Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit I:

  	
   

  	
  Amendment to First London Life Stop Loss Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit J:

  	
   

  	
  Second London Life Stop Loss Agreement

  

 

13

 

STOP LOSS
AGREEMENT

 

This Stop Loss Agreement (this “Agreement”),
dated as of January 1, 2001, is entered into by and between ACE Capital Re
Overseas Ltd. (the “Reinsurer”) and ACE INA Overseas Insurance Company Ltd.
(the “Company”).

 

WHEREAS, ACE Bermuda Insurance Ltd.
(formerly, A.C.E. Insurance Company, Ltd.) (“ACE”) (as the reinsurer) and The
Prudential Insurance Company of America (as the reinsured) (“Prudential”)
entered into a reinsurance agreement dated as of March 31, 1998 (as amended to
date, the “1998 Reinsurance Agreement”), a copy of which is attached hereto as
Exhibit A, wherein Prudential ceded to ACE and ACE assumed from Prudential
certain liabilities of Prudential under a medical care benefits stop loss
policy with a March 31, 1998 contract date issued by Prudential to the Columbia
Energy Group and certain of its subsidiaries; and

 

WHEREAS, ACE and the Reinsurer entered into
an assignment agreement, a copy of which is attached hereto as Exhibit B,
wherein ACE assigned to the Reinsurer and the Reinsurer assumed from ACE,
effective as at 12:01 A.M. Eastern Standard Time on January 1, 2000, all of
ACE’s rights and obligations under the 1998 Reinsurance Agreement; and

 

WHEREAS, the Reinsurer (as the reinsurer) and
Prudential (as the reinsured) entered into a reinsurance agreement dated as of
September 30, 1999 (the “1999 Reinsurance Agreement”), a copy of which is
attached hereto as Exhibit C, wherein Prudential ceded to the Reinsurer and the
Reinsurer assumed from Prudential certain liabilities of Prudential under a
medical care benefits stop loss policy with a September 30, 1999 contract date
issued by Prudential to the Columbia Energy Group and certain of its
subsidiaries; and

 

WHEREAS, the Reinsurer, Prudential and State
Street Bank & Trust Company (“State Street”) entered into a trust agreement
dated as of May 1, 2000 (the “Trust Agreement”), a copy of which is attached
hereto as Exhibit D, wherein the Reinsurer established the Trust Account (as
defined in the Trust Agreement) with State Street for the benefit of Prudential
to secure the obligations of the Reinsurer to Prudential under both the 1998
Reinsurance Agreement and the 1999 Reinsurance Agreement (collectively, the
“Reinsurance Agreements”); and

 

WHEREAS, London Life and Casualty Reinsurance
Corporation (“London Life”) (as the reinsurer) and the Reinsurer (as the
reinsured) entered into a stop loss agreement dated as of August 1, 2000 (the
“First London Life Stop Loss Agreement”), a copy of which is attached hereto as
Exhibit E,  wherein London Life
reinsured, on a stop loss basis, a portion of the liability of the Reinsurer
under the 1998 Reinsurance Agreement; and

 

WHEREAS, the Reinsurer and the Company
entered into an assignment agreement, a copy of which is attached hereto as
Exhibit F, wherein the Reinsurer assigned to the Company and the Company
assumed from the Reinsurer, effective as at 12:01:01 A.M.

 

1

 

Eastern Standard Time on January 1, 2000, all of the
Reinsurer’s rights and obligations under the Reinsurance Agreements; and

 

WHEREAS, the Reinsurer, the Company, Prudential and
State Street entered into an assignment agreement, a copy of which is attached
hereto as Exhibit G, wherein the Reinsurer assigned to the Company and the
Company assumed from the Reinsurer, effective as at December 31, 2000, all of
the Reinsurer’s rights and obligations under the Trust Agreement and all of the
Reinsurer’s right, title and interest in and to the Trust Account; and

 

WHEREAS, the Reinsurer and the Company entered into
an assignment agreement, a copy of which is attached hereto as Exhibit H,
wherein the Reinsurer assigned to the Company and the Company assumed from the
Reinsurer, effective as at March 31, 2000, all of the Reinsurer’s rights and
obligations under the First London Life Stop Loss Agreement; and

 

WHEREAS, the Company and London Life entered into an
amendment to the First London Life Stop Loss Agreement dated as of March 27,
2001, a copy of which is attached hereto as Exhibit I; and

 

WHEREAS, the Company and London Life entered into a
stop loss agreement dated as of January 1, 2001 (the “Second London Life Stop
Loss Agreement”), a copy of which is attached hereto as Exhibit J, wherein
London Life reinsured, on a stop loss basis, a portion of the liability of the
Company under the 1999 Reinsurance Agreement (the Second London Life Stop Loss
Agreement and the First London Life Stop Loss Agreement (as amended) are referred
to collectively herein as the “London Life Stop Loss Agreements”); and

 

WHEREAS, the Company desires that the Reinsurer
provide stop loss reinsurance with respect to the Company’s net liabilities
under the Reinsurance Agreements, and the Reinsurer is willing to provide such
reinsurance on the terms and subject to the conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the premises and
the mutual covenants herein contained, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Reinsurer hereby agree as follows.

 

2

 

ARTICLE 1

TERM

 

The term of this Agreement (the “Term”) shall
commence on January 1, 2001 (the “Effective Date”) and continue until such time
as the Company has no further liability under the Reinsurance Agreements (the
“Termination Date”).

 

Notwithstanding the occurrence of the Termination
Date, any obligation by one party to the other which arises pursuant to this
Agreement but remains undischarged as of the Termination Date shall remain
enforceable until satisfied in full.

 

ARTICLE 2

COVERAGE

 

The Reinsurer shall be liable to the Company for the
Stop Loss Benefit calculated with respect to each calendar quarter during the
Term; provided that, until such time (if ever) as the Trust Account balance
equals zero, the Reinsurer shall be entitled to offset Stop Loss Benefits owed
to the Company against Premium payable to the Reinsurer by the Company (any
amount so offset being referred to herein as a “Stop Loss Offset Amount”). The
Stop Loss Benefit shall be paid in accordance with Article 7 hereof.

 

“Stop Loss Benefit” means an amount equal to
Accumulated Benefits minus the Attachment Point minus the London Life Payments,
but not less than zero and not greater than the Maximum Claim.

 

“Accumulated Benefits” means (x) as of December 31,
2000, zero dollars, and (y) as of the last day of each subsequent calendar
quarter during the Term, an amount equal to (i) the Accumulated Benefit as of
the last day of the immediately preceding calendar quarter multiplied by the
Earned Rate plus (ii) the total of all amounts payable by the Company under the
Reinsurance Agreements in respect of the current calendar quarter as reported
on Line 8 of the Quarterly Payment Calculation Report for the current calendar
quarter.

 

“Attachment Point” means (x) as of December 31,
2000, $96,353,247, and (y) as of the last day of each subsequent calendar
quarter, an amount equal to (i) the Attachment Point as of the last day of the
immediately preceding calendar quarter plus the Stop Loss Benefit for the
immediately preceding calendar quarter multiplied by (ii) the Earned Rate.

 

“London Life Payments” means (x) as of December 31,
2000, zero dollars, and (y) as of the last day of each subsequent calendar
quarter during the Term, an amount equal to (i) the London Life Payments as of
the last day of the immediately preceding calendar quarter multiplied by the
Earned Rate plus (ii) the total of all amounts payable by London Life under the
London Life Stop Loss Agreements in respect of the current calendar quarter,
but only to the extent such amounts are actually paid.

 

3

 

“Maximum Claim” means (x) as of December 31, 2000,
$50,000,000, and (y) as of the last day of each subsequent calendar quarter, an
amount equal to the greater of zero and (i) (A) the Maximum Claim as of the
last day of the immediately preceding calendar quarter minus (B) the Stop Loss
Benefit for the immediately preceding calendar quarter minus (C) the Trust Top
Up Amount paid by the Reinsurer during the immediately preceding calendar
quarter multiplied by (ii) the Earned Rate.

 

“Earned Rate” means, with respect to a calendar
quarter, the total rate of return for such quarter, including realized and
unrealized gains and losses, on the portfolio of assets held in the Trust
Account.

 

ARTICLE 3

EXPENSES; TRUST ACCOUNT DEPOSITS

 

The Reinsurer will reimburse the Company for 100% of
the Expenses paid by the Company in connection with the performance of its
obligations under the Reinsurance Agreements promptly following the Reinsurer’s
receipt of any invoice with respect to the same. “Expenses” means any actual
out-of-pocket charges, costs and expenses incurred by the Company (including
Trust Account fees, fees of attorneys, experts, and consultants in connection
with audits, actions, suits or proceedings pursued or defended against by or on
behalf of the Company, premiums on bonds to release attachments, premiums on
appeal bonds, and costs taxed against the Company in any claim, suit or
proceeding); provided that Expenses shall not include the overhead of the
claims department of the Company and salaries and/or benefits of personnel of
the Company.

 

In the event the Company is required to deposit
additional assets to the Trust Account pursuant to Article 6 of the Reinsurance
Agreements, the Reinsurer will deposit such assets to the Trust Account on
behalf of the Company (an amount equal to the market value of such assets on
the date of transfer is referred to herein as the “Trust Top Up Amount”);
provided that the Reinsurer shall have no obligation to deposit assets to the
Trust Account (i) if the Maximum Claim is less than or equal to zero at the
time the Company is required to make the deposit or (ii) to the extent that the
deposit of assets by the Reinsurer would cause the Maximum Claim to fall below
zero.

 

ARTICLE 4

PREMIUM; ADDITIONAL PREMIUM

 

The premium payable to the Reinsurer shall consist
of an upfront premium in the amount of $8 million (the “Upfront Premium”) and
an annual premium in an amount equal to .0009 multiplied by the average monthly
balance of the Trust Account during each calendar year during the term, payable
on December 31 of each year during the Term (the “Annual Premium” and, together
with the Upfront Premium, the “Premium”). The Premium shall be payable on a
funds withheld basis; provided, to the extent the Company is permitted to
withdraw assets from the Trust Account pursuant to Article 6 of the

 

4

 

Reinsurance Agreements and the Reinsurer requests
that the Company do so, the Company shall promptly withdraw assets with a
market value equal to the lesser of (i) the amount permitted to be withdrawn,
(ii) the amount requested and (iii) the Notional Account Balance as at such
date (such lesser amount is referred to herein as the “Paid Premium Amount”)
and promptly transfer such assets to the Reinsurer.

 

If the Notional Account Balance (as defined in
Article 5 below) as at the Termination Date is a positive amount, the Company
will pay to the Reinsurer an amount equal to the Notional Account Balance
within ten days following the Termination Date, and such payment shall satisfy
the Company’s obligation in respect of the Premium. The parties acknowledge and
agree that the Company is entitled to use Trust Account assets to pay such
amount.

 

Promptly following payment of the Premium, the
Company shall pay to the Reinsurer an additional premium in an amount equal to
the remaining balance of the Trust Account (after giving effect to the payment
of Premium).

 

ARTICLE 5

FUNDS WITHHELD NOTIONAL ACCOUNT

 

The parties will calculate a notional account (the
“Funds Withheld Notional Account”) on the Effective Date and quarterly
throughout the Term (the date as of which any such calculation is made being
referred to herein as a “Calculation Date”). At the Effective Date, the balance
of the Funds Withheld Notional Account (the “Notional Account Balance”) will
equal the Upfront Premium. The Notional Account Balance at any Calculation Date
thereafter shall be equal to:

 

1.               the Notional Account Balance at the
immediately preceding Calculation Date (the “Preceding Calculation Date”), plus

 

2.              interest credited at the Earned Rate on the
average daily Notional Account Balance during the period from but excluding the
Preceding Calculation Date to and including the Calculation Date (such period
being referred to herein as the “Calculation Period”), minus

 

3.               Paid Premium Amounts paid to the Reinsurer
during such Calculation Period, minus

 

4.               Stop Loss Offset Amounts offset by the
Reinsurer during such Calculation Period, plus,

 

5.               Annual Premium payable during such
Calculation Period.

 

For purposes of calculating the interest referred to
in subparagraph (2) above, interest shall be credited to the Funds Withheld
Notional Account on the last day of each calendar

 

5

 

quarter, Paid Premium Amounts shall be debited from
the Funds Withheld Notional Account on the date of payment, Stop Loss Offset
Amounts shall be debited from the Funds Withheld Notional Account on the date
the relevant Stop Loss Benefit was due and Annual Premium shall be credited to
the Funds Withheld Notional Account on December 31 of each year.

 

ARTICLE 6

CLAIMS SETTLEMENTS

 

When so requested, the Company will afford the
Reinsurer an opportunity to be associated with the Company at the expense of
the Reinsurer in the conduct of any audit and the defense or control of any
claim, suit, or proceeding involving the Reinsurance Agreements, and the
Company and the Reinsurer shall cooperate in every respect in the conduct of
any such audit and the defense or pursuit of any such suit, claim or
proceeding.

 

Notwithstanding the foregoing, all adjustments,
settlements and compromises made by the Company shall be binding upon the
Reinsurer.

 

ARTICLE 7

REPORTS AND REMITTANCES

 

Within 30 days of the end of each calendar quarter,
the Company will provide the Reinsurer a report in the form of Schedule A
hereto (the “Quarterly Payment Calculation Report”). Subject to the Reinsurer’s
right to offset Stop Loss Benefits owed to the Company against Premium payable
to the Reinsurer, any Stop Loss Benefit payable in respect of a calendar
quarter shall be paid by the Reinsurer within 10 days following receipt of the
Quarterly Payment Calculation Report for such quarter.

 

The Company will also forward to the Reinsurer all
reports received by the Company pursuant to the terms of the Reinsurance
Agreements within 15 days of the Company’s receipt of the same.

 

ARTICLE 8

LONDON LIFE STOP LOSS AGREEMENTS

 

The Company shall not amend, modify or terminate
either of the London Life Stop Loss Agreements without the prior written
consent of the Reinsurer. In the event the First London Life Stop Loss
Agreement is terminated, the Company shall promptly pay to the Reinsurer (or
direct London Life to pay directly to the Reinsurer) the $200,000 termination
fee payable by London Life in connection with such termination. In the event
the Second London Life Stop Loss Agreement is terminated, the Company shall

 

6

 

promptly pay to the Reinsurer (or direct London Life
to pay directly to the Reinsurer) the $200,000 termination fee payable by
London Life in connection with such termination.

 

ARTICLE 9

NOTICES

 

Any notice required or permitted hereunder shall be
in writing and shall be delivered personally, sent by facsimile transmission,
sent by prepaid air courier or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed delivered (i) if delivered
personally, when so delivered, (ii) if sent by facsimile transmission, upon
confirmation of such transmission, (iii) if sent by air courier, one business
day after the date sent and (iv) if sent by mail, five days after the date of
deposit in the Bermuda mails, addressed as follows:

 

If to the Company:

 

ACE INA Overseas Insurance
Company Ltd.

Clarendon House

2 Church Street

PO Box HM 1022

Hamilton, Bermuda HM 11

Fax:

Phone:

Attention: Corporate
Secretary

 

If to the Reinsurer:

 

ACE Capital Re Overseas Ltd.

Victoria Hall

11 Victoria Street

Hamilton HM 11, Bermuda

Fax: 441-297-9704

Telephone: 441-297-9730

Attn: Assistant Secretary

 

with a copy to:

 

ACE Capital Re Inc.

1325 Avenue of the Americas

New York, New York

Telephone:    212-974-0100

Facsimile:     212-581-3268

Attention: General Counsel

 

7

 

Any party may by  notice
given in accordance with this Article to the other parties designate another
address or person for receipt of notices hereunder.

 

ARTICLE 10

ERRORS AND OMISSIONS

 

In the event of failure to comply with any terms of
this Agreement through an inadvertent error, omission or oversight by either
party which is shown to be unintentional, this Agreement will not be deemed
abrogated thereby. The oversight will be corrected as soon as it comes to light
in such a way that both the Company and the Reinsurer will be restored to the
position they would have occupied had no such oversight or omission occurred.

 

ARTICLE 11

ACCESS TO RECORDS

 

The Company shall allow the Reinsurer to inspect or
audit, at all reasonable times, all records of the Company with respect to the
business reinsured under this Agreement, or with respect to claims, losses or
legal proceedings which involve or have a bearing upon the Reinsurer, at the
expense of the Reinsurer.

 

ARTICLE 12

ARBITRATION

 

Any dispute arising out of the interpretation,
performance or breach of this Agreement, including the formation or validity
thereof, shall be submitted for decision to a panel of three arbitrators.
Notice requesting arbitration will be in writing and sent certified or
registered mail, return receipt requested.

 

One arbitrator shall be chosen by each party and the
two arbitrators shall, before instituting the hearing, choose an impartial
third arbitrator who shall preside at the hearing. If either party fails to
appoint its arbitrator within thirty (30) days after being requested to do so
by the other party, the latter, after ten (10) days notice by certified or
registered mail of its intention to do so, may appoint the second arbitrator.

 

If the two arbitrators are unable to agree upon the
third arbitrator within thirty (30) days of their appointment, they shall
prepare a slate of six candidates, three from each arbitrator, and then
petition the American Arbitration Association to select the third arbitrator
from this slate.

 

All arbitrators shall be disinterested active or
former officers of insurance or reinsurance companies or Underwriters at
Lloyd’s, London.

 

8

 

Within thirty (30) days after notice of appointment
of all arbitrators, the panel shall meet and determine timely periods for
briefs, discovery procedures and schedules for hearings.

 

The panel shall be relieved of all judicial
formality and shall not be bound by the strict rules of procedure and evidence.
The arbitration shall take place in New York, NY.

 

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.

The panel shall make its decision considering the
custom and practice of the applicable insurance and reinsurance business within
forty-five (45) days following the termination of the hearings. Judgment upon
the award may be entered in any court having jurisdiction thereof.

 

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.

 

ARTICLE 13

GOVERNING LAW

 

This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to its
conflict of laws doctrine.

 

ARTICLE 14

OFFSET

 

The parties hereto have the right to offset any
balance(s) due from one to the other under this Agreement. The party asserting
the right of offset may exercise such right at any time whether the balance(s)
due are on account of premiums, losses, salvage or otherwise. This provision
shall not be affected by the insolvency of either party hereto.

 

ARTICLE 15

NO THIRD PARTY BENEFICIARIES

 

This is an agreement solely between the Company and
the Reinsurer. The acceptance of reinsurance hereunder shall not create any
right or legal relation whatever between the Reinsurer and the insured or
beneficiary under any business reinsured hereunder, and the Company shall
remain solely liable to such insured or beneficiary.

 

9

 

ARTICLE 16

SEVERABILITY

 

To the extent that this Agreement may be in conflict
with any applicable law or regulation, this Agreement shall be amended, at the
mutual agreement of both the Company and the Reinsurer, to the extent possible,
to comply with such law and regulation. If any term or provision of this
Agreement shall be found by a court of competent jurisdiction to be illegal or
otherwise unenforceable, the same shall not invalidate the whole of this
Agreement, but such term or provision shall be deemed modified to the extent
necessary in the court’s opinion to render such term or provision enforceable,
and the rights and obligations of the parties shall be construed and enforced
accordingly preserving to the fullest permissible extent the intent and
agreements of the parties set forth herein.

 

ARTICLE 17

INTEGRATION, AMENDMENT, WAIVER AND ASSIGNMENT

 

This Agreement (including the Schedules and Exhibits
hereto) constitutes the entire agreement between the parties with respect to
the subject matter hereof and supercedes all oral statement and prior writings
with respect thereto.

 

This Agreement may not be altered, modified or in
any way amended except by an instrument in writing duly executed by the proper
officials of both parties.

 

A breach of, or other non-compliance with, 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 an executive officer of the party. A waiver on one occasion shall
not operate or be effective as a waiver of any other similar or different
breach or instance of non-compliance on any other occasion.

 

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

 

ARTICLE 18

CURRENCY

 

The currency for the purpose of this Agreement will
be US dollars, and the premiums and liabilities shall be expressed and payable
in that currency.

 

10

 

ARTICLE 19

HEADINGS

 

The headings preceding the text of the
Articles of this Agreement are intended and inserted solely for convenience of
reference and shall not effect the meaning, interpretation, construction or
effect of this Agreement.

 

ARTICLE 20

COUNTERPARTS; FACSIMILE SIGNATURES

 

This Agreement may be executed in any number
of counterparts, and by the parties on separate counterparts, but will not be
elective until each party has executed at least one counterpart. Each
counterpart will constitute an original of this Agreement, but all the
counterparts will together constitute but one and the same instrument.

 

All signatures of the parties to this
Agreement may be transmitted by facsimile, and such facsimile will, for all
purposes, be deemed to be the original signature of such party whose signature
it reproduces and will be binding upon such party.

 

IN WITNESS WHEREOF, this Agreement has been
executed by duly authorized officers of the Company and the Reinsurer as of the
date first above written.

 

 

ACE INA OVERSEAS INSURANCE COMPANY LTD.

 

 

	
  By:

  	
  /s/ Robert B. Jefferson

  	
   

  
	
   

  	
   Name:

  	
  Robert B. Jefferson

  	
   

  
	
   

  	
   Title:

  	
  President & Director

  	
   

  

 

 

ACE CAPITAL RE OVERSEAS LTD.

 

 

	
  By:

  	
  /s/ Rebecca L. Carne

  	
   

  
	
   

  	
   Name:

  	
  Rebecca L. Carne

  	
   

  
	
   

  	
   Title:

  	
  Director

  	
   

  
					

 

11

 

Schedule
A

Quarterly
Payment Calculation Report

 

Report for the
Calendar Quarter Ended

 

	
  1.

  	
  X = Accumulated Benefits at end of prior quarter:

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Y = Stop Loss Benefit paid for prior quarter:

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Z = Attachment Point at end of prior quarter:

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  L = London Life Payment at end of prior quarter:

  	
   

  
	
   

  	
   

  	
   

  
	
  5.

  	
  W = Maximum Claim at end of prior quarter:

  	
   

  
	
   

  	
   

  	
   

  
	
  6.

  	
  T = Trust Top Up Amount for prior quarter:

  	
   

  
	
   

  	
   

  	
   

  
	
  7.

  	
  R = Earned Rate:

  	
   

  
	
   

  	
   

  	
   

  
	
  8.

  	
  E = Amounts payable under Reinsurance Agreements

  in respect of current calendar quarter:

  	
   

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Q = Amounts payable under London Life Stop Loss

  Agreements in respect of current calendar quarter, to the extent paid:

  	
   

  
	
   

  	
   

  	
   

  
	
  10.

  	
  A = Accumulated Benefits for current quarter:

  = R x X plus E =

  	
   

  
	
   

  	
   

  	
   

  
	
  11.

  	
  B = Attachment Point at end of current quarter:

  = R x [Y + Z] =

  	
   

  
	
   

  	
   

  	
   

  
	
  12.

  	
  C = London Life Payment for current quarter:

  = R x L plus Q =

  	
   

  
	
   

  	
   

  	
   

  
	
  13.

  	
  D = Maximum Claim at end of current quarter:

  = R x [W-Y-T] =

  	
   

  
	
   

  	
   

  	
   

  
	
  14.

  	
  Stop Loss Benefit for current quarter:

  = Min {Max [(A-B-C), 0], D} =

  	
   

  

 

12

 

Index of Exhibits

 

	
  Exhibit A:

  	
   

  	
  1998 Reinsurance
  Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit B:

  	
   

  	
  Assignment
  Agreement between ACE and ACRO

  
	
   

  	
   

  	
   

  
	
  Exhibit C:

  	
   

  	
  1999 Reinsurance
  Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit D:

  	
   

  	
  Trust Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit E:

  	
   

  	
  First London Life
  Stop Loss Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit F:

  	
   

  	
  Assignment
  Agreement between AIOIC and ACRO relating to Reinsurance Agreements

  
	
   

  	
   

  	
   

  
	
  Exhibit G:

  	
   

  	
  Assignment
  Agreement relating to Trust Account

  
	
   

  	
   

  	
   

  
	
  Exhibit H:

  	
   

  	
  Assignment
  Agreement relating to First London Life Stop Loss Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit I:

  	
   

  	
  Amendment to
  First London Life Stop Loss Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit J:

  	
   

  	
  Second London
  Life Stop Loss Agreement

  

 

13

 

Exhibit A

 

REINSURANCE AGREEMENT

 

This Reinsurance Agreement (as the same may be
amended from time to time in accordance with the terms hereof, this
“Agreement”) is made and entered into as of March 31, 1998 by and between THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA, a mutual insurance company organized
under the laws of the State of New Jersey (the “Company”), and A.C.E. INSURANCE
COMPANY, LTD., an insurance company organized under the laws of Bermuda (the
“Reinsurer”).

 

ARTICLE 1

 

REINSURANCE COVERAGE

 

In consideration of the Reinsurance Premium (as
defined below) and subject to the terms, conditions and limitations hereinafter
set forth, the Reinsurer agrees to indemnify the Company for all Loss
Settlements (as defined below) paid by the Company to the Contract Holder (as
defined below) under group contract no. SG-93191-VA (the “Group Contract”), a
copy of which is attached hereto as Annex A.

 

ARTICLE 2

 

SHOULD PAY BENEFIT COVERAGE

 

In consideration of the Reinsurance Premium and
subject to the terms, conditions and limitations hereinafter set forth, the
Reinsurer also agrees to indemnify the Company for all amounts paid by the
Company that are determined pursuant to the Indemnification Agreement (as
defined below) to be Should Pay Benefits (as defined in the Indemnification
Agreement), to the extent the aggregate amount of Should Pay Benefits exceeds
$100,000 per Contract Year (as defined in the Indemnification Agreement);
provided, however, that the Reinsurer’s liability under this Article 2 shall
not exceed $250,000 in the aggregate. In addition and notwithstanding the
preceding sentence, the Reinsurer shall indemnify the Company for Should Pay
Benefits payable by Columbia Energy Group pursuant to the Indemnification
Agreement if, and to the extent that, Columbia Energy Group fails to pay such
Should Pay Benefits by reason of the occurrence of the insolvency,
receivership, liquidation or reorganization of Columbia Energy Group (the
“Unreimbursed Should Pay Benefits”).

 

 

ARTICLE 3

 

DEFINITIONS

 

All words and phrases that have a capitalized
initial letter in this Agreement have a special meaning which is either
introduced in certain Articles, defined below or defined by reference to
certain other agreements and which shall include the plural as well as the
singular.

 

“Applicable Source” means the Wall Street Journal,
any successor publication thereto or any publication mutually agreed to by the
Company and the Reinsurer.

 

“Base Rate” means (i) for the period from but
excluding April 17, 1998 to and including June 30, 1998, 5.17%, and (ii) for
each calendar quarter during the Term (as defined below) commencing with the
quarter beginning July 1, 1998, an effective annual rate determined in
accordance with the formula “D/(1-D)”, where “D” is expressed as a decimal and
is equal to the rate of discount for the Treasury Bill that matures closest to
the 90th day after the first calendar day of  such quarter, as reported under the “ask”
column in the Applicable Source on the first business day of such calendar
quarter.

 

“Benefits Paid Report” means a report prepared and
delivered by the Contract Holder to the Company each calendar quarter showing
benefits paid by the Contract Holder under the Plan (as defined in the Group
Contract) during the preceding calendar quarter that are covered under the
Group Contract, which report shall be in substantially the form of Exhibit F to
the Group Contract.

 

“Combined Reserves” means the sum of Statutory
Reserves and Return Premium Reserves (as each such term is defined below).

 

“Contract Holder” means Columbia Energy Group Master
Trust.

 

“Covered Benefits” means benefits payable to the
Contract Holder pursuant to the terms of the Group Contract.

 

“Deposit Crediting Rate” means the Base Rate plus 60
basis points.

 

“Final Profit Share Date” means the last day of the
calendar quarter in which the number of Beneficiaries (as defined in the Group
Contract) falls below one.

 

“GAAP Reserves” means the policy and claim and
related liabilities established in accordance with generally accepted
accounting principles in the United States.

 

“Indemnification Agreement” means the agreement
dated as of March 31, 1998 between the Company and Columbia Energy Group, as
the same is in effect on the date hereof or

 

2

 

as the same may be modified in accordance with the
terms hereof, a copy of which is attached hereto as Annex B.

 

“Indemnification Amounts” means amounts payable by
Columbia Energy Group to the Company in respect of Mandated Benefits pursuant
to the Indemnification Agreement, whether or not actually paid; provided,
however, that Indemnification Amounts shall not include amounts payable
by Columbia Energy Group to the Company in respect of Mandated Benefits
pursuant to the Indemnification Agreement that are not paid by reason of the
occurrence of the insolvency, receivership, liquidation or reorganization of
Columbia Energy Group.

 

“Letter of Credit” means a clean, irrevocable and
unconditional letter of credit in favor of the Company issued or confirmed by a
bank, and in a form, that complies with all applicable requirements for
financial statement credit of regulatory authorities having jurisdiction over
the Company.

 

“Loss Settlement” means Covered Benefits, fees and
expenses of the Impartial Party (as defined in the Group Contract) and Mandated
Benefits, in each case, paid by the Company less Indemnification Amounts.

 

“Loss Settlement Payment Date” means, with respect
to any calendar quarter, the date on which the Company pays  benefits under the Group Contract to the
Contract Holder, which date shall be no earlier than three business days
following the date of delivery of the Quarterly Loss Settlement Report for such
calendar quarter.

 

“Margin” means, as of any Profit Share Date (as
defined below), $9.5 million plus interest thereon from the Effective Date (as
defined below) to such Profit Share Date compounded quarterly on each March 31,
June 30, September 30 and December 31 at the Base Rate.

 

“Market Value Adjustment” means the amount of
money resulting from the application of the following formula:

 

Deposit - (Deposit x (1 + i)(N/365))/((l
+ j)(N/365)), where

 

“i” is the Deposit Crediting Rate, “N” is the number
of days from the date of calculation of the Market Value Adjustment to the end
of the calendar quarter, and “j” is the effective annual rate of interest on a
Treasury Bill maturing at the end of the calendar quarter and purchased on the
date of calculation of the Market Value Adjustment.

 

“Profit Share Account Reserves” means the greater of
Statutory Reserves (as defined below) and GAAP Reserves.

 

“Profit Share Dates” means (i) the fifteenth
anniversary of the Effective Date, (ii) each anniversary of the Effective Date
thereafter up to and including the anniversary of the

 

3

 

Effective Date immediately preceding the Final
Profit Share Date and (iii) the Final Profit Share Date.

 

“Return Premium Reserves” means the reserves
established by the Company in respect of the policyholder dividends payable
under the Group Contract.

 

“Statutory Reserves” means gross reserves that
satisfy the reserving requirements in all of the states in which the Company is
required to file an annual statement with respect to the business underlying
the Group Contract. For the avoidance of doubt, Statutory Reserves shall not
include reserves established by the Company in respect of the policyholder
dividends payable under the Group Contract.

 

ARTICLE 4

 

TERM AND TERMINATION

 

The term of this Agreement (the “Term”) shall
commence at 12:01 a.m., eastern standard time, on March 31, 1998 (the
“Effective Date”) and shall remain in force until the date that all obligations
under the Group Contract have been discharged (the “Expiration Date”), unless
earlier terminated in accordance with the following paragraph.

 

This Agreement may be terminated prior to the
Expiration Date only with the prior written consent of both the Company and the
Reinsurer, and the date of any such termination is referred to herein as the
“Termination Date.”

 

ARTICLE 5

 

[This Article is intentionally left blank.]

 

ARTICLE 6

 

STATUTORY FINANCIAL CREDIT

 

The Reinsurer shall take all steps necessary to
ensure that the Company obtains full financial statement credit in all
applicable jurisdictions for the reinsurance ceded hereunder.

 

Where required by applicable law in order for the
Company to take financial statement credit for the reinsurance provided by this
Agreement, the Company shall be entitled to withhold from the Reinsurer, as
security for the payment of the latter’s obligations, an amount of funds herein
called the “Deposit.” The Company and the Reinsurer agree that the Deposit will
be in such form and held in such manner so as to allow the Company to

 

4

 

take financial statement credit for the reinsurance
ceded hereunder and also allow, if possible, the Reinsurer to treat the Deposit
as an admitted asset in accordance with applicable law. The Company shall
withhold from the Reinsurer an amount equal to the Net Reinsurance Premium (as
defined below), and the Deposit shall initially be equal to the Net Reinsurance
Premium. Thereafter, the Deposit shall be (i) decreased on each Loss Settlement
Payment Date by an amount equal to the Loss Settlement amounts and Should Pay
Benefits that are payable by the Reinsurer to the Company on such Loss
Settlement Payment Date to the extent such Loss Settlement amounts and Should
Pay Benefits are not paid directly by the Reinsurer on or before such Loss
Settlement Payment Date, (ii) decreased on each True-up Date (as defined below)
by the True-up Amount (as defined below) payable by the Reinsurer to the
Company on such True-up Date to the extent such True-up Amount is not paid
directly by the Reinsurer on or before such True-up Date, (iii) increased on
each Refund Date (as defined below) by the Refund Amount payable by the Company
to the Reinsurer on such Refund Date to the extent such amounts are not paid
directly to the Reinsurer on or before such Refund Date, (iv) decreased on each
Profit Share Date by an amount equal to the 133-1/3% of the Profit Share Amount
(as defined below) that is due to be paid by the Reinsurer to the Company on
such day to the extent such Profit Share Amount is not paid directly by the
Reinsurer on or before such Profit Share Date; (v) decreased on each Annual
Expense Allowance Date (as defined below) by an amount equal to the Annual
Expense Allowance (as defined below) due on such date to the extent not paid
directly by the Reinsurer on or before such date; (vi) increased on the date
that any additional funds are deposited by the Reinsurer with the Company by an
amount equal to such additional funds, (vii) decreased on the date that any
funds are withdrawn by the Reinsurer from the Company by an amount equal to
such withdrawn funds and (viii) increased on the last day of each calendar
quarter by interest credited at the Deposit Crediting Rate on the average daily
balance of the Deposit during such calendar quarter. Commencing with the
calendar quarter beginning October 1, 1998, within 45 days of the Reinsurer’s
receipt of a Quarterly Reserve Report (as defined below) showing Combined
Reserves at the last day of the preceding calendar quarter in excess of the
Deposit at the close of business on the last day of the preceding calendar
quarter, the Reinsurer shall be obligated to either (i) deposit additional
funds with the Company in an amount equal to such excess or (ii) deliver to the
Company a Letter of Credit in an amount equal to such excess. Commencing with
the calendar quarter beginning October 1, 1998, no later than five days
following the date of a Quarterly Reserve Report showing the Deposit at the
close of business on the last day of the preceding calendar quarter in excess
of Combined Reserves at the last day of the preceding calendar quarter, the
Company shall promptly refund to the Reinsurer an amount equal to such excess.

 

The Reinsurer shall have the right (but not the
obligation), upon 90 days’ prior written notice to the Company, to substitute a
trust account (the “Trust Account”) for the Deposit. The Company shall refund
the Deposit, less the Market Value Adjustment, contemporaneously with the
funding of the Trust Account.

 

5

 

In the event the New Jersey Commissioner of
Insurance grants approval for a benefit responsive guaranteed investment
contract, funding agreement, deposit agreement or deposit contract to be an
asset comprising the Trust Account, the Reinsurer shall, upon the request of
the Company, use its best efforts to promptly substitute a Trust Account for
the Deposit. Upon a substitution pursuant to this paragraph, the Company shall
refund the Deposit (without regard to the Market Value Adjustment)
contemporaneously with the funding of the Trust Account.

 

If a Trust Account is substituted for the Deposit,
the following provisions shall apply to the Reinsurer:

 

(1)                                  The Reinsurer shall enter into a trust
agreement and establish a trust account for the benefit of the Company covering
the recoverables that otherwise would be covered by the Deposit.  The trustee of the Trust Account and the
trust agreement shall comply with all applicable requirements of regulatory
authorities having jurisdiction over the Company.  Within 45 days of the Reinsurer’s receipt of each Quarterly
Reserve Report, the Reinsurer shall either (i) adjust the assets held in the
Trust Account so that the market value of such assets at the last day of the
preceding calendar quarter meets or exceeds the Combined Reserves at the last
day of the preceding calendar quarter and provide a certification to the
Company of such fact or (ii) deliver to the Company a Letter of Credit equal to
the amount by which the Combined Reserves at the last day of the preceding
calendar quarter exceed the market value of  such
assets at the last day of the preceding calendar quarter.

 

(2)                                  The assets deposited in the trust account
shall be valued according to their current fair market value, and 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, investments of
stocks and bonds listed by the NAIC’s Securities Valuation Office or any
obligations issued by the State of New Jersey or any of its political
subdivisions, any other form of security approved by the New Jersey
Commissioner of Insurance upon formal request, or any combination of the above,
provided that such investments are issued by an institution that is not the
Reinsurer or the Company or the parent, subsidiary or affiliate of either the
Reinsurer or the Company.

 

(3)                                  Prior to depositing assets with the trustee,
the Reinsurer shall execute assignments, endorsements in blank, or 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 the
direction of the Company, may whenever necessary negotiate any such assets
without consent or signature from the Reinsurer or any other entity.

 

(4)                                  All settlements of account between the
Company and the Reinsurer shall be made in cash or its equivalent.

 

(5)                                  The Reinsurer and the Company agree that the
assets in the trust account established pursuant to this provision of this
Agreement may be withdrawn by the

 

6

 

Company at any time, notwithstanding any other
provisions in this Agreement, and shall be utilized and applied by the Company
or its successors in interest by operation of law, including without limitation
any liquidator, rehabilitator, receiver or conservator of the Company, without
diminution because of insolvency on the part of the Company or the Reinsurer or
the inability of the Company to pay all or any part of a claim, only for the
following purposes:

 

(a)          to reimburse the Company for the Reinsurer’s share of premiums returned
to the owner of the Group Contract on account of the cancellation of the Group
Contract;

 

(b)         to reimburse the Company for the Reinsurer’s share of Loss Settlements
paid by the Company pursuant to the provisions of the Group Contract;

 

(c)          to fund an account with the Company in an amount at least equal to the
deduction, for reinsurance ceded, from the Company’s liabilities for the Group
Contract ceded under this Agreement; such amount shall include, but not be
limited to, amounts for policy reserves, claims and losses incurred, and
unearned premium reserves; and

 

(d)         to pay any other amounts the Company claims are due under this
Agreement (including, without limitation, Should Pay Benefits, Annual Expense
Allowance and Profit Share Amounts).

 

(e)          to reestablish the Deposit.

 

(6)                                  The Reinsurer has the right to seek approval
from the Company to withdraw from the aforementioned trust account all or any
part of the assets contained therein and transfer such assets to the Reinsurer,
provided that:

 

(a)          the Reinsurer shall, at the time of such withdrawal, replace the
withdrawn assets with other qualified assets having a market value at least
equal to the market value of the assets withdrawn so as to maintain at all
times the deposit in the required amount; or

 

(b)         after such withdrawal and transfer, the market value of the trust
account is not less than 102 percent of the required amount (i.e., the Combined
Reserves).

 

The Company shall be the sole judge as to the
application of this provision, but shall not unreasonably or arbitrarily
withhold its approval.

 

(7)                                  The Company shall return any amount withdrawn
in excess of the actual amounts required for in paragraphs (5)(a), (b) and (c)
above, or in the case of paragraph (5)(d), any amounts that are subsequently
determined not to be due.

 

7

 

(8)                                  The Company shall credit quarterly to the
Reinsurer interest on the amounts drawn
from the Trust Account and held pursuant to paragraph (5)(c) above at the prime
rate of interest as reported in the Federal Reserve Bulletin.

 

If the Reinsurer delivers a Letter of Credit
pursuant to this Agreement, such Letter of Credit may be drawn upon at any
time, notwithstanding any other provisions in this Agreement, and shall be
utilized by the Company or its successors in interest only for one or more of
the following:

 

(a)          to reimburse the Company for the Reinsurer’s share of premiums returned
to the owner of the Group Contract on account of the cancellation of the Group
Contract;

 

(b)         to reimburse the Company for the Reinsurer’s share of Loss Settlements
paid by the Company pursuant to the provisions of the Group Contract;

 

(c)          to fund an account with the Company in an amount at least equal to the
deduction, for reinsurance ceded, from the Company’s liabilities for the Group
Contract ceded under this Agreement; such amount shall include, but not be
limited to, amounts for policy reserves, claims and losses incurred, and
unearned premium reserves; and

 

(d)         to pay any other amounts the Company claims are due under this
Agreement (including, without limitation, Should Pay Benefits, Annual Expense
Allowance and Profit Share Amounts).

 

(e)          to reestablish the Deposit.

 

All of the foregoing shall be applicable without
diminution because of insolvency on the part of the Company or the Reinsurer.
The Company shall credit to the Reinsurer quarterly interest on the amounts
drawn from the Letter of Credit and held pursuant to paragraph (c) above at the
prime rate of interest as reported in the Federal Reserve Bulletin.

 

On the earlier to occur of the Expiration Date and
the Termination Date, the Company shall return to the Reinsurer the balance of
any Deposit, allow the Reinsurer to withdraw the balance of any Trust Account
and/or deliver to the Reinsurer any Letters of Credit and consent to the
cancellation thereof.

 

8

 

ARTICLE 7

 

LOSS SETTLEMENTS

 

All Loss Settlements that are paid by the Company
within the terms, conditions and limitations of the Group Contract shall be
unconditionally binding upon the Reinsurer.

 

Subject to the immediately succeeding paragraph, the
Reinsurer shall pay to the Company, no later than the Loss Settlement Payment
Date occurring in each calendar quarter, the Loss Settlement amount due and
payable hereunder with respect to the preceding calendar quarter as reported in
the Quarterly Loss Settlement Report delivered during such quarter, together
with interest thereon credited at the Deposit Crediting Rate for the period, if
any, from and including such Loss Settlement Payment Date to but excluding the
date of payment; provided, however, if the Reinsurer has provided a Deposit or
Trust Account pursuant to Article 6 hereof, the Company shall, on such Loss
Settlement Payment Date, to the extent sufficient funds are available therefor,
reduce the Deposit by, or withdraw from the Trust Account, as applicable, an  amount equal to the Loss Settlement
amount due and payable hereunder on such Loss Settlement Payment Date.

 

In the event the Reinsurer notifies the Company,
prior to the Loss Settlement Payment Date occurring in any calendar quarter, of
the Reinsurer’s good faith belief that the Loss Settlement amount reported in
the Quarterly Loss Settlement Report delivered during such calendar quarter is
inaccurate, (i) the Reinsurer shall promptly inform the Company that all or a
portion of such Loss Settlement amount is in dispute, (ii) the Company shall
promptly commence the procedures set forth in the Group Contract for resolving
inaccuracies in Line 6 Amounts and (iii) the Reinsurer may either (A) delay
payment of the disputed portion of such Loss Settlement amount (the “Disputed
Portion”) until such time as the Loss Settlement amount is (x) determined to be
the Loss Settlement amount reported in such Quarterly Loss Settlement Report,
in which case the Reinsurer will promptly pay the Disputed Portion with
interest thereon from and including the Loss Settlement Payment Date applicable
to such calendar quarter to but excluding the date the Disputed Portion is
actually paid at a rate equal to the Deposit Crediting Rate (the Disputed Portion
plus such interest being referred to herein as the “True-up Amount” and the
date of such payment being referred to herein as the “True-up Date”), (y)
determined to be the undisputed portion of the Loss Settlement amount reported
in the Quarterly Loss Settlement Report, in which case the Company will deliver
a revised Quarterly Loss Settlement Report setting forth the corrected Loss
Settlement amount and no further payments will be owed in respect of such
Quarterly Loss Settlement Report or (z) determined to be an amount other than
the Loss Settlement amount reported in the Quarterly Loss Settlement Report or
the undisputed portion of such Loss Settlement amount, in which case the
Company will deliver a revised Quarterly Loss Settlement Report setting forth
the corrected Loss Settlement amount and appropriate payments (including
interest at the Deposit Crediting Rate) will be made to put the parties in the
position they would have been in had the corrected Loss Settlement amount been
the Loss Settlement amount reported in the Quarterly Loss Settlement Report,
taking into account the Reinsurer’s prior payment of the undisputed portion of
the Loss Settlement amount (such payments constituting True-up Amounts if paid
by the Reinsurer and Refund Amounts (as defined below) if paid by the Company)
or (B) make payment of the Loss

 

9

 

Settlement amount and (x) if the Loss Settlement
amount is determined to be the Loss Settlement amount reported in the Quarterly
Loss Settlement Report, no further payments will be owed in respect of such
Quarterly Loss Settlement Report or (y) if the Loss Settlement amount is
determined to be an amount less than the Loss Settlement amount reported in the
Quarterly Loss Settlement Report, the Company will deliver a revised Quarterly
Loss Settlement Report for such calendar quarter setting forth the corrected
Loss Settlement amount and will pay to the Reinsurer an amount equal to the
difference between the original Loss Settlement amount and the corrected Loss
Settlement amount, with interest on such amount from and including the Loss
Settlement Payment Date applicable to such calendar quarter to but excluding
the date such amount is paid by the Company at a rate equal to the Deposit
Crediting Rate (such amount being referred to herein as the “Refund Amount” and
the date of such payment being referred to herein as the “Refund Date”).

 

In the event the Reinsurer notifies the Company,
following the Loss Settlement Payment Date occurring in any calendar quarter,
of the Reinsurer’s good faith belief that the Loss Settlement amount reported
in the Quarterly Loss Settlement Report delivered during such calendar quarter
was inaccurate, (i) the Company shall promptly commence the procedures set forth
in the Group Contract for resolving inaccuracies in Line 6 Amounts and (ii) if
the Loss Settlement amount is determined to be an amount less than the Loss
Settlement amount reported in such Quarterly Loss Settlement Report, the
Company will deliver a revised Quarterly Loss Settlement Report for such
calendar quarter setting forth the corrected Loss Settlement amount and will
pay to the Reinsurer an amount equal to the difference between the original
Loss Settlement amount and the corrected Loss Settlement amount, with interest
on such amount from and including the Loss Settlement Payment Date applicable
to such calendar quarter to but excluding the date such amount is paid by the
Company at a rate equal to the Deposit Crediting Rate (such payment constituting
a Refund Amount).

 

The Company and the Reinsurer will deliver copies of
all notices and reports delivered by it pursuant to this Article to any
retrocessionaire of the Reinsurer designated in writing to the Company.

 

ARTICLE 8

 

REPORTS AND REMITTANCES

 

1.               Each calendar quarter, within three business
days after the Company’s receipt of a Benefits Paid Report from the Contract
Holder, the Company shall furnish to the Reinsurer and to any retrocessionaire
of the Reinsurer designated in writing to the Company by the Reinsurer (a) a
copy of such Benefits Paid Report and (b) a report in substantially the form of
Schedule 1 hereto (the “Quarterly Loss Settlement Report”) which shall include
the Loss Settlements payable by the Company under the Group

 

10

 

Contract during such
calendar quarter.  The Quarterly Loss
Settlement Report shall also set forth the Loss Settlement Payment Date for
such calendar quarter.

 

2.               Within 45 days, or as reasonably practicable
thereafter, after the close of each calendar quarter, the Company shall furnish
to the Reinsurer and to any retrocessionaire of the Reinsurer designated in
writing to the Company by the Reinsurer a report in substantially the form of
Schedule II hereto (the “Quarterly Reserve Report”) which shall include the
following information:

 

(a)          Statutory Reserves and Return Premium Reserves at the end of such
calendar quarter;

 

(b)         Base Rate applicable to such calendar quarter;

 

(c)          withdrawals from and deposits to funds withheld during such calendar
quarter, and the balance of the Deposit at the end of such calendar quarter;
and

 

(d)         copies of any other reports that the Reinsurer may reasonably request
in order to properly monitor the Group Contract.

 

3.               All amounts due and payable under this
Agreement to the Reinsurer shall be remitted directly to the bank account
designated for that purpose by the Reinsurer, and all amounts due and payable
under this Agreement to the Company shall be remitted directly to the bank
account designated for that purpose by the Company.

 

ARTICLE 9

 

REINSURANCE PREMIUM

 

A premium of $77,777,778 (the “Reinsurance Premium”)
shall be payable by the Company to the Reinsurer on April 17, 1998. The
Reinsurance Premium, net of the federal excise tax allowed by the Reinsurer
hereunder, is referred to herein as the “Net Reinsurance Premium.”

 

ARTICLE 10

 

RESERVES

 

Combined Reserves shall be reasonably determined by
the Company; provided, however, the Reinsurer will have right to require that
an independent actuary mutually agreeable to the Company and the Reinsurer
determine the Combined Reserves if the Reinsurer deems that the Combined
Reserves determined by the Company are unreasonable. The cost of

 

11

 

any such independent actuary up to and including
$25,000 shall be borne by the Company, and the cost of any such independent
actuary in excess of $25,000 shall be borne equally by the Reinsurer and the
Company.

 

GAAP Reserves shall be reasonably determined by the
Reinsurer.

 

ARTICLE 11

 

EXPENSE ALLOWANCE

 

An annual expense allowance (the “Annual Expense
Allowance”) in the amount of $15,000 shall be payable by the Reinsurer to the
Company annually in advance (i) no later than 25 days following the Effective
Date and (ii) on each anniversary of the Effective Date during the Term (each,
an “Annual Expense Allowance Date”); provided, however, the amount of the
Annual Expense Allowance shall be adjusted on the fifth anniversary of the
Effective Date and every five years thereafter to reflect the cumulative change
in the consumer price index, as reasonably determined by the Company based on
data published by The Bureau of Labor Statistics, during such five-year period.

 

ARTICLE 12

 

TAXES

 

The Company will pay all taxes on premiums reported
to the Reinsurer hereunder. The Reinsurer agrees to allow for the purpose of
paying the federal excise tax one percent of the Reinsurance Premium to the
extent the Reinsurance Premium is subject to the federal excise tax. In the event
any Profit Share Amounts become due hereunder, the Reinsurer will deduct the
aforesaid percentage from the Profit Share Amounts payable hereunder, and the
Company or its agent shall be responsible for recovering the tax from the
United States Government.

 

ARTICLE 13

 

PROFIT SHARE ACCOUNT;
PAYMENT OF PROFIT SHARE AMOUNT

 

A notional profit share account (the “Profit Share
Account”) shall be calculated by the Reinsurer as described below as of the end
of each calendar quarter throughout the Term.

 

An amount equal to the Net Reinsurance Premium shall
be credited to the Profit Share Account as of April 17, 1998. Thereafter, the
balance of the Profit Share Account (the “Profit Share Account Balance”) shall
be equal to (i) at the close of business on the last day of the first calendar
quarter following the Effective Date (i,e., June 30, 1998), an amount equal to
the Net Reinsurance Premium plus interest credited at the Base Rate on

 

12

 

the average daily balance of the Profit Share
Account during such calendar quarter and (ii) at the close of business on the
last day of each subsequent calendar quarter, the Profit Share Account Balance
at the close of business on the last day of the previous calendar quarter plus
interest credited at the Base Rate on the average daily balance of the Profit
Share Account during such calendar quarter minus Loss Settlements paid by the
Reinsurer during such calendar quarter minus True-up Amounts paid by the
Reinsurer during such calendar quarter minus 133-1/3% of any Profit Share
Amount paid by the Reinsurer during such calendar quarter plus Refund Amounts
paid by the Company during such calendar quarter. For purposes of calculating
the interest referred to in the preceding sentence: (i) Loss Settlements shall
be debited from the Profit Share Account on the applicable Loss Settlement
Payment Date; (ii) True-up Amounts shall be debited from the Profit Share
Account on the applicable True-up Date; (iii) 133-1/3% of the Profit Share
Amount shall be debited from the Profit Share Account on the applicable Profit
Share Date; (iv) Refund Amounts shall be credited to the Profit Share Account
on the applicable Refund Date and (iii) interest shall be credited to the
Profit Share Account on the last day of each calendar quarter.

 

Within 90 days of each Profit Share Date, the
Reinsurer shall pay to the Company an amount (the “Profit Share Amount”) equal
to (i) 75% x (the Profit Share Account Balance at such Profit Share Date minus
the Profit Share Account Reserves at such Profit Share Date minus the
Margin at such Profit Share Date) minus (ii) Unreimbursed Should Pay
Benefits paid by the Reinsurer since the immediately preceding Profit Share
Date.

 

ARTICLE 14

 

FOLLOW THE FORTUNES;
AMENDMENT OF

GROUP CONTRACT AND INDEMNIFICATION AGREEMENT

 

The liability of the Reinsurer shall be subject to
all the terms, conditions and limitations of the Group Contract as in effect on
the Effective Date or as thereafter amended in accordance with the terms
hereof, it being the intention that the Reinsurer shall, in every respect,
follow the fortunes of the Company as if it had been a party to the Group
Contract.

 

The Company shall not amend or alter the Group
Contract or the Indemnification Agreement in any way without the prior written
consent of the Reinsurer. The Company shall not waive any of its rights under
the Indemnification Agreement without the prior written consent of the
Reinsurer.

 

13

 

ARTICLE 15

 

RIGHT OF OFFSET

 

The Company and the Reinsurer may offset any balance
or amount due from one party to the other under this Agreement or under any
other Agreement which may cancel and replace this Agreement.  For the avoidance of doubt, application of
the offset will not be deemed to constitute a diminution in the event or
insolvency.

 

ARTICLE 16

 

ERRORS AND OMISSIONS

 

Any inadvertent act, delay, omission or error by the
Company or the Reinsurer shall not relieve either party of any liability under
this Agreement, provided that such act, delay, omission, or error is rectified
as soon as possible after discovery.

 

ARTICLE 17

 

CURRENCY

 

All amounts in this Agreement are expressed in
United States Dollars and all payments shall be made in such currency.

 

ARTICLE 18

 

GOVERNING LAW

 

This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
its conflicts of laws doctrine.

 

ARTICLE 19

 

ARBITRATION

 

Any dispute, controversy or claim arising out of or
relating to this Agreement or the breach, termination or invalidity thereof
shall be submitted to arbitration to be conducted in New York City, pursuant to
the following procedures and the then-current Commercial Rules of the American
Arbitration Association (to the extent such rules are not inconsistent with the
following procedures). The board of arbitration shall be composed of two
arbiters and an umpire, who shall be active or retired disinterested officials
of insurance or reinsurance companies; provided, no arbiter or umpire may be a
present or former officer, director, employee, attorney or consultant of either
party or its affiliates.

 

14

 

To initiate arbitration, a party (the “Claimant”)
shall notify the other party (the “Respondent”) in writing of its desire to
arbitrate, stating the nature of its dispute, the remedy sought and the
identity of its chosen arbiter, and shall request that the Respondent appoint
and identify its own arbiter.  After
each party appoints its arbiter, the two arbiters shall choose an umpire before
instituting the hearing.  If the
Respondent fails to appoint its arbiter within four weeks after being requested
to do so by the Claimant, the latter shall also appoint the second arbiter. If
the two arbiters fail to agree on the appointment of an umpire within four
weeks after the nomination of the Respondent’s arbiter, the umpire shall be
chosen by the President of the American Arbitration Association (or his
designee) and shall be a person meeting the qualifications set forth above.

 

The Claimant shall submit its initial brief within
20 days from the employment of the umpire. The Respondent shall submit its
brief within 20 days thereafter, and the Claimant may submit a reply brief
within 10 days after the filing of the Respondent’s brief. The board shall make
its decision with regard to the customary usage of the insurance and
reinsurance business. The board is released from all judicial formalities and
may abstain from the strict rules of the law, interpreting this Agreement as an
honorable undertaking, rather than merely a legal obligation. The board shall
make its decision, describing its reasons therefor in writing, within 30 days
following the termination of the hearings, unless the parties consent to an
extension. A majority decision of the board shall be final and binding upon the
parties to the proceedings. The judgment upon the award entered by the arbiters
may be entered in any court of proper jurisdiction and may be enforced in any
such court. The board may alter the time periods contained in this Article for
good cause.

 

Each party shall bear the expense of its own arbiter
and shall jointly and equally bear with the other party the expense of the
umpire.  The remaining costs of the arbitration
proceedings, if any, shall be allocated by the board.

 

The procedures specified in this Article shall be
the sole and exclusive procedures for the resolution of irreconcilable disputes
between the parties arising out of or relating to this Agreement; provided,
however, that a party may seek a preliminary injunction or other preliminary
judicial relief if, in its judgment, such action is necessary to avoid
irreparable damage.  Despite such
action, the parties will continue to participate in good faith in the
procedures specified in this Article. 
All applicable statutes of limitation shall be tolled while the
procedures specified in this Article are pending. The parties will take such
action, if any, required to effectuate such tolling.

 

This Article shall survive the termination of this
Agreement.

 

15

 

ARTICLE 20

 

INSOLVENCY

 

In the event of the receivership of the Company, the
amounts owing by the Reinsurer under this Agreement shall be payable by the Reinsurer
directly to the receiver, after reasonable provision for verification, on the
basis of claims allowed against the Company by any court of competent
jurisdiction having authority to allow such claims or allowed by the receiver
as a result of the conclusion of the claim filing, approval and appeal process
before the receiver. Notwithstanding anything herein to the contrary, payment
shall be made without diminution because of such insolvency or because the
receiver has failed to pay all or a portion of any claims. The receiver shall
give or arrange to give to the Reinsurer written notice of the pendency of a
claim against the Company within a reasonable period of time after the
initiation of the receivership. Failure to give such notice shall not excuse
the obligation of the Reinsurer unless it is substantially prejudiced thereby.
The Reinsurer may interpose, at its own expense, in the proceeding where such
claim is to be adjudicated, any defense or defenses which it may deem available
to the Company or the receiver. The reasonable expense thus incurred by the
Reinsurer shall be payable, subject to court approval, out of the estate of the
Company as part of the expense of the receivership 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. Payments by the Reinsurer
shall be made directly to the receiver of the Company except where the
Agreement specifically provides another payee of such reinsurance in the event
of insolvency of the Company.

 

ARTICLE 21

 

RIGHT OF INSPECTION

 

1.               The Reinsurer or its duly appointed
representatives and any retrocessionaire of the Reinsurer or its duly appointed
representatives may at any time during normal office hours have free access to
and may take copies of all relevant records and papers of the Company or its
agents which relate to the Group Contract. It is agreed that such rights of
inspection shall continue until all obligations under this Agreement have been
discharged.

 

2.               The Company shall procure equivalent rights
of inspection, including the right to take copies, of the records of the
Contract Holder in respect of the Group Contract as those detailed in paragraph
1 above together with the irrevocable consent of the Contract Holder to
disclose such records to the Reinsurer or its duly appointed representatives.

 

3.               Upon the request of the Reinsurer, the
Company shall exercise its rights of audit under the Group Contract.

 

16

 

ARTICLE 22

 

AMENDMENTS AND ALTERATIONS

 

This Agreement may be changed, altered or amended as
the parties may agree, provided such change, alteration or amendment is
evidenced in writing or by endorsement executed by the Company and the
Reinsurer.

 

17

 

ARTICLE 23

 

ASSIGNMENT

 

Neither party may assign or transfer any rights,
interests or obligations under this Agreement to any person or entity without
the written consent of the other party, and any effort to so assign or transfer
such rights, interests or obligations without the consent of the other party
shall be null and void.

 

ARTICLE 24

 

NO THIRD PARTY RIGHTS

 

This Agreement is solely between the Company and the
Reinsurer, and in no instance shall any other party have any rights under this
Agreement.

 

ARTICLE 25

 

NO IMPLIED WAIVER

 

The failure of any party to enforce any of the
provisions herein shall not be construed to be a waiver of the right of such
party to enforce any such provision.

 

ARTICLE 26

 

NOTICES

 

Any notice in writing to be given pursuant to this
Agreement shall be by facsimile, letter (registered mail if sent by post), or
internationally recognized courier.

 

Any such notice will take effect, in the case of a
facsimile, at the time of receipt, and in the case of a letter sent by post or
courier, at the time of delivery. Any notice not by letter shall be confirmed
by letter but the failure to send or receive such letter will not invalidate
the original communication.

 

The address and contact details for each of the
Company and the Reinsurer are as follows:

 

18

 

The Company:

 

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

290 West Mt. Pleasant Avenue

Livingston, NJ 07039-2729

Attn: Vice President & Controller, Group Life
& Disability

Telephone: 973-548-6340

Fax: 973-548-6304

 

with a copy to:

 

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

290 West Mt. Pleasant Avenue

Livingston, NJ 07039-2729

Attn: Chief Legal Officer, Group Life and Disability

Telephone: 973-548-6580

Fax: 973-548-6575

 

The Reinsurer:

 

For purposes of Article 8 reports:

 

A.C.E. INSURANCE COMPANY, LTD.

P.O. Box HM 1015

Hamilton HM DX

Bermuda

Attn: Claims Department

Telephone: 441-295-5200

Fax: 441-292-2456

 

For all other purposes:

 

A.C.E. INSURANCE COMPANY, LTD.

P.O. Box HM 1015

Hamilton HM DX

Bermuda

Attn: Financial Lines Underwriting Department

Telephone: 441-295-5200

Fax: 441-292-8677

 

Each party shall promptly notify the other party any
change in its address or contact details.

 

19

 

ARTICLE 27

 

RELATED PERSON INSURANCE
INCOME

 

The Company represents that (i) it does not own,
directly or indirectly, any shares of ACE Limited, (ii) no person that controls
the Company through direct or indirect ownership of 50% or more (by vote or
value) of the capital stock of the Company (a “Controlling Person”) owns any
shares of ACE Limited and (iii) no person that is controlled by the Company
through direct or indirect ownership of 50% or more (by vote or value) of that
person (a “Controlled Person”) owns any shares of ACE Limited.

 

The Company agrees that, during the Term, it will
not purchase, and it will not permit any Controlled Person to purchase, any
shares of ACE Limited.

 

20

 

SIGNING SCHEDULE

 

Attaching to and forming part of this Agreement

 

 

In witness whereof this Agreement is signed on
behalf of

 

 

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  

 

 

A.C.E. INSURANCE COMPANY, LTD.

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  

 

21

 

REINSURANCE
AGREEMENT

 

between

 

THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA

 

and

 

A.C.E.
INSURANCE COMPANY, LTD.

 

 

TABLE OF
CONTENTS

 

	
  ARTICLE 1

  	
   

  	
  REINSURANCE COVERAGE

  
	
  ARTICLE 2

  	
   

  	
  SHOULD PAY BENEFIT COVERAGE

  
	
  ARTICLE 3

  	
   

  	
  DEFINITIONS

  
	
  ARTICLE 4

  	
   

  	
  TERM AND TERMINATION

  
	
  ARTICLE 5

  	
   

  	
  [INTENTIONALLY LEFT BLANK]

  
	
  ARTICLE 6

  	
   

  	
  STATUTORY FINANCIAL CREDIT

  
	
  ARTICLE 7

  	
   

  	
  LOSS SETTLEMENTS

  
	
  ARTICLE 8

  	
   

  	
  REPORTS AND REMITTANCES

  
	
  ARTICLE 8

  	
   

  	
  REINSURANCE PREMIUM

  
	
  ARTICLE 10

  	
   

  	
  RESERVES

  
	
  ARTICLE 11

  	
   

  	
  EXPENSE ALLOWANCE

  
	
  ARTICLE 12

  	
   

  	
  TAXES

  
	
  ARTICLE 13

  	
   

  	
  PROFIT SHARE ACCOUNT; PAYMENT OF PROFIT SHARE AMOUNT

  
	
  ARTICLE 14

  	
   

  	
  FOLLOW THE FORTUNES; AMENDMENT OF GROUP CONTRACT AND INDEMNIFICATION
  AGREEMENT

  
	
  ARTICLE 15

  	
   

  	
  RIGHT OF OFFSET

  
	
  ARTICLE 16

  	
   

  	
  ERRORS AND OMISSIONS

  
	
  ARTICLE 17

  	
   

  	
  CURRENCY

  
	
  ARTICLE 18

  	
   

  	
  GOVERNING LAW

  
	
  ARTICLE 19

  	
   

  	
  ARBITRATION

  
	
  ARTICLE 20

  	
   

  	
  INSOLVENCY

  
	
  ARTICLE 21

  	
   

  	
  RIGHT OF INSPECTION

  
	
  ARTICLE 22

  	
   

  	
  AMENDMENTS AND ALTERATIONS

  
	
  ARTICLE 23

  	
   

  	
  ASSIGNMENT

  
	
  ARTICLE 24

  	
   

  	
  NO THIRD PARTY RIGHTS

  
	
  ARTICLE 25

  	
   

  	
  NO IMPLIED WAIVER

  
	
  ARTICLE 26

  	
   

  	
  NOTICES

  
	
  ARTICLE 27

  	
   

  	
  RELATED PERSON INSURANCE INCOME  

  
	
  SIGNING SCHEDULE

  
	
  ANNEX A

  	
   

  	
  GROUP
  CONTRACT NO. SG-93191

  
	
  ANNEX B

  	
   

  	
  INDEMNIFICATION
  AGREEMENT

  
	
  SCHEDULE I

  	
   

  	
  FORM OF QUARTERLY LOSS SETTLEMENT REPORT

  
	
  SCHEDULE II

  	
   

  	
  FORM OF QUARTERLY RESERVE REPORT

  

 

 

ANNEX A

 

 

[GROUP CONTRACT NO.
SG-93191-VA]

 

 

ANNEX B

 

[INDEMNIFICATION
AGREEMENT]

 

 

SCHEDULE I

 

QUARTERLY
LOSS SETTLEMENT REPORT

 

FOR
THE      QUARTER      

 

Date of Delivery of this Report:                               /      /      

Loss Settlement Payment Date:                                /      /      

 

	
  PART I: AMOUNT DUE THE CONTRACT HOLDER

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Covered Benefits Due Contract Holder

  (from Benefits Paid Report, Part A, line 6)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (attached completed Benefits Paid Report)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PART II:  AMOUNTS DUE THE
  COMPANY

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  Should Pay Benefits

  	
   

  	
   

  	
   

  
	
   

  	
  a.

  	
  Should Pay Benefits paid, current quarter

  	
   

  	
  $

  	
   

  
	
   

  	
  b.

  	
  Amount of a.
  in excess of $100,000 for this Contract Year

  	
   

  	
  $

  	
   

  
	
   

  	
  c.

  	
  Amount remaining of $250,000 aggregate limit

  	
   

  	
  $

  	
   

  
	
   

  	
  d.

  	
  Amount due Company, before offset (lesser of (b) & (c))

  	
   

  	
  $

  	
   

  
	
   

  	
  e.

  	
  Amount of a.,
  if any, included in Part I above

  	
   

  	
  $

  	
   

  
	
   

  	
  f.

  	
  Net Liability (Asset) for Should Pay Benefits (d) – (e)

  	
   

  	
  $

  	
   

  
	
   

  	
  g.

  	
  New Amount Remaining of $250,000 limit (c) – (d)

  	
   

  	
  $

  	
   

  
	
   

  	
  h.

  	
  Amount due from Columbia Energy Group (“CEG”) to Company

  	
   

  	
  $

  	
   

  
	
   

  	
  i.

  	
  Amount of h.
  not paid by CEG due to insolvency of CEG

  	
   

  	
  $

  	
   

  
	
   

  	
  j.

  	
  Total Liability (Asset) for Should Pay Benefits (f) + (i)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  Mandated Benefits

  	
   

  	
   

  	
   

  
	
   

  	
  a.

  	
  Amount due from CEG to the Company

  	
   

  	
  $

  	
   

  
	
   

  	
  b.

  	
  Amount not paid by CEG due to insolvency of CEG

  	
   

  	
  $

  	
   

  
	
   

  	
  c.

  	
  Amount of a.,
  if any, included in Part I above

  	
   

  	
  $

  	
   

  
	
   

  	
  d.

  	
  Total Liability (Asset) for Mandated Benefits (b) (c)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  True-Up (Refund) Amounts due Company (Reinsurer)

  	
   

  	
  $

  	
   

  
	
  3.

  	
  Expense Allowance (if contract anniversary)

  	
   

  	
  $

  	
   

  
	
  4,

  	
  Fees and Expenses of Impartial Party

  	
   

  	
  $

  	
   

  
	
  5.

  	
  Amount Due the Company(I+II.1(j)+II.2(d)+II.3+II.4+II.5)

  	
   

  	
  $

  	
   

  
	
  6.

  	
  Per diem interest at Deposit Crediting Rate

  	
   

  	
  $

  	
   

  

 

 

SCHEDULE II

 

QUARTERLY
RESERVE REPORT

 

FOR THE
     QUARTER       

 

	
  1.

  	
   

  	
  Statutory Reserves (exc. Return Premium
  Reserves)

  	
   

  	
  $

  	
   

  
	
  2.

  	
   

  	
  Return Premium Reserves

  	
   

  	
  $

  	
   

  
	
  3.

  	
   

  	
  Combined Reserves (1+2)

  	
   

  	
  $

  	
   

  
	
  4.

  	
   

  	
  Base Rate

  	
   

  	
   

  	
  %

  
	
  5.

  	
   

  	
  Withdrawal from (deposit to) Funds Withheld

  	
   

  	
  $

  	
   

  
	
  6.

  	
   

  	
  Funds Withheld, end of quarter

  	
   

  	
  $

  	
   

  
	
  7.

  	
   

  	
  Trust Account, end of quarter

  	
   

  	
  $

  	
   

  
	
  8.

  	
   

  	
  Letters of Credit, end of quarter

  	
   

  	
  $

  	
   

  
	
  9.

  	
   

  	
  Profit Share Account, end of quarter

  	
   

  	
  $

  	
   

  

 

 

FIRST
AMENDMENT

 

This First Amendment to Reinsurance Agreement
(this “Amendment”), dated as of January 1, 2000, is entered into between The
Prudential Insurance Company of America (hereinafter the “Company”) and ACE
Capital Re Overseas Ltd. (formerly, KRE Reinsurance Ltd.)  (hereinafter the “Reinsurer”) with respect
to the Reinsurance Agreement (as defined below).

 

WHEREAS, the Company and ACE Bermuda
Insurance Ltd. (formerly, A.C.E. Insurance Company, Ltd.) (the “Original
Reinsurer”) entered into a Reinsurance Agreement dated as of March 31, 1998
(the “Reinsurance Agreement”); and

 

WHEREAS, pursuant to an Assignment Agreement among
the Company, the Reinsurer and the Original Reinsurer effective as of the date
hereof, the Reinsurer has assumed all of the rights and obligations of the
Original Reinsurer under the Reinsurance Agreement;

 

WHEREAS, the Company and the Reinsurer desire
to amend the Reinsurance Agreement as set forth below.

 

NOW, THEREFORE, the parties agree as follows:

 

1.               Effective as of
March 31, 1998, clause (iv) of Article 6 of the Reinsurance Agreement shall be
amended by deleting the words which are struck out below:

 

“(iv)
decreased on each Profit Share Date by an amount equal to the 133 1/3% of the
Profit Share Amount (as defined below) that is due to be paid by the Reinsurer
to the Company on such day to the extent such Profit Share Amount is not paid
directly by the Reinsurer on or before such Profit Share Date;”

 

2.               Effective as of
September 30, 1999, Article 13 of the Reinsurance Agreement shall be amended by
deleting the last paragraph thereof and substituting in lieu thereof the
following:

 

Within 90 days
of each Profit Share Date, the Reinsurer shall calculate an amount (the “Profit
Share Amount”) equal to (i) 75% x (the Profit Share Account Balance at such
Profit Share Date minus the Profit Share Account Reserves at such Profit
Share Date minus the Margin at such Profit Share Date) minus (ii)
Unreimbursed Should Pay Benefits paid by the Reinsurer since the immediately
preceding Profit Share Date. For the avoidance of doubt, the Profit Share
Amount may be a negative amount.

 

Within 90 days
of each Profit Share Date, the Reinsurer shall pay to the Company an amount
(the “Combined Profit Share Amount”) equal to the sum of the Profit Share
Amount and the Profit Share Amount under and as defined in the Quota Share
Reinsurance Agreement dated as of September 30, 1999 entered into by and
between the Company and ACE Capital Re Overseas Ltd.

 

 

3.               Effective as of September 30, 1999, Article
12 of the Reinsurance Agreement shall be amended by changing each reference
therein to “Profit Share Amount” to “Combined Profit Share Amount”.

 

4.               Effective as of January 1, 2000, the
Reinsurance Agreement shall be amended by deleting Article 27 thereto and
adding the following new Article 27:

 

ARTICLE 27

 

DAC TAX ELECTION

 

The Company and the
Reinsurer hereby agree to the following pursuant to Section 1.848-2(g)(8) of
the Income Tax Regulations issued December 1992 (as amended, supplemented or
corrected and in effect as of the effective date of this Agreement, the
“Regulations”) under Section 848 of the Internal Revenue Code of 1986, as
amended (the “Code”). This election shall be effective for 2000 and for all
subsequent taxable years for which this Agreement remains in effect.

 

1.                                       The term “party” will refer to either the
Company or the Reinsurer, as appropriate.

 

2.                                       The terms used in this Article are defined by
reference to Section 1.848-2 of the Regulations.

 

3.                                       The party with the net positive consideration
for this Agreement for each taxable year will capitalize specified policy
acquisition expenses with respect to this Agreement without regard to the
general deductions limitation of Section 848(c)(l) of the Code.

 

4.                                       Both parties agree to exchange information
pertaining to the amount of net consideration under this Agreement each year to
ensure consistency or as otherwise required by the Internal Revenue Service.

 

5.                                       The Company will submit a schedule to the
Reinsurer by May 1 of each year of its calculation of the net consideration for
the preceding calendar year. This schedule of calculations will be accompanied
by a statement signed by an officer of the Company stating that the Company
will report such net consideration in its tax return for the preceding calendar
year.

 

6.                                       The Reinsurer may contest such calculation by
providing an alternative calculation to the Company in writing within 30 days
of the Reinsurer’s receipt of the Company’s calculation.  If the Reinsurer does not so notify the
Company, the Reinsurer will

 

2

 

report the net consideration
as determined by the Company in the Reinsurer’s tax return for the previous
calendar year.

 

7.                                       If the Reinsurer contests the Company’s
calculation of the net consideration, the parties will act in good faith to
reach an agreement as to the correct amount within thirty (30) days of the date
the Reinsurer submits its alternative calculation.  If the Company and the Reinsurer reach agreement on an amount of
net consideration, each party shall report such amount in their respective tax
returns for the previous calendar year.

 

8.                                       Both parties agree to make the election
contemplated by this Article 27 by timely attaching to their tax returns the
schedule required by Section 1.848-2(g)(8)(ii) of the Regulations.

 

5.               Effective as of January 1, 2000, the
Reinsurance Agreement shall be amended by adding an Article 28 thereto as
follows:

 

ARTICLE 28

 

SUBMISSION TO JURISDICTION

 

The Reinsurer hereby submits
to the jurisdiction of the board of arbitration described above and the courts
of the State of New York (for the purpose of enforcing the parties’ agreement
to arbitrate or to enforce an award of the board of arbitration) and agrees to
comply with all requirements necessary to give such board and such courts
jurisdiction over the Reinsurer. The Reinsurer hereby appoints as its agent for
service of process ACE Capital Re Inc., 1325 Avenue of the Americas, New York,
New York, 10019.

 

6.               Nothing herein contained shall be held to
vary, alter, waive or extend any of the terms, conditions, exclusions or
limitations of the Reinsurance Agreement and Annexes attached thereto except as
expressly stated herein.

 

3

 

7.               This Amendment may be executed in
counterparts, each of which will be deemed an original, but all of which taken
together will constitute one and the same instrument. All signatures of parties
to this Amendment may be transmitted by facsimile, and such facsimile will, for
all purposes, be deemed to be the original signature of such party whose
signature it reproduces and will be binding upon such party.

 

IN WITNESS WHEREOF, this Amendment has been executed
by the following individuals duly authorized to act on behalf of the parties.

 

 

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

 

 

	
   

  	
   

  
	
  By/Title:

  

 

 

ACE CAPITAL RE OVERSEAS LTD. (formerly, KRE Reinsurance
Ltd.)

 

 

	
   

  	
   

  
	
  By/Title:

  

 

4

 

Exhibit B

 

ASSIGNMENT AGREEMENT

 

This Assignment Agreement (“Assignment Agreement”), effective as at 12:01 A.M. Eastern
Standard Time on January 1, 2000 (“Effective
Date”), is made and entered into by and between ACE Bermuda
Insurance Ltd. (formerly, A.C.E. Insurance Company, Ltd.) (hereinafter “ACE”), The Prudential Reinsurance Company
of America (hereinafter “Prudential”) and
ACE Capital Re Overseas Ltd. (formerly, KRE Reinsurance Ltd.) (hereinafter “ACRO”) (ACE, Prudential and ACRO are
collectively referred to hereinafter as the “Parties”).

 

WITNESSETH:

 

WHEREAS, ACE (as the
reinsurer) and Prudential (as the reinsured) entered into a reinsurance
agreement dated as of March 31, 1998 (the “Reinsurance
Agreement”) a copy of which is attached hereto as Exhibit A, wherein
Prudential ceded to ACE and ACE assumed from Prudential certain liabilities of
Prudential under a medical care benefits stop loss policy issued by Prudential
to the Columbia Energy Group and certain of its subsidiaries; and

 

WHEREAS, ACE and ACRO
entered into an excess of loss retrocession agreement dated as of March 31,
1998 (the “EOL Agreement”),
wherein ACRO assumed substantially all of the liabilities of ACE under the
Reinsurance Agreement; and

 

WHEREAS, pursuant to a
Termination Agreement, dated as of the Effective Date hereof, ACE and ACRO have
agreed to terminate the EOL Agreement; and

 

WHEREAS, the Parties hereto
wish to substitute, with effect from the Effective Date, ACRO for ACE as the
reinsurer under the Reinsurance Agreement.

 

NOW, THEREFORE, in
consideration of the above stated premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, the Parties hereby agree as follows:

 

1.               By way of this Assignment Agreement, with
effect from the Effective Date, ACRO shall replace ACE for all purposes under
the Reinsurance Agreement as though it were the named reinsurer thereunder.

 

2.               As of the Effective Date, ACRO shall assume
all of the present and future liabilities and obligations of ACE under the
Reinsurance Agreement and shall be substituted for ACE, in ACE’s name, place
and stead, as the reinsurer thereon so as to effect an assignment of the Reinsurance
Agreement, and ACE shall be simultaneously released from any and all present
and future liabilities or obligations thereunder.

 

3.               As of the Effective Date, ACRO shall be
entitled to all of the rights of ACE under the Reinsurance Agreement, and shall
be entitled to enforce all such rights in the name, place and stead of ACE.

 

Columbia Assignment Agreement

Between ACR, Prudential and ACRO

 

1

 

4.               As of the Effective Date, Prudential shall be
entitled to and shall disregard ACE as a party to the Reinsurance Agreement and
shall be entitled to and shall treat ACRO as if it had been the named reinsurer
thereunder.

 

5.               As of the Effective Date, Prudential shall be
entitled to and shall file claims arising under the Reinsurance Agreement
directly with ACRO.

 

6.               In consideration for this Assignment
Agreement, all right, title and interest in the Deposit (as defined in the
Reinsurance Agreement) held by Prudential as security for payment of the
reinsurer’s obligations under the Reinsurance Agreement are assigned by ACE to
ACRO as of the Effective Date.

 

7.               ACRO agrees to indemnify, defend and hold
harmless ACE and its officers, employees and successors from, against, for and
in respect of any and all Losses which any of them may sustain on or after the
Effective Date based upon, arising out of or otherwise in respect of the
Reinsurance Agreement.  As used in this
section, “Losses” means any and all claims, counterclaims, losses, liabilities,
damages, judgments, deficiencies, costs or expenses (including, without
limitation, interest, penalties, fines, forfeitures, costs of investigation and
reasonable attorneys’ fees and related costs).

 

8.               This Assignment Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York,
without regard to its conflict of laws doctrine.

 

9.               Any dispute, controversy or claim arising out
of or relating to this Assignment Agreement shall be subject to arbitration in
accordance with the provisions of Article 19 of the Reinsurance Agreement.

 

10.         This Assignment Agreement shall not alter, amend or in any way limit
the terms and provisions of the Reinsurance Agreement except to the extent
stated herein.

 

2

 

11.         This Assignment Agreement may be executed in one or more 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 Assignment Agreement has
been executed by the following individuals duly authorized to act on behalf of
the parties;

 

 

	
  On Behalf of:

  	
  On
  Behalf of:

  
	
   

  	
   

  
	
  ACE Bermuda Insurance Ltd.

  	
  The Prudential Insurance Company of America

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Name:

  
	
   

  	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
  On Behalf of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ACE Capital Re Overseas Ltd.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
									

 

3

 

Exhibit A

 

[Reinsurance Agreement]

 

4

Exhibit C

 

QUOTA
SHARE REINSURANCE AGREEMENT

 

This Quota Share Reinsurance
Agreement (as the same may be amended from time to time in accordance with the
terms hereof, this “Agreement”) is made and entered into as of September 30,
1999 by and between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a mutual
insurance company organized under the laws of the State of New Jersey (the
“Company”), and ACE CAPITAL RE OVERSEAS LTD. (formerly, KRE Reinsurance Ltd.),
an insurance company organized under the laws of Bermuda (the “Reinsurer”).

 

ARTICLE
1

 

REINSURANCE COVERAGE

 

In consideration of the Reinsurance Premium
(as defined below) and subject to the terms, conditions and limitations
hereinafter set forth, the Reinsurer agrees to indemnify the Company for all
Loss Settlements (as defined below) paid by the Company to the Contract Holder
(as defined below) under group contract no. SG-93191-VA-2 (the “Group
Contract”), a copy of which is attached hereto as Annex A.

 

ARTICLE
2

 

SHOULD PAY BENEFIT COVERAGE

 

In consideration of the Reinsurance Premium
and subject to the terms, conditions and limitations hereinafter set forth, the
Reinsurer also agrees to indemnify the Company for all amounts paid by the
Company that are determined pursuant to the Indemnification Agreement (as
defined below) to be Should Pay Benefits (as defined in the Indemnification
Agreement), to the extent the aggregate amount of Should Pay Benefits exceeds
$100,000 per Contract Year (as defined in the Indemnification Agreement);
provided, however, that the Reinsurer’s liability under this Article 2 shall
not exceed $250,000 in the aggregate. In addition and notwithstanding the
preceding sentence, the Reinsurer shall indemnify the Company for Should Pay
Benefits payable by Columbia Energy Group pursuant to the Indemnification
Agreement if, and to the extent that, Columbia Energy Group fails to pay such
Should Pay Benefits by reason of the occurrence of the insolvency,
receivership, liquidation or reorganization of Columbia Energy Group (the
“Unreimbursed Should Pay Benefits”).

 

 

ARTICLE
3

 

DEFINITIONS

 

All words and phrases that have a capitalized
initial letter in this Agreement have a special meaning which is either
introduced in certain Articles, defined below or defined by reference to
certain other agreements and which shall include the plural as well as the
singular.

 

“Applicable Source” means the Wall Street
Journal, any successor publication thereto or any publication mutually
agreed to by the Company and the Reinsurer.

 

“Base Rate” means, for each calendar quarter
during the Term (as defined below), an effective annual rate determined in
accordance with the formula “D/(1-D)”, where “D” is expressed as a decimal and
is equal to the rate of discount for the Treasury Bill that matures closest to
the 90th day after the first calendar day of such quarter, as
reported under the “ask” column in the Applicable Source on the first business
day of such calendar quarter.

 

“Benefits Paid Report” means a report
prepared and delivered by the Contract Holder to the Company each calendar
quarter showing benefits paid by the Contract Holder under the Plan (as defined
in the Group Contract) during the preceding calendar quarter that are covered
under the Group Contract, which report shall be in substantially the form of
Exhibit F to the Group Contract.

 

“Combined Reserves” means the sum of
Statutory Reserves and Return Premium Reserves (as each such term is defined
below).

 

“Contract Holder” means Columbia Energy Group
Master Trust.

 

“Covered Benefits” means benefits payable to
the Contract Holder pursuant to the terms of the Group Contract.

 

“Deposit Crediting Rate” means the Base Rate
plus 60 basis points.

 

“Final Profit Share Date” means the last day
of the calendar quarter in which the number of Beneficiaries (as defined in the
Group Contract) falls below one.

 

“GAAP Reserves” means the policy and claim
and related liabilities established in accordance with generally accepted
accounting principles in the United States.

 

“Indemnification Agreement” means the
agreement dated as of September 30, 1999 between the Company and Columbia
Energy Group, as the same is in effect on the date hereof or as the same may be
modified in accordance with the terms hereof, a copy of which is attached
hereto as Annex B.

 

2

 

“Initial Cohort Reinsurance Agreement” means
the reinsurance agreement dated as of March 31, 1998 originally entered into by
and between the Company and ACE Bermuda Insurance Ltd., a copy of which is
attached hereto as Annex C-l, which reinsurance agreement was subsequently
assigned by ACE Bermuda Insurance Ltd. to the Reinsurer, a copy of the
assignment agreement effecting such assignment is attached hereto as Annex C-2,
as such reinsurance agreement is amended by the first amendment thereto dated
as of January 1, 2000, a copy of such amendment is attached hereto as Annex
C-3, and as such reinsurance agreement may be further amended or modified from
time to time.

 

“Indemnification Amounts” means amounts
payable by Columbia Energy Group to the Company in respect of Mandated Benefits
pursuant to the Indemnification Agreement, whether or not actually paid;
provided, however, that Indemnification Amounts shall not include
amounts payable by Columbia Energy Group to the Company in respect of Mandated
Benefits pursuant to the Indemnification Agreement that are not paid by reason
of the occurrence of the insolvency, receivership, liquidation or
reorganization of Columbia Energy Group.

 

“Letter of Credit” means a clean, irrevocable
and unconditional letter of credit in favor of the Company issued or confirmed
by a bank, and in a form, that complies with all applicable requirements for
financial statement credit of regulatory authorities having jurisdiction over
the Company.

 

“Loss Settlement” means Covered Benefits,
fees and expenses of the Impartial Party (as defined in the Group Contract) and
Mandated Benefits, in each case, paid by the Company less Indemnification
Amounts.

 

“Loss Settlement Payment Date” means, with
respect to any calendar quarter, the date on which the Company pays benefits
under the Group Contract to the Contract Holder, which date shall be no earlier
than three business days following the date of delivery of the Quarterly Loss
Settlement Report for such calendar quarter.

 

“Margin” means, as of any Profit Share Date
(as defined below), $4.5 million plus interest thereon from the Effective Date
(as defined below) to such Profit Share Date compounded quarterly on each March
31,  June 30, September 30 and December
31 at the Base Rate.

 

“Market Value Adjustment” means the amount of
money resulting from the application of the following formula:

 

Deposit
– (Deposit x (1 + i)(N/365))/((l + j)(N/365)), where

 

“i” is the Deposit Crediting Rate, “N” is the
number of days from the date of calculation of the Market Value Adjustment to
the end of the calendar quarter, and “j” is the effective annual rate of
interest on a Treasury Bill maturing at the end of the calendar quarter and
purchased on the date of calculation of the Market Value Adjustment.

 

3

 

“Profit Share Account Reserves” means the
greater of Statutory Reserves (as defined below) and GAAP Reserves.

 

“Profit Share Dates” has the meaning ascribed
thereto in the Initial Cohort Reinsurance Agreement.

 

“Return Premium Reserves” means the reserves
established by the Company in respect of the policyholder dividends payable
under the Group Contract.

 

“Statutory Reserves” means gross reserves
that satisfy the reserving requirements in all of the states in which the
Company is required to file an annual statement with respect to the business
underlying the Group Contract. For the avoidance of doubt, Statutory Reserves
shall not include reserves established by the Company in respect of the
policyholder dividends payable under the Group Contract.

 

ARTICLE
4

 

TERM AND TERMINATION

 

The term of this Agreement (the “Term”) shall
commence at 12:01 a.m., eastern standard time, on September 30, 1999 (the
“Effective Date”) and shall remain in force until the date that all obligations
under the Group Contract have been discharged (the “Expiration Date”), unless
earlier terminated in accordance with the following paragraph.

 

This Agreement may be terminated prior to the
Expiration Date only with the prior written consent of both the Company and the
Reinsurer, and the date of any such termination is referred to herein as the
“Termination Date.”

 

ARTICLE
5

 

[This Article is
intentionally left blank.]

 

 

ARTICLE
6

 

STATUTORY FINANCIAL CREDIT

 

The Reinsurer shall take all steps necessary
to ensure that the Company obtains full financial statement credit in all
applicable jurisdictions for the reinsurance ceded hereunder.

 

4

 

Where required by applicable law in order for
the Company to take financial statement credit for the reinsurance provided by
this Agreement, the Company shall be entitled to withhold from the Reinsurer,
as security for the payment of the latter’s obligations, an amount of funds
herein called the “Deposit.” The Company and the Reinsurer agree that the
Deposit will be in such form and held in such manner so as to allow the Company
to take financial statement credit for the reinsurance ceded hereunder and also
allow, if possible, the Reinsurer to treat the Deposit as an admitted asset in
accordance with applicable law.

 

The Company shall withhold from the Reinsurer
an amount equal to the Reinsurance Premium (as defined below), and the Deposit
shall initially be equal to the Reinsurance Premium. Thereafter, the Deposit
shall be (i) decreased on each Loss Settlement Payment Date by an amount equal
to the Loss Settlement amounts and Should Pay Benefits that are payable by the
Reinsurer to the Company on such Loss Settlement Payment Date to the extent
such Loss Settlement amounts and Should Pay Benefits are not paid directly by
the Reinsurer on or before such Loss Settlement Payment Date, (ii) decreased on
each True-up Date (as defined below) by the True-up Amount (as defined below)
payable by the Reinsurer to the Company on such True-up Date to the extent such
True-up Amount is not paid directly by the Reinsurer on or before such True-up
Date, (iii) increased on each Refund Date (as defined below) by the Refund
Amount payable by the Company to the Reinsurer on such Refund Date to the
extent such amounts are not paid directly to the Reinsurer on or before such
Refund Date, (iv) decreased on each Profit Share Date by an amount equal to the
Profit Share Amount (as defined below) that is due to be paid by the Reinsurer
to the Company on such day to the extent such Profit Share Amount is not paid
directly by the Reinsurer on or before such Profit Share Date; (v) decreased on
each Annual Expense Allowance Date (as defined below) by an amount equal to the
Annual Expense Allowance (as defined below) due on such date to the extent not
paid directly by the Reinsurer on or before such date; (vi) increased on the
date that any additional funds are deposited by the Reinsurer with the Company
by an amount equal to such additional funds, (vii) decreased on the date that
any funds are withdrawn by the Reinsurer from the Company by an amount equal to
such withdrawn funds and (viii) increased on the last day of each calendar
quarter by interest credited at the Deposit Crediting Rate on the average daily
balance of the Deposit during such calendar quarter. Within 45 days of the
Reinsurer’s receipt of a Quarterly Reserve Report (as defined below) showing
Combined Reserves at the last day of the preceding calendar quarter in excess
of the Deposit at the close of business on the last day of the preceding
calendar quarter, the Reinsurer shall be obligated to either (i) deposit
additional funds with the Company in an amount equal to such excess or (ii)
deliver to the Company a Letter of Credit in an amount equal to such excess. No
later than five days following the date of a Quarterly Reserve Report showing
the Deposit at the close of business on the last day of the preceding calendar
quarter in excess of Combined Reserves at the last day of the preceding
calendar quarter, the Company shall promptly refund to the Reinsurer an amount
equal to such excess.

 

5

 

The Reinsurer shall have the right (but not
the obligation), upon 90 days’ prior written notice to the Company, to
substitute a trust account (the “Trust Account”) for the Deposit. The Company
shall refund the Deposit, less the Market Value Adjustment, contemporaneously
with the funding of the Trust Account.

 

If a Trust Account is substituted for the Deposit,
the following provisions shall apply to the Reinsurer:

 

(1)                                  The Reinsurer shall enter into a trust
agreement and establish a trust account for the benefit of the Company covering
the recoverables that otherwise would be covered by the Deposit.  The trustee of the Trust Account and the
trust agreement shall comply with all applicable requirements of regulatory
authorities having jurisdiction over the Company. Within 45 days of the
Reinsurer’s receipt of each Quarterly Reserve Report, the Reinsurer shall
either (i) adjust the assets held in the Trust Account so that the market value
of such assets at the last day of the preceding calendar quarter meets or
exceeds the Combined Reserves at the last day of the preceding calendar quarter
and provide a certification to the Company of such fact or (ii) deliver to the
Company a Letter of Credit equal to the amount by which the Combined Reserves
at the last day of the preceding calendar quarter exceed the market value of
such assets at the last day of the preceding calendar quarter.

 

(2)                                  The assets deposited in the trust account
shall be valued according to their current fair market value, and 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, investments of
stocks and bonds listed by the NAIC’s Securities Valuation Office or any
obligations issued by the State of New Jersey or any of its political
subdivisions, any other form of security approved by the New Jersey
Commissioner of Insurance upon formal request, or any combination of the above,
provided that such investments are issued by an institution that is not the
Reinsurer or the Company or the parent, subsidiary or affiliate of either the
Reinsurer or the Company.

 

(3)                                  Prior to depositing assets with the trustee,
the Reinsurer shall execute assignments, endorsements in blank, or 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 the
direction of the Company, may whenever necessary negotiate any such assets
without consent or signature from the Reinsurer or any other entity.

 

(4)                                  All settlements of account between the
Company and the Reinsurer shall be made in cash or its equivalent.

 

(5)                                  The Reinsurer and the Company agree that the
assets in the trust account established pursuant to this provision of this
Agreement may be withdrawn by the Company at any time, notwithstanding any
other provisions in this Agreement, and shall be utilized and applied by the
Company or its successors in interest by operation of law, including without
limitation any liquidator, rehabilitator, receiver or conservator of the

 

6

 

Company, without diminution because of
insolvency on the part of the Company or the Reinsurer or the inability of the
Company to pay all or any part of a claim, only for the following purposes:

 

(a)                                  to
reimburse the Company for the Reinsurer’s share of premiums returned to the
owner of the Group Contract on account of the cancellation of the Group
Contract;

 

(b)                                 to reimburse the Company for the Reinsurer’s
share of Loss Settlements paid by the Company pursuant to the provisions of the
Group Contract;

 

(c)                                  to fund an account with the Company in an
amount at least equal to the deduction, for reinsurance ceded, from the
Company’s liabilities for the Group Contract ceded under this Agreement; such
amount shall include, but not be limited to, amounts for policy reserves,
claims and losses incurred, and unearned premium reserves; and

 

(d)                                 to pay any other amounts the Company claims
are due under this Agreement (including, without limitation, Should Pay
Benefits, Annual Expense Allowance and Profit Share Amounts).

 

(c)                                  to reestablish the Deposit.

 

(6)                                  The Reinsurer has the right to seek approval
from the Company to withdraw from the aforementioned trust account all or any
part of the assets contained therein and transfer such assets to the Reinsurer,
provided that:

 

(a)                                  the Reinsurer shall, at the time of such
withdrawal, replace the withdrawn assets with other qualified assets having a
market value at least equal to the market value of the assets withdrawn so as
to maintain at all times the deposit in the required amount; or

 

(b)                                 after such withdrawal and transfer, the
market value of the trust account is not less than 102 percent of the required
amount (i.e., the Combined Reserves).

 

The Company shall be the sole judge as to the
application of this provision, but shall not unreasonably or arbitrarily
withhold its approval.

 

(7)                                  The Company shall return any amount withdrawn
in excess of the actual amounts required for in paragraphs (5)(a), (b) and (c)
above, or in the case of paragraph (5)(d), any amounts that are subsequently
determined not to be due.

 

7

 

(8)                                  The Company shall credit quarterly to the
Reinsurer interest on the amounts drawn from the Trust Account and held
pursuant to paragraph (5)(c) above at the prime rate of interest as reported in
the Federal Reserve Bulletin.

 

If the Reinsurer delivers a Letter of Credit
pursuant to this Agreement, such Letter of Credit may be drawn upon at any
time, notwithstanding any other provisions in this Agreement, and shall be
utilized by the Company or its successors in interest only for one or more of
the following:

 

(a)                                  to reimburse the Company for the Reinsurer’s
share of premiums returned to the owner of the Group Contract on account of the
cancellation of the Group Contract;

 

(b)                                 to reimburse the Company for the Reinsurer’s
share of Loss Settlements paid by the Company pursuant to the provisions of the
Group Contract;

 

(c)                                  to fund an account with the Company in an
amount at least equal to the deduction, for reinsurance ceded, from the
Company’s liabilities for the Group Contract ceded under this Agreement; such
amount shall include, but not be limited to, amounts for policy reserves,
claims and losses incurred, and unearned premium reserves; and

 

(d)                                 to pay any other amounts the Company claims
are due under this Agreement (including, without limitation, Should Pay
Benefits, Annual Expense Allowance and Profit Share Amounts).

 

(e)                                  to reestablish the Deposit.

 

All of the foregoing shall be applicable
without diminution because of insolvency on the part of the Company or the
Reinsurer. The Company shall credit to the Reinsurer quarterly interest on the
amounts drawn from the Letter of Credit and held pursuant to paragraph (c)
above at the prime rate of interest as reported in the Federal Reserve
Bulletin.

 

On the earlier to occur of the Expiration
Date and the Termination Date, the Company shall return to the Reinsurer the
balance of any Deposit, allow the Reinsurer to withdraw the balance of any
Trust Account and/or deliver to the Reinsurer any Letters of Credit and consent
to the cancellation thereof.

 

8

 

ARTICLE
7

 

LOSS SETTLEMENTS

 

All Loss Settlements that are paid by the
Company within the terms, conditions and limitations of the Group Contract
shall be unconditionally binding upon the Reinsurer.

 

Subject to the immediately succeeding
paragraph, the Reinsurer shall pay to the Company, no later than the Loss
Settlement Payment Date occurring in each calendar quarter, the Loss Settlement
amount due and payable hereunder with respect to the preceding calendar quarter
as reported in the Quarterly Loss Settlement Report delivered during such
quarter, together with interest thereon credited at the Deposit Crediting Rate
for the period, if any, from and including such Loss Settlement Payment Date to
but excluding the date of payment; provided, however, if the Reinsurer has
provided a Deposit or Trust Account pursuant to Article 6 hereof, the Company
shall, on such Loss Settlement Payment Date, to the extent sufficient funds are
available therefor, reduce the Deposit by, or withdraw from the Trust Account,
as applicable, an amount equal to the Loss Settlement amount due and payable
hereunder on such Loss Settlement Payment Date.

 

In the event the Reinsurer notifies the
Company, prior to the Loss Settlement Payment Date occurring in any calendar
quarter, of the Reinsurer’s good faith belief that the Loss Settlement amount
reported in the Quarterly Loss Settlement Report delivered during such calendar
quarter is inaccurate, (i) the Reinsurer shall promptly inform the Company that
all or a portion of such Loss Settlement amount is in dispute, (ii) the Company
shall promptly commence the procedures set forth in the Group Contract for
resolving inaccuracies in Line 6 Amounts and (iii) the Reinsurer may either (A)
delay payment of the disputed portion of such Loss Settlement amount (the
“Disputed Portion”) until such time as the Loss Settlement amount is (x)
determined to be the Loss Settlement amount reported in such Quarterly Loss
Settlement Report, in which case the Reinsurer will promptly pay the Disputed
Portion with interest thereon from and including the Loss Settlement Payment
Date applicable to such calendar quarter to but excluding the date the Disputed
Portion is actually paid at a rate equal to the Deposit Crediting Rate (the
Disputed Portion plus such interest being referred to herein as the “True-up
Amount” and the date of such payment being referred to herein as the “True-up
Date”), (y) determined to be the undisputed portion of the Loss Settlement
amount reported in the Quarterly Loss Settlement Report, in which case the
Company will deliver a revised Quarterly Loss Settlement Report setting forth
the corrected Loss  Settlement
amount and no further payments will be owed in respect of such Quarterly Loss
Settlement Report or (z) determined to be an amount other than the Loss
Settlement amount reported in the Quarterly Loss Settlement Report or the
undisputed portion of such Loss Settlement amount, in which case the Company
will deliver a revised Quarterly Loss Settlement Report setting forth the
corrected Loss Settlement amount and appropriate payments (including interest
at the Deposit Crediting Rate) will be made to put the parties in the position
they would have been in had the corrected Loss Settlement amount been the Loss

 

9

 

Settlement amount reported in the Quarterly
Loss Settlement Report, taking into account the Reinsurer’s prior payment of
the undisputed portion of the Loss Settlement amount (such payments
constituting True-up Amounts if paid by the Reinsurer and Refund Amounts (as
defined below) if paid by the Company) or (B) make payment of the Loss
Settlement amount and (x) if the Loss Settlement amount is determined to be the
Loss Settlement amount reported in the Quarterly Loss Settlement Report, no
further payments will be owed in respect of such Quarterly Loss Settlement
Report or (y) if the Loss Settlement amount is determined to be an amount less
than the Loss Settlement amount reported in the Quarterly Loss Settlement
Report, the Company will deliver a revised Quarterly Loss Settlement Report for
such calendar quarter setting forth the corrected Loss Settlement amount and
will pay to the Reinsurer an amount equal to the difference between the
original Loss Settlement amount and the corrected Loss Settlement amount, with
interest on such amount from and including the Loss Settlement Payment Date
applicable to such calendar quarter to but excluding the date such amount is
paid by the Company at a rate equal to the Deposit Crediting Rate (such amount
being referred to herein as the “Refund Amount” and the date of such payment
being referred to herein as the “Refund Date”).

 

In the event the Reinsurer notifies the
Company, following the Loss Settlement Payment Date occurring in any calendar
quarter, of the Reinsurer’s good faith belief that the Loss Settlement amount
reported in the Quarterly Loss Settlement Report delivered during such calendar
quarter was inaccurate, (i) the Company shall promptly commence the procedures
set forth in the Group Contract for resolving inaccuracies in Line 6 Amounts
and (ii) if the Loss Settlement amount is determined to be an amount less than
the Loss Settlement amount reported in such Quarterly Loss Settlement Report,
the Company will deliver a revised Quarterly Loss Settlement Report for such
calendar quarter setting forth the corrected Loss Settlement amount and will
pay to the Reinsurer an amount equal to the difference between the original
Loss Settlement amount and the corrected Loss Settlement amount, with interest
on such amount from and including the Loss Settlement Payment Date applicable
to such calendar quarter to but excluding the date such amount is paid by the
Company at a rate equal to the Deposit Crediting Rate (such payment
constituting a Refund Amount).

 

The Company and the Reinsurer will deliver
copies of all notices and reports delivered by it pursuant to this Article to
any retrocessionaire of the Reinsurer designated in writing to the Company.

 

10

 

ARTICLE
8

 

REPORTS AND REMITTANCES

 

1.               Each calendar quarter, within three business
days after the Company’s receipt of a Benefits Paid Report from the Contract
Holder, the Company shall furnish to the Reinsurer and to any retrocessionaire
of the Reinsurer designated in writing to the Company by the Reinsurer (a) a
copy of such Benefits Paid Report and (b) a report in substantially the form of
Schedule I hereto (the “Quarterly Loss Settlement Report”) which shall include
the Loss Settlements payable by the Company under the Group Contract during
such calendar quarter.   The Quarterly
Loss Settlement Report shall also set forth the Loss Settlement Payment Date
for such calendar quarter.

 

2.               Within 45 days, or as reasonably practicable
thereafter, after the close of each calendar quarter, the Company shall furnish
to the Reinsurer and to any retrocessionaire of the Reinsurer designated in
writing to the Company by the Reinsurer a report in substantially the form of
Schedule II hereto (the “Quarterly Reserve Report”) which shall include the
following information:

 

(a)                                  Statutory Reserves and Return Premium
Reserves at the end of such calendar quarter;

 

(b)                                 Base Rate applicable to such calendar
quarter;

 

(c)                                  withdrawals from and deposits to funds
withheld during such calendar quarter, and the balance of the Deposit at the
end of such calendar quarter; and

 

(d)                                 copies of any other reports that the Reinsurer
may reasonably request in order to properly monitor the Group Contract.

 

3.               All amounts due and payable under this
Agreement to the Reinsurer shall be remitted directly to the bank account
designated for that purpose by the Reinsurer, and all amounts due and payable
under this Agreement to the Company shall be remitted directly to the bank
account designated for that purpose by the Company.

 

ARTICLE
9

 

REINSURANCE PREMIUM

 

A premium of $22.8 million (the “Reinsurance
Premium”) shall be payable by the Company to the Reinsurer on November 15,
1999.

 

11

 

ARTICLE
10

 

RESERVES

 

Combined Reserves shall be reasonably
determined by the Company; provided, however, the Reinsurer will have right to
require that an independent actuary mutually agreeable to the Company and the
Reinsurer determine the Combined Reserves if the Reinsurer deems that the
Combined Reserves determined by the Company are unreasonable. The cost of any
such independent actuary up to and including $25,000 shall be borne by the
Company, and the cost of any such independent actuary in excess of $25,000
shall be borne equally by the Reinsurer and the Company.

 

GAAP Reserves shall be reasonably determined
by the Reinsurer.

 

ARTICLE
11

 

EXPENSE ALLOWANCE

 

An annual expense allowance (the “Annual
Expense Allowance”) in the amount of $15,000 shall be payable by the Reinsurer
to the Company annually in advance (i) no later than 25 days following the
Effective Date and (ii) on each anniversary of the Effective Date during the
Term (each, an “Annual Expense Allowance Date”); provided, however, the amount
of the Annual Expense Allowance shall be adjusted on the fifth anniversary of
the Effective Date and every five years thereafter to reflect the cumulative change
in the consumer price index, as reasonably determined by the Company based on
data published by The Bureau of Labor Statistics, during such five-year period.

 

ARTICLE
12

 

TAXES

 

The Company will pay all taxes on premiums
reported to the Reinsurer hereunder.

 

ARTICLE
13

 

PROFIT SHARE ACCOUNT; PAYMENT OF PROFIT SHARE AMOUNT

 

A notional profit share account (the “Profit
Share Account”) shall be calculated by the Reinsurer as described below as of
the end of each calendar quarter throughout the Term.

 

An amount equal to the Reinsurance Premium
shall be credited to the Profit Share Account as of November 15, 1999.  Thereafter, the balance of the Profit Share
Account

 

12

 

(the “Profit Share Account Balance”) shall be
equal to (i) at the close of business on the last day of the first calendar
quarter following the Effective Date (i.e., December 31, 1999), an amount equal
to the Reinsurance Premium plus interest credited at the Base Rate on the
average daily balance of the Profit Share Account during such calendar quarter
and (ii) at the close of business on the last day of each subsequent calendar
quarter, the Profit Share Account Balance at the close of business on the last
day of the previous calendar quarter plus interest credited at the Base Rate on
the average daily balance of the Profit Share Account during such calendar
quarter minus Loss Settlements paid by the Reinsurer during such calendar
quarter minus True-up Amounts paid by the Reinsurer during such calendar
quarter minus 133-1/3% of any Profit Share Amount paid by the Reinsurer during
such calendar quarter plus Refund Amounts paid by the Company during such
calendar quarter. For purposes of calculating the interest referred to in the
preceding sentence: (i) Loss Settlements shall be debited from the Profit Share
Account on the applicable Loss Settlement Payment Date; (ii) True-up Amounts
shall be debited from the Profit Share Account on the applicable True-up Date;
(iii) 133-1/3% of the Profit Share Amount shall be debited from the Profit
Share Account on the applicable Profit Share Date; (iv) Refund Amounts shall be
credited to the Profit Share Account on the applicable Refund Date and (iii)
interest shall be credited to the Profit Share Account on the last day of each
calendar quarter.

 

Within 90 days of each Profit Share Date, the
Reinsurer shall calculate an amount (the “Profit Share Amount”) equal to (i)
75% x (the Profit Share Account Balance at such Profit Share Date minus
the Profit Share Account Reserves at such Profit Share Date minus the
Margin at such Profit Share Date) minus (ii) Unreimbursed Should Pay
Benefits paid by the Reinsurer since the immediately preceding Profit Share
Date. For the avoidance of doubt, the Profit Share Amount may be a negative
amount.

 

Profit Share Amounts shall be paid in
accordance with the terms of the Initial Cohort Reinsurance Agreement.

 

ARTICLE
14

 

FOLLOW THE FORTUNES: AMENDMENT OF

GROUP
CONTRACT AND INDEMNIFICATION AGREEMENT

 

The liability of the Reinsurer shall be
subject to all the terms, conditions and limitations of the Group Contract as
in effect on the Effective Date or as thereafter amended in accordance with the
terms hereof, it being the intention that the Reinsurer shall, in every
respect, follow the fortunes of the Company as if it had been a party to the
Group Contract.

 

The Company shall not amend or alter the
Group Contract or the Indemnification Agreement in any way without the prior
written consent of the Reinsurer. The Company

 

13

 

shall not waive any of its rights under the
Indemnification Agreement without the prior written consent of the Reinsurer.

 

ARTICLE
15

 

RIGHT OF OFFSET

 

The Company and the Reinsurer may offset any
balance or amount due from one party to the other under this Agreement or under
any other Agreement which may cancel and replace this Agreement. For the
avoidance of doubt, application of the offset will not be deemed to constitute
a diminution in the event of insolvency.

 

ARTICLE
16

 

ERRORS AND OMISSIONS

 

Any inadvertent act, delay, omission or error
by the Company or the Reinsurer shall not relieve either party of any liability
under this Agreement, provided that such act, delay, omission, or error is
rectified as soon as possible after discovery.

 

ARTICLE
17

 

CURRENCY

 

All amounts in this Agreement are expressed
in United States Dollars and all payments shall be made in such currency.

 

ARTICLE
18

 

GOVERNING LAW

 

This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York,
without regard to its conflicts of laws doctrine.

 

ARTICLE
19

 

ARBITRATION

 

Any dispute, controversy or claim arising out
of or relating to this Agreement or the breach, termination or invalidity
thereof shall be submitted to arbitration to be conducted

 

14

 

in New York City, pursuant to the following
procedures and the then-current Commercial Rules of the American Arbitration
Association (to the extent such rules are not inconsistent with the following
procedures). The board of arbitration shall be composed of two arbiters and an
umpire, who shall be active or retired disinterested officials of insurance or
reinsurance companies; provided, no arbiter or umpire may be a present or
former officer, director, employee, attorney or consultant of either party or
its affiliates.

 

To initiate arbitration, a party (the
“Claimant”) shall notify the other party (the “Respondent”) in writing of its
desire to arbitrate, stating the nature of its dispute, the remedy sought and
the identity of its chosen arbiter, and shall request that the Respondent
appoint and identify its own arbiter. After each party appoints its arbiter,
the two arbiters shall choose an umpire before instituting the hearing. If the
Respondent fails to appoint its arbiter within four weeks after being requested
to do so by the Claimant, the latter shall also appoint the second arbiter. If
the two arbiters fail to agree on the appointment of an umpire within four
weeks after the nomination of the Respondent’s arbiter, the umpire shall be
chosen by the President of the American Arbitration Association (or his
designee) and shall be a person meeting the qualifications set forth above.

 

The Claimant shall submit its initial brief
within 20 days from the employment of the umpire. The Respondent shall submit
its brief within 20 days thereafter, and the Claimant may submit a reply brief
within 10 days after the filing of the Respondent’s brief. The board shall make
its decision with regard to the customary usage of the insurance and
reinsurance business. The board is released from all judicial formalities and
may abstain from the strict rules of the law, interpreting this Agreement as an
honorable undertaking, rather than merely a legal obligation. The board shall
make its decision, describing its reasons therefor in writing, within 30 days
following the termination of the hearings, unless the parties consent to an
extension. A majority decision of the board shall be final and binding upon the
parties to the proceedings. The judgment upon the award entered by the arbiters
may be entered in any court of proper jurisdiction and may be enforced in any
such court. The board may alter the time periods contained in this Article for
good cause.

 

Each party shall bear the expense of its own
arbiter and shall jointly and equally bear with the other party the expense of
the umpire. The remaining costs of the arbitration proceedings, if any, shall
be allocated by the board.

 

The procedures specified in this Article
shall be the sole and exclusive procedures for the resolution of irreconcilable
disputes between the parties arising out of or relating to this Agreement;
provided, however, that a party may seek a preliminary injunction or other
preliminary judicial relief if, in its judgment, such action is necessary to
avoid irreparable damage. Despite such action, the parties will continue to
participate in good faith in the procedures specified in this Article. All
applicable statutes of limitation shall be tolled while the procedures
specified in this Article are pending. The parties will take such action, if
any, required to effectuate such tolling.

 

15

 

This Article shall survive the termination of
this Agreement.

 

ARTICLE
20

 

INSOLVENCY

 

In the event of the receivership of the
Company, the amounts owing by the Reinsurer under this Agreement shall be
payable by the Reinsurer directly to the receiver, after reasonable provision
for verification, on the basis of claims allowed against the Company by any
court of competent jurisdiction having authority to allow such claims or
allowed by the receiver as a result of the conclusion of the claim filing,
approval and appeal process before the receiver. Notwithstanding anything
herein to the contrary, payment shall be made without diminution because of
such insolvency or because the receiver has failed to pay all or a portion of
any claims. The receiver shall give or arrange to give to the Reinsurer written
notice of the pendency of a claim against the Company within a reasonable
period of time after the initiation of the receivership. Failure to give such
notice shall not excuse the obligation of the Reinsurer unless it is
substantially prejudiced thereby. The Reinsurer may interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any defense
or defenses which it may deem available to the Company or the receiver. The
reasonable expense thus incurred by the Reinsurer shall be payable, subject to
court approval, out of the estate of the Company as part of the expense of the
receivership 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.
Payments by the Reinsurer shall be made directly to the receiver of the Company
except where the Agreement specifically provides another payee of such
reinsurance in the event of insolvency of the Company.

 

ARTICLE
21

 

RIGHT OF INSPECTION

 

1.               The Reinsurer or its duly appointed
representatives and any retrocessionaire of the Reinsurer or its duly appointed
representatives may at any time during normal office hours have free access to
and may take copies of all relevant records and papers of the Company or its
agents which relate to the Group Contract. 
It is agreed that such rights of inspection shall continue until all
obligations under this Agreement have been discharged.

 

2.               The Company shall procure equivalent rights
of inspection, including the right to take copies, of the records of the
Contract Holder in respect of the Group Contract as those detailed in paragraph
1 above together with the irrevocable consent of the Contract Holder to
disclose such records to the Reinsurer or its duly appointed representatives.

 

16

 

3.               Upon the request of the Reinsurer, the
Company shall exercise its rights of audit under the Group Contract.

 

ARTICLE
22

 

AMENDMENTS
AND ALTERATIONS

 

This Agreement may be changed, altered or
amended as the parties may agree, provided such change, alteration or amendment
is evidenced in writing or by endorsement executed by the Company and the
Reinsurer.

 

ARTICLE
23

 

ASSIGNMENT

 

Neither party may assign or transfer any
rights, interests or obligations under this Agreement to any person or entity
without the written consent of the other party, and any effort to so assign or
transfer such rights, interests or obligations without the consent of the other
party shall be null and void.

 

ARTICLE
24

 

NO THIRD PARTY RIGHTS

 

This Agreement is solely between the Company
and the Reinsurer, and in no instance shall any other party have any rights
under this Agreement.

 

ARTICLE
25

 

NO IMPLIED WAIVER

 

The failure of any party to enforce any of
the provisions herein shall not be construed to be a waiver of the right of
such party to enforce any such provision.

 

ARTICLE
26

 

NOTICES

 

Any notice in writing to be given pursuant to
this Agreement shall be by facsimile, letter (registered mail if sent by post),
or internationally recognized courier.

 

17

 

Any such notice will take effect, in the case
of a facsimile, at the time of receipt, and in the case of a letter sent by
post or courier, at the time of delivery. Any notice not by letter shall be
confirmed by letter but the failure to send or receive such letter will not
invalidate the original communication.

 

The address and contact details for each of
the Company and the Reinsurer are as follows:

 

The Company:

 

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

290 West Mt. Pleasant Avenue

Livingston, NJ 07039-2729

Attn: Vice President & Controller, Group
Life & Disability

Telephone: 973-548-6340

Fax: 973-548-6304

 

with a copy to:

 

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

290 West Mt. Pleasant Avenue

Livingston, NJ 07039-2729

Attn: Chief Legal Officer, Group Life and
Disability

Telephone: 973-548-6580

Fax: 973-548-6575

 

The Reinsurer:

 

For purposes of Article 8 reports:

 

 

ACE CAPITAL RE OVERSEAS LTD.

Victoria Hall

11 Victoria Street

P.O. Box 1826

Hamilton HM HX

Bermuda

Attn: Corporate Secretary

Telephone: 441-292-4402

Fax: 441-299-8813

 

18

 

With a copy to:

 

ACE CAPITAL RE INC.

1325 Avenue of the Americas

New York, NY 10019

Attn: General Counsel

Telephone: 212-974-0100

Fax: 212-581-3268

 

Each party shall promptly notify the other
party any change in its address or contact details.

 

ARTICLE
27

 

DAC TAX ELECTION

 

The Company and the Reinsurer hereby agree to
the following pursuant to Section 1.848-2(g)(8) of the Income Tax Regulations
issued December 1992 (as amended, supplemented or corrected and in effect as of
the effective date of this Agreement, the “Regulations”) under Section 848 of
the Internal Revenue Code of 1986, as amended (the “Code”). This election shall
be effective for 1999 and for all subsequent taxable years for which this
Agreement remains in effect.

 

1.                                       The term “party” will refer to either the
Company or the Reinsurer, as appropriate.

 

2.                                       The terms used in this Article are defined by
reference to Section 1.848-2 of the Regulations.

 

3.                                       The party with the net positive consideration
for this Agreement for each taxable year will capitalize specified policy
acquisition expenses with respect to this Agreement without regard to the
general deductions limitation of Section 848(c)(l) of the Code.

 

4.                                       Both parties agree to exchange information
pertaining to the amount of net consideration under this Agreement each year to
ensure consistency or as otherwise required by the Internal Revenue Service.

 

5.                                       The Company will submit a schedule to the
Reinsurer by May 1 of each year of its calculation of the net consideration for
the preceding calendar year. This schedule of calculations will be accompanied
by a statement signed by an officer of the Company stating that the Company
will report such net consideration in its tax return for the preceding calendar
year.

 

6.                                       The Reinsurer may contest such calculation by
providing an alternative

 

19

 

calculation to the Company
in writing within 30 days of the Reinsurer’s receipt of the Company’s
calculation. If the Reinsurer does not so notify the Company, the Reinsurer
will report the net consideration as determined by the Company in the
Reinsurer’s tax return for the previous calendar year.

 

7.                                       If the Reinsurer contests the Company’s
calculation of the net consideration, the parties will act in good faith to
reach an agreement as to the correct amount within thirty (30) days of the date
the Reinsurer submits its alternative calculation. If the Company and the
Reinsurer reach agreement on an amount of net consideration, each party shall
report such amount in their respective tax returns for the previous calendar
year.

 

8.                                       Both parties agree to make the election
contemplated by this Article 27 by timely attaching to their tax returns the
schedule required by Section 1.848-2(g)(8)(ii) of the Regulations.

 

 

ARTICLE
28

 

SUBMISSION TO JURISDICTION

 

The Reinsurer hereby submits to the jurisdiction
of the board of arbitration described above and the courts of the State of
 New York (for the purpose of enforcing the parties’ agreement to
arbitrate or to enforce an award of the board of arbitration) and agrees to
comply with all requirements necessary to give such board and such courts
jurisdiction over the Reinsurer. The Reinsurer hereby appoints as its agent for
service of process ACE Capital Re Inc., 1325 Avenue of the Americas, New York,
New York, 10019.

 

20

 

SIGNING SCHEDULE

 

Attaching to and forming part of this
Agreement

 

 

In witness whereof this Agreement is signed
on behalf of

 

 

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
  ACE CAPITAL RE OVERSEAS LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
  Date:

  	
   

  

 

21

 

REINSURANCE
AGREEMENT

 

between

 

THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA

 

and

 

ACE CAPITAL RE OVERSEAS LTD.

 

 

TABLE OF CONTENTS

 

	
  ARTICLE 1

  	
  REINSURANCE COVERAGE

  	
   

  
	
  ARTICLE 2

  	
  SHOULD PAY BENEFIT COVERAGE

  	
   

  
	
  ARTICLE
  3

  	
  DEFINITIONS

  	
   

  
	
  ARTICLE 4

  	
  TERM AND TERMINATION

  	
   

  
	
  ARTICLE
  5

  	
  [INTENTIONALLY
  LEFT BLANK]

  	
   

  
	
  ARTICLE 6

  	
  STATUTORY FINANCIAL CREDIT

  	
   

  
	
  ARTICLE
  7

  	
  LOSS
  SETTLEMENTS

  	
   

  
	
  ARTICLE
  8

  	
  REPORTS
  AND REMITTANCES

  	
   

  
	
  ARTICLE 8

  	
  REINSURANCE PREMIUM

  	
   

  
	
  ARTICLE 10

  	
  RESERVES

  	
   

  
	
  ARTICLE
  11

  	
  EXPENSE
  ALLOWANCE

  	
   

  
	
  ARTICLE 12

  	
  TAXES

  	
   

  
	
  ARTICLE 13

  	
  PROFIT SHARE ACCOUNT; PAYMENT OF PROFIT SHARE AMOUNT

  	
   

  
	
  ARTICLE 14

  	
  FOLLOW THE FORTUNES; AMENDMENT OF GROUP CONTRACT AND INDEMNIFICATION
  AGREEMENT

  	
   

  
	
  ARTICLE
  15

  	
  RIGHT
  OF OFFSET

  	
   

  
	
  ARTICLE 16

  	
  ERRORS AND OMISSIONS

  	
   

  
	
  ARTICLE 17

  	
  CURRENCY

  	
   

  
	
  ARTICLE
  18

  	
  GOVERNING
  LAW

  	
   

  
	
  ARTICLE 19

  	
  ARBITRATION

  	
   

  
	
  ARTICLE
  20

  	
  INSOLVENCY

  	
   

  
	
  ARTICLE 21

  	
  RIGHT OF INSPECTION

  	
   

  
	
  ARTICLE
  22

  	
  AMENDMENTS
  AND ALTERATIONS

  	
   

  
	
  ARTICLE 23

  	
  ASSIGNMENT

  	
   

  
	
  ARTICLE 24

  	
  NO THIRD PARTY RIGHTS

  	
   

  
	
  ARTICLE
  25

  	
  NO
  IMPLIED WAIVER

  	
   

  
	
  ARTICLE 26

  	
  NOTICES

  	
   

  
	
  ARTICLE 27

  	
  DAC TAX ELECTION

  	
   

  
	
  ARTICLE
  28

  	
  SUBMISSION
  TO JURISDICTION

  	
   

  
	
  SIGNING
  SCHEDULE

  	
   

  
	
  ANNEX
  A

  	
  GROUP
  CONTRACT NO. SG-93191-VA-2

  	
   

  
	
  ANNEX B

  	
  INDEMNIFICATION AGREEMENT

  	
   

  
	
  ANNEX C-1

  	
  INITIAL COHORT REINSURANCE AGREEMENT

  	
   

  
	
  ANNEX C-2

  	
  ASSIGNMENT AGREEMENT

  	
   

  
	
  ANNEX C-3

  	
  FIRST AMENDMENT

  	
   

  
	
  SCHEDULE I

  	
  FORM OF QUARTERLY LOSS SETTLEMENT REPORT

  	
   

  
	
  SCHEDULE
  II

  	
  FORM
  OF QUARTERLY RESERVE REPORT

  	
   

  

 

 

ANNEX A

 

[GROUP CONTRACT NO.
SG-93191-VA-2]

 

 

ANNEX
B

 

[INDEMNIFICATION AGREEMENT]

 

 

ANNEX C-l

 

[INITIAL
COHORT REINSURANCE AGREEMENT]

 

 

ANNEX C-2

 

[ASSIGNMENT AGREEMENT]

 

 

ANNEX C-3

 

[FIRST
AMENDMENT]

 

 

SCHEDULE I

 

QUARTERLY LOSS SETTLEMENT REPORT

 

FOR
THE       QUARTER       

 

Date of Delivery of this Report:                                  /      /

Loss Settlement Payment Date:                                   /      /

 

PART 1: AMOUNT DUE THE CONTRACT HOLDER

 

	
  Covered Benefits Due
  Contract Holder

  	
   

  	
   

  	
   

  
	
  (from Benefits Paid
  Report, Part A, line 6)

  	
  $

  	
   

  	
   

  

 

(attached completed Benefits
Paid Report)

 

PART II: AMOUNTS DUE THE COMPANY

 

1.               Should Pay Benefits

	
  a.

  	
   

  	
  Should Pay Benefits paid,
  current quarter

  	
   

  	
  $

  	
   

  
	
  b.

  	
   

  	
  Amount of a. in excess of $100,000 for this
  Contract Year

  	
   

  	
  $

  	
   

  
	
  c.

  	
   

  	
  Amount remaining of
  $250,000 aggregate limit

  	
   

  	
  $

  	
   

  
	
  d.

  	
   

  	
  Amount due Company, before
  offset (lesser of (b) & (c))

  	
   

  	
  $

  	
   

  
	
  e.

  	
   

  	
  Amount of a., if any,
  included in Part 1 above

  	
   

  	
  $

  	
   

  
	
  f.

  	
   

  	
  Net Liability (Asset) for
  Should Pay Benefits (d) – (e)

  	
   

  	
  $

  	
   

  
	
  g.

  	
   

  	
  New Amount Remaining of
  $250,000 limit (c) – (d)

  	
   

  	
  $

  	
   

  
	
  h.

  	
   

  	
  Amount due from Columbia
  Energy Group (“CEG”) to Company

  	
   

  	
  $

  	
   

  
	
  i.

  	
   

  	
  Amount of h. not paid by CEG
  due to insolvency of CEG

  	
   

  	
  $

  	
   

  
	
  j.

  	
   

  	
  Total Liability (Asset)
  for Should Pay Benefits (f) + (i)

  	
   

  	
  $

  	
   

  

 

1.               Mandated Benefits

	
  a.

  	
   

  	
  Amount due from CEG to the
  Company

  	
   

  	
  $

  	
   

  
	
  b.

  	
   

  	
  Amount not paid by CEG due
  to insolvency of CEG

  	
   

  	
  $

  	
   

  
	
  c.

  	
   

  	
  Amount of a., if any, included in Part I above

  	
   

  	
  $

  	
   

  
	
  d.

  	
   

  	
  Total Liability (Asset)
  for Mandated Benefits (b) – (c)

  	
   

  	
  $

  	
   

  

 

	
  2.

  	
   

  	
  True-Up (Refund) Amounts
  due Company (Reinsurer)

  	
   

  	
  $

  	
   

  
	
  3.

  	
   

  	
  Expense Allowance (if
  contract anniversary)

  	
   

  	
  $

  	
   

  
	
  4.

  	
   

  	
  Fees and Expenses of
  Impartial Party

  	
   

  	
  $

  	
   

  
	
  5.

  	
   

  	
  Amount Due the Company
  (I+II.l(j)-II.2(d)+II.3+II.4+II.5)

  	
   

  	
  $

  	
   

  
	
  6.

  	
   

  	
  Per diem interest at
  Deposit Crediting Rate

  	
   

  	
  $

  	
   

  	
   

  
							

 

 

SCHEDULE II

 

QUARTERLY RESERVE REPORT

 

FOR
THE        QUARTER

 

	
  1.

  	
   

  	
  Statutory Reserves (exc.
  Return Premium Reserves)

  	
   

  	
  $

  	
   

  
	
  2.

  	
   

  	
  Return Premium Reserves

  	
   

  	
  $

  	
   

  
	
  3.

  	
   

  	
  Combined Reserves (1+2)

  	
   

  	
  $

  	
   

  
	
  4.

  	
   

  	
  Base Rate

  	
   

  	
   

  	
  %

  
	
  5.

  	
   

  	
  Withdrawal from (deposit
  to) Funds Withheld

  	
   

  	
  $

  	
   

  
	
  6.

  	
   

  	
  Funds Withheld, end of
  quarter

  	
   

  	
  $

  	
   

  
	
  7.

  	
   

  	
  Trust Account, end of
  quarter

  	
   

  	
  $

  	
   

  
	
  8.

  	
   

  	
  Letters of Credit, end of
  quarter

  	
   

  	
  $

  	
   

  
	
  9.

  	
   

  	
  Profit Share Account, end
  of quarter

  	
   

  	
  $

  	
   

  

 

 

Exhibit D

 

 

 

 

TRUST AGREEMENT

 

Dated
as of May 1, 2000

 

 

among

 

 

ACE
CAPITAL RE OVERSEAS LTD.,

 

as
Grantor

 

 

THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA,

 

as
Beneficiary

 

 

and

 

STATE
STREET BANK & TRUST COMPANY

 

As
Trustee

 

 

 

 

TABLE OF CONTENTS

 

	
  PARTIES

  RECITALS

  	
   

  
	
   

  	
   

  
	
  Section

  	
  1.

  	
  Deposit of Assets to the Trust Account

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  2.

  	
  Withdrawal of Assets from the Trust Account

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  3.

  	
  Application of Assets

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  4.

  	
  Redemption, Investment and Substitution of
  Assets

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  5.

  	
  The Income Account

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  6.

  	
  Right to Vote Assets

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  7.

  	
  Additional Rights and Duties Of the Trustee

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  8.

  	
  The Trustee's Compensation, Expenses and
  Indemnification

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  9.

  	
  Acceptance, Resignation and Removal of the
  Trustee

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  10.

  	
  Termination of the Trust Account

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  11.

  	
  Definitions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  12.

  	
  Governing Law

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  13.

  	
  Successors and Assigns

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  14.

  	
  Severability

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  15.

  	
  Entire Agreement

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  16.

  	
  Amendments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  17.

  	
  Notices, etc

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  18.

  	
  Headings

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  19.

  	
  Counterparts

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  20.

  	
  Force Majeure

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  21.

  	
  Trust Account Records

  	
   

  

 

2

 

	
  EXHIBIT 
  A

  	
  Reinsurance Agreements

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT 
  B

  	
  List of Assets Deposited to the Trust
  Account

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT 
  C

  	
  Fee Schedule

  	
   

  

 

3

 

TRUST AGREEMENT

 

TRUST AGREEMENT, dated as of May 1, 2000 (the “Agreement”),
among ACE Capital Re Overseas Ltd., a Bermuda domiciled insurance
company (the “Grantor”), The
Prudential Insurance Company of America, a mutual insurance company organized
under the laws of New Jersey (together with any successor thereof by operation
of law, including, without limitation, any liquidator, rehabilitator, receiver
or conservator, the “Beneficiary”), and
State Street Bank & Trust Company, a banking corporation (the “Trustee”) (the Grantor, the Beneficiary
and the Trustee are hereinafter each sometimes referred to individually as a “Party” and collectively as the “Parties”).

 

WITNESSETH:

 

WHEREAS, the Grantor and the Beneficiary have entered into the reinsurance
agreements listed in Exhibit A hereto (the “Reinsurance
Agreements”);

 

WHEREAS, the Beneficiary desires the Grantor to secure payments of all amounts
at any time and from time to time owing by the Grantor to the Beneficiary under
or in connection with the Reinsurance Agreements;

 

WHEREAS, the Grantor desires to establish a trust account with the Trustee (the “Trust Account”) into which the Beneficiary
will deposit assets of the Grantor currently maintained as funds withheld by
the Beneficiary in order to secure payments under or in connection with the
Reinsurance Agreements;

 

WHEREAS, the Trustee has agreed to act as trustee hereunder, and to hold such
assets in trust in the Trust Account for the sole use and benefit of the Beneficiary;
and

 

WHEREAS, this Agreement is made for the sole use and benefit of the Beneficiary
and for the purpose of setting forth the duties and powers of the Trustee with
respect to the Trust Account;

 

NOW, THEREFORE, for and consideration of the premises and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Parties hereby
agree as follows:

 

Section 1.                                          Deposit of
Assets to the Trust Account.

 

(a)                                  The Grantor hereby establishes the Trust
Account with the Trustee for the sole use and benefit of the Beneficiary, upon
the terms and conditions hereinafter set forth. The Trustee shall administer
the Trust Account in its name as trustee for the Beneficiary. The Trust Account
shall be subject to withdrawal by the Beneficiary solely as provided herein.

 

(b)                                 The Beneficiary shall transfer to the
Trustee, for deposit to the Trust Account, the assets listed in Exhibit B
hereto, and the Beneficiary or the Grantor may transfer to the Trustee, for
deposit to the Trust Account, such other assets as the Beneficiary or the
Grantor may from time to time desire (all such assets actually received in the
Trust Account are herein referred to individually

 

4

 

as an “Asset”
and collectively as the “Assets”).  The Assets shall consist only of Eligible
Securities (as hereinafter defined) and shall be maintained separate and apart
from all other assets of the Trustee.

 

(c)                                  Upon execution of this Agreement, and from
time to time thereafter as required, the Beneficiary or the Grantor shall
execute assignments of all securities or other property standing in the
Beneficiary’s or Grantor’s name, as applicable, which are delivered to the
Trustee to form a part of the Trust Account so that, whenever necessary, the
Trustee can renegotiate any such Asset without the consent or signature of the
Beneficiary, the Grantor or any Person.  
Any Assets delivered to the Trustee which are not in such negotiable
form shall not be accepted by the Trustee and shall be returned to the
Beneficiary or the Grantor, as applicable, as unacceptable.

 

(d)                                 The Trustee will provide notice to the
Grantor and the Beneficiary of each deposit to the Trust Account within 10 days
of the date of such deposit.

 

(e)                                  The Trustee shall have no responsibility to
determine whether the Assets in the Trust Account are sufficient to secure the
Grantor’s liabilities under the Reinsurance Agreements.

 

Section 2.                                          Withdrawal of Assets from
the Trust Account.

 

(a)                                  Without notice to the Grantor, the Beneficiary
shall have the right, at any time and from time to time, to withdraw from the
Trust Account, upon written notice to the Trustee (the “Withdrawal Notice”), such Assets as are
specified in such Withdrawal Notice. 
The Withdrawal Notice may designate a third party (the “Designee”) to whom Assets specified therein
shall be delivered and may condition delivery of such Assets to such Designee
upon receipt, and deposit to the Trust Account, of other Assets specified in
such Withdrawal Notice. The Beneficiary need present no statement or document
in addition to a Withdrawal Notice in order to withdraw any Assets, except that
the Beneficiary shall be required to acknowledge in writing to the Grantor
receipt of withdrawn Assets; nor is said right of withdrawal or any other
provision of this Agreement subject to any conditions or qualifications not
contained in this Agreement.

 

(b)                                 Upon receipt of a Withdrawal Notice, the
Trustee shall immediately take any and all steps necessary to transfer the
Assets specified in such Withdrawal Notice and shall deliver such assets to or
for the account of the Beneficiary or such Designee as specified in such
Withdrawal Notice.

 

(c)                                  Subject to paragraph (a) of this Section 2
and to Section 4 of this Agreement, in the absence of a Withdrawal Notice the
Trustee shall allow no substitution or withdrawal of any Asset from the Trust
Account.

 

(d)                                 The Trustee shall have no responsibility
whatsoever to determine that any Assets withdrawn from the Trust Account
pursuant to this Section 2 will be used and applied in the manner contemplated
by Section 3 of this Agreement.

 

(e)                                  The Trustee will provide notice to the
Grantor and the Beneficiary of each withdrawal from the Trust Account within 10
days of the date of such withdrawal.

 

5

 

Section 3.                                          Application of Assets.

 

The Beneficiary hereby
covenants to the Grantor that it shall use and apply any withdrawn Assets,
without diminution because of the insolvency of the Beneficiary or the Grantor,
for the following purposes only:

 

(a)                                  to reimburse the Beneficiary for the
Grantor’s share of premiums returned to the owner of the Group Contract (as
defined in each Reinsurance Agreement) on account of the cancellation of the
Group Contract (as defined in each Reinsurance Agreement);

 

(b)                                 to reimburse the Beneficiary for the
Grantor’s share of Loss Settlements (as defined in each Reinsurance Agreement)
paid by the Beneficiary pursuant to the provisions of the Group Contract (as
defined in each Reinsurance Agreement);

 

(c)                                  to fund an account with the Beneficiary in an
amount at least equal to the deduction, for reinsurance ceded, from the
Beneficiary’s liabilities for the Group Contract (as defined in each
Reinsurance Agreement) ceded under each Reinsurance Agreement; such amount
shall include, but not be limited to, amounts for policy reserves, claims and
losses incurred, and unearned premium reserves;

 

(d)                                 to pay any other amounts the Beneficiary
claims are due under the Reinsurance Agreements (including, without limitation,
Should Pay Benefits, Annual Expense Allowance and Profit Share Amounts, as each
such capitalized term is defined in each Reinsurance Agreement); and

 

(e)                                  to re-establish the Deposit (as defined in
each Reinsurance Agreement).

 

Section 4.                                          Redemption, Investment and
Substitution of Assets.

 

(a)                                  The Grantor, subject to the approval of the
Beneficiary, may retain (and pay the service fees of) a professional asset
manager (the “Asset Manager”) to
manage and make investment decisions with regard to the Assets held by the
Trustee in the Trust Account. Subject to Section l(c) of this Agreement, the
Grantor or the Asset Manager (if any) shall direct the Trustee to invest such
Assets in Eligible Securities and the Trustee, at the direction of the Grantor
or the Asset Manager (if any) shall cause the Assets held in the Trust Account
to be invested in Eligible Securities. Unless and until directed in accordance
with this Agreement by the Grantor, the Trustee shall not be required to take
any action with respect to the investment or reinvestment of the Trust
Account’s Assets.

 

(b)                                 From time to time, the Grantor or the Asset
Manager (if any) may direct the Trustee to substitute Eligible Securities of
comparable market value for other Eligible Securities held in the Trust Account
at such time. The Trustee shall have no responsibility whatsoever to determine
the value of such substituted securities or that such substituted securities
constitute Eligible Securities.

 

(c)                                  All investments and substitutions of
securities referred to in paragraphs (a) and (b) of this Section 4 shall be in
compliance with the relevant provisions of the New Jersey Insurance

 

6

 

Law, as set forth in the definition of “Eligible Securities” in Section 11 of this
Agreement. The Trustee shall have no responsibility whatsoever to determine
that any Assets in the Trust Account are or continue to be Eligible Securities.
Any instruction or order concerning such investments or substitutions of
securities shall be referred to herein as an “Investment
Order”. The Trustee shall settle securities transactions by itself
or by means of an agent or broker. The Trustee shall not be responsible for any
act or omission, or for the solvency, of any such agent or broker except to the
extent said act or omission is the result, in whole or in part, of the
Trustee’s negligence, willful misconduct or lack of good faith.

 

(d)                                 The Trustee shall surrender for payment all
maturing Assets and all Assets called for redemption and credit as collected
the principal amount of the proceeds of any such payment to the Trust Account.

 

(e)                                  The Trustee is authorized, without further
instructions, to exchange securities in temporary form for securities in
definitive form, to effect an exchange of the shares where the par value of
stock is changed, and to surrender securities at maturity or when advised of
earlier call for redemption against payment therefore in accordance with
accepted industry practice (with the proceeds of any such payment to be
immediately deposited into the Trust Account).

 

(f)                                    The Trustee shall have no duty to notify the
Grantor of any rights, duties, limitations, conditions or other information set
forth in any security (including mandatory or optional put, call and similar
provisions), but the Trustee shall forward to the Grantor any notices or other
documents received in regard to any such security.

 

(g)                                 The Trustee will execute as agent in the name
of the Grantor all declarations, affidavits, and certificates of
ownership now or hereafter required in respect of Assets held in the Trust
Account.  The Grantor hereby authorizes
the Trustee to disclose the Grantor’s name, address and securities positions to
issuers of securities held in the Trust Account if, as and to the extent that
such disclosure may be required by law.

 

(h)                                 Any loss incurred from any investment
pursuant to the terms of this Section 4 shall be borne exclusively by the Trust
Account, The Trustee shall not be liable for any loss due to changes in market
rates or penalties for early redemption.

 

Section 5.                                          The Income
Account.

 

All payments of interest and
dividends actually received in respect of Assets in the Trust Account shall be
deposited by the Trustee, subject to deduction of the Trustee’s compensation
and expenses as provided in Section 8 of the Agreement, in a separate account
(the ‘‘Income Account”)
established and maintained by the Grantor at an office of the Trustee. The
Grantor shall have the right to withdraw funds from the Income Account at any
time. For the avoidance of doubt, payments of principal received in respect of
Assets in the Trust Account shall not be considered payments of interest or
dividends.

 

7

 

Section 6.                                          Right to Vote
Assets.

 

The Trustee shall forward
all annual and interim stockholder reports and all proxies and proxy materials
relating to the Assets in the Trust Account to the Grantor. The Grantor shall
have the full and unqualified right to vote any Assets in the Trust Account.

 

Section 7.                                          Additional
Rights and Duties of the Trustee.

 

(a)                                  The Trustee shall be liable for the
safekeeping and administration of the Assets in the Trust Account and shall not
deposit such assets with any subcustodians.

 

(i)                                     The Trustee shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement for
safeguarding the Assets in the Trust Account, whether such securities are in
the Trustee’s possession or have been redeposited with a subcustodian.

 

(ii)                                  The Trustee shall be responsible for physical
loss of, or damage to, Assets under its care, custody, possession or control,
or under the care, custody, possession or control of agents or nominees(s),
from all causes including but not limited to fire, burglary, robbery, theft or
mysterious disappearance.

 

(iii)                               In the event of loss or damage to the Assets
under the care, custody, possession or control of the Trustee or its agents or
nominee(s), the Trustee shall, upon demand of the Grantor or the Beneficiary,
promptly replace such Assets with other assets of like kind and quality
together with all rights and privileges pertaining to the Assets (by, among
other methods, posting appropriate security or bond with the issuer of the
Assets to obtain reissue of  such
Asset(s) or, if acceptable to the Grantor, delivery of cash equivalent to the
fair market value of the Assets as of the date of the discovery of the loss or
damage).

 

(iv)                              Nothing contained in any contract between the
Trustee and any entity authorized to hold Assets, as defined herein, shall
diminish or otherwise alter the liability of the Trustee to the Grantor or the
Beneficiary hereunder.

 

(b)                                 The Trustee shall notify the Grantor and the
Beneficiary in writing within ten days following each deposit to, or withdrawal
from the Trust Account.

 

(c)                                  Before accepting any Asset for deposit to the
Trust Account, the Trustee shall determine that such Asset is in such form that
the Beneficiary whenever necessary may, or the Trustee upon direction by the
Beneficiary will, negotiate such Asset without consent or signature from the
Grantor of any Person other than the Trustee in accordance with the terms of
this Agreement.

 

(d)                                 The Trustee may deposit any Assets in the
Trust Account in a book-entry account maintained with the Federal System
Reserve or in depositories such as the Depository Trust

 

8

 

Company. 
Assets may be held in the name of a nominee maintained by the Trustee or
by any such depository.

 

(e)                                  The Trustee shall accept and open all mail
directed to the Grantor or the Beneficiary in care of the Trustee.

 

(f)                                    The Trustee shall furnish to the Grantor and
the Beneficiary a statement of all Assets in the Trust Account upon the
inception of the Trust Account and at the end of each calendar quarter
thereafter.

 

(g)                                 Upon the request of the Grantor or the
Beneficiary, the Trustee shall promptly permit the Grantor or the Beneficiary,
their respective agents, employees or independent auditors to examine, audit,
excerpt, transcribe and copy, during the Trustee’s normal business hours, any
books, documents, papers and records relating to the Trust Account or the
Assets.

 

(h)                                 The Trustee is authorized to follow and rely
upon all instructions given by officers named in incumbency certificates
furnished to the Trustee from time to time by the Grantor and the Beneficiary,
respectively, and by attorneys-in-fact acting under written authority furnished
to the Trustee by the Grantor or the Beneficiary, including, without limitation,
instructions given by letter, facsimile transmission, telegram, teletype,
cablegram or electronic media, if the Trustee believes such instructions to be
genuine and to have been signed, sent or presented by the proper party or
parties. The Trustee shall not incur any liability to anyone resulting from
actions taken by the Trustee in reliance in good faith on such instructions.
The Trustee shall not incur any liability in executing instructions (i) from an
attorney-in-fact prior to receipt by it of notice of the revocation of the
written authority of the attorney-in-fact or (ii) from any officer of the
Grantor or the Beneficiary named in an incumbency certificate delivered
hereunder prior to receipt by it of a more current certificate.

 

(i)                                     No
provision of this Agreement shall require the Trustee to take any action which,
in the Trustee’s reasonable judgment, would result in any violation of this
Agreement or any provision of law.

 

Section 8.                                          The Trustee’s Compensation,
Expenses and Indemnification.

 

(a)                                  The Grantor shall pay the Trustee, as
compensation for its services under this Agreement, a fee computed at the rates
set forth in Exhibit C attached hereto. The Grantor shall pay or reimburse the
Trustee for all of the Trustee’s expenses and disbursements in connection with
its duties under this Agreement (including attorney’s fees and expenses),
except any such expense or disbursement as may arise from the Trustee’s gross
negligence, willful misconduct or lack of good faith. The Trustee shall be
entitled to deduct its compensation and expenses from payments of dividends,
interest and other income in respect of the Assets held in the Trust Account
prior to the deposit thereof to the Income Account as provided in Section 5 of
this Agreement.

 

(b)                                 The Grantor shall indemnify and save harmless
the Trustee from all loss, liability or expense (including reasonable fees and
expenses of in house or outside counsel) arising from any

 

9

 

action taken in accordance with the Grantor’s
instructions or arising out of or in connection with the status of the Trustee
and its nominee as the holder of record of the Assets in connection with (i)
this Agreement or (ii) the performance of the Trustee’s duties hereunder,
provided that nothing contained herein shall require that the Trustee be
indemnified or held harmless for its negligence, willful misconduct, lack of
good faith or breach of its obligations under this Agreement. The Grantor
hereby acknowledges that the foregoing indemnities shall survive the
resignation of the Trustee or the termination of this Agreement and hereby
grants the Trustee a lien, right of set-off and security interest in the funds
in the Income Account for the payment of any claim for compensation, reimbursement
or indemnity hereunder.

 

(c)                                  No Assets shall be withdrawn from the Trust
Account or used in any manner for paying compensation to, or reimbursement or
indemnification of, the Trustee or the Asset Manager.

 

Section 9.                                          Acceptance,
Resignation and Removal of the Trustee.

 

(a)                                  The Trustee hereby accepts the trust herein
created and declared upon the terms herein expressed.

 

(b)                                 The Trustee may resign at any time upon
delivery of written notice of resignation to the Beneficiary and the Grantor,
effective not less than ninety (90) days after receipt by the Beneficiary and
the Grantor of the notice.

 

(c)                                  The Trustee may be removed by the Grantor by
delivery to the Trustee and the Beneficiary of a written notice of removal,
effective not less than ninety (90) days after receipt by the Trustee and the
Beneficiary of the notice.

 

(d)                                 No such resignation or removal of the Trustee
shall be effective until a successor trustee has been duly appointed and
approved by the Beneficiary and the Grantor and all Assets in the Trust Account
have been duly transferred to the new trustee in accordance with paragraph (e)
of this Section 9.

 

(e)                                  Upon receipt of the notice of removal or
resignation as provided in paragraph (b) or (c) above, as applicable, the
Grantor and the Beneficiary shall appoint a successor trustee. Any successor
trustee shall be a bank that is a member of the Federal Reserve System or
chartered in the State of New York and shall not be a Parent, a Subsidiary or
an Affiliate of the Grantor or the Beneficiary. Upon the acceptance of the
appointment as trustee hereunder by a successor trustee and the transfer to
such successor trustee of all Assets in the Trust Account, the resignation of
the Trustee shall become effective. 
Thereupon, such successor trustee shall succeed to and become vested
with all the rights, powers, privileges and duties of the Trustee, and the
Trustee shall be discharged from any future duties and obligations under this
Agreement, but the Trustee shall continue after its resignation to be entitled
to the benefits of the indemnities provided herein for the Trustee.

 

10

 

Section 10.                                   Termination of the Trust
Account.

 

(a)                                  The Trust Account and this Agreement, except
for the indemnities provided herein, may be terminated only after (i) the
Grantor or the Beneficiary has given the Trustee written notice of its
intention to terminate the Trust Account (the “Notice
of Intention”), and (ii) the Trustee has given the Grantor and the
Beneficiary the written notice specified in paragraph (b) of this Section
10.   The Notice of Intention shall
specify the date on which the notifying Party intends the Trust Account to
terminate (the “Proposed Date”).

 

(b)                                 Within ten Business Days following receipt by
the Trustee of the Notice of Intention, the Trustee shall give written
notification (the “Termination Notice”)
to the Beneficiary and the Grantor of the date (the “Termination Date”) on which the Trust Account shall
terminate. The Termination Date shall be (a) the Proposed Date (or if not a
Business Day, the next Business Day thereafter), if the Proposed Date is at
least 30 days but no more than 45 days subsequent to the date the Termination
Notice is given; (b) 30 days subsequent to the date the Termination Notice is
given (or if not a Business Day, the next Business Day thereafter), if the
Proposed Date is fewer than 30 days subsequent to the date the Termination
Notice is given; or (c) 45 days subsequent to the date the Termination Notice
is given (of if not a Business Day, the next Business Day thereafter), if the
Proposed Date is more than 45 days subsequent to the date the Termination
Notice is given.

 

(c)                                  On the Termination Date, upon receipt of
written approval of the Beneficiary, the Trustee shall transfer to the Grantor
any Assets remaining in the Trust Account, at which time all liability of the
Trustee with respect to such Assets shall cease.

 

Section 11.                                   Definitions.

 

Except as the context shall
otherwise require, the following terms shall have the following meanings for
all purposes of this Agreement (the definitions to be applicable to both the
singular and the plural forms of each term defined if both such forms of such
term are used in this Agreement):

 

The term “Affiliate” with respect to any corporation
shall mean a corporation which directly, or indirectly through one of more
intermediaries, controls or is controlled by, or is under common control with,
such corporation. The term “control” (including the related terms “controlled
by” and “under common control with”) shall mean the ownership, directly or
indirectly, of more than fifty percent (50%) of the voting stock of a
corporation.

 

The term “Business Day” shall mean any day on which
the offices of the Trustee in Boston, Massachusetts, are open for business.

 

The term “Eligible Securities” shall mean and
include cash (United States legal tender), certificates of deposit issued by a
United States bank and payable in United States legal tender, investments of
stocks and bonds listed by the NAIC’s Securities and Valuation Office or any
obligations issued by the State of New Jersey or any of its political
subdivisions, any other form of security approved by the New Jersey
Commissioner of Insurance upon formal request, or any

 

11

 

combination of the above; provided, however,
that no such securities shall have been issued by a Parent, a Subsidiary or an
Affiliate of either the Grantor or the Beneficiary.

 

The term “Person” shall mean and include an
individual, a corporation, a partnership, an association, a trust, an
unincorporated organization or a government or political subdivision thereof.

 

The term “Parent” shall mean an institution that,
directly or indirectly, controls another institution.

 

The term “Subsidiary” shall mean an institution
controlled, directly or indirectly, by another institution.

 

Section 12.                                   Governing Law.

 

This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts without regard to its principles of conflicts of laws.

 

Section 13.                                   Successors and Assigns.

 

No Party may assign this
Agreement or any of its obligations hereunder without the prior written consent
of the other Parties; provided, however, that this Agreement shall inure to the
benefit of and bind those who, by operation of law, become successors to the
Parties, including, without limitation, any liquidator, rehabilitator, receiver
or conservator and any successor merged or consolidated entity and provided
further that, in the case of the Trustee, the successor trustee is eligible to
be a trustee under the terms hereof.

 

Section 14.                                   Severability.

 

In the event that any
provision of the Agreement shall be declared invalid or unenforceable by any
regulatory body or court having jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remaining portions of this Agreement.

 

Section 15.                                   Entire Agreement.

 

This Agreement constitutes
the entire agreement among the Parties with respect to the subject matter
hereof, and there are no understandings or agreements, conditions or
qualifications relative to this Agreement which are not fully expressed in this
Agreement.

 

Section 16.                                   Amendments.

 

This Agreement may be
modified or otherwise amended, and the observance of any term of this Agreement
may be waived, if such modification, amendment or waiver is in writing and
signed by all of the Parties.

 

12

 

Section 17.                                   Notices, etc.

 

Unless otherwise provided in
this Agreement, all notices, directions, requests, demands, acknowledgments and
other communications required or permitted to be given or made under the terms
hereof shall be in writing and shall be deemed to have been duly given or made
(a) (i) when delivered personally or by internationally recognized courier or
(ii) when sent by confirmed facsimile transmission and (b) when addressed as
follows:

 

If to the Grantor:

 

ACE Capital Re Overseas Ltd.

Victoria Hall

PO Box HM 1826

Hamilton, Bermuda HM HX

Attention: Corporate
Secretary

Fax: 441-292-1563

 

With copies to:

 

ACE Capital Re Inc.

1325 Avenue of the Americas

New York, NY 10019

Attn: General Counsel

Fax: 212-581-3268

Telephone: 212-974-0100

 

If to the Beneficiary:

 

The Prudential Insurance Company
of America

290 West Mt. Pleasant Avenue

Livingston, NJ 07039-2729

Attn: Vice President &
Controller, Group Insurance

Telephone: 973-548-6340

Fax: 973-548-6304

 

If to the Trustee:

 

State Street Bank &
Trust Company

801 Pennsylvania

Kansas City, MO 64105

Attention: Insurance Custody

Telephone: (816) 871-9232

Telecopy:   (816) 871-9210

 

13

 

Each Party may
from time to time designate a different address for notices, directions,
requests, demands, acknowledgments and other communications by giving written
notice of such change to the other Parties.

 

Section 18.                                   Headings.

 

The headings
of the Sections and the Table of Contents have been inserted for convenience of
reference only, and shall not be deemed to constitute a part of this Agreement.

 

Section 19.                                   Counterparts

 

This Agreement
may be executed
in any number of counterparts, each of which when so executed and delivered
shall constitute an original, but such counterparts together shall constitute
one and the same Agreement. All signatures of the parties to this Agreement may
be transmitted by facsimile, and such facsimile will, for all purposes, be
deemed to be the original signature of such party whose signature it reproduces
and will be binding upon such party.

 

Section 20.                                   Force Majeure

 

In the event
that any party to this Agreement is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or transmission failure or
damage reasonably beyond its control, or other cause reasonably beyond its
control, such party shall not be liable for damages to the other parties for
any unforeseeable damages resulting from such failure to perform or otherwise
from such causes. Performance under this Agreement shall resume when the
affected party is able to perform substantially that party’s duties.

 

14

 

Section 21.                                   Trust Account
Records

 

The Trustee
shall keep full and complete records of the administration of the Trust Account.
The Grantor, the Insurance Departments of the State of New Jersey and/or the Beneficiary may
examine such records at any time during business hours, upon reasonable
request.

 

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

 

 

	
   

  	
  ACE CAPITAL RE OVERSEAS LTD.

  
	
   

  	
  as Grantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

  
	
   

  	
  as Beneficiary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  STATE
  STREET BANK & TRUST COMPANY

  
	
   

  	
  as Trustee

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

15

 

EXHIBIT A

 

Reinsurance Agreement by and between ACE
Bermuda Insurance Ltd. and the Beneficiary dated as of March 31,1998, which
agreement was assigned to the Grantor as of January 1, 2000 pursuant to the
Assignment Agreement among ACE Bermuda Insurance Ltd., the Beneficiary and the
Grantor.

 

Reinsurance Agreement by and between the
Grantor and the Beneficiary dated as of September 30, 1999.

 

16

 

EXHIBIT B

 

Cash

 

17

 

EXHIBIT C

 

I.                                         CUSTODY

 

Custody: Maintain custody of
fund assets. Settle portfolio purchases and sales. Report buy and sell fails.
Determine and collect portfolio income. Make cash disbursements and report cash
transactions. Monitor corporate actions. Report portfolio positions. On-line
access to portfolio information via Insight.

 

	
  Monthly Portfolio Charge

  	
   

  	
  $

  	
  250/month

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Annual Asset Based Fee

  	
   

  	
  0.2 basis
  points

  	
   

  

 

II.                                     PORTFOLIO TRANSACTIONS

 

	
  DTC

  	
   

  	
  $

  	
  7.50

  	
   

  
	
  PTC

  	
   

  	
  $

  	
  7.50

  	
   

  
	
  FED

  	
   

  	
  $

  	
  7.50

  	
   

  
	
  New York Physical Settlements

  	
   

  	
  $

  	
  25.00

  	
   

  
	
  Physical Maturity Collections

  	
   

  	
  $

  	
  10.00

  	
   

  
	
  State Street Investment Products

  	
   

  	
  No Charge

  	
   

  
	
  Paydowns

  	
   

  	
  No Charge

  	
   

  
	
  Foreign Exchange Through State Street

  	
   

  	
  No Charge

  	
   

  
	
  Foreign Exchange Through Third Parties

  	
   

  	
  $

  	
  50.00

  	
   

  
	
  Option charge for each option written or
  closing contract, per issue, per broker

  	
   

  	
  $

  	
  25.00

  	
   

  
	
  Option expiration or exercised charge, per
  issue, per broker

  	
   

  	
  $

  	
  15.00

  	
   

  
	
  Futures transactions – no security movement

  	
   

  	
  $

  	
  8.00

  	
   

  

 

III.                                 MONTHLY
PORTFOLIO HOLDINGS CHARGE

 

	
  DTC

  	
   

  	
  $

  	
  2.00/issue

  	
   

  
	
  PTC

  	
   

  	
  $

  	
  2.00/issue

  	
   

  
	
  FED

  	
   

  	
  $

  	
  2.00/issue

  	
   

  
	
  Physical

  	
   

  	
  $

  	
  3.00/issue

  	
   

  

 

IV.                                OUT-OF-POCKET
EXPENSES

 

A billing for the recovery
of applicable out-of pocket expenses will be made as of the end of each month.
Out-of-pocket expenses include, but are not limited to, the following:

 

- Supplies
Related to Portfolio Records

- Wire Charges ($5.00 in and
$5.00 out)

- Postage and Insurance

- Courier Service

- Legal Fees

- Communication
(telephone/facsimile)

- Transfer Fees

- Sub-custodian charges

- Federal Reserve Fee for
Return

- Check items over $2,500
($4.25 each)

- Rush Transfer ($8 each)

 

18

 

Exhibit E

 

STOP LOSS AGREEMENT

 

 

between

 

ACE CAPITAL RE OVERSEAS LTD.

 

of

 

Hamilton, Bermuda

 

 

and

 

 

LONDON LIFE AND CASUALTY REINSURANCE CORPORATION

 

of

 

St. Michael, Barbados

 

 

Table Of Contents

 

ARTICLES

 

	
  I

  	
  Coverage

  	
   

  
	
  II

  	
  Stop Loss Premium

  	
   

  
	
  III

  	
  Claims Settlements

  	
   

  
	
  IV

  	
  Exclusions

  	
   

  
	
  V

  	
  Reports and Remittances

  	
   

  
	
  VI

  	
  Notices

  	
   

  
	
  VII

  	
  Errors and Omissions

  	
   

  
	
  VIII

  	
  Access to Records

  	
   

  
	
  IX

  	
  Arbitration

  	
   

  
	
  X

  	
  Offset

  	
   

  
	
  XI

  	
  Insolvency of the Company

  	
   

  
	
  XII

  	
  Representations and Warranties

  	
   

  
	
  XIII

  	
  Parties to the Agreement

  	
   

  
	
  XIV

  	
  Severability

  	
   

  
	
  XV

  	
  Integration, Amendment and Assignment

  	
   

  
	
  XVI

  	
  Commencement and Termination

  	
   

  
	
  XVII

  	
  Currency

  	
   

  
	
  XVIII

  	
  Federal Excise Taxes

  	
   

  
	
  XIX

  	
  Execution

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SCHEDULES

  	
   

  
	
   

  	
   

  	
   

  
	
  A

  	
  Stop Loss Benefits

  	
   

  
	
  B

  	
  Quarterly Payment
  Calculation Report

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EXHIBITS

  	
   

  
	
  1

  	
  Underlying Agreement

  	
   

  
	
  2

  	
  Assignment Agreement

  	
   

  

 

 

This Stop Loss Agreement (this “Agreement”)
is made and entered into as of August 1, 2000 by and between ACE Capital Re
Overseas Ltd., a company registered and licensed under the laws of Bermuda,
hereinafter referred to as the “Company”, and London Life and Casualty
Reinsurance Corporation, a company located in St. Michael, Barbados,
hereinafter referred to as the “Reinsurer”.

 

WITNESSETH:

 

WHEREAS, A.C.E. Insurance Company Ltd.
(“ACE”) entered into a quota share reinsurance agreement with The Prudential
Insurance Company of America (“Prudential”) dated as of March 31, 1998, a copy
of which (including all amendments thereto as of the date hereof) is attached
hereto as Exhibit 1 (as amended, the “Underlying Agreement”); and

 

WHEREAS, pursuant to an assignment agreement
among Prudential, the Company and ACE (the “ Assignment Agreement”), ACE
assigned all of its rights and obligations under the Underlying Agreement to
the Company effective as of March 31, 1998, and the Company was substituted for
ACE as the reinsurer of Prudential under the Underlying Agreement (as copy of
the Assignment Agreement is attached hereto as Exhibit 2); and

 

WHEREAS, the Company desires to retrocede a
portion of its liability under the Underlying Agreement to the Reinsurer, and
the Reinsurer is willing to assume such liability on the terms and subject to
the conditions set forth herein.

 

NOW, THEREFORE, In consideration of the
mutual covenants contained herein, the parties hereto agree as follows:

 

Article I

Coverage

 

The Reinsurer shall be liable to the Company
for the Stop Loss Benefit (as defined in Schedule A hereto) calculated with
respect to each calendar quarter during the term of this Agreement. The Stop
Loss Benefit shall be paid in accordance with Article V hereof.

 

Article II

Stop Loss Premium

 

The premium for the reinsurance provided
hereunder (the “Stop Loss Premium”) is $500,000. The Company shall pay the Stop
Loss Premium, net of federal excise tax, to the Reinsurer no later than 30 days
after the execution of this Agreement.

 

 

Article
III

Claims Settlements

 

All claims settlements made by the Company
shall be binding upon the Reinsurer.

 

Article
IV

Exclusions

 

The Reinsurer shall not participate in any
punitive, statutory, compensatory or exemplary damages awarded against the
Company or legal expenses incurred by the Company in defense of action taken in
such connection, unless the Reinsurer shall have been made aware of and have
concurred in writing with the actions taken by the Company which lead to the
awarding of such extra-contractual damages.

 

Article
V

Reports and Remittances

 

Within 30 days of the end of each calendar
quarter, the Company will provide the Reinsurer a report in the form of
Schedule B hereto (the “Quarterly Payment Calculation Report”). Any Stop Loss
Benefit payable in respect of a calendar quarter shall be paid by the Reinsurer
within 10 days following receipt of the Quarterly Payment Calculation Report
for such quarter.

 

The Company will also forward to the Reinsurer
all reports provided by Prudential pursuant to the terms of the Underlying
Agreement within 15 days of the Company’s receipt of the same.

 

Article VI

Notices

 

All notices under this Agreement shall be
addressed as follows:

 

To the Company:

ACE Capital Re Overseas Ltd.

11 Victoria Hall

Victoria Street

Hamilton, Bermuda HM HX

Facsimile: 441-299-8813

Attn: Corporate Secretary

 

2

 

With a copy to:

ACE Capital Re Inc.

1325 Avenue of the Americas

New York, New York 10019

Facsimile: 212-581-3268

Attn: Corporate Secretary

 

To the Reinsurer:

London Life and Casualty
Reinsurance Corporation

Life of Barbados Building

Wildey, St. Michael

Barbados

Attention: Cheryl Harrison

Facsimile: 246-436-0175

 

The parties may change the notice address by
formal written notice, specifying the new address.

 

Article VII

Errors and Omissions

 

In the event of failure to comply with any
terms of this Agreement through an inadvertent error, omission or oversight by
either party which is shown to be unintentional, this Agreement will not be
deemed abrogated thereby. The oversight will be corrected as soon as it comes
to light in such a  way that both
the Company and the Reinsurer will be restored to the position they would have
occupied had no such oversight or omission occurred.

 

Article
VIII

Access to Records

 

The Company shall allow the Reinsurer to
inspect or audit, at all reasonable times, all records of the Company with
respect to the business reinsured under this Agreement, or with respect to
claims, losses or legal proceedings which involve or have a bearing upon the
Reinsurer, at the expense of the Reinsurer.

 

Article IX

Arbitration

 

It is the intention of the Company and the
Reinsurer that the customs and practices of the insurance and reinsurance
industry will be given full effect in the operation and interpretation of this
Agreement. The parties agree to act in all matters of business with

 

3

 

the highest good faith. If the Company or the
Reinsurer cannot mutually resolve a dispute that arises out of or relates to
this Agreement, however, the dispute will be decided through arbitration. The
arbitrators will base their decision on the terms and conditions of this
Agreement plus, as necessary, on the customs and practices of the insurance and
reinsurance industries rather than solely on a strict interpretation of the
applicable law; there will be no appeal from their decision (absent manifest
error) and any court having jurisdiction of the subject matter and the parties
may reduce that decision to judgment.

 

To initiate arbitration, either the Reinsurer
or the Company will notify the other party in writing of its desire to
arbitrate, stating the nature of its dispute and the remedy sought. The party
to which the notice is sent will acknowledge receipt of the notification in
writing within ten (10) days of its receipt.

 

There will be three arbitrators who will be
current or former officers of life insurance companies, but not current or
former directors, officers or employees of the Company, the Reinsurer, or any
of their affiliates. Each of the parties will appoint one of the arbitrators
and these two arbitrators will select the third. If cither party refuses or
neglects to appoint an arbitrator within 60 days of the date of the notice of
arbitration, the other party may appoint the second arbitrator. If the two
arbitrators do not agree on a third arbitrator within 45 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.

 

It is agreed that each of the three
arbitrators should be impartial regarding the dispute and should resolve the
dispute on the basis described in the first paragraph of this Article.
Therefore at no time will either the Reinsurer or the Company engage in private
communications with any of the arbitrators concerning the dispute.

 

The arbitration hearing will be held in New
York, New York, on the date fixed by the arbitrators. In no event will this
date be later than six (6) months after the appointment of the third
arbitrator. As soon as possible, the arbitrators will establish pre-arbitration
procedures as warranted by the facts and issues of the particular case. At
least ten (10) days prior to the arbitration hearing, each party will provide
the other party and the arbitrators with a detailed statement of the facts and
arguments it will present at the arbitration hearing. The arbitrators may
consider any relevant evidence; they will give evidence such weight as they
deem it entitled to after consideration of any objections raised concerning it.
The party initiating the arbitration will have the burden of proving its case
by a preponderance of the evidence. Each party may examine any witnesses who
testify at the arbitration.

 

The cost of the arbitration will be borne by
the losing party unless the arbitrators decide otherwise; provided, that each
party shall be responsible for its own legal fees and expenses.

 

4

 

This Article shall survive termination of
this Agreement.

 

Article X

Offset

 

The parties hereto have the right to offset
any balance(s) due from one to the other under this Agreement or any other
agreement heretofore or hereafter entered into between the Company and the
Reinsurer, whether acting as assuming reinsurer or ceding company. The party
asserting the right of offset may exercise such right at any time whether the
balance(s) due are on account of premiums, losses, salvage or otherwise. This
provision shall not be affected by the insolvency of either party hereto.

 

Article XI

Insolvency of the Company

 

In the event of the insolvency of the
Company, this reinsurance will be payable directly to the Company, or to its
liquidator, receiver, conservator or statutory successor, on the basis of the
liability of the Company without diminution because of the insolvency of the
Company or because the liquidator, receiver, conservator or statutory successor
of the Company has failed to pay all or a portion of any claim. The Reinsurer
shall be given written notice of the pendency of each loss or claim which may
involve the retrocessional liability provided by this Agreement within a
reasonable time after such loss or claim is tiled in the insolvency
proceedings.

 

The Reinsurer shall have the right to
investigate each such loss or claim and interpose at its own expense in the
proceeding where the loss or claim is to be adjudicated, any defense which it
may deem available to the Company or its liquidator, receiver or statutory
successor. The expense thus incurred by the Reinsurer shall be chargeable,
subject to court approval, against the insolvent 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 Xll

Representations and Warranties

 

A.                                    Of the Company:

 

1.               Organization, Standing and Authority of the
Company. The Company is a
life insurance company duly organized and validly existing under the laws of Bermuda.

 

2.               Authorization. The Company has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder.   The execution and

 

5

 

delivery by the Company of
this Agreement, and the performance by the Company of its obligations under
this Agreement, have been duly authorized by all necessary corporate action.
This Agreement, when duly executed and delivered by the Company, subject to the
due execution and delivery by the Reinsurer, will be a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.

 

3.               No Conflict or Violation. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby in
accordance with the respective terms and conditions hereof will not (a) violate
any provision of the Memorandum of Association or Bylaws of the Company, or (b)
violate any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon, the
Company or any agreement with, or condition imposed by, any governmental or
regulatory body, foreign or domestic, binding upon the Company.

 

3.               Approvals of Governmental Authorities. No consent, waiver, license, approval,
order or authorisation of, or registration, filing or declaration with, or
notices to, any person, entity or governmental authority is required to be
obtained, made or given by or with respect to the Company in connection with
(i) the execution and delivery of this Agreement by the Company, or (ii) the
consummation by the Company of the transactions contemplated hereby.

 

B.                                    Of the Reinsurer:

 

1.               Organisation. Standing and Authority of the
Reinsurer.   The Reinsurer is a life insurance company
duly organized, validly existing and in good standing under the laws of
Barbados.

 

2.               Authorization. The Reinsurer has all requisite corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder.   The execution and delivery
by the Reinsurer of this Agreement, and the performance by the Reinsurer of its
obligations under this Agreement, have been duly authorized by all necessary
corporate action.    This Agreement,
when duly executed and delivered by the Reinsurer, subject to the due execution
and delivery by the Company, will be a valid and binding obligation of the
Reinsurer, enforceable against the Reinsurer in accordance with its terms.

 

3.               No Conflict or Violation. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
will not (a) violate any provision of the Articles of Incorporation, Bylaws or
other charter or organizational document of the Reinsurer, or (b) violate any
order, judgment, injunction, award or decree of any court, arbitrator or
governmental or regulatory body against, or binding upon, the Reinsurer or any
agreement with, or condition imposed by, any governmental or regulatory body,
foreign or domestic, binding upon the Reinsurer.

 

6

 

4.               Approvals of Governmental Authorities. No consent, waiver, license, approval,
order or authorization of, or registration, filing or declaration with, or
notices to, any person, entity or governmental authority is required to be
obtained, made or given by or with respect to the Reinsurer in connection with
(i) the execution and delivery of this Agreement by the Reinsurer, or (ii) the
consummation by the Reinsurer of the transactions contemplated hereby.

 

Article
XIII

Parties to Agreement

 

This is an agreement solely between the
Company and the Reinsurer. The acceptance of reinsurance hereunder shall not
create any right or legal relation whatever between the Reinsurer and the
insured or beneficiary under any business reinsured hereunder, and the Company
shall remain solely liable to such insured or beneficiary.

 

Article XIV

Severability

 

To the extent that this Agreement may be in
conflict with any applicable law or regulation, this Agreement shall be
amended, at the mutual agreement of both the Company and the Reinsurer, to the
extent possible, to comply with such law and regulation. If any term or
provision of this Agreement shall be found by a court of competent jurisdiction
to be illegal or otherwise unenforceable, the same shall not invalidate the
whole of this Agreement, but such term or provision shall be deemed modified to
the extent necessary in the court’s opinion to render such term or provision
enforceable, and the rights and obligations of the parties shall be construed
and enforced accordingly preserving to the fullest permissible extent the
intent and agreements of the parties set forth herein.

 

Article XV

Integration, Amendment and Assignment

 

This Agreement shall constitute the entire
agreement between the parties with respect to the reinsurance of the business
covered and mere are no understandings between the parties other than as
expressed in this Agreement. Furthermore, this Agreement may not be altered, modified
or in any way amended except by an instrument in writing duly executed by the
proper officials of both parties. This Agreement may not be assigned by either
party without the written consent of the other party; provided, however, in the
event the Company assigns its rights and obligations under the Underlying
Agreement to an affiliate, the Company may assign its rights and obligations
hereunder to such affiliate

 

7

 

without the consent of the Reinsurer. The
Company shall give prompt notice of any such assignment to the Reinsurer.

 

Article XVI

Commencement and Termination

 

This Agreement shall be effective as of March
31, 2000 (the “Effective Date”). This Agreement shall continue until such time
as the Company has no further liability under the Underlying Agreement, unless
earlier terminated in accordance with the following paragraph.

 

The Company may terminate this Agreement as
of the first day of any calendar quarter on or after the 10th
anniversary of the Effective Date (the “Termination Date”) upon 60 days’ prior
written notice to the Reinsurer. Any such termination shall be on a cut-off
basis, meaning that the Reinsurer shall have no liability in respect of Stop
Loss Benefits calculated with respect to calendar quarters commencing on or
after the Termination Date. However, the rights and obligations of the Company
and the Reinsurer applicable to the period prior to the Termination Date shall
not be affected by such termination.

 

Within ten days of the Termination Date, the
Reinsurer will pay the Company $200,000 and any Stop Loss Benefit for any
preceding calendar quarter that is due and unpaid.

 

Article
XVII

Currency

 

The currency for the purpose of this
Agreement will be US dollars, and the premiums and liabilities shall be
expressed and payable in that currency.

 

Article
XVIII

Federal Excise Taxes

 

To the extent the Stop Loss Premium is
subject to the federal excise tax, the Reinsurer agrees to allow for the
purpose of paying the federal excise tax one percent of the Stop Loss Premium,
and the Company shall make payment of such tax to the U.S government.

 

8

 

Article XIX

Execution

 

In witness of the above, this Agreement is
signed in duplicate as of the date first above written and at the places
indicated.

 

 

ACE Capital
Re Overseas Ltd.

 

 

	
  By:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
				

 

 

London Life
and Casualty Reinsurance Corporation

 

 

	
  By:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
				

 

9

 

Schedule A

Stop
Loss Benefits

 

On the last day of each calendar quarter a
Stop Loss Benefit will be calculated.

 

The Stop Loss Benefit is equal to

 

[A - B] x C, but not less than zero and not
greater than D

 

where:

 

A = Accumulated Benefits

B = Attachment Point

C = Quota Share Percentage

D = Maximum Claim

 

as each such term is defined below.

 

“Accumulated Benefits” means:

 

As of March 31, 2000, $8,545,149.

 

As of the last day of each subsequent
calendar quarter, an amount equal to (i) the Accumulated Benefit as of the last
day of the immediately preceding calendar quarter multiplied by [1 + R/4 +
0.0015] plus (ii) the total of all amounts payable by the Company under the
Underlying Agreement in respect of the current calendar quarter as reported on
Line 7 of the Quarterly Payment Calculation Report for the current calendar
quarter.

 

“Attachment Point” means:

 

As of March 31, 2000, $104,468,755.

 

As of the last day of each subsequent
calendar quarter, an amount equal to (i) the Attachment Point as of the last
day of the immediately preceding calendar quarter plus the Stop Loss Benefit
for the immediately preceding calendar quarter multiplied by (ii) 1 + R/4+
0.0015.

 

“Quota Share” means 90%.

 

“Maximum Claim” means:

 

As of March 31, 2000, $37,500,000.

 

10

 

As of the last day of each subsequent
calendar quarter, an amount equal to (i) the Maximum Claim as of the last day
of the immediately preceding calendar quarter minus the Stop Loss Benefit for
the immediately preceding calendar quarter multiplied by (ii) 1 + R/4 +0.0015.

 

“R” means, with respect to a calendar
quarter, an effective annual rate determined in accordance with the formula
“D/(1-D)”, where “D” is expressed as a decimal and is equal to the rate of
discount for the Treasury Bill that matures closest to the 90th day
after the first calendar day of such quarter, as reported under the “ask”
column in the Applicable Source (as such term is defined in the Underlying
Agreement) on the first business day of such calendar quarter.

 

11

 

Schedule B

Quarterly Payment Calculation Report

 

Report for
the Calendar Quarter Ended

 

	
  1.  C = Quota Share:

  	
   

  	
  90%

  
	
   

  	
   

  	
   

  
	
  2.  X = Accumulated Benefits at end of prior
  quarter:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  3.  Y = Stop Loss Benefit paid for prior
  quarter:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  4.  Z = Attachment Point at end of prior
  quarter:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  5.  W = Maximum Claim at end of prior quarter:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  6.  R = Interest rate per Schedule A :

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  7.  E = Amounts payable under Underlying Agreement in respect of current
  calendar quarter:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  8.  A = Accumulated Benefits for current
  quarter:

  = [1 + R/4+.0.0015] x X plus E =

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  9.  B = Attachment Point at end of current
  quarter:

  = [1 + R/4 + 0.0015] x. [Y + Z] =

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  10.
  D = Maximum Claim at end of current quarter:

  = [1 + R/4 + 0.0015] x [W - Y] =

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  11.
  Stop Loss Benefit for current quarter:

  = Min {Max [(A – B) x C, 0], D} =

  	
   

  	
   

  

 

12

 

Exhibit 1

[Underlying Agreement]

 

13

 

Exhibit 2

 

[Assignment
Agreement]

 

14

 

Exhibit F

 

ASSIGNMENT
AGREEMENT RELATING TO REINSURANCE AGREEMENTS

 

This Assignment Agreement Relating to
Reinsurance Agreements (this “Assignment Agreement”), dated as of January 1,
2000, is made and entered into by and between ACE 1NA Overseas Insurance
Company (“AIOIC”), The Prudential Insurance Company of America (“Prudential”)
and ACE Capital Re Overseas Ltd. (formerly, KRE Reinsurance Ltd.) (“ACRO”)
(AIOIC, Prudential and ACRO are collectively referred to hereinafter as the
“Parties”).

 

WITNESSETH:

 

WHEREAS, ACE Bermuda Insurance Ltd.
(formerly, A.C.E. Insurance Company, Ltd.) (“ACE”) (as the reinsurer) and
Prudential (as the reinsured) entered into a reinsurance agreement dated as of
March 31, 1998 (as amended to date, the “1998 Reinsurance Agreement”), a copy
of which is attached hereto as Exhibit A, wherein Prudential ceded to ACE and
ACE assumed from Prudential certain liabilities of Prudential under a medical
care benefits stop loss policy with a March 31, 1998 contract date issued by
Prudential to the Columbia Energy Group and certain of its subsidiaries; and

 

WHEREAS, ACE, Prudential and ACRO entered
into an assignment agreement, a copy of which is attached hereto as Exhibit B,
wherein ACE assigned to ACRO and ACRO assumed from ACE, effective as at 12:01
A.M. Eastern Standard Time on January 1, 2000, all of ACE’s rights and
obligations under the 1998 Reinsurance Agreement; and

 

WHEREAS, ACRO (as the reinsurer) and
Prudential (as the reinsured) entered into a reinsurance agreement dated as of
September 30, 1999 (the “1999 Reinsurance Agreement”), a copy of which is
attached hereto as Exhibit C, wherein Prudential ceded to ACRO and ACRO assumed
from Prudential certain liabilities of Prudential under a medical care benefits
stop loss policy with a September 30, 1999 contract date issued by Prudential
to the Columbia Energy Group and certain of its subsidiaries; and

 

WHEREAS, the Parties hereto wish to
substitute, with effect from the Effective Date (as defined below), AIOIC for
ACRO as the reinsurer under both the 1998 Reinsurance Agreement and the 1999
Reinsurance Agreement (collectively, the “Reinsurance Agreements”).

 

NOW, THEREFORE, in consideration of the above
stated premises and other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, the Parties hereby agree
as follows:

 

1.               By way of this Assignment Agreement, with
effect from 12:01:01 A.M. Eastern Standard Time on January 1, 2000 (the
“Effective Date”), AIOIC shall replace ACRO for all purposes under the
Reinsurance Agreements as though it were the named reinsurer thereunder.

 

2.               As of the Effective Date, AIOIC shall assume
all of the present and future liabilities and obligations of ACRO under the
Reinsurance Agreements and shall be substituted for ACRO, in ACRO’s name, place
and stead, as the reinsurer thereon so as to effect an assignment of

 

 

the Reinsurance Agreements,
and ACRO shall be simultaneously released from any and all present and future
liabilities or obligations thereunder.

 

3.               As of the Effective Date, AIOIC shall be
entitled to all of the rights of ACRO under the Reinsurance Agreements, and
shall be entitled to enforce all such rights in the name, place and stead of
ACRO.

 

4.               As of the Effective Date, Prudential shall be
entitled to and shall disregard ACRO as a party to the Reinsurance Agreements
and shall be entitled to and shall treat AIOIC as if it had been the named
reinsurer thereunder.

 

5.               As of the Effective Date, Prudential shall be
entitled to and shall file claims arising under the Reinsurance Agreements
directly with AIOIC.

 

6.               As consideration for the assumption of
liabilities by AIOIC, ACRO shall assign to AIOIC all of ACRO’s right, title and
interest in the trust account established for the benefit of Prudential
pursuant to the trust agreement dated as of May 1, 2000 among ACRO, Prudential
and State Street Bank & Trust Company.

 

7.               In consideration of Prudential’s agreement to
the assignment and assumption effected hereby, AIOIC shall pay $25,000 to
Prudential by wire transfer within five days following the date of execution of
this Assignment Agreement.

 

8.               This Assignment Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York,
without regard to its conflict of laws doctrine.

 

9.               Any dispute, controversy or claim arising out
of or relating to this Assignment Agreement shall be subject to arbitration in
accordance with the provisions of Article 19 of the 1998 Reinsurance Agreement.

 

10.         This Assignment Agreement shall not alter, amend or in any way limit
the terms and provisions of the Reinsurance Agreements except to the extent
stated herein.

 

2

 

11.         This Assignment Agreement may be executed in one or more 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 Assignment Agreement
has been executed by the following individuals duly authorized to act on behalf
of the parties:

 

 

ACE INA Overseas Insurance Company

 

 

	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  

 

ACE Capital Re Overseas Ltd.

 

 

	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  

 

The Prudential Insurance Company of America

 

 

	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  

 

3

 

Exhibit
A

 

[1998
Reinsurance Agreement]

 

Exhibit
B

 

[Assignment
Agreement between Prudential, ACE and ACRO]

 

Exhibit
C

 

[1999
Reinsurance Agreement]

 

4

 

Exhibit G

 

ASSIGNMENT
AGREEMENT AND AMENDMENT

RELATING TO TRUST AGREEMENT

 

This Assignment Agreement and Amendment
Relating to Trust Agreement (this “Assignment and Amendment Agreement”), dated
as of December 1, 2000, is made and entered into by and between ACE INA
Overseas Insurance Company (“AIOIC”), The Prudential Insurance Company of
America (“Prudential”), ACE Capital Re Overseas Ltd. (“ACRO”) and State Street
Bank & Trust Company (“State Street”) (AIOIC, Prudential, ACRO and State
Street are collectively referred to hereinafter as the “Parties”).

 

WITNESSETH:

 

WHEREAS, ACRO, Prudential and State Street
entered into a trust agreement dated as of May 1, 2000 (the “Trust Agreement”),
a copy of which is attached hereto as Exhibit A, wherein ACRO established the
Trust Account (as defined in the Trust Agreement) with State Street for the
benefit of Prudential to secure the obligations of ACRO to Prudential under the
Reinsurance Agreements (as defined in the Trust Agreement); and

 

WHEREAS, ACRO has assigned to AIOIC and AIOIC
has assumed from ACRO, effective as of 12:01:01 A.M. Eastern Standard Time on
January 1, 2000, all of ACRO’s rights and obligations under the Reinsurance
Agreements; and

 

WHEREAS, ACRO desires to assign to AIOIC and
AIOIC desires to assume from ACRO, effective as of the date of this Assignment
and Amendment Agreement, all of ACRO’s rights in the Trust Account and all of
ACRO’s rights and obligations under the Trust Agreement; and

 

WHEREAS, Prudential, AIOIC and State Street
desire to amend the Trust Account in certain respects effective as of the
Effective Date.

 

NOW, THEREFORE, in consideration of the above
stated premises and other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, the Parties hereby agree
as follows:

 

1.               ACRO hereby assigns to AIOIC all of its
right, title and interest in and to the Trust Account and the Income Account
(as defined in the Trust Agreement) with effect from 11:59 P.M. Eastern Standard
Time on December 31, 2000 (the “Effective Date”).

 

2.               By way of this Assignment and Amendment
Agreement, with effect from the Effective Date, AIOIC shall replace ACRO for
all purposes under the Trust Agreement as though it were the named grantor thereunder.

 

3.               As of the Effective Date, AIOIC shall assume
all of the present and future liabilities and obligations of ACRO under the
Trust Agreement and shall be substituted for ACRO, in ACRO’s name, place and
stead, as the grantor thereunder so as to effect an assignment of the Trust
Agreement, and ACRO shall be simultaneously released from any and all present
and future liabilities or obligations thereunder.

 

 

4.               As of the Effective Date, AIOIC shall be
entitled to all of the rights of ACRO under the Trust Agreement, and shall be
entitled to enforce all such rights in the name, place and stead of ACRO.

 

5.               As of the Effective Date, Prudential shall be
entitled to and shall disregard ACRO as a party to the Trust Agreement and
shall be entitled to and shall treat AIOIC as if it had been the named grantor
thereunder.

 

6.               As of the Effective Date, the Trust Agreement
is amended as follows:

 

A.                                   By adding to Section 3(e) the word “and”  and by adding to Section 3, immediately
following clause (e), the following clause (f):

 

(f)   to make
payment to the Grantor of any amounts held in the Trust Account that exceed
102% of the actual amount required to fund the Grantor’s obligations under the
Reinsurance Agreements.

 

B.                                     By deleting Section 5 in its entirety.

 

C.                                     By deleting from the last sentence of clause
(a) of Section 8 the words “prior to the deposit thereof in the Income Account
as provided in Section 5 of this Agreement”.

 

D.                                    By deleting from the last sentence of clause
(b) of Section 8 the words “and hereby grants the Trustee a lien, right of
set-off and security interest in the funds in the Income Account for the
payment of any claim for compensation, reimbursement or indemnity hereunder”.

 

E.                                      By deleting from the first sentence of
Section 7(h) the words “named in incumbency certificates furnished to the
Trustee from time to time by the Grantor and the Beneficiary, respectively” and
inserting in lieu thereof the words “designated by the Grantor and the
Beneficiary, respectively, in a Funds Transfer Operating Agreement”.

 

F.                                      By deleting from the last sentence of Section
7(h) the words “an incumbency certificate delivered hereunder prior to receipt
by it of a more current certificate” and inserting in lieu thereof the words “a
Funds Transfer Operating Agreement, which may be updated from time to time”.

 

7.               This Assignment and Amendment Agreement shall
be governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts, without regard to its conflict of laws doctrine.

 

8.               This Assignment and Amendment Agreement shall
not alter, amend or in any way limit the terms and provisions of the Trust
Agreement except to the extent stated herein.

 

2

 

9.               This Assignment and Amendment Agreement may
be executed in one or more 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 Assignment and
Amendment Agreement has been executed by the following individuals duly
authorized to act on behalf of the Parties:

 

	
  ACE INA Overseas Insurance
  Company

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
	
   

  
	
  ACE Capital Re Overseas
  Ltd.

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
	
   

  
	
  The Prudential Insurance
  Company of America

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
	
   

  
	
  State Street Bank &
  Trust Company

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
						

 

3

 

Exhibit
A

 

[Trust
Agreement]

 

4

 

Exhibit H

 

ASSIGNMENT
AGREEMENT RELATING TO STOP LOSS AGREEMENT

 

This Assignment Agreement Relating to Stop
Loss Agreement (this “Assignment Agreement”), dated as of December 1, 2000, is
made and entered into by and between ACE INA Overseas Insurance Company
(“AIOIC”) and ACE Capital Re Overseas Ltd. (AIOIC and ACRO are collectively
referred to hereinafter as the “Parties”).

 

WITNESSETH:

 

WHEREAS, London Life and Casualty Reinsurance
Corporation (“London Life”) (as the reinsurer) and ACRO (as the reinsured)
entered into a Stop Loss Agreement dated as of August 1, 2000 (the “Stop Loss
Agreement”), a copy of which is attached hereto as Exhibit A, wherein London
Life reinsured, on a stop loss basis, a portion of the liability of ACRO under
the Underlying Agreement (as defined in the Stop Loss Agreement); and

 

WHEREAS, the Stop Loss Agreement permits ACRO
(without the consent of London Life) to assign its rights and obligations under
the Stop Loss Agreement to any affiliate to which ACRO has assigned its rights
and obligations under the Underlying Agreement; and

 

WHEREAS, ACRO has assigned to AIOIC and AIOIC
has assumed from ACRO, effective as at 12:01:01 A.M. Eastern Standard Time on
January 1, 2000, all of ACRO’s rights and obligations under the Underlying
Agreement; and

 

WHEREAS, AIOIC and ACRO are affiliates; and

 

WHEREAS, ACRO and AIOIC desire that ACRO
assign its rights and obligations under the Stop Loss Agreement to AIOIC.

 

NOW, THEREFORE, in consideration of the above
stated premises and other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, the Parties hereby agree
as follows:

 

1.               By way of this Assignment Agreement, with
effect from 12:01 A.M. Eastern Standard Time on March 31, 2000 (the “Effective
Date”), AIOIC shall replace ACRO for all purposes under the Stop Loss Agreement
as though it were the named reinsured thereunder.

 

2.               As of the Effective Date, AIOIC shall assume
all of the present and future liabilities and obligations of ACRO under the
Stop Loss Agreement and shall be substituted for ACRO, in ACRO’s name, place
and stead, as the reinsurer thereon so as to effect an assignment of the Stop
Loss Agreement, and ACRO shall be simultaneously released from any and all
present and future liabilities or obligations thereunder.

 

3.               As of the Effective Date, AIOIC shall be
entitled to all of the rights of ACRO under the Stop Loss Agreement, and shall
be entitled to enforce all such rights in the name, place and stead of ACRO.

 

 

4.               As of the Effective Date, London Life shall
be entitled to and shall disregard ACRO as a party to the Stop Loss Agreement
and shall be entitled to and shall treat A1OIC as if it had been the named
reinsured thereunder.

 

5.               This Assignment Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York,
without regard to its conflict of laws doctrine.

 

6.               Any dispute or controversy arising under or
in connection with this Assignment Agreement shall be settled exclusively by
arbitration conducted by a single arbitrator sitting in New York, New York, in
accordance with the commercial rules of the American Arbitration Association
(the “AAA”) then in effect. The arbitrator shall be selected by mutual
agreement of the parties; provided, that, in the event the parties are unable
to agree on an arbitrator within 15 days, the arbitrator shall be selected by
the president of the AAA or by the president’s designee; provided, further,
that no arbitrator shall be affiliated with either party. Each party shall bear
its own expenses incurred in connection with the arbitration, and the parties
shall share equally the costs of the arbitration proceeding, including, without
limitation, the fees, costs and expenses imposed or incurred by the arbitrator.
Judgment may be entered on the arbitrator’s award in any court having
jurisdiction. The procedures specified in this Section shall be the sole and
exclusive procedures for the resolution of irreconcilable disputes between the
parties arising out of or relating to this Assignment Agreement.

 

7.               This Assignment Agreement shall not alter,
amend or in any way limit the terms and provisions of the Stop Loss Agreement
except to the extent stated herein.

 

8.               This Assignment Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

 

9.               ACRO shall provide a copy of this Assignment
Agreement to London Life promptly following the execution hereof.

 

IN WITNESS WHEREOF, this Assignment Agreement
has been executed by the following individuals duly authorized to act on behalf
of the parties:

 

	
  ACE INA Overseas Insurance
  Company

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
	
   

  
	
  ACE Capital Re Overseas
  Ltd.

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
				

 

2

 

Exhibit
A

 

[Stop
Loss Agreement]

 

3

 

Exhibit I

 

FIRST
AMENDMENT TO STOP LOSS AGREEMENT

 

This FIRST AMENDMENT TO STOP LOSS AGREEMENT
(this “Amendment”), dated as of April [  
], 2001, is entered into between LONDON LIFE AND CASUALTY
REINSURANCE CORPORATION (the “Reinsurer”) and ACE INA OVERSEAS INSURANCE
COMPANY LTD. (the “Company”) with respect to the Stop Loss Agreement (as
defined below).

 

WHEREAS, the Reinsurer and ACE Capital Re
Overseas Ltd, (“ACRO”) entered into a stop loss agreement dated as of August 1,
2000 (the “Stop Loss Agreement”); and

 

WHEREAS, pursuant to an assignment agreement
dated as of December 1, 2000, ACRO assigned to the Company its rights and
obligations under the Stop Loss Agreement with effect from March 31, 2000; and

 

WHEREAS, the Company and the Reinsurer desire
to amend the Stop Loss Agreement as set forth below.

 

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

 

1.               Effective as of March 31, 2000, the Stop Loss
Agreement is amended by deleting from Schedule A thereto the following:

 

“Maximum Claim” means:

 

As of March 31, 2000,
$37,500,000

 

and inserting in lieu thereof the following:

 

“Maximum Claim” means:

 

As of March 31, 2000,
$42,135,000.

 

2.               Nothing herein contained shall be held to
vary, alter, waive or extend any of the terms, conditions, exclusions or
limitations of the Stop Loss Agreement except as expressly stated herein.

 

 

3.               This Amendment may be executed in
counterparts, each of which will be deemed an original, but all of which taken
together will constitute one and the same instrument. All signatures of parties
to this Amendment may be transmitted by facsimile, and such facsimile will, for
all purposes, be deemed to be the original signature of such party whose
signature it reproduces and will be binding upon such party.

 

IN WITNESS WHEREOF, this Amendment has been
executed by the following individuals duly authorized to act on behalf of the
parties.

 

 

	
  LONDON LIFE AND CASUALTY

  REINSURANCE CORPORATION

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
	
   

  
	
   

  
	
  ACE INA OVERSEAS INSURANCE
  COMPANY LTD.

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
					

 

2

 

Exhibit J

 

STOP LOSS AGREEMENT

 

between

 

ACE INA OVERSEAS INSURANCE COMPANY

 

of

 

Hamilton, Bermuda

 

and

 

LONDON LIFE AND CASUALTY REINSURANCE CORPORATION

 

of

 

St. Michael, Barbados

 

 

Table Of Contents

 

ARTICLES

 

	
  I

  	
  Coverage

  	
   

  
	
  II

  	
  Stop Loss Premium

  	
   

  
	
  III

  	
  Claims
  Settlements

  	
   

  
	
  IV

  	
  Exclusions

  	
   

  
	
  V

  	
  Reports
  and Remittances

  	
   

  
	
  VI

  	
  Notices

  	
   

  
	
  VII

  	
  Errors
  and Omissions

  	
   

  
	
  VIII

  	
  Access to Records

  	
   

  
	
  IX

  	
  Arbitration

  	
   

  
	
  X

  	
  Offset

  	
   

  
	
  XI

  	
  Insolvency
  of the Company

  	
   

  
	
  XII

  	
  Representations and
  Warranties

  	
   

  
	
  XIII

  	
  Parties
  to the Agreement

  	
   

  
	
  XIV

  	
  Severability

  	
   

  
	
  XV

  	
  Integration, Amendment and Assignment

  	
   

  
	
  XVI

  	
  Commencement and
  Termination

  	
   

  
	
  XVII

  	
  Currency

  	
   

  
	
  XVIII

  	
  Federal
  Excise Taxes

  	
   

  
	
  XIX

  	
  Execution

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULES

  	
   

  
	
   

  	
   

  	
   

  
	
  A

  	
  Stop Loss Benefits

  	
   

  
	
  B

  	
  Quarterly Payment Calculation Report

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  
	
   

  	
   

  	
   

  
	
  1

  	
  Underlying Agreement

  	
   

  
	
  2

  	
  Assignment Agreement

  	
   

  

 

 

This Stop Loss Agreement (this “Agreement”)
is made and entered into as of January 1, 2001 by and between ACE INA Overseas
Insurance Company, a company registered and licensed under the laws of Bermuda,
hereinafter referred to as the “Company”, and London Life and Casualty
Reinsurance Corporation, a company located in St. Michael, Barbados,
hereinafter referred to as the “Reinsurer”.

 

WITNESSETH:

 

WHEREAS, ACE Capital Re Overseas Ltd. (“ACE”)
entered into a quota share reinsurance agreement with The Prudential Insurance
Company of America (“Prudential”) dated as of September 30, 1999, a copy of
which is attached hereto as Exhibit 1 (the “Underlying Agreement”); and

 

WHEREAS, pursuant to an assignment agreement
among Prudential, the Company and ACE (the “Assignment Agreement”), ACE
assigned all of its rights and obligations under the Underlying Agreement to
the Company effective as of January 1, 2000 and the Company was substituted for
ACE as the reinsurer of Prudential under the Underlying Agreement (as copy of
the Assignment Agreement is attached hereto as Exhibit 2); and

 

WHEREAS, the Company desires to retrocede a
portion of its liability under the Underlying Agreement to the Reinsurer, and
the Reinsurer is willing to assume such liability on the terms and subject to
the conditions set forth herein.

 

NOW, THEREFORE, In consideration of the
mutual covenants contained herein, the parties hereto agree as follows:

 

Article I

Coverage

 

The Reinsurer shall be liable to the Company
for the Stop Loss Benefit (as defined in Schedule A hereto) calculated with
respect to each calendar quarter during the term of this Agreement. The Stop
Loss Benefit shall be paid in accordance with Article V hereof.

 

Article II

Stop Loss
Premium

 

The premium for the reinsurance provided
hereunder (the “Stop Loss Premium”) is $300,000. The Company shall pay the Stop
Loss Premium, net of federal excise tax, to the Reinsurer no later than 30 days
after the execution of this Agreement.

 

 

Article III

Claims
Settlements

 

All claims settlements made by
the Company shall be binding upon the Reinsurer.

 

Article IV

Exclusions

 

The Reinsurer shall not
participate in any punitive, statutory, compensatory or exemplary damages
awarded against the Company or legal expenses incurred by the Company in
defense of action taken in such connection, unless the Reinsurer shall have
been made aware of and have concurred in writing with the actions taken by the
Company which lead to the awarding of such extra-contractual damages.

 

Article V

Reports
and Remittances

 

Within 30 days of the end of
each calendar quarter, the Company will provide the Reinsurer a report in the
form of Schedule B hereto (the “Quarterly Payment Calculation Report”). Any
Stop Loss Benefit payable in respect of a calendar quarter shall be paid by the
Reinsurer within 10 days following receipt of the Quarterly Payment Calculation
Report for such quarter.

 

The Company will also forward
to the Reinsurer all reports provided by Prudential pursuant to the terms of
the Underlying Agreement within 15 days of the Company’s receipt of the same.

 

Article VI

Notices

 

All notices under this
Agreement shall be addressed as follows:

 

To the
Company:

ACE INA
Overseas Insurance Company

Clarendon
House

2 Church
Street

PO Box 11M
1022

Hamilton,
Bermuda HM 11

Attn:
Corporate Secretary

 

2

 

With a copy to:

ACE Capital Re Inc.

1325 Avenue of the Americas

New York, New York 10019

Facsimile: 212-581-3268

Attn: Corporate Secretary

 

To the Reinsurer:

London Life and Casualty
Reinsurance Corporation

Life of Barbados Building

Wildey, St. Michael

Barbados

Attention: Cheryl Harrison

Facsimile: 246-436-0175

 

The parties may change the notice address by
formal written notice, specifying the new address.

 

Article VII

Errors
and Omissions

 

In the event of failure to comply with any
terms of this Agreement through an inadvertent error, omission or oversight by
either party which is shown to be unintentional, this Agreement will not be
deemed abrogated thereby. The oversight will be corrected as soon as it comes
to light in such a way that both the Company and the Reinsurer will be restored
to the position they would have occupied had no such oversight or omission
occurred.

 

Article VIII

Access
to Records

 

The Company shall allow the Reinsurer to
inspect or audit, at all reasonable times, all records of the Company with
respect to the business reinsured under this Agreement, or with respect to
claims, losses or legal proceedings which involve or have a bearing upon the
Reinsurer, at the expense of the Reinsurer.

 

Article IX

Arbitration

 

It is the intention of the Company and the
Reinsurer that the customs and practices of the insurance and reinsurance
industry will be given full effect in the operation and interpretation of this
Agreement. The parties agree to act in all matters of business with

 

3

 

the highest good faith. If the Company or the
Reinsurer cannot mutually resolve a dispute that arises out of or relates to
this Agreement, however, the dispute will be decided through arbitration. The
arbitrators will base their decision on the terms and conditions of this
Agreement plus, as necessary, on the customs and practices of the insurance and
reinsurance industries rather than solely on a strict interpretation of the
applicable law; there will be no appeal from their decision (absent manifest
error) and any court having jurisdiction of the subject matter and the parties
may reduce that decision to judgment.

 

To initiate arbitration, either the Reinsurer
or the Company will notify the other party in writing of its desire to
arbitrate, stating the nature of its dispute and the remedy sought. The party
to which the notice is sent will acknowledge receipt of the notification in
writing within ten (10) days of its receipt.

 

There will be three arbitrators who will be
current or former officers of life insurance companies, but not current or
former directors, officers or employees of the Company, the Reinsurer, or any
of their affiliates. Each of the parties will appoint one of the arbitrators
and these two arbitrators will select the third. If either party refuses or
neglects to appoint an arbitrator within 60 days of the date of the notice of
arbitration, the other party may appoint the second arbitrator. If the two
arbitrators do not agree on a third arbitrator within 45 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.

 

It is agreed that each of the three
arbitrators should be impartial regarding the dispute and should resolve the
dispute on the basis described in the first paragraph of this Article.
Therefore at no time will either the Reinsurer or the Company engage in private
communications with any of the arbitrators concerning the dispute.

 

The arbitration hearing will be held in New
York, New York, on the date fixed by the arbitrators. In no event will this
date be later than six (6) months after the appointment of the third
arbitrator. As soon as possible, the arbitrators will establish pre-arbitration
procedures as warranted by the facts and issues of the particular case. At
least ten (10) days prior to the arbitration hearing, each party will provide
the other party and the arbitrators with a detailed statement of the facts and
arguments it will present at the arbitration hearing. The arbitrators may
consider any relevant evidence; they will give evidence such weight as they
deem it entitled to after consideration of any objections raised concerning it.
The party initiating the arbitration will have the burden of proving its case
by a preponderance of the evidence. Each party may examine any witnesses who
testify at the arbitration.

 

The cost of the arbitration will be borne by
the losing party unless the arbitrators decide otherwise; provided, that each
party shall be responsible for its own legal fees and expenses.

 

4

 

This Article shall survive
termination of this Agreement.

 

Article X

Offset

 

The parties hereto have the
right to offset any balance(s) due from one to the other under this Agreement
or any other agreement heretofore or hereafter entered into between the Company
and the Reinsurer, whether acting as assuming reinsurer or ceding company. The
party asserting the right of offset may exercise such right at any time whether
the balance(s) due are on account of premiums, losses, salvage or otherwise.
This provision shall not be affected by the insolvency of either party hereto.

 

Article XI

Insolvency
of the Company

 

In the event of the insolvency
of the Company, this reinsurance will be payable directly to the Company, or to
its liquidator, receiver, conservator or statutory successor, on the basis of
the liability of the Company without diminution because of the insolvency of
the Company or because the liquidator, receiver, conservator or statutory
successor of the Company has failed to pay all or a portion of any claim. The
Reinsurer shall be given written notice of the pendency of each loss or claim
which may involve the retrocessional liability provided by this Agreement
within a reasonable time after such loss or claim is filed in the insolvency
proceedings.

 

The Reinsurer shall have the
right to investigate each such loss or claim and interpose at its own expense
in the proceeding where the loss or claim is to be adjudicated, any defense
which it may deem available to the Company or its liquidator, receiver or
statutory successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to court approval, against the insolvent 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 XII

Representations and Warranties

 

A.                                    Of the Company:

 

1.               Organization,
Standing and Authority of the Company. The Company is a life insurance
company duly organized and validly existing under the laws of Bermuda.

 

2.               Authorization.
The Company has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder.   The execution and

 

5

 

delivery by the Company of
this Agreement, and the performance by the Company of its obligations under
this Agreement, have been duly authorized by all necessary corporate action.
This Agreement, when duly executed and delivered by the Company, subject to the
due execution and delivery by the Reinsurer, will be a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.

 

3.               No Conflict or Violation. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby in
accordance with the respective terms and conditions hereof will not (a) violate
any provision of the Memorandum of Association or Bylaws of the Company, or (b)
violate any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory body against, or binding upon, the
Company or any agreement with, or condition imposed by, any governmental or
regulatory body, foreign or domestic, binding upon the Company.

 

4.               Approvals of Governmental Authorities. No consent, waiver, license, approval,
order or authorization of, or registration, filing or declaration with, or
notices to, any person, entity or governmental authority is required to be
obtained, made or given by or with respect to the Company in connection with
(i) the execution and delivery of this Agreement by the Company, or (ii) the
consummation by the Company of the transactions contemplated hereby.

 

B.                                    Of the Reinsurer:

 

1.               Organization, Standing and Authority of the
Reinsurer.  The Reinsurer is a life insurance company
duly organized, validly existing and in good standing under the laws of
Barbados.

 

2.               Authorization.  The
Reinsurer has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder.  The execution and delivery by the Reinsurer of this Agreement,
and the performance by the Reinsurer of its obligations under this Agreement,
have been duly authorized by all necessary corporate action.  This Agreement, when duly executed and
delivered by the Reinsurer, subject to the due execution and delivery by the
Company, will be a valid and binding obligation of the Reinsurer, enforceable
against the Reinsurer in accordance with its terms.

 

3.               No Conflict or Violation.  The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not (a) violate any provision of the
Articles of Incorporation. Bylaws or other charter or organizational document
of the Reinsurer, or (b) violate any order, judgment, injunction, award or
decree of any court, arbitrator or governmental or regulatory body against, or
binding upon, the Reinsurer or any agreement with, or condition imposed by, any
governmental or regulatory body, foreign or domestic, binding upon the
Reinsurer.

 

6

 

4.               Approvals
of Governmental Authorities. No consent, waiver, license, approval, order
or authorization of, or registration, filing or declaration with, or notices
to, any person, entity or governmental authority is required to be obtained,
made or given by or with respect to the Reinsurer in connection with (i) the
execution and delivery of this Agreement by the Reinsurer, or (ii) the
consummation by the Reinsurer of the transactions contemplated hereby.

 

 

Article XIII

Parties to
Agreement

 

This is an agreement solely
between the Company and the Reinsurer. The acceptance of reinsurance hereunder
shall not create any right or legal relation whatever between the Reinsurer and
the insured or beneficiary under any business reinsured hereunder, and the
Company shall remain solely liable to such insured or beneficiary.

 

 

Article XIV

Severability

 

To the extent that this
Agreement may be in conflict with any applicable law or regulation, this
Agreement shall be amended, at the mutual agreement of both the Company and the
Reinsurer, to the extent possible, to comply with such law and regulation. If
any term or provision of this Agreement shall be found by a court of competent
jurisdiction to be illegal or otherwise unenforceable, the same shall not
invalidate the whole of this Agreement, but such term or provision shall be
deemed modified to the extent necessary in the court’s opinion to render such
term or provision enforceable, and the rights and obligations of the parties
shall be construed and enforced accordingly preserving to the fullest
permissible extent the intent and agreements of the parties set forth herein.

 

 

Article XV

Integration, Amendment and Assignment

 

This Agreement shall constitute
the entire agreement between the parties with respect to the reinsurance of the
business covered and there are no understandings between the parties other than
as expressed in this Agreement. Furthermore, this Agreement may not be altered,
modified or in any way amended except by an instrument in writing duly executed
by the proper officials of both parties. This Agreement may not be assigned by
either party without the written consent of the other party; provided, however,
in the event the Company assigns its rights and obligations under the
Underlying Agreement to an affiliate, the Company may assign its rights and
obligations hereunder to such affiliate

 

7

 

without the consent of the Reinsurer. The
Company shall give prompt notice of any such assignment to the Reinsurer-

 

Article XVI

Commencement
and Termination

 

This Agreement shall be effective as of
January 1, 2001 (the “Effective Date”). This Agreement shall continue until
such time as the Company has no further liability under the Underlying
Agreement, unless earlier terminated in accordance with the following
paragraph.

 

The Company may terminate this Agreement as
of the first day of any calendar quarter on or after the 10th
anniversary of the Effective Date (the “Termination Date”) upon 60 days’ prior
written notice to the Reinsurer. Any such termination shall be on a cut-off
basis, meaning that the Reinsurer shall have no liability in respect of Stop
Loss Benefits calculated with respect to calendar quarters commencing on or
after the Termination Date. However, the rights and obligations of the Company
and the Reinsurer applicable to the period prior to the Termination Date shall
not be affected by such termination.

 

Within ten days of the Termination Date, the
Reinsurer will pay the Company $200,000 and any Stop Loss Benefit for any
preceding calendar quarter that is due and unpaid.

 

Article XVII

Currency

 

The currency for the purpose of this
Agreement will be US dollars, and the premiums and liabilities shall be
expressed and payable in that currency.

 

Article XVIII

Federal
Excise Taxes

 

To the extent the Stop Loss Premium is
subject to the federal excise tax, the Reinsurer agrees to allow for the
purpose of paying the federal excise tax one percent of the Stop Loss Premium,
and the Company shall make payment of such tax to the U.S government.

 

8

 

Article XIX

Execution

 

In witness of the above, this Agreement is
signed in duplicate by duly authorized officers of the Company and the
Reinsurer as of the date first above written.

 

 

	
  ACE INA
  Overseas Insurance Company

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
   

  
	
  London
  Life and Casualty Reinsurance Corporation

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
						

 

9

 

Schedule
A

Stop Loss Benefits

 

On the last day of each calendar quarter a
Stop Loss Benefit will be calculated.

 

The Stop Loss Benefit is equal to

 

[A - B] x C, but not less than zero and not
greater than D

 

where:

 

A = Accumulated Benefits

B = Attachment Point

C = Quota Share Percentage

D = Maximum Claim

 

as each such term is defined below.

 

“Accumulated Benefits” means:

 

As of January 1, 2001, $726,117.

 

As of the last day of each subsequent
calendar quarter, an amount equal to (i) the Accumulated Benefit as of the last
day of the immediately preceding calendar quarter multiplied by [1 + R/4 +
0.0015] plus (ii) the total of all amounts payable by the Company under the
Underlying Agreement in respect of the current calendar quarter as reported on
Line 7 of the Quarterly Payment Calculation Report for the current calendar
quarter.

 

“Attachment Point” means;

 

As of January 1, 2001, $28,853,438.

 

As of the last day of each subsequent
calendar quarter, an amount equal to (i) the Attachment Point as of the last
day of the immediately preceding calendar quarter plus the Stop Loss Benefit
for the immediately preceding calendar quarter multiplied by (ii) 1 + R/4 + 0.0015.

 

“Quota Share” means 90%.

 

“Maximum Claim” means:

 

As of January 1, 2001, $13,457,760.

 

10

 

As of the last day of each
subsequent calendar quarter, an amount equal to (i) the Maximum Claim as of the
last day of the immediately preceding calendar quarter minus the Stop Loss
Benefit for the immediately preceding calendar quarter multiplied by (ii) 1 +
R/4 + 0.0015.

 

“R” means, with respect to a
calendar quarter, an effective annual rate determined in accordance with the
formula “D/(1-D)”, where “D” is expressed as a decimal and is equal to the rate
of discount for the Treasury Bill that matures closest to the 90th
day after the first calendar day of such quarter, as reported under the “ask”
column in the Applicable Source (as such term is defined in the Underlying
Agreement) on the first business day of such calendar quarter.

 

11

 

Schedule B

Quarterly Payment Calculation Report

 

Report for
the Calendar Quarter Ended

 

	
  1.  C =  Quota
  Share:

  	
  90%

  
	
   

  	
   

  
	
  2.  X = Accumulated Benefits at end of prior
  quarter:

  	
   

  
	
   

  	
   

  
	
  3.  Y = Stop Loss Benefit paid for prior
  quarter:

  	
   

  
	
   

  	
   

  
	
  4.  Z = Attachment Point at end of prior
  quarter:

  	
   

  
	
   

  	
   

  
	
  5.  W = Maximum Claim at end of prior quarter:

  	
   

  
	
   

  	
   

  
	
  6.  R =  Interest
  rate per Schedule A :

  	
   

  
	
   

  	
   

  
	
  7.  E = Amounts payable under Underlying
  Agreement

  in respect of current calendar quarter:

  	
   

  
	
   

  	
   

  
	
  8.  A = Accumulated Benefits for current
  quarter:

  = [1 + R/4 + 0.0015] x X plus E =

  	
   

  
	
   

  	
   

  
	
  9.  B = Attachment Point at end of current
  quarter:

  = [l + R/4 + 0.0015] x [Y +Z] =

  	
   

  
	
   

  	
   

  
	
  10.
  D = Maximum Claim at end of current quarter:

  = [1 + R/4 + 0.0015] x [W – Y] =

  	
   

  
	
   

  	
   

  
	
  11.
  Stop Loss Benefit for current quarter:

  = Min {Max [(A – B) x C, 0], D} =

  	
   

  

 

12

 

Exhibit 1

[Underlying Agreement]

 

13

 

Exhibit 2

 

[Assignment Agreement]

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