Document:

EXHIBIT 10.5

                         SECURITY CAPITAL ASSURANCE LTD
                  2006 LONG TERM INCENTIVE AND SHARE AWARD PLAN

                1.      PURPOSES.

                The purposes of the 2006 Long Term Incentive and Share Award
Plan are to advance the interests of Security Capital Assurance Ltd and its
shareholders by providing a means to attract, retain, and motivate employees,
consultants and directors of the Company, its subsidiaries and affiliates, to
provide for competitive compensation opportunities, to encourage long term
service, to recognize individual contributions and reward achievement of
performance goals, and to promote the creation of long term value for
shareholders by aligning the interests of such persons with those of
shareholders.

                2.      DEFINITIONS.

                For purposes of the Plan, the following terms shall be defined
as set forth below:

                (a)     "Affiliate" means any entity other than the Company and
its Subsidiaries that is designated by the Board or the Committee as a
participating employer under the Plan; PROVIDED, HOWEVER, that the Company
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity or at least 20% of the ownership interests in
such entity.

                (b)     "Award" means any Option, SAR, Restricted Share,
Restricted Share Unit, Performance Share, Performance Unit, Dividend Equivalent,
or Other Share-Based Award granted to an Eligible Person under the Plan.

                (c)     "Award Agreement" means any written agreement, contract,
or other instrument or document evidencing an Award.

                (d)     "Beneficiary" means the person, persons, trust or trusts
which have been designated by an Eligible Person in his or her most recent
written beneficiary designation filed with the Company to receive the benefits
specified under this Plan upon the death of the Eligible Person, or, if there is
no designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.

                (e)     "Board" means the Board of Directors of the Company.
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                (f)     "Code" means the Internal Revenue Code of 1986, as
amended from time to time. References to any provision of the Code shall be
deemed to include successor provisions thereto and regulations thereunder.

                (g)     "Committee" means the Compensation Committee of the
Board, or such other Board committee (which may include the entire Board) as may
be designated by the Board to administer the Plan; PROVIDED, HOWEVER, that,
unless otherwise determined by the Board, the Committee shall consist of two or
more directors of the Company, each of whom is a "non-employee director" within
the meaning of Rule 16b-3 under the Exchange Act, to the extent applicable, and
each of whom is an "outside director" within the meaning of Section 162(m) of
the Code, to the extent applicable; PROVIDED, FURTHER, that the mere fact that
the Committee shall fail to qualify under either of the foregoing requirements
shall not invalidate any Award made by the Committee which Award is otherwise
validly made under the Plan.

                (h)     "Company" means Security Capital Assurance Ltd, a
corporation organized under the laws of Bermuda, or any successor corporation.

                (i)     "Director" means a member of the Board who is not an
employee of the Company, a Subsidiary or an Affiliate.

                (j)     "Dividend Equivalent" means a right, granted under
Section 5(g), to receive cash, Shares, or other property equal in value to
dividends paid with respect to a specified number of Shares. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award, and may be paid currently or on a deferred basis.

                (k)     "Eligible Person" means (i) an employee or consultant of
the Company, a Subsidiary or an Affiliate, including any director who is an
employee, or (ii) a Director. Notwithstanding any provisions of this Plan to the
contrary, an Award may be granted to an employee, consultant or Director, in
connection with his or her hiring or retention prior to the date the employee,
consultant or Director first performs services for the Company, a Subsidiary or
an Affiliate; PROVIDED, HOWEVER, that any such Award shall not become vested or
exercisable prior to the date the employee, consultant or Director first
performs such services.

                (l)     "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time. References to any provision of the Exchange
Act shall be deemed to include successor provisions thereto and regulations
thereunder.

                (m)     "Fair Market Value" means, with respect to Shares or
other property, the fair market value of such Shares or other property
determined by such methods or procedures as shall be established from time to
time by the Committee. If the Shares are listed on any established stock
exchange or a national market system, unless otherwise determined by the
Committee in good faith, the Fair Market Value of Shares shall mean the mean
between the high

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and low selling prices per Share on the date (or, if the Shares were not traded
on that day, the next preceding day that the Shares were traded) on the
principal exchange or market system on which the Shares are traded, as such
prices are officially quoted on such exchange.

                (n)     "ISO" means any Option intended to be and designated as
an incentive stock option within the meaning of Section 422 of the Code.

                (o)     "NQSO" means any Option that is not an ISO.

                (p)     "Option" means a right, granted under Section 5(b), to
purchase Shares.

                (q)     "Other Share-Based Award" means a right, granted under
Section 5(h), that relates to or is valued by reference to Shares.

                (r)     "Participant" means an Eligible Person who has been
granted an Award under the Plan.

                (s)     "Performance Share" means a performance share granted
under Section 5(f).

                (t)     "Performance Unit" means a performance unit granted
under Section 5(f).

                (u)     "Plan" means this 2006 Long Term Incentive and Share
Award Plan.

                (v)     "Restricted Shares" means an Award of Shares under
Section 5(d) that may be subject to certain restrictions and to a risk of
forfeiture.

                (w)     "Restricted Share Unit" means a right, granted under
Section 5(e), to receive Shares or cash at the end of a specified deferral
period.

                (x)     "Rule 16b-3" means Rule 16b-3, as from time to time in
effect and applicable to the Plan and Participants, promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange Act.

                (y)     "SAR" or "Share Appreciation Right" means the right,
granted under Section 5(c), to be paid an amount measured by the difference
between the exercise price of the right and the Fair Market Value of Shares on
the date of exercise of the right, with payment to be made in cash, Shares, or
property as specified in the Award or determined by the Committee.

                (z)     "Shares" means common shares, $0.01 par value per share,
of the Company, and such other securities as may be substituted for Shares
pursuant to Section 4(c) hereof.
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                (aa)    "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations (other than the last corporation in the unbroken chain) owns
shares possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in the chain.

                (bb)    "Termination of Service" means the termination of the
Participant's employment, consulting services or directorship with the Company,
its Subsidiaries and its Affiliates, as the case may be. A Participant employed
by a Subsidiary of the Company or one of its Affiliates shall also be deemed to
incur a Termination of Service if the Subsidiary of the Company or Affiliate
ceases to be such a Subsidiary or an Affiliate, as the case may be, and the
Participant does not immediately thereafter become an employee or director of,
or a consultant to, the Company, another Subsidiary of the Company or an
Affiliate. Temporary absences from employment because of illness, vacation or
leave of absence and transfers among the Company and its Subsidiaries and
Affiliates shall not be considered a Termination of Service.

                3.      ADMINISTRATION.

                (a)     AUTHORITY OF THE COMMITTEE. The Plan shall be
administered by the Committee, and the Committee shall have full and final
authority to take the following actions, in each case subject to and consistent
with the provisions of the Plan:

                (i)     to select Eligible Persons to whom Awards may be
        granted;

                (ii)    to designate Affiliates;

                (iii)   to determine the type or types of Awards to be granted
        to each Eligible Person;

                (iv)    to determine the type and number of Awards to be
        granted, the number of Shares to which an Award may relate, the terms
        and conditions of any Award granted under the Plan (including, but not
        limited to, any exercise price, grant price, or purchase price, any
        restriction or condition, any schedule for lapse of restrictions or
        conditions relating to transferability or forfeiture, exercisability, or
        settlement of an Award, and waiver or accelerations thereof, and waivers
        of performance conditions relating to an Award, based in each case on
        such considerations as the Committee shall determine), and all other
        matters to be determined in connection with an Award;

                (v)     to determine whether, to what extent, and under what
        circumstances an Award may be settled, or the exercise price of an Award
        may be paid, in cash, Shares, other Awards, or other property, or an
        Award may be canceled, forfeited, exchanged, or surrendered;
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                (vi)    to determine whether, to what extent, and under what
        circumstances cash, Shares, other Awards, or other property payable with
        respect to an Award will be deferred either automatically, at the
        election of the Committee, or at the election of the Eligible Person;

                (vii)   to prescribe the form of each Award Agreement, which
        need not be identical for each Eligible Person;

                (viii)  to adopt, amend, suspend, waive, and rescind such rules
        and regulations and appoint such agents as the Committee may deem
        necessary or advisable to administer the Plan;

                (ix)    to correct any defect or supply any omission or
        reconcile any inconsistency in the Plan and to construe and interpret
        the Plan and any Award, rules and regulations, Award Agreement, or other
        instrument hereunder;

                (x)     to accelerate the exercisability or vesting of all or
        any portion of any Award or to extend the period during which an Award
        is exercisable;

                (xi)    to determine whether uncertificated Shares may be used
        in satisfying Awards and otherwise in connection with the Plan; and

                (xii)   to make all other decisions and determinations as may be
        required under the terms of the Plan or as the Committee may deem
        necessary or advisable for the administration of the Plan.

                (b)     MANNER OF EXERCISE OF COMMITTEE AUTHORITY. The Committee
shall have sole discretion in exercising its authority under the Plan. Any
action of the Committee with respect to the Plan shall be final, conclusive, and
binding on all persons, including the Company, Subsidiaries, Affiliates,
Eligible Persons, any person claiming any rights under the Plan from or through
any Eligible Person, and shareholders. The express grant of any specific power
to the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. The Committee may
delegate to other members of the Board or officers or managers of the Company or
any Subsidiary or Affiliate the authority, subject to such terms as the
Committee shall determine, to perform administrative functions and, with respect
to Awards granted to persons not subject to Section 16 of the Exchange Act, to
perform such other functions as the Committee may determine, to the extent
permitted under Rule 16b-3 (if applicable) and applicable law.

                (c)     LIMITATION OF LIABILITY. Each member of the Committee
shall be entitled to, in good faith, rely or act upon any report or other
information furnished to him or her by any officer or other employee of the
Company or any Subsidiary or Affiliate, the Company's inde-

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pendent certified public accountants, or other professional retained by the
Company to assist in the administration of the Plan. No member of the Committee,
and no officer or employee of the Company acting on behalf of the Committee,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Committee and any officer or employee of the Company acting on their behalf
shall, to the extent permitted by law, be fully indemnified and protected by the
Company with respect to any such action, determination, or interpretation.

                (d)     LIMITATION ON COMMITTEE'S DISCRETION. Anything in this
Plan to the contrary notwithstanding, in the case of any Award which is intended
to qualify as "performance-based compensation" within the meaning of Section
162(m)(4)(C) of the Code, if the Award Agreement so provides, the Committee
shall have no discretion to increase the amount of compensation payable under
the Award to the extent such an increase would cause the Award to lose its
qualification as such performance-based compensation.

                (e)     NO OPTION OR SAR REPRICING WITHOUT SHAREHOLDER APPROVAL.
Except as provided in the first sentence of Section 4(c) hereof relating to
certain antidilution adjustments, unless the approval of shareholders of the
Company is obtained, Options and SARs issued under the Plan shall not be amended
to lower their exercise price, Options and SARs issued under the Plan will not
be exchanged for other Options or SARs with lower exercise prices, and no other
action shall be taken with respect to Options or SARs that would be treated as a
repricing under the rules of the principal stock exchange on which the Shares
are listed.

                (f)     LIMITATION ON COMMITTEE'S AUTHORITY UNDER 409A. Anything
in this Plan to the contrary notwithstanding, the Committee's authority to
modify outstanding Awards shall be limited to the extent necessary so that the
existence of such authority does not (i) cause an Award that is not otherwise
deferred compensation subject to Section 409A of the Code to become deferred
compensation subject to Section 409A of the Code or (ii) cause an Award that is
otherwise deferred compensation subject to Section 409A of the Code to fail to
meet the requirements prescribed by Section 409A of the Code.

                4.      SHARES SUBJECT TO THE PLAN.

                (a)     Subject to adjustment as provided in Section 4(c)
hereof, the total number of Shares reserved for issuance in connection with
Awards under the Plan shall be 3,848,182. No Award may be granted if the number
of Shares to which such Award relates, when added to the number of Shares
previously issued under the Plan, exceeds the number of Shares reserved under
the applicable provisions of the preceding sentence. If any Awards are
forfeited, canceled, terminated, exchanged or surrendered or such Award is
settled in cash or otherwise terminates without a distribution of Shares to the
Participant, any Shares counted against the number of Shares reserved and
available under the Plan with respect to such Award shall, to the extent of any
such forfeiture, settlement, termination, cancellation, exchange or

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surrender, again be available for Awards under the Plan. Upon the exercise of
any Award granted in tandem with any other Awards, such related Awards shall be
canceled to the extent of the number of Shares as to which the Award is
exercised.

                (b)     Subject to adjustment as provided in Section 4(c)
hereof, the maximum number of Shares (i) with respect to which Options or SARs
may be granted during a calendar year to any Eligible Person under this Plan
shall be 500,000 Shares, and (ii) with respect to which Performance Shares,
Performance Units, Restricted Shares or Restricted Share Units intended to
qualify as performance-based compensation within the meaning of Section
162(m)(4)(C) of the Code may be granted during a calendar year to any Eligible
Person under this Plan shall be 500,000 Shares.

                (c)     In the event that the Committee shall determine that any
dividend in Shares, recapitalization, Share split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, share
exchange, extraordinary distribution or other similar corporate transaction or
event, affects the Shares such that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of Eligible Persons under the
Plan, then the Committee shall make such equitable changes or adjustments as it
deems appropriate and, in such manner as it may deem equitable, (i) adjust any
or all of (x) the number and kind of shares which may thereafter be issued under
the Plan, (y) the number and kind of shares, other securities or other
consideration issued or issuable in respect of outstanding Awards, and (z) the
exercise price, grant price, or purchase price relating to any Award, or (ii)
provide for a distribution of cash or property in respect of any Award;
PROVIDED, HOWEVER, in each case that, with respect to ISOs, such adjustment
shall be made in accordance with Section 424(a) of the Code, unless the
Committee determines otherwise; PROVIDED FURTHER, HOWEVER, that no adjustment
shall be made pursuant to this Section 4(c) that causes any Award that is not
otherwise deferred compensation subject to Section 409A of the Code to be
treated as deferred compensation pursuant to Section 409A of the Code. In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria and performance objectives, if any, included in,
Awards in recognition of unusual or non-recurring events (including, without
limitation, events described in the preceding sentence) affecting the Company or
any Subsidiary or Affiliate or the financial statements of the Company or any
Subsidiary or Affiliate, or in response to changes in applicable laws,
regulations, or accounting principles; PROVIDED, HOWEVER, that, if an Award
Agreement specifically so provides, the Committee shall not have discretion to
increase the amount of compensation payable under the Award to the extent such
an increase would cause the Award to lose its qualification as performance-based
compensation for purposes of Section 162(m)(4)(C) of the Code and the
regulations thereunder.

                (d)     Any Shares distributed pursuant to an Award may consist,
in whole or in part, of authorized and unissued Shares or treasury Shares
including Shares acquired by purchase in the open market or in private
transactions.
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                5.      SPECIFIC TERMS OF AWARDS.

                (a)     GENERAL. Awards may be granted on the terms and
conditions set forth in this Section 5. In addition, the Committee may impose on
any Award or the exercise thereof, at the date of grant or thereafter (subject
to Section 9(d)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including terms
regarding forfeiture of Awards or continued exercisability of Awards in the
event of Termination of Service by the Eligible Person.

                (b)     OPTIONS. The Committee is authorized to grant Options,
which may be NQSOs or ISOs, to Eligible Persons on the following terms and
conditions:

                (i)     EXERCISE PRICE. The exercise price per Share purchasable
        under an Option shall be determined by the Committee; PROVIDED, HOWEVER,
        that the exercise price per Share of an Option shall not be less than
        the Fair Market Value of a Share on the date of grant of the Option. The
        Committee may, without limitation, set an exercise price that is based
        upon achievement of performance criteria if deemed appropriate by the
        Committee.

                (ii)    OPTION TERM. The term of each Option shall be determined
        by the Committee; PROVIDED, HOWEVER, that such term shall not be longer
        than ten years from the date of grant of the Option.

                (iii)   TIME AND METHOD OF EXERCISE. The Committee shall
        determine at the date of grant or thereafter the time or times at which
        an Option may be exercised in whole or in part (including, without
        limitation, upon achievement of performance criteria if deemed
        appropriate by the Committee), the methods by which such exercise price
        may be paid or deemed to be paid (including, without limitation,
        broker-assisted exercise arrangements), the form of such payment
        (including, without limitation, cash, Shares or other property), and the
        methods by which Shares will be delivered or deemed to be delivered to
        Eligible Persons.

                (iv)    EARLY EXERCISE. The Committee may provide at the time of
        grant or any time thereafter, in its sole discretion, that any Option
        shall be exercisable with respect to Shares that otherwise would not
        then be exercisable, provided that, in connection with such exercise,
        the Participant enters into a form of Restricted Share agreement
        approved by the Committee with respect to Shares received on exercise.

                (v)     ISOs. The terms of any ISO granted under the Plan shall
        comply in all respects with the provisions of Section 422 of the Code,
        including but not limited to the requirement that the ISO shall be
        granted within ten years from the earlier of the date of

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                                      -9-

        adoption or shareholder approval of the Plan. ISOs may only be granted
        to employees of the Company or a Subsidiary.

                (c)     SARs. The Committee is authorized to grant SARs (Share
Appreciation Rights) to Eligible Persons on the following terms and conditions:

                (i)     RIGHT TO PAYMENT. A SAR shall confer on the Eligible
        Person to whom it is granted a right to receive with respect to each
        Share subject thereto, upon exercise thereof, the excess of (1) the Fair
        Market Value of one Share on the date of exercise over (2) the exercise
        price per Share of the SAR, as determined by the Committee as of the
        date of grant of the SAR (which shall not be less than the Fair Market
        Value per Share on the date of grant of the SAR and, in the case of a
        SAR granted in tandem with an Option, shall be equal to the exercise
        price of the underlying Option).

                (ii)    OTHER TERMS. The Committee shall determine, at the time
        of grant, the time or times at which a SAR may be exercised in whole or
        in part (which shall not be more than ten years after the date of grant
        of the SAR), the method of exercise, method of settlement, form of
        consideration payable in settlement, method by which Shares will be
        delivered or deemed to be delivered to Eligible Persons, whether or not
        a SAR shall be in tandem with any other Award, and any other terms and
        conditions of any SAR. Unless the Committee determines otherwise, a SAR
        (1) granted in tandem with an NQSO may be granted at the time of grant
        of the related NQSO or at any time thereafter and (2) granted in tandem
        with an ISO may only be granted at the time of grant of the related ISO.

                (d)     RESTRICTED SHARES. The Committee is authorized to grant
Restricted Shares to Eligible Persons on the following terms and conditions:

                (i)     ISSUANCE AND RESTRICTIONS. Restricted Shares shall be
        subject to such restrictions on transferability and other restrictions,
        if any, as the Committee may impose at the date of grant or thereafter,
        which restrictions may lapse separately or in combination at such times,
        under such circumstances (including, without limitation, upon
        achievement of performance criteria if deemed appropriate by the
        Committee), in such installments, or otherwise, as the Committee may
        determine. Except to the extent restricted under the Award Agreement
        relating to the Restricted Shares, an Eligible Person granted Restricted
        Shares shall have all of the rights of a shareholder including, without
        limitation, the right to vote Restricted Shares and the right to receive
        dividends thereon.

                (ii)    FORFEITURE. Except as otherwise determined by the
        Committee, at the date of grant or thereafter, upon Termination of
        Service during the applicable restriction period, Restricted Shares and
        any accrued but unpaid dividends or Dividend Equiva-

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        lents that are at that time subject to restrictions shall be forfeited;
        PROVIDED, HOWEVER, that the Committee may provide, by rule or regulation
        or in any Award Agreement, or may determine in any individual case, that
        restrictions or forfeiture conditions relating to Restricted Shares will
        be waived in whole or in part in the event of Termination of Service
        resulting from specified causes, and the Committee may in other cases
        waive in whole or in part the forfeiture of Restricted Shares.

                (iii)   CERTIFICATES FOR SHARES. Restricted Shares granted under
        the Plan may be evidenced in such manner as the Committee shall
        determine. If certificates representing Restricted Shares are registered
        in the name of the Eligible Person, such certificates shall bear an
        appropriate legend referring to the terms, conditions, and restrictions
        applicable to such Restricted Shares, and, unless otherwise determined
        by the Committee, the Company shall retain physical possession of the
        certificate and the Participant shall deliver a stock power to the
        Company, endorsed in blank, relating to the Restricted Shares.

                (iv)    DIVIDENDS. Dividends paid on Restricted Shares shall be
        either paid at the dividend payment date, or deferred for payment to
        such date, and subject to such conditions, as determined by the
        Committee, in cash or in restricted or unrestricted Shares having a Fair
        Market Value equal to the amount of such dividends. Unless otherwise
        determined by the Committee, Shares distributed in connection with a
        Share split or dividend in Shares, and other property distributed as a
        dividend, shall be subject to restrictions and a risk of forfeiture to
        the same extent as the Restricted Shares with respect to which such
        Shares or other property has been distributed.

                (v)     EARLY EXERCISE OPTIONS. The Committee shall award
        Restricted Shares to a Participant upon the Participant's early exercise
        of an Option under Section 5(b)(iv) hereof. Unless otherwise determined
        by the Committee, the lapse of restrictions with respect to such
        Restricted Shares shall occur on the same schedule as the exercisability
        of the Option for which the Restricted Shares were exercised.

                (e)     RESTRICTED SHARE UNITS. The Committee is authorized to
grant Restricted Share Units to Eligible Persons, subject to the following terms
and conditions:

                (i)     AWARD AND RESTRICTIONS. Delivery of Shares or cash, as
        the case may be, will occur upon expiration of the deferral period
        specified for Restricted Share Units by the Committee (or, if permitted
        by the Committee, as elected by the Eligible Person). In addition,
        Restricted Share Units shall be subject to such restrictions as the
        Committee may impose, if any (including, without limitation, the
        achievement of performance criteria if deemed appropriate by the
        Committee), at the date of grant or thereafter, which restrictions may
        lapse at the expiration of the deferral period or at earlier or later
        speci-

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        fied times, separately or in combination, in installments or otherwise,
        as the Committee may determine.

                (ii)    FORFEITURE. Except as otherwise determined by the
        Committee at the date of grant or thereafter, upon Termination of
        Service during the applicable deferral period or portion thereof to
        which forfeiture conditions apply (as provided in the Award Agreement
        evidencing the Restricted Share Units), or upon failure to satisfy any
        other conditions precedent to the delivery of Shares or cash to which
        such Restricted Share Units relate, all Restricted Share Units that are
        at that time subject to deferral or restriction shall be forfeited;
        PROVIDED, HOWEVER, that the Committee may provide, by rule or regulation
        or in any Award Agreement, or may determine in any individual case, that
        restrictions or forfeiture conditions relating to Restricted Share Units
        will be waived in whole or in part in the event of Termination of
        Service resulting from specified causes, and the Committee may in other
        cases waive in whole or in part the forfeiture of Restricted Share
        Units.

                (iii)   DIVIDEND EQUIVALENTS. Unless otherwise determined by the
        Committee at the date of grant, Dividend Equivalents on the specified
        number of Shares covered by a Restricted Share Unit shall be either (A)
        paid with respect to such Restricted Share Unit at the dividend payment
        date in cash or in restricted or unrestricted Shares having a Fair
        Market Value equal to the amount of such dividends, or (B) deferred with
        respect to such Restricted Share Unit and the amount or value thereof
        automatically deemed reinvested in additional Restricted Share Units or
        other Awards, as the Committee shall determine or permit the Participant
        to elect.

                (f)     PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee
is authorized to grant Performance Shares or Performance Units or both to
Eligible Persons on the following terms and conditions:

                (i)     PERFORMANCE PERIOD. The Committee shall determine a
        performance period (the "Performance Period") of one or more years or
        other periods and shall determine the performance objectives for grants
        of Performance Shares and Performance Units. Performance objectives may
        vary from Eligible Person to Eligible Person and shall be based upon the
        performance criteria as the Committee may deem appropriate. The
        performance objectives may be determined by reference to the performance
        of the Company, or of a Subsidiary or Affiliate, or of a division or
        unit of any of the foregoing. Performance Periods may overlap and
        Eligible Persons may participate simultaneously with respect to
        Performance Shares and Performance Units for which different Performance
        Periods are prescribed.

                (ii)    AWARD VALUE. At the beginning of a Performance Period,
        the Committee shall determine for each Eligible Person or group of
        Eligible Persons with respect to

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                                      -12-

        that Performance Period the range of number of Shares, if any, in the
        case of Performance Shares, and the range of dollar values, if any, in
        the case of Performance Units, which may be fixed or may vary in
        accordance with such performance or other criteria specified by the
        Committee, which shall be paid to an Eligible Person as an Award if the
        relevant measure of Company performance for the Performance Period is
        met.

                (iii)   SIGNIFICANT EVENTS. If during the course of a
        Performance Period there shall occur significant events as determined by
        the Committee which the Committee expects to have a substantial effect
        on a performance objective during such period, the Committee may revise
        such objective; PROVIDED, HOWEVER, that, if an Award Agreement so
        provides, the Committee shall not have any discretion to increase the
        amount of compensation payable under the Award to the extent such an
        increase would cause the Award to lose its qualification as
        performance-based compensation for purposes of Section 162(m)(4)(C) of
        the Code and the regulations thereunder.

                (iv)    FORFEITURE. Except as otherwise determined by the
        Committee, at the date of grant or thereafter, upon Termination of
        Service during the applicable Performance Period, Performance Shares and
        Performance Units for which the Performance Period was prescribed shall
        be forfeited; PROVIDED, HOWEVER, that the Committee may provide, by rule
        or regulation or in any Award Agreement, or may determine in an
        individual case, that restrictions or forfeiture conditions relating to
        Performance Shares and Performance Units will be waived in whole or in
        part in the event of Terminations of Service resulting from specified
        causes, and the Committee may in other cases waive in whole or in part
        the forfeiture of Performance Shares and Performance Units.

                (v)     PAYMENT. Each Performance Share or Performance Unit may
        be paid in whole Shares, or cash, or a combination of Shares and cash
        either as a lump sum payment or in installments, all as the Committee
        shall determine, at the time of grant of the Performance Share or
        Performance Unit or otherwise, commencing as soon as practicable after
        the end of the relevant Performance Period.

                (g)     DIVIDEND EQUIVALENTS. The Committee is authorized to
grant Dividend Equivalents to Eligible Persons. The Committee may provide, at
the date of grant or thereafter, that Dividend Equivalents shall be paid or
distributed when accrued or shall be deemed to have been reinvested in
additional Shares, or other investment vehicles as the Committee may specify;
PROVIDED, HOWEVER, that, unless otherwise determined by the Committee, Dividend
Equivalents (other than freestanding Dividend Equivalents) shall be subject to
all conditions and restrictions of any underlying Awards to which they relate.

                (h)     OTHER SHARE-BASED AWARDS. The Committee is authorized,
subject to limitations under applicable law, to grant to Eligible Persons such
other Awards that may be denominated or payable in, valued in whole or in part
by reference to, or otherwise based on, or

<PAGE>
                                      -13-

related to, Shares, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, unrestricted shares awarded
purely as a "bonus" and not subject to any restrictions or conditions, other
rights convertible or exchangeable into Shares, purchase rights for Shares,
Awards with value and payment contingent upon performance of the Company or any
other factors designated by the Committee, and Awards valued by reference to the
performance of specified Subsidiaries or Affiliates. The Committee shall
determine the terms and conditions of such Awards at date of grant or
thereafter. Shares delivered pursuant to an Award in the nature of a purchase
right granted under this Section 5(h) shall be purchased for such consideration,
paid for at such times, by such methods, and in such forms, including, without
limitation, cash, Shares, notes or other property, as the Committee shall
determine. Cash awards, as an element of or supplement to any other Award under
the Plan, shall also be authorized pursuant to this Section 5(h).

                6.      CERTAIN PROVISIONS APPLICABLE TO AWARDS.

                (a)     STAND-ALONE, ADDITIONAL, TANDEM AND SUBSTITUTE AWARDS.
Awards granted under the Plan may, in the discretion of the Committee, be
granted to Eligible Persons either alone or in addition to, in tandem with, or
in exchange or substitution for, any other Award granted under the Plan or any
award granted under any other plan or agreement of the Company, any Subsidiary
or Affiliate, or any business entity to be acquired by the Company or a
Subsidiary or Affiliate, or any other right of an Eligible Person to receive
payment from the Company or any Subsidiary or Affiliate. Awards may be granted
in addition to or in tandem with such other Awards or awards, and may be granted
either as of the same time as, or a different time from, the grant of such other
Awards or awards. Subject to the provisions of Section 3(e) hereof prohibiting
Option and SAR repricing without shareholder approval, the per Share exercise
price of any Option, or grant price of any SAR, which is granted in connection
with the substitution of awards granted under any other plan or agreement of the
Company or any Subsidiary or Affiliate, or any business entity to be acquired by
the Company or any Subsidiary or Affiliate, shall be determined by the
Committee, in its discretion.

                (b)     TERM OF AWARDS. The term of each Award granted to an
Eligible Person shall be for such period as may be determined by the Committee;
PROVIDED, HOWEVER, that in no event shall the term of any Option or SAR exceed a
period of ten years from the date of its grant (or, in the case of ISOs, such
shorter period as may be applicable under Section 422 of the Code).

                (c)     FORM OF PAYMENT UNDER AWARDS. Subject to the terms of
the Plan and any applicable Award Agreement, payments to be made by the Company
or a Subsidiary or Affiliate upon the grant, maturation, or exercise of an Award
may be made in such forms as the Committee shall determine at the date of grant
or thereafter, including, without limitation, cash, Shares, notes or other
property, and may be made in a single payment or transfer, in installments, or
on a deferred basis. The Committee may make rules relating to installment or
de-

<PAGE>
                                      -14-

ferred payments with respect to Awards, including the rate of interest to be
credited with respect to such payments, and the Committee may require deferral
of payment under an Award if, in the sole judgment of the Committee, it may be
necessary in order to avoid nondeductibility of the payment under Section 162(m)
of the Code.

                (d)     NONTRANSFERABILITY. Unless otherwise set forth by the
Committee in an Award Agreement, Awards shall not be transferable by an Eligible
Person except by will or the laws of descent and distribution (except pursuant
to a Beneficiary designation) and shall be exercisable during the lifetime of an
Eligible Person only by such Eligible Person or his guardian or legal
representative. An Eligible Person's rights under the Plan may not be pledged,
mortgaged, hypothecated, or otherwise encumbered, and shall not be subject to
claims of the Eligible Person's creditors.

                (e)     NONCOMPETITION. The Committee may, by way of the Award
Agreements or otherwise, establish such other terms, conditions, restrictions
and/or limitations, if any, of any Award, provided they are not inconsistent
with the Plan, including, without limitation, the requirement that the
Participant not engage in competition with, solicit customers or employees of,
or disclose or use confidential information of the Company or its Affiliates.

                7.      PERFORMANCE AWARDS.

                (a)     PERFORMANCE AWARDS GRANTED TO COVERED EMPLOYEES. If the
Committee determines that an Award (other than an Option or SAR) to be granted
to an Eligible Person should qualify as "performance-based compensation" for
purposes of Section 162(m) of the Code, the grant, vesting, exercise and/or
settlement of such Award (each, a "Performance Award") shall be contingent upon
achievement of preestablished performance goals and other terms set forth in
this Section 7(a).

                (i)     PERFORMANCE GOALS GENERALLY. The performance goals for
        such Performance Awards shall consist of one or more business criteria
        and a targeted level or levels of performance with respect to each of
        such criteria, as specified by the Committee consistent with this
        Section 7(a). The performance goals shall be objective and shall
        otherwise meet the requirements of Section 162(m) of the Code and
        regulations thereunder (including Treasury Regulation 1.162-27 and
        successor regulations thereto), including the requirement that the level
        or levels of performance targeted by the Committee result in the
        achievement of performance goals being "substantially uncertain." The
        Committee may determine that such Performance Awards shall be granted,
        vested, exercised and/or settled upon achievement of any one performance
        goal or that two or more of the performance goals must be achieved as a
        condition to grant, vesting, exercise and/or settlement of such
        Performance Awards. Performance goals may differ for Performance Awards
        granted to any one Participant or to different Participants.
<PAGE>
                                      -15-

                (ii)    BUSINESS CRITERIA. One or more of the following business
        criteria for the Company, on a consolidated basis, and/or for specified
        Subsidiaries or Affiliates or other business units or lines of business
        of the Company shall be used by the Committee in establishing
        performance goals for such Performance Awards: (1) earnings per share
        (basic or fully diluted); (2) revenues; (3) earnings, before or after
        taxes, from operations (generally or specified operations), or before or
        after interest expense, depreciation, amortization, incentives, or
        extraordinary or special items; (4) cash flow, free cash flow, cash flow
        return on investment (discounted or otherwise), net cash provided by
        operations, or cash flow in excess of cost of capital; (5) return on net
        assets, return on assets, return on investment, return on capital,
        return on equity; (6) economic value added; (7) operating margin or
        operating expense; (8) net income; (9) Share price or total stockholder
        return; (10) book value; (11) expense ratio; (12) operating income; and
        (13) strategic business criteria, consisting of one or more objectives
        based on meeting specified market penetration, geographic business
        expansion goals, cost targets, customer satisfaction, supervision of
        litigation and information technology, and goals relating to
        acquisitions or divestitures of Subsidiaries, Affiliates or joint
        ventures. The targeted level or levels of performance with respect to
        such business criteria may be established at such levels and in such
        terms as the Committee may determine, in its discretion, including in
        absolute terms, as a goal relative to performance in prior periods, or
        as a goal compared to the performance of one or more comparable
        companies or an index covering multiple companies.

                (iii)   PERFORMANCE PERIOD; TIMING FOR ESTABLISHING PERFORMANCE
        GOALS; PER-PERSON LIMIT. Achievement of performance goals in respect of
        such Performance Awards shall be measured over a performance period, as
        specified by the Committee. A performance goal shall be established not
        later than the earlier of (A) 90 days after the beginning of any
        performance period applicable to such Performance Award or (B) the time
        25% of such performance period has elapsed. In all cases, the maximum
        Performance Award of any Participant shall be subject to the limitation
        set forth in Section 4(b) or 7(a)(v), as applicable.

                (iv)    SETTLEMENT OF PERFORMANCE AWARDS; OTHER TERMS.
        Settlement of such Performance Awards shall be in cash, Shares, other
        Awards or other property, in the discretion of the Committee. The
        Committee may, in its discretion, reduce the amount of a settlement
        otherwise to be made in connection with such Performance Awards, but may
        not exercise discretion to increase any such amount payable to the
        Participant in respect of a Performance Award subject to this Section
        7(a). Any settlement which changes the form of payment from that
        originally specified shall be implemented in a manner such that the
        Performance Award and other related Awards do not, solely for that
        reason, fail to qualify as "performance-based compensation" for purposes
        of Section 162(m) of the Code. The Committee shall specify the
        circumstances in which such

<PAGE>
                                      -16-

        Performance Awards shall be paid or forfeited in the event of
        Termination of Service of the Participant or other event (including a
        Change in Control) prior to the end of a performance period or
        settlement of such Performance Awards.

                (v)     MAXIMUM ANNUAL CASH AWARD. The maximum amount payable
        upon settlement of a cash-settled Performance Unit (or other
        cash-settled Award) granted under this Plan for any calendar year to any
        Eligible Person that is intended to satisfy the requirements for
        "performance-based compensation" under Section 162(m) of the Code shall
        not exceed $13,000,000.

                (b)     WRITTEN DETERMINATIONS. Determinations by the Committee
as to the establishment of performance goals, the amount potentially payable in
respect of Performance Awards, the level of actual achievement of the specified
performance goals relating to Performance Awards and the amount of any final
Performance Award shall be recorded in writing in the case of Performance Awards
intended to qualify under Section 162(m) of the Code. Specifically, the
Committee shall certify in writing, in a manner conforming to applicable
regulations under Section 162(m), prior to settlement of each such Award, that
the performance objective relating to the Performance Award and other material
terms of the Award upon which settlement of the Award was conditioned have been
satisfied.

                8.      CHANGE IN CONTROL PROVISIONS.

                (a)     ACCELERATION OF EXERCISABILITY AND LAPSE OF
RESTRICTIONS. Unless otherwise provided by the Committee at the time of the
Award grant, in the event of a Change in Control, (i) all outstanding Awards
pursuant to which the Participant may have rights the exercise of which is
restricted or limited, shall become fully exercisable at the time of the Change
in Control, and (ii) unless the right to lapse of restrictions or limitations is
waived or deferred by a Participant prior to such lapse, all restrictions or
limitations (including risks of forfeiture and deferrals) on outstanding Awards
subject to restrictions or limitations under the Plan shall lapse, and all
performance criteria and other conditions to payment of Awards under which
payments of cash, Shares or other property are subject to conditions shall be
deemed to be achieved or fulfilled and shall be waived by the Company at the
time of the Change in Control.

                (b)     DEFINITION OF CHANGE IN CONTROL. For purposes of this
Plan, "Change in Control" shall mean:

                (i)     the acquisition by any individual, entity or group
        (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
        (a "Person"), of beneficial ownership (within the meaning of Rule 13d-3
        promulgated under the Exchange Act) of 35% or more of either (1) the
        then outstanding shares of common stock of the Company (the "Outstanding
        Company Common Stock") or (2) the combined voting power of the then
        outstanding voting securities of the Company entitled to vote generally
        in the election of

<PAGE>
                                      -17-

        directors (the "Outstanding Company Voting Securities"); PROVIDED,
        HOWEVER, that the following acquisitions shall not constitute a Change
        in Control: (i) any acquisition directly from the Company (other than by
        exercise of a conversion privilege); (ii) any acquisition by the Company
        or any of its Subsidiaries; (iii) any acquisition by any employee
        benefit plan (or related trust) sponsored or maintained by the Company
        or any of its Subsidiaries; (iv) any acquisition by any corporation with
        respect to which, following such acquisition, more than 60% of,
        respectively, the then outstanding shares of common stock of such
        corporation and the combined voting power of the then outstanding voting
        securities of such corporation entitled to vote generally in the
        election of directors is then beneficially owned, directly or
        indirectly, by all or substantially all of the individuals and entities
        who were the beneficial owners, respectively, of the outstanding Company
        Common Stock and Outstanding Company Voting Securities immediately prior
        to such acquisition in substantially the same proportions as their
        ownership, immediately prior to such acquisition, of the Outstanding
        Company Common Stock and Outstanding Company Voting Securities, as the
        case may be (unless a Person's ownership of the acquiring corporation
        results in that Person indirectly owning 35% or more of the Outstanding
        Company Common Stock or Outstanding Company Voting Securities); or (v)
        any acquisition by XL Capital Ltd or its wholly-owned subsidiaries
        unless, at any time after the Effective Date and prior to such
        acquisition, XL Capital Ltd and its subsidiaries own less than 35% of
        the Outstanding Company Voting Securities;

                (ii)    during any period of two consecutive years, individuals
        who, as of the beginning of such period, constitute the Board (the
        "Incumbent Board") cease for any reason to constitute at least a
        majority of the Board; PROVIDED, HOWEVER, that any individual becoming a
        director subsequent to the beginning of such period whose election, or
        nomination for election by the Company's shareholders, was approved by a
        vote of at least a majority of the directors then comprising the
        Incumbent Board shall be considered as though such individual were a
        member of the Incumbent Board, but excluding, for this purpose, any such
        individual whose initial assumption of office occurs as a result of
        either an actual or threatened election contest (as such terms are used
        in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act);

                (iii)   consummation of a reorganization, scheme of arrangement,
        merger, consolidation or similar transaction (collectively, a
        "Transaction"), in each case, with respect to which all or substantially
        all of the individuals and entities who were the beneficial owners,
        respectively, of the Outstanding Company Common Stock and outstanding
        Company Voting Securities immediately prior to such Transaction, do not,
        following such Transaction, beneficially own, directly or indirectly,
        more than 60% of, respectively, the then outstanding shares of common
        stock and the combined voting power of the then outstanding voting
        securities entitled to vote generally in the election of directors, as
        the case may be, of the corporation resulting from such Transaction in

<PAGE>
                                      -18-

        substantially the same proportions as their ownership, immediately prior
        to such Transaction, of the Outstanding Company Common Stock and
        Outstanding Company Voting Securities, as the case may be;

                (iv)    consummation of a sale or other disposition of all or
        substantially all of the assets of the Company, other than to a
        corporation with respect to which following such sale or other
        disposition, more than 60% of, respectively, the then outstanding shares
        of common stock of such corporation and the combined voting power of the
        then outstanding voting securities of such corporation entitled to vote
        generally in the election of directors is then beneficially owned,
        directly or indirectly, by all or substantially all of the individuals
        and entities who were the beneficial owners, respectively, of the
        Outstanding Company Common Stock and Outstanding Company Voting
        Securities immediately prior to such sale or other disposition in
        substantially the same proportions as their ownership, immediately prior
        to such sale or other disposition, of the Outstanding Company Common
        Stock and Outstanding Company Voting Securities, as the case may be; or

                (v)     approval by the shareholders of the Company of a
        complete liquidation or dissolution (or similar transaction) of the
        Company.

        Notwithstanding the foregoing, in the case of an Award that constitutes
        deferred compensation subject to Section 409A of the Code, the
        definition of "Change in Control" set forth above shall not apply, and
        the term "Change in Control" shall instead mean a "change in the
        ownership or effective control" of the Company or "in the ownership of a
        substantial portion of the assets" of the Company within the meaning of
        Section 409A(a)(2)(A)(v) of the Code and the regulations and guidance
        issued thereunder, but only to the extent this substitute definition is
        necessary in order for the Award to comply with the requirements
        prescribed by Section 409A of the Code.

                9.      GENERAL PROVISIONS.

                (a)     COMPLIANCE WITH LEGAL AND TRADING REQUIREMENTS. The
Plan, the granting and exercising of Awards thereunder, and the other
obligations of the Company under the Plan and any Award Agreement, shall be
subject to all applicable federal, state and foreign laws, rules and
regulations, and to such approvals by any stock exchange, regulatory or
governmental agency as may be required. The Company, in its discretion, may
postpone the issuance or delivery of Shares under any Award until completion of
such stock exchange or market system listing or registration or qualification of
such Shares or any required action under any state, federal or foreign law, rule
or regulation as the Company may consider appropriate, and may require any
Participant to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of Shares in
compliance with applicable laws, rules and regulations. No provisions of the
Plan shall be interpreted or

<PAGE>
                                      -19-

construed to obligate the Company to register any Shares under federal, state or
foreign law. The Shares issued under the Plan may be subject to such other
restrictions on transfer as determined by the Committee.

                (b)     NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the
Plan nor any action taken thereunder shall be construed as giving any employee,
consultant or director the right to be retained in the employ or service of the
Company or any of its Subsidiaries or Affiliates, nor shall it interfere in any
way with the right of the Company or any of its Subsidiaries or Affiliates to
terminate any employee's, consultant's or director's employment or service at
any time.

                (c)     TAXES. The Company or any Subsidiary or Affiliate is
authorized to withhold from any Award granted, any payment relating to an Award
under the Plan, including from a distribution of Shares, or any payroll or other
payment to an Eligible Person, amounts of withholding and other taxes due in
connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and Eligible
Persons to satisfy obligations for the payment of withholding taxes and other
tax obligations relating to any Award. This authority shall include authority to
withhold or receive Shares or other property and to make cash payments in
respect thereof in satisfaction of an Eligible Person's tax obligations;
PROVIDED, HOWEVER, that the amount of tax withholding to be satisfied by
withholding Shares shall be limited to the minimum amount of taxes, including
employment taxes, required to be withheld under applicable Federal, state and
local law.

                (d)     CHANGES TO THE PLAN AND AWARDS. The Board may amend,
alter, suspend, discontinue, or terminate the Plan or the Committee's authority
to grant Awards under the Plan without the consent of shareholders of the
Company or Participants, except that any such amendment or alteration shall be
subject to the approval of the Company's shareholders (i) to the extent such
shareholder approval is required under the rules of any stock exchange or
automated quotation system on which the Shares may then be listed or quoted, or
(ii) as it applies to ISOs, to the extent such shareholder approval is required
under Section 422 of the Code; PROVIDED, HOWEVER, that, without the consent of
an affected Participant, no amendment, alteration, suspension, discontinuation,
or termination of the Plan may materially and adversely affect the rights of
such Participant under any Award theretofore granted to him or her. The
Committee may waive any conditions or rights under, amend any terms of, or
amend, alter, suspend, discontinue or terminate, any Award theretofore granted,
prospectively or retrospectively; PROVIDED, HOWEVER, that, without the consent
of a Participant, no amendment, alteration, suspension, discontinuation or
termination of any Award may materially and adversely affect the rights of such
Participant under any Award theretofore granted to him or her.

                (e)     NO RIGHTS TO AWARDS; NO SHAREHOLDER RIGHTS. No Eligible
Person or employee shall have any claim to be granted any Award under the Plan,
and there is no obligation for uniformity of treatment of Eligible Persons and
employees. No Award shall confer on

<PAGE>
                                      -20-

any Eligible Person any of the rights of a shareholder of the Company unless and
until Shares are duly issued or transferred to the Eligible Person in accordance
with the terms of the Award.

                (f)     UNFUNDED STATUS OF AWARDS. The Plan is intended to
constitute an "unfunded" plan for incentive compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company; PROVIDED, HOWEVER, that
the Committee may authorize the creation of trusts or make other arrangements to
meet the Company's obligations under the Plan to deliver cash, Shares, other
Awards, or other property pursuant to any Award, which trusts or other
arrangements shall be consistent with the "unfunded" status of the Plan unless
the Committee otherwise determines with the consent of each affected
Participant.

                (g)     NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the
Plan by the Board nor its submission to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of options and other awards
otherwise than under the Plan, and such arrangements may be either applicable
generally or only in specific cases.

                (h)     NOT COMPENSATION FOR BENEFIT PLANS. No Award payable
under this Plan shall be deemed salary or compensation for the purpose of
computing benefits under any benefit plan or other arrangement of the Company
for the benefit of its employees, consultants or directors unless the Company
shall determine otherwise.

                (i)     NO FRACTIONAL SHARES. No fractional Shares shall be
issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards, or other property shall be issued or paid
in lieu of such fractional Shares or whether such fractional Shares or any
rights thereto shall be forfeited or otherwise eliminated.

                (j)     GOVERNING LAW. The validity, construction, and effect of
the Plan, any rules and regulations relating to the Plan, and any Award
Agreement shall be determined in accordance with the laws of New York without
giving effect to principles of conflict of laws thereof.

                (k)     EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become
effective as of August 1, 2006, (the "Effective Date") subject to approval by
the shareholders of the Company. The Plan shall terminate as to future awards on
the date which is ten (10) years after the Effective Date.

                (l)     SECTION 409A. It is intended that the Plan and Awards
issued thereunder will comply with Section 409A of the Code (and any regulations
and guidelines issued

<PAGE>
                                      -21-

thereunder) to the extent the Awards are subject thereto, and the Plan and such
Awards shall be interpreted on a basis consistent with such intent. The Plan and
any Award Agreements issued thereunder may be amended in any respect deemed by
the Board or the Committee to be necessary in order to preserve compliance with
Section 409A of the Code.

                (m)     TITLES AND HEADINGS. The titles and headings of the
sections in the Plan are for convenience of reference only. In the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.EXHIBIT 10.6

                         SECURITY CAPITAL ASSURANCE LTD
                       ANNUAL INCENTIVE COMPENSATION PLAN

SECTION 1.      Purpose.

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

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

SECTION 2.      Definitions.

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

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

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

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

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

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

                2.7.    "Participant" means an Eligible Employee who has been
selected by the Committee to potentially receive an Award for a given Plan Year,
subject to achievement of one or more performance goals and satisfaction of
other conditions under the Plan or specified by the Committee.
<PAGE>

                2.8.    "Plan Year" means the fiscal year of the Company or such
other period established by the Committee.

SECTION 3.      Administration.

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

SECTION 4.      Determination of Awards.

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

                                      -2-
<PAGE>

SECTION 5.      Payment of Award.

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

SECTION 6.      Non-transferability.

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

SECTION 7.      Amendments and Termination.

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

SECTION 8.      General Provisions.

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

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

                                      -3-
<PAGE>

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

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

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

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

SECTION 9.      Effective Date of Plan; Shareholder Approval

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

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