XL CAPITAL LTD (Form: 10-Q, Received: 08/06/2009 06:01:30)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file number 1-10804

XL CAPITAL LTD
(Exact name of registrant as specified in its charter)


Cayman Islands		98-0191089
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

XL House, One Bermudiana Road, Hamilton, Bermuda HM 11
(Address of principal executive offices and zip code)
(441) 292-8515
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x

As of August 3, 2009, there were 342,173,340 outstanding Class A Ordinary Shares, $0.01 par value per share, of the registrant.

XL CAPITAL LTD

INDEX TO FORM 10-Q


		Page No.

	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets as at June 30, 2009 (Unaudited) and December 31, 2008	3
	Consolidated Statements of Income and Comprehensive Income for the Three Months Ended June 30, 2009 and 2008 (Unaudited) and the Six Months Ended June 30, 2009 and 2008 (Unaudited)	4–5
	Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2009 and 2008 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008 (Unaudited)	7
	Notes to Unaudited Consolidated Financial Statements	8–47
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	84
Item 4.	Controls and Procedures	90

	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	90
Item 1A.	Risk Factors	91
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	92
Item 4.	Submission of Matters to a Vote of Security Holders	92
Item 6.	Exhibits	93
	Signatures	94

PART I—FINANCIAL INFORMATION



ITEM 1.	FINANCIAL STATEMENTS

XL CAPITAL LTD
CONSOLIDATED BALANCE SHEETS


*(U.S. dollars in thousands, except share amounts)*	(Unaudited) June 30, 2009			December 31, 2008

A S S E T S
Investments:
Fixed maturities at fair value (amortized cost: 2009, $28,919,613; 2008, $28,990,477)	$	25,661,338		$	25,636,368
Equity securities, at fair value (cost: 2009, $59,960; 2008, $337,765)		52,480			361,819
Short-term investments, at fair value (amortized cost: 2009, $2,034,109; 2008, $1,500,767)		2,025,138			1,466,323

Total investments available for sale		27,738,956			27,464,510
Investments in affiliates		1,222,317			1,552,789
Other investments (cost: 2009, $642,220; 2008, $417,856)		690,364			459,481

Total investments		29,651,637			29,476,780
Cash and cash equivalents		3,989,372			4,353,826
Accrued investment income		343,018			363,376
Deferred acquisition costs		759,272			713,501
Ceded unearned premiums		959,939			896,216
Premiums receivable		3,352,738			3,135,985
Reinsurance balances receivable		400,372			563,694
Unpaid losses and loss expenses recoverable		3,909,110			3,997,722
Net receivable from investments sold		6,078			99,455
Goodwill and other intangible assets		848,268			853,550
Deferred tax asset, net		314,938			331,348
Other assets		877,475			836,825

Total assets	$	45,412,217		$	45,622,278


L I A B I L I T I E S A N D S H A R E H O L D E R S’ E Q U I T Y
Liabilities:
Unpaid losses and loss expenses	$	21,452,998		$	21,650,315
Deposit liabilities		2,436,809			2,710,987
Future policy benefit reserves		5,862,406			5,452,865
Unearned premiums		4,266,872			4,217,931
Notes payable and debt		2,445,230			3,189,734
Reinsurance balances payable		491,212			726,736
Other liabilities		800,798			1,056,879

Total liabilities	$	37,756,325		$	39,005,447

Commitments and Contingencies
Redeemable Series C preference ordinary shares, 20,000,000 authorized, par value $0.01 Issued and outstanding: (2009, 7,306,920; 2008, 20,000,000)	$	182,673		$	500,000

Shareholders’ Equity:
Non-controlling interest in equity of consolidated subsidiaries	$	2,374		$	1,598
Series E preference ordinary shares, 1,000,000 authorized, par value $0.01 Issued and outstanding: (2009, 1,000,000; 2008, 1,000,000)		10			10
Class A ordinary shares, 999,990,000 authorized, par value $0.01 Issued and outstanding: (2009, 342,175,328; 2008, 330,812,343)		3,422			3,308
Additional paid in capital		10,454,982			9,792,371
Accumulated other comprehensive (loss)		(3,202,164	)		(3,364,927	)
Retained earnings (deficit)		214,595			(315,529	)

Total shareholders’ equity	$	7,473,219		$	6,116,831

Total liabilities, redeemable preference ordinary shares and shareholders’ equity	$	45,412,217		$	45,622,278

See accompanying Notes to Unaudited Consolidated Financial Statements

XL CAPITAL LTD
CONSOLIDATED STATEMENTS OF INCOME


	(Unaudited) Three Months Ended June 30,						(Unaudited) Six Months Ended June 30,

*(U.S. dollars in thousands, except share amounts)*	2009			2008 (As adjusted – See Note 14)			2009			2008 (As adjusted – See Note 14)

Revenues:
Net premiums earned	$	1,429,700		$	1,681,722		$	2,881,221		$	3,394,084
Net investment income		328,348			440,352			676,314			939,581
Realized investment gains (losses):
Net realized gains on investments sold		4,520			49,742			37,623			62,242
Other-than-temporary impairments on investments		(115,620	)		(47,702	)		(400,660	)		(162,453	)
Other-than-temporary impairments on investments transferred to other comprehensive income		30,670			—			30,670			—

Total net realized (losses) on investments		(80,430	)		2,040			(332,367	)		(100,211	)
Net realized and unrealized gains (losses) on derivative instruments		969			8,124			(438	)		52,806
Net income (loss) from investment fund affiliates		37,086			(20,435	)		10,193			(8,636	)
Fee income and other		9,796			12,796			21,954			21,087

Total revenues	$	1,725,469		$	2,124,599		$	3,256,877		$	4,298,711

Expenses:
Net losses and loss expenses incurred	$	779,628		$	938,585		$	1,569,911		$	1,939,478
Claims and policy benefits		174,588			209,725			332,547			406,024
Acquisition costs		223,272			246,237			441,491			512,534
Operating expenses		264,219			298,298			532,606			562,122
Exchange losses		145,221			7,936			120,597			75,681
Interest expense		54,198			65,441			115,539			189,553
Amortization of intangible assets		464			420			929			840

Total expenses	$	1,641,590		$	1,766,642		$	3,113,620		$	3,686,232

Income before income tax and loss (income) from operating affiliates	$	83,879		$	357,957		$	143,257		$	612,479
Provision for income tax		16,045			51,205			61,998			81,907
Income (loss) from operating affiliates		17,667			(68,901	)		7,339			(48,348	)

Net income	$	85,501		$	237,851		$	88,598		$	482,224
Non-controlling interest in net loss of subsidiary		40			—			40			—

Net income attributable to XL Capital Ltd	$	85,541		$	237,851		$	88,638		$	482,224
Preference share dividends		(5,592	)		—			(42,126	)		(32,500	)
Gain on redemption of Series C Preference Ordinary Shares		—			—			211,816			—

Net income available to ordinary shareholders	$	79,949		$	237,851		$	258,328		$	449,724

Weighted average ordinary shares and ordinary share equivalents outstanding — basic		342,154			179,054			339,155			178,701

Weighted average ordinary shares and ordinary share equivalents outstanding — diluted		342,468			179,054			339,262			178,701

Earnings per ordinary share and ordinary share equivalent — basic	$	0.23		$	1.33		$	0.76		$	2.52

Earnings per ordinary share and ordinary share equivalent — diluted	$	0.23		$	1.33		$	0.76		$	2.52

See accompanying Notes to Unaudited Consolidated Financial Statements

XL CAPITAL LTD
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	(Unaudited) Three Months Ended June 30,						(Unaudited) Six Months Ended June 30,

*(U.S. dollars in thousands)*	2009			2008			2009			2008

Net income attributable to XL Capital Ltd.	$	85,541		$	237,851		$	88,638		$	482,224
Impact of adoption of FSP FAS 115-2 and FAS 124-2, net of taxes		(229,670	)		—			(229,670	)		—
Change in net unrealized (losses) on investments, net of tax		1,115,165			(686,280	)		326,480			(1,761,867	)
Change in other-than-temporary impairment losses recognized in other comprehensive income, net of tax		(25,595	)		—			(25,595	)		—
Change in underfunded pension liability		(250	)		(21	)		(316	)		(65	)
Change in value of cash flow hedge		110			109			218			218
Foreign currency translation adjustments, net		184,893			6,946			89,639			237,418
Change in net unrealized gain (loss) on future policy benefit reserves		(5,487	)		—			2,007			(1,688	)

Comprehensive income (loss)	$	1,124,707		$	(441,395	)	$	251,401		$	(1,043,760	)

See accompanying Notes to Unaudited Consolidated Financial Statements

XL CAPITAL LTD
C ONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


	(Unaudited) Six months Ended June 30,

	2009			2008

*(U.S. dollars in thousands)*
Non-controlling Interest in Equity of Consolidated Subsidiaries:
Balance – beginning of year	$	1,598		$	2,419
Non-controlling interest in net income (loss) of subsidiary		(40	)		—
Non-controlling interest share in change in accumulated other comprehensive (loss) income		816			(832	)

Balance – end of period	$	2,374		$	1,587

Series E Preference Ordinary Shares:
Balance – beginning of year	$	10		$	10

Balance – end of period	$	10		$	10

Class A Ordinary Shares:
Balance – beginning of year	$	3,308		$	1,779
Issuance of Class A ordinary shares		115			13
Exercise of stock options		1			—
Repurchase of shares		(2	)		(1	)

Balance – end of period	$	3,422		$	1,791

Additional Paid in Capital:
Balance – beginning of year	$	9,792,371		$	7,358,801
Issuance of Class A ordinary shares		742,258			49,093
Repurchase of Class A ordinary shares		—			(4,246	)
Dividends on Class A ordinary shares		(68,390	)		—
Dividends on preference ordinary shares		(42,126	)		—
Stock option expense		9,165			10,039
Net change in deferred compensation		21,704			(21,721	)

Balance – end of period	$	10,454,982		$	7,391,966

Accumulated Other Comprehensive (Loss) Income:
Balance – beginning of year	$	(3,364,927	)	$	9,159
Impact of adoption of FSP FAS 115-2 and FAS 124-2, net of taxes		(229,670	)		—
Change in net unrealized (losses) on investment portfolio, net of tax		319,960			(1,761,735	)
Change in other-than-temporary impairment losses recognized in other comprehensive income, net of tax		(25,595	)		—
Change in net unrealized (losses) gains on affiliate and other investments, net of tax		6,520			(132	)
Change in underfunded pension liability		(316	)		(65	)
Change in value of cash flow hedge		218			218
Foreign currency translation adjustments		89,639			237,418
Change in net unrealized gain (loss) on future policy benefit reserves		2,007			(1,688	)

Balance – end of period	$	(3,202,164	)	$	(1,516,825	)

Retained (Deficit) Earnings:
Balance – beginning of year	$	(315,529	)	$	2,578,393
Impact of adoption of FSP FAS 115-2 and FAS 124-2, net of taxes		229,670			—
Net income		88,638			482,224
Dividends on preference ordinary shares		—			(32,500	)
Dividends on Class A ordinary shares		—			(135,866	)
Gain on redemption of Series C preference ordinary shares		211,816			—

Balance – end of period	$	214,595		$	2,892,251

Total Shareholders’ Equity	$	7,473,219		$	8,770,780

See accompanying Notes to Unaudited Consolidated Financial Statements

XL CAPITAL LTD
CO NSOLIDATED STATEMENTS OF CASH FLOWS


	(Unaudited) Six Months Ended June 30,

	2009			2008

*(U.S. dollars in thousands)*
Cash flows (used in) provided by operating activities:
Net income	$	88,638		$	482,224
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Net realized losses on investments		332,367			100,211
Net realized and unrealized losses (gains) on derivative instruments		438			(52,806	)
Amortization of (discounts) on fixed maturities		(18,267	)		(21,117	)
Loss (income) from investment and operating affiliates		(17,532	)		56,984
Amortization of deferred compensation		19,713			26,973
Accretion of convertible debt		496			499
Accretion of deposit liabilities		23,306			92,396
Unpaid losses and loss expenses		(328,569	)		(665,502	)
Future policy benefit reserves		(45,102	)		(8,470	)
Unearned premiums		(13,572	)		588,745
Premiums receivable		(154,816	)		(395,077	)
Unpaid losses and loss expenses recoverable		121,547			669,117
Prepaid reinsurance premiums		(51,718	)		(139,148	)
Reinsurance balances receivable		165,926			118,674
Deferred acquisition costs		(21,422	)		(93,215	)
Reinsurance balances payable		(252,006	)		(45,114	)
Deferred tax asset		(26,375	)		38,248
Other assets		(42,857	)		89,958
Other liabilities		(253,383	)		(265,286	)
Other		(47,780	)		69,007

Total adjustments	$	(609,606	)	$	165,077

Net cash (used in) provided by operating activities	$	(520,968	)	$	647,301

Cash flows provided by investing activities:
Proceeds from sale of fixed maturities and short-term investments	$	5,140,997		$	9,840,029
Proceeds from redemption of fixed maturities and short-term investments		2,119,654			1,333,153
Proceeds from sale of equity securities		353,600			529,130
Purchases of fixed maturities and short-term investments		(7,467,848	)		(7,470,615	)
Purchases of equity securities		(18,339	)		(331,062	)
Net disposition of investment affiliates		597,852			201,749
Other investments		(25,014	)		31,354

Net cash provided by investing activities	$	700,902		$	4,133,738

Cash flows (used in) financing activities:
Proceeds from issuance of Class A ordinary shares	$	745,000		$	—
Repurchase of Class A ordinary shares		(541	)		(4,247	)
Redemption of Series C preference ordinary shares		(104,718	)		—
Dividends paid on Class A ordinary shares		(68,372	)		(135,381	)
Dividends paid on preference ordinary shares		(50,178	)		(32,500	)
Deposit liabilities		(138,976	)		(5,056,582	)
Repayment of debt		(745,000	)		—
Net cash flow on securities lending		(242,662	)		186,700

Net cash (used in) financing activities	$	(605,447	)	$	(5,042,010	)
Effects of exchange rate changes on foreign currency cash		61,059			85,190

Increase (decrease) in cash and cash equivalents		(364,454	)		(175,781	)
Cash and cash equivalents – beginning of period		4,353,826			3,880,030

Cash and cash equivalents – end of period	$	3,989,372		$	3,704,249

See accompanying Notes to Unaudited Consolidated Financial Statements

XL CAPITAL LTD

N OTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Preparation and Consolidation

These unaudited consolidated financial statements include the accounts of the Company and all of its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. In the opinion of management, these unaudited financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the Company’s financial position and results of operations as at the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year. All significant inter-company accounts and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.

To facilitate period-to-period comparisons, certain reclassifications have been made to prior period consolidated financial statement amounts to conform to current period presentation. There was no effect on net income from this change in presentation.

Unless the context otherwise indicates, references herein to the “Company” include XL Capital Ltd and its consolidated subsidiaries.

The Company has performed an evaluation of subsequent events through August 5, 2009, which is the date the financial statements were issued.

2. Significant Accounting Policies

(a) Recent Accounting Pronouncements

In December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“FAS 160”), to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 requires a company to clearly identify and present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; requires any changes in ownership interest of the subsidiary be accounted for as equity transactions; and requires that when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. FAS 160 is effective for interim and annual financial statements issued after January 1, 2009. While the adoption of this standard did not have a material impact on the Company’s financial condition or results of operations, such adoption did result in certain changes in the presentation and disclosure of noncontrolling interests as noted above.

In March 2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.” FAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities, and is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early application encouraged. The Company adopted the standard as of January 1, 2009. FAS 161 requires only additional disclosures concerning derivatives and hedging activities, and therefore the adoption of FAS 161 did not have an impact on the Company’s financial condition and results of operations. See Note 2-(b), “Significant Accounting Policies – Derivative Instruments” and Note 7, “Derivative Instruments” for disclosures required under this standard.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

(a) Recent Accounting Pronouncements (Continued)

In May 2008, the FASB issued FAS 163, “Accounting for Financial Guarantee Insurance Contracts, an interpretation of FAS 60” (“FAS 163”) to address current diversity in practice with respect to accounting for financial guarantee insurance contracts by insurance enterprises under FAS 60, “Accounting and Reporting by Insurance Enterprises” (“FAS 60”). That diversity results in inconsistencies in the recognition and measurement of claim liabilities because of differing views regarding when a loss has been incurred under FAS 5, “Accounting for Contingencies”. FAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. FAS 163 also clarifies how FAS 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. Those clarifications will increase comparability in financial reporting of financial guarantee insurance contracts by insurance enterprises. FAS 163 also requires expanded disclosures about financial guarantee insurance contracts. The standard was adopted by the Company as of January 1, 2009. The Company had reserves for financial guarantee insurance contracts of $14.5 million recorded within “Unpaid Losses and Loss Expenses”, at both June 30, 2009 and December 31, 2008. The adoption of FAS 163 during 2009 did not have a material impact on the Company’s financial condition or results of operations.

As of June 30, 2009, the Company’s outstanding financial guarantee contracts that were subject to FAS 163 included the reinsurance of 47 financial guarantee contracts with total insured contractual payments outstanding of $788.7 million ($638.2 million of principal and $150.5 million of interest) with a remaining weighted-average contract period of 8.4 years. The total gross claim liability and unearned premiums recorded at June 30, 2009 were $14.5 million and $2.3 million, respectively. Of the contractual exposure existing at June 30, 2009, the Company has reinsured $400.3 million with a third party. There are no gross claim liabilities or recoverables recorded relating to this exposure. As of December 31, 2008, the Company’s outstanding financial guarantee contracts that were subject to FAS 163 included the reinsurance of 48 financial guarantee contracts with total insured contractual payments outstanding of $936.6 million ($798.5 million of principal and $138.1 million of interest) with a remaining weighted-average contract period of 7.9 years. The total gross claim liability and unearned premiums recorded at December 31, 2008 were $14.5 million and $3.1 million, respectively. Of the contractual exposure existing at December 31, 2008, the Company had reinsured $360.5 million with subsidiaries of Syncora Holdings Ltd (“Syncora”), however as at June 30, 2009 no reinsurance balances recoverable from Syncora had been recorded. Surveillance procedures to track and monitor credit deteriorations in the insured financial obligations are performed by the primary obligors for each transaction on the Company’s behalf. Information regarding the performance status and updated exposure values is provided to the Company on a quarterly basis and evaluated by management in recording claims reserves. Of the 47 contracts noted above, 5 contracts with total insured contractual payments outstanding of $18.1 million had experienced an event of default and were considered by the Company to be non-performing at June 30, 2009, while the remaining 42 contracts were considered to be performing at such date.

While not financial guarantee insurance contracts under FAS 163, the Company’s guarantees to the European Investment Bank in respect of financial guaranty policies issued by subsidiaries of Syncora to the European Investment Bank (the “EIB Policies”), subject to certain limitations, have been accounted for under FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” These guarantees were provided for the benefit of EIB polices relating to project finance transactions comprised of transportation, school and hospital projects with an average rating of BBB, written between 2001 and 2006 with anticipated maturities ranging between 2027 and 2038. As at June 30, 2009, the Company’s exposures relating to the EIB Policies was approximately $996.3 million, as compared to $955.4 million at December 31, 2008, mainly due to the weakening of the U.S. dollar against the currencies of the underlying obligations. As of June 30, 2009, there have been no reported events of default on the underlying obligations, accordingly, no reserves have been recorded.

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” (“FSP EITF 03-6-1”) This FASB Staff Position (FSP) addresses whether instruments granted in share-based payment transactions may be participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing basic earnings per share (“EPS”) pursuant to the two-class method described in

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

(a) Recent Accounting Pronouncements (Continued)

paragraphs 60 and 61 of FASB Statement No. 128, “Earnings per Share.” A share-based payment award that contains a non-forfeitable right to receive cash when dividends are paid to ordinary shareholders irrespective of whether that award ultimately vests or remains unvested shall be considered a participating security as these rights to dividends provide a non-contingent transfer of value to the holder of the share-based payment award. Accordingly, these awards should be included in the computation of basic EPS pursuant to the two-class method. The guidance in this FSP was effective for the Company as of January 1, 2009. All prior period EPS data presented was adjusted retrospectively to conform to the provisions of the FSP. Under the terms of the Company’s restricted stock awards, grantees are entitled to the right to receive dividends on the unvested portions of their awards. There is no requirement to return these dividends in the event the unvested awards are forfeited in the future. Accordingly, this FSP had an impact on the Company’s EPS calculations. See Note 14, “Earnings Per Share”, for a description of the impact of the adoption of FSP EITF 03-6-1 on the 2008 EPS figures.

In September 2008, the FASB issued FSP FAS No. 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161.” FSP FAS No. 133-1 and FIN 45-4 requires enhanced disclosures about credit derivatives and guarantees and amends FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” to exclude derivative instruments accounted for at fair value under FAS 133. The FSP is effective for financial statements issued for reporting periods ending after November 15, 2008. Since FSP FAS No. 133-1 and FIN 45-4 only requires additional disclosures concerning credit derivatives and guarantees, adoption of FSP FAS No. 133-1 and FIN 45-4 did not impact the Company’s financial condition or results of operations.

In April 2009, the FASB issued FSP No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”), which provides additional guidance for estimating fair value in accordance with FASB No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability has significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly and amends certain FAS 157 disclosure guidance. FSP FAS 157-4 was effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this standard did not have a material impact on the Company’s financial condition or results of operations.

In April 2009, the FASB issued FSP No. 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2”) which amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 was effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted this guidance effective April 1, 2009, which resulted in a net after-tax increase to retained earnings and decrease to Accumulated Other Comprehensive Income (Loss) of $229.7 million, as of April 1, 2009. The disclosures required by this FSP are provided in Note 6, “Investments”.

In April 2009, the FASB issued FSP No. 107-1 and APB 28-1 (“FSP FAS 107-1”), “Interim Disclosures about Fair Value of Financial Instruments” which amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments” and APB Opinion No. 28, “Interim Financial Reporting”, to require disclosures about the fair value of financial instruments for interim reporting periods as well as in annual financial statements. FSP FAS 107-1 was effective for interim reporting periods ending after June 15, 2009. This standard affects disclosures only and accordingly did not have an impact on the Company’s financial condition or results of operations.

In April 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” This FSP requires an asset acquired or liability assumed in a business combination that arises from a contingency to be recognized at fair value at the acquisition date, if the acquisition date fair value of that asset or liability can be determined during the measurement period. If the acquisition date fair value of an asset acquired or liability assumed in a business combination that arises from a contingency cannot be determined during the measurement period, the asset or liability shall be recognized at the acquisition date using the guidance in FAS No. 5, “Accounting for Contingencies.” This FSP also amends disclosure requirements. This FSP is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after January 1, 2009. The Company’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Company’s financial position or results of operations.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

(a) Recent Accounting Pronouncements (Continued)

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, “Subsequent Events” (“FAS 165”). This standard incorporates into authoritative accounting literature certain guidance that already existed within generally accepted auditing standards, but the rules concerning recognition and disclosure of subsequent events will remain essentially unchanged. Subsequent events guidance addresses events which occur after the balance sheet date but before the issuance of financial statements. Under FAS 165 as under current practice, an entity must record the effects of subsequent events that provide evidence about conditions that existed at the balance sheet date and must disclose but not record the effects of subsequent events which provide evidence about conditions that did not exist at the balance sheet date. This Statement is effective for interim and annual periods ending after June 15, 2009. The adoption of FAS 165 did not have a material impact on the Company’s financial condition or results of operations.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, “Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140” (“FAS 166”). FAS 166 amends the accounting for transfers of financial assets and also removes the concept of a qualifying special-purpose entity from FAS 140 and removes the exception from applying FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46R”), to qualifying special-purpose entities. FAS 166 must be applied from January 1, 2010 for the Company, for both interim and annual periods. Earlier application is prohibited. FAS 166 must be applied to transfers occurring on or after the effective date. The Company is currently evaluating the potential impact of this standard, however, it is not currently expected to have a material impact on the Company’s financial condition or results of operations.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R)” (“FAS 167”) in an effort to improve financial reporting by enterprises involved with variable interest entities. FAS 167 retains the scope of FIN 46(R) with the addition of entities previously considered qualifying special-purpose entities, as the concept of these entities was eliminated in FAS 166. FAS 167 amends FIN 46(R) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity under revised guidelines that are more qualitative than under previous guidance and amends FIN 46(R) to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. Before this Statement, FIN 46(R) required reconsideration of whether an enterprise is the primary beneficiary of a variable interest entity only when specific events occurred. FAS 167 also amends FIN 46(R) to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement with a variable interest entity. The enhanced disclosures are required for any enterprise that holds a variable interest in a variable interest entity. FAS 167 nullifies FASB Staff Position FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities”. However, the content of the enhanced disclosures required by this Statement is generally consistent with that previously required by the FSP. The Company is currently evaluating the potential impact of this standard on its financial condition and results of operations.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, A replacement of FAS 162” (“FAS 168”). FAS 168 specifies that the FASB Accounting Standards Codification (“Codification”) will become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. For financial statements issued for interim and annual periods ending after September 15, 2009, the effective date of FAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative. While the Codification does not change GAAP, it introduces a new structure—one that is intended to be organized in an easily accessible, user-friendly online research system. The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

(b) Fair Value Measurements and Total Investments

FAS 157, “Fair Value Measurements” (“FAS 157”) requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the “exit price”). Instruments that the Company owns (“long positions”) are marked to bid prices and instruments that the Company has sold but not yet purchased (“short positions”) are marked to offer prices. Fair value measurements are not adjusted for transaction costs.

Basis of Fair Value Measurement

FAS 157 also establishes a fair value hierarchy that prioritizes the inputs to the respective valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). An asset’s or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. The three levels of the fair value hierarchy under FAS 157 are described further below:


	•	Level 1 – Quoted prices in active markets for identical assets or liabilities (unadjusted); no blockage factors.

	•	Level 2 – Other observable inputs (quoted prices in markets that are not active or inputs that are observable either directly or indirectly) – include quoted prices for similar assets/liabilities (adjusted) other than quoted prices in Level 1; quoted prices in markets that are not active; or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

	•	Level 3 – Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Investments Available For Sale

Investments that are considered available for sale (comprised of the Company’s fixed maturities, equity securities and short-term investments) are carried at fair value. The fair values for available for sale investments are generally sourced from third parties. The fair value of fixed maturity securities is based upon quoted market values where available, “evaluated bid” prices provided by third party pricing services (“pricing services”) where quoted market values are not available, or by reference to broker or underwriter bid indications where pricing services do not provide coverage for a particular security. To the extent the Company believes current trading conditions represent distressed transactions, the Company may elect to utilize internally generated models. The pricing services use market approaches to valuations using primarily Level 2 inputs in the vast majority of valuations, or some form of discounted cash flow analysis, to obtain investment values for a small percentage of fixed maturity securities for which they provide a price. Pricing services indicate that they will only produce an estimate of fair value if there is objectively verifiable information available to produce a valuation. Standard inputs to the valuations provided by the pricing services listed in approximate order of priority for use when available include: reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. The pricing services may prioritize inputs differently on any given day for any security, and not all inputs listed are available for use in the evaluation process on any given day for each security evaluation; however, the pricing services also monitor market indicators, industry and economic events. Information of this nature is a trigger to acquire further corroborating market data. When these inputs are not available, they identify “buckets” of similar securities (allocated by asset class types, sectors, sub-sectors, contractual cash flows/structure, and credit rating characteristics) and apply some form of matrix or other modeled pricing to determine an appropriate security value which represents their best estimate as to what a buyer in the marketplace would pay for a security in a current sale. While the Company receives values for the majority of the investment securities it holds from one or more pricing services, it is ultimately management’s responsibility to determine whether the values received and recorded in the financial statements are representative of appropriate fair value measurements. It is common industry practice to utilize pricing services as a source for determining the fair values of investments where the pricing services are able to obtain sufficient market corroborating information to allow them to produce a valuation at a reporting date. In addition, in the majority

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

(b) Fair Value Measurements and Total Investments (Continued)

of cases, although a value may be obtained from a particular pricing service for a security or class of similar securities, these values are corroborated against values provided by other pricing sources.

Broker quotations are used to value fixed maturities where prices are unavailable from pricing services due to factors specific to the security such as limited liquidity, lack of current transactions, or trades only taking place in privately negotiated transactions. These are considered Level 3 valuations, as significant inputs utilized by brokers may be difficult to corroborate with observable market data, or sufficient information regarding the specific inputs utilized by the broker was not obtained to support a Level 2 classification.

Prices provided by independent pricing services and independent broker quotes can vary widely even for the same security. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts. During periods of market disruption including periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to value certain of the Company’s securities, for example, Collateralized loan obligations (“CLOs”), Alt-A and sub-prime mortgage backed securities, if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with significant observable data that become illiquid due to the current financial environment. In such cases, more securities may fall to Level 3 and thus require more subjectivity and management judgment with regard to fair value. As such, valuations may include inputs and assumptions that are less observable or require greater estimation as well as valuation methods which are more sophisticated or require greater estimation, thereby resulting in values which may be different than the value at which the investments may be ultimately sold.

The net unrealized gain or loss on investments, net of tax, is included in “accumulated other comprehensive income (loss).” Any unrealized depreciation in value considered by management to be other than temporary is charged to income in the period in which that determination is made.

Short-term investments comprise investments with a remaining maturity of less than one year and are valued using the same external factors and in the same manner as fixed maturity securities.

Equity securities include investments in open end mutual funds and shares of publicly traded alternative funds. The fair value of equity securities is based upon quoted market values (Level 1), or monthly net asset value statements provided by the investment managers upon which subscriptions and redemptions can be executed (Level 2).

All investment transactions are recorded on a trade date basis. Realized gains and losses on sales of equities and fixed income investments are determined on the basis of average cost and amortized cost, respectively. Investment income is recognized when earned and includes interest and dividend income together with the amortization of premium and discount on fixed maturities and short-term investments. Amortization of discounts on fixed maturities includes amortization to expected recovery values for investments which have previously been recorded as other than temporarily impaired. For mortgage-backed securities, and any other holdings for which there is a prepayment risk, prepayment assumptions are evaluated and revised as necessary. Prepayment fees or call premiums that are only payable to the Company when a security is called prior to its maturity, are earned when received and reflected in net investment income.

Investment In Affiliates

Investments in which the Company has significant influence over the operating and financial policies of the investee are classified as investments in affiliates on the Company’s balance sheet and are accounted for under the equity method of accounting. Under this method, the Company records its proportionate share of income or loss from such investments in its results for the period as well as its portion of movements in certain of the investee shareholders’ equity balances. When financial statements of the affiliate are not available on a timely basis to record the Company’s share of income or loss for the same reporting periods as the Company, the most recently available financial statements are used. This lag in reporting is applied consistently until such time as timely information may become available. Significant influence is generally deemed to exist where the Company has an investment of 20% or more in the common stock of a corporation or an investment of 3% or greater in closed end funds, limited partnerships, LLCs or similar investment vehicles. The Company records its alternative and private fund affiliates on a one month and three month lag, respectively, and its operating affiliates on a three month lag. Significant influence is considered for other strategic investments on a case- by-case basis. Investments in affiliates are not subject to FAS 157 as they are not considered to be fair value measurements under FAS 157. However, impairments associated with investments in affiliates that are deemed to be other-than-temporary are calculated in

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

(b) Fair Value Measurements and Total Investments (Continued)

accordance with FAS 157 and appropriate disclosures included within the financial statements during the period the losses are recorded.

Other investments

Contained within this asset class are investments including direct equity investments, investment funds, limited partnerships, unrated tranches of collateralized debt obligations and certain structured project finance transactions. The Company accounts for its other investments that do not have readily determinable market values at estimated fair value as it has no significant influence (as defined above) over these entities.

Fair values for other investments, principally other direct equity investments, investment funds and limited partnerships, are primarily based on the net asset value provided by the investment manager, the general partner or the respective entity, recent financial information, available market data and, in certain cases, management judgment may be required. These entities generally carry their trading positions and investments, the majority of which have underlying securities valued using Level 1 or Level 2 inputs, at fair value as determined by their respective investment managers; accordingly, these investments are generally classified as Level 2. Private equity investments are classified as Level 3. The net unrealized gain or loss on investments, net of tax, is included in “Accumulated other comprehensive income (loss)”. Any unrealized loss in value considered by management to be other than temporary is charged to income in the period that it is determined.

Income on unrated tranches of collateralized debt obligations is reflected only to the extent the Company’s principal has been fully recovered. This is not considered to be a fair value measurement under FAS 157 and accordingly these investments have been excluded from FAS 157 disclosures. These investments are carried under the cost recovery method given the uncertainty of future cash flows. The carrying value of these investments held by the Company at June 30, 2009 and December 31, 2008 was $13.1 million and $14.7 million, respectively.

The Company historically participated in structured transactions in project finance related areas under which the Company provided a cash loan supporting trade finance transactions. These transactions are accounted for in accordance with SOP 01-6, “Accounting by Certain Entities (Including Entities with Trade Receivables) That Lend to or Finance the Activities of Others” under which the loans are considered held for investment as the Company has the intent and ability to hold for the foreseeable future or until maturity or payoff. Accordingly, these funded loan participations are reported in the balance sheet at outstanding principal adjusted for any allowance for loan losses as considered necessary by management. In addition, the Company invested in a payment obligation that is carried at amortized cost as described in Note 7, “Other Investments”. These investments are not considered to be fair value measurements under FAS 157 and accordingly they have been excluded from the FAS 157 disclosures. The carrying value of these investments held by the Company at June 30, 2009 and December 31, 2008 was $212.1 million and $80.1 million, respectively.

Cash Equivalents

Cash equivalents include fixed interest deposits placed with a maturity of under 90 days when purchased. Bank deposits are not considered to be fair value measurements and as such are not subject to FAS 157 disclosures. Money market funds are classified as Level 1 as these instruments are considered actively traded; however, certificates of deposit are classified as Level 2.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

(c) Derivative Instruments

The Company recognizes all derivatives as either assets or liabilities in the balance sheet and measures those instruments at fair value. The changes in fair value of derivatives are shown in the consolidated statement of income as “net realized and unrealized gains and losses on derivative instruments” unless the derivatives are designated as hedging instruments. The accounting for derivatives which are designated as hedging instruments is discussed below. Changes in fair value of derivatives may create volatility in the Company’s results of operations from period to period. Amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) are offset against net fair value amounts recognized in the consolidated balance sheet for derivative instruments executed with the same counterparty under the same netting arrangement.

Derivative contracts can be exchange-traded or OTC. Exchange-traded derivatives (futures and options) typically fall within Level 1 of the FAS 157 fair value hierarchy depending on whether they are deemed to be actively traded or not. OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market clearing transactions, broker or dealer quotations or alternative pricing sources where an understanding of the inputs utilized in arriving at the valuations is obtained. Where models are used, the selection of a particular model to value an OTC derivative depends upon the contractual terms and specific risks inherent in the instrument as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as generic forwards, interest rate swaps and options, model inputs can generally be verified and model selection does not involve significant management judgment. Such instruments comprise the majority of derivatives held by the Company and are typically classified within Level 2 of the fair value hierarchy.

Certain OTC derivatives trade in less liquid markets with limited pricing information, or required model inputs which are not directly market corroborated, which causes the determination of fair value for these derivatives to be inherently more subjective. Accordingly, such derivatives are classified within Level 3 of the fair value hierarchy. The valuations of less standard or liquid OTC derivatives are typically based on Level 1 and/or Level 2 inputs that can be observed in the market, as well as unobservable Level 3 inputs. Level 1 and Level 2 inputs are regularly updated to reflect observable market changes, with resulting gains and losses reflected within Level 3. Level 3 inputs are only changed when corroborated by evidence such as similar market transactions, pricing services and/or broker or dealer quotations. The Company conducts its derivative activities in four main areas: investment related derivatives, credit derivatives, other non-investment related derivatives, and until late 2008 it also utilized weather and energy derivatives.

Investment related derivatives

The Company’s direct use of derivatives includes futures, forwards, swaps and option contracts that derive their value from underlying assets, indices, reference rates or a combination of these factors. The Company uses derivatives to manage duration, credit and foreign currency exposure for its investment portfolio as well as to add value to the investment portfolio through replicating permitted investments, provided the use of such investments is incorporated into the overall portfolio evaluation and complies with the Company’s investment guidelines.

The Company also uses derivative instruments, primarily interest rate swaps, to manage the interest rate exposure associated with certain assets and liabilities. These derivatives are recorded at fair value. On the date the derivative contract is entered into, the Company may designate the derivative as a hedge of the fair value of a recognized asset or liability (“fair value” hedge); a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset or liability (“cash flow” hedge); a hedge of a net investment in a foreign operation; or the Company may not designate any hedging relationship for a derivative contract.

Credit derivatives

Credit derivatives are recorded at fair value, which is determined using either models developed by the Company or third party prices and are dependent upon a number of factors, including changes in interest rates, future default rates, credit spreads, changes in credit quality, future expected recovery rates and other market factors. The change resulting from movements in credit and credit quality spreads is unrealized as the credit derivatives are not traded to realize this resultant value.

Other Non-Investment Related Derivatives

The Company may also enter into derivatives as part of contingent capital facilities including put options and interest rate swaps, or hold contracts containing embedded derivatives such as life reinsurance contracts containing guaranteed minimum income

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

(c) Derivative Instruments (continued)

benefits (“GMIB”) over the account balance upon the policyholder’s election to take the income benefit. The fair value of this derivative is determined based on the present value of expected cash flows. In addition, the Company has modified coinsurance and funds withheld reinsurance agreements that provide for a return based on a portfolio of fixed income securities; as such, the agreements contain embedded derivatives. The embedded derivative is bifurcated from the funds withheld balance and recorded at fair value with changes in fair value recognized in earnings through net realized and unrealized gains and losses on derivative instruments.

Weather and Energy derivatives

Fair values for the Company’s remaining portfolio of natural gas contracts are determined through the use of quoted market prices when available. As quoted market prices are not widely available in the weather and electricity derivative markets, management uses available market data and internal pricing models based upon consistent statistical methodologies to estimate fair values. Estimating the fair value of instruments which do not have quoted market prices requires management’s judgment in determining amounts which could reasonably be expected to be received from, or paid to, a third party in settlement of the contracts. The amounts could be materially different from the amounts that might be realized in an actual sale transaction. Fair values are subject to change in the near-term and reflect management’s best estimate based on various factors including, but not limited to, actual and forecasted weather conditions, changes in commodity prices, changes in interest rates and other market factors.

Fair Value Hedges

Changes in the fair value of a derivative that is designated and qualifies as a fair value hedge, along with the changes in the fair value of the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings (through “net realized and unrealized gains and losses on derivative instruments”) with any differences between the net change in fair value of the derivative and the hedged item representing the hedge ineffectiveness. Periodic derivative net coupon settlements are recorded in net investment income with the exception of hedges of Company issued debt which are recorded in interest expense.

Cash Flow Hedges

Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge are recorded in accumulated other comprehensive income (“AOCI”) and are reclassified into earnings when the variability of the cash flow of the hedged item impacts earnings. Gains and losses on derivative contracts that are reclassified from AOCI to current period earnings are included in the line item in the consolidated statements of operations in which the cash flows of the hedged item are recorded. Any hedge ineffectiveness is recorded immediately in current period earnings as “net realized and unrealized gains and losses on derivative instruments.” Periodic derivative net coupon settlements are recorded in net investment income.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Measurements

Effective January 1, 2008, the Company adopted FAS 157, which requires disclosures about the Company’s assets and liabilities that are carried at fair value. As required by FAS 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The following tables set forth the Company’s assets and liabilities that were accounted for at fair value as of June 30, 2009 and December 31, 2008 by level within the fair value hierarchy (for further information, see Note 2 (b) to the Consolidated Financial Statements, “Significant Accounting Policies – Fair Value Measurements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and Note 2 (b) above):


(U.S. dollars in thousands) (Unaudited)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Collateral and Counterparty Netting			Balance as of June 30, 2009

Assets
U.S. Government and Government agency	$	—	$	4,500,762	$	—	$	—		$	4,500,762
Corporate		—		9,316,570		21,462		—			9,338,032
Residential mortgage-backed securities – Agency		—		3,080,359		—		—			3,080,359
Residential mortgage-backed securities – Non-Agency		—		1,107,451		18,938		—			1,126,389
Commercial mortgage-backed securities		—		1,461,816		33,289		—			1,495,105
Collateralized debt obligations		—		61,689		503,168		—			564,857
Other asset-backed securities		—		1,345,983		43,341		—			1,389,324
U.S. States and political subdivisions of the States		—		493,107		—		—			493,107
Non-U.S. Sovereign Government		—		3,630,818		42,585		—			3,673,403

Total Fixed maturities, at fair value	$	—	$	24,998,555	$	662,783	$	—		$	25,661,338
Equity securities, at fair value		15,040		37,440		—		—			52,480
Short-term investments, at fair value (7)		—		2,004,524		20,614		—			2,025,138

Total investments available for sale	$	15,040	$	27,040,519	$	683,397	$	—		$	27,738,956
Cash equivalents (1)		2,419,330		556,413		—		—			2,975,743
Other investments (2)		—		399,928		65,134		—			465,062
Other assets (3)(5)		—		138,380		205,398		(234,249	)		109,529

Total assets accounted for at fair value	$	2,434,370	$	28,135,240	$	953,929	$	(234,249	)	$	31,289,290


Liabilities
Financial instruments sold, but not yet purchased (6)	$	—	$	26,135	$	—	$	—		$	26,135
Other liabilities (4)(5)		—		16,011		84,663		(81,947	)		18,727

Total liabilities accounted for at fair value	$	—	$	42,146	$	84,663	$	(81,947	)	$	44,862

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Measurements (Continued)


(U.S. dollars in thousands) (Unaudited)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Collateral and Counterparty Netting			Balance as of December 31, 2008

Assets
U.S. Government and Government agency	$	—	$	3,978,342	$	—	$	—		$	3,978,342
Corporate		—		9,226,097		62,506		—			9,288,603
Residential mortgage-backed securities – Agency		—		2,099,955		—		—			2,099,955
Residential mortgage-backed securities – Non-Agency		—		1,329,052		37,150		—			1,366,202
Commercial mortgage-backed securities		—		2,097,757		43,811		—			2,141,568
Collateralized debt obligations		—		40,669		598,110		—			638,779
Other asset-backed securities		—		2,158,602		121,150		—			2,279,752
U.S. States and political subdivisions of the States		—		468,770		—		—			468,770
Non-U.S. Sovereign Government		—		3,285,245		89,152		—			3,374,397

Total Fixed maturities, at fair value	$	—	$	24,684,489	$	951,879	$	—		$	25,636,368
Equity securities, at fair value		276,040		85,779		—		—			361,819
Short-term investments, at fair value (7)		—		1,445,577		20,746		—			1,466,323

Total investments available for sale	$	276,040	$	26,215,845	$	972,625	$	—		$	27,464,510
Cash equivalents (1)		1,082,813		1,227,461		—		—			2,310,274
Other investments (2)		—		299,325		65,354		—			364,679
Other assets (3)(5)		—		219,366		314,906		(411,316	)		122,956

Total assets accounted for at fair value	$	1,358,853	$	27,961,997	$	1,352,885	$	(411,316	)	$	30,262,419


Liabilities
Financial instruments sold, but not yet purchased (6)	$	—	$	26,536	$	—	$	—		$	26,536
Other liabilities (4)(5)		—		53,101		88,088		(65,232	)		75,957

Total liabilities accounted for at fair value	$	—	$	79,637	$	88,088	$	(65,232	)	$	102,493



(1)	Cash equivalents balances subject to fair value measurement include certificates of deposit and money market funds. Operating cash balances are not subject to FAS 157.

(2)	The Other investments balance excludes certain unrated tranches of collateralized loan obligations which are carried under the cost recovery method given the uncertainty of future cash flows that totaled $13.1 million and $14.7 million at June 30, 2009 and December 31, 2008, respectively, as well as certain investments in project finance transactions and a payment obligation (as described in Note 7, “Other Investments”) which are carried at amortized cost that totaled $212.1 million at June 30, 2009 and $80.1 million at December 31, 2008, respectively.

(3)	Other assets include derivative instruments.

(4)	Other liabilities include derivative instruments.

(5)	The derivative balances included in each category above are reported on a gross basis by level with a netting adjustment presented separately in the “Collateral and Counterparty Netting” column. The Company often enters into different types of derivative contracts with a single counterparty and these contracts are covered under a netting agreement. In addition, the Company held cash collateral related to derivative assets of approximately $152.3 million and $346 million at June 30, 2009 and December 31, 2008, respectively. This balance is included within cash and cash equivalents and the corresponding liability to return the collateral has been offset against the derivative asset within the balance sheet as appropriate under the netting agreement. The fair value of the individual derivative contracts are reported gross in their respective levels based on the fair value hierarchy.

(6)	Financial instruments sold, but not purchased are included within “Net receivable for investments sold” on the balance sheet.

(7)	Short-term investments consist primarily of corporate, U.S. Government and Government Agency securities, and non-U.S. Sovereign Government securities.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Measurements (Continued)

Level 3 Gains and Losses

The tables below present additional information about assets and liabilities measured at fair value on a recurring basis and for which Level 3 inputs were utilized to determine fair value. The table reflects gains and losses for the three and six month periods ended June 30, 2009 for all financial assets and liabilities categorized as Level 3 as of March 31, 2009 and June 30, 2009, respectively. The tables do not include gains or losses that were reported in Level 3 in prior periods for assets that were transferred out of Level 3 prior to June 30, 2009. Gains and losses for assets and liabilities classified within Level 3 in the table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Further, it should be noted that the following table does not take into consideration the effect of offsetting Level 1 and 2 financial instruments entered into by the Company that are either economically hedged by certain exposures to the Level 3 positions or that hedge the exposures in Level 3 positions.


	Level 3 Assets and Liabilities Three Months Ended June 30, 2009

*(U.S. dollars in thousands (Unaudited)*	Corporate			Residential mortgage-backed securities – Non Agency			Commercial mortgage-backed securities			Collateralized debt obligations			Other asset backed securities
Balance, beginning of period	$	31,146		$	19,270		$	34,933		$	429,460		$	61,794
Realized (losses) gains		(1,224	)		(749	)		(1,069	)		(8,916	)		507
Movement in unrealized (losses) gains		3,545			2,631			(670	)		102,377			(4,509	)
Purchases, sales issuances and settlements, net		(2,223	)		—			(57	)		(915	)		—
Transfers into Level 3		1,974			174			166			993			7
Transfers out of Level 3		(11,716	)		(2,388	)		(14	)		(19,831	)		(14,458	)
Fixed maturities to short term investments classification change		(40	)		—			—			—			—

Balance, end of period	$	21,462		$	18,938		$	33,289		$	503,168		$	43,341

Movement in total (losses) above relating to instruments still held at the reporting date	$	2,425		$	2,091		$	(734	)	$	89,027		$	(4,886	)


	Level 3 Assets and Liabilities Three Months Ended June 30, 2009 (continued)

*(U.S. dollars in thousands (Unaudited)*	Non-U.S. Sovereign Government			Short-term Investments			Other investments			Derivative Contracts - Net
Balance, beginning of period	$	45,719		$	13,830		$	64,391		$	186,448
Realized (losses) gains		912			(4,167	)		—			2,823
Movement in unrealized (losses) gains		847			7,348			1,720			(73,454	)
Purchases, sales issuances and settlements, net		15,975			471			(977	)		4,918
Transfers into Level 3		—			188			—			—
Transfers out of Level 3		(17,960	)		(4	)		—			—
Fixed maturities to short term investments classification change		(2,908	)		2,948			—			—

Balance, end of period	$	42,585		$	20,614		$	65,134		$	120,735

Movement in total (losses) above relating to instruments still held at the reporting date	$	(775	)	$	5,485		$	1,720		$	(73,454	)

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Measurements (Continued)

Level 3 Gains and Losses (continued)


	Level 3 Assets and Liabilities Six Months Ended June 30, 2009

*(U.S. dollars in thousands (Unaudited)*	Corporate			Residential mortgage-backed securities – Non Agency			Commercial mortgage-backed securities			Collateralized debt obligations			Other asset backed securities
Balance, beginning of period	$	62,506		$	37,150		$	43,811		$	598,110		$	121,150
Realized (losses) gains		(5,514	)		(2,621	)		(4,294	)		(29,518	)		(2,570	)
Movement in unrealized (losses) gains		6,042			2,116			7,551			(19,525	)		(6,789	)
Purchases, sales issuances and settlements, net		(4,071	)		641			(5,260	)		(11,826	)		(5,481	)
Transfers into Level 3		1,455			200			3,082			1,044			2
Transfers out of Level 3		(38,256	)		(18,548	)		(11,601	)		(35,117	)		(62,971	)
Fixed maturities to short term investments classification change		(700	)		—			—			—			—

Balance, end of period	$	21,462		$	18,938		$	33,289		$	503,168		$	43,341

Movement in total (losses) above relating to instruments still held at the reporting date	$	4,073		$	1,970		$	5,741		$	(36,681	)	$	(9,476	)


	Level 3 Assets and Liabilities Six Months Ended June 30, 2009 (continued)
(U.S. dollars in thousands (Unaudited)	Non-U.S. Sovereign Government			Short-term Investments			Other investments			Derivative Contracts - Net
Balance, beginning of period	$	89,152		$	20,746		$	65,354		$	226,818
Realized (losses) gains		—			(2,827	)		—			2,823
Movement in unrealized (losses) gains		(1,192	)		3,684			(5,898	)		(118,803	)
Purchases, sales issuances and settlements, net		16,395			(5,073	)		5,678			9,897
Transfers into Level 3		—			418			—			—
Transfers out of Level 3		(58,804	)		—			—			—
Fixed maturities to short term investments classification change		(2,966	)		3,666			—			—

Balance, end of period	$	42,585		$	20,614		$	65,134		$	120,735

Movement in total (losses) above relating to instruments still held at the reporting date	$	(1,026	)	$	2,700		$	(5,898	)	$	(118,803	)

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Measurements (Continued)

Level 3 Gains and Losses (Continued)


				Level 3 Assets and Liabilities Three Months Ended June 30, 2008

(U.S. dollars in thousands) (Unaudited)	Fixed Maturities			Short-term Investments			Other Investments			Derivative Contracts — Net

Balance, beginning of period	$	1,221,766		$	9,569		$	52,338		$	52,446
Realized (losses) gains		(53,062	)		—			—			24,762
Movement in unrealized (losses) gains		(59,036	)		(94	)		(4,159	)		(28,544	)
Purchases, issuances and settlements		165,601			(1,918	)		13,414			6,687
Transfers in and/or out of Level 3		252,471			886			—			—

Balance, end of period	$	1,527,740		$	8,443		$	61,593		$	55,351

Movement in total (losses) gains above relating to instruments still held at the reporting date	$	(10,726	)	$	19		$	(4,159	)	$	(28,544	)


				Level 3 Assets and Liabilities Six Months Ended June 30, 2008

(U.S. dollars in thousands) (Unaudited)	Fixed Maturities			Short-term Investments			Other Investments			Derivative Contracts — Net

Balance, beginning of period	$	1,385,601		$	15,606		$	40,354		$	12,283
Realized (losses) gains		(132,363	)		13			—			26,843
Movement in unrealized (losses) gains		(216,020	)		(181	)		(3,494	)		6,189
Purchases, issuances and settlements		142,552			(6,105	)		24,733			10,036
Transfers in and/or out of Level 3		347,970			(890	)		—			—

Balance, end of period	$	1,527,740		$	8,443		$	61,593		$	55,351

Movement in total (losses) gains above relating to instruments still held at the reporting date	$	(226,154	)	$	—		$	(3,494	)	$	6,189

Level 3 assets include securities for which the values were obtained from brokers where either significant inputs were utilized in determining the value that were difficult to corroborate with observable market data, or sufficient information regarding the specific inputs utilized by the broker was not available to support a Level 2 classification. Level 3 assets also include securities for which the Company determined current market trades represent distressed transactions, and accordingly, the Company determined fair value using certain inputs that are not observable to market participants. Transfers from Level 3 to Level 2 during the quarter ended June 30, 2009, were primarily as a result of the Company utilizing pricing services containing significant observable inputs over other Level 3 valuations for certain assets.

Fixed maturities and short term investments

At June 30, 2009, a significant component of Level 3 assets represented Core collateralized debt obligations (“CDOs”) (defined by the Company as investments in non-mortgage CDOs), totaling $520.4 million. Certain asset classes, primarily consisting of privately placed investments, did not have sufficient market corroborated information available to allow a pricing service to provide a price and accordingly the valuation was determined by the use of broker quotes. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments as is currently the case for certain CDOs, for which sufficient information, such as cash flows or other security structure or market information, was not available to enable a third party pricing service to provide a price and as such valuation is determined based on broker quotes for which sufficient information regarding the specific inputs utilized by the broker in determining the fair value was not obtained to support a Level 2 classification. In addition, as noted below, for certain CDO holdings, the Company previously determined in late 2008 that internal models would be more appropriate and better representative of the fair value of these securities given that recent valuations were as a result of broker bids or valuation models that used recent market trading

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Measurements (Continued)

which the Company considered to be distressed transactions. The Company’s holdings in securities exposed to sub-prime mortgages are generally not based on quoted prices for identical securities, they are based on model-derived valuations from pricing services in which all significant inputs and significant value drivers are considered to be observable in active markets, and these securities continue to be classified within Level 2.

Of the total CDO holdings of $582.3 million at June 30, 2009, the Company has determined that for a portion of such CDO holdings with a fair value of $450.5 million and a par value of $807.5 million, valuations were as a result of broker bids that used recent market trading which the Company considered to be distressed transactions. The corresponding fair value and par value of such CDO holdings at December 31, 2008, was $483.2 million and $801.5 million, respectively. As of June 30, 2009, the market for CDO’s remained extremely illiquid due to a number of factors including risk aversion and reduction among institutional buyers. As a result, the Company believes that current broker bids reflect loss expectations that do not reflect fair values at which willing buyers and sellers would transact. The Company continues to believe that internal models would be more appropriate and better representative of the fair value at which these securities would be sold in an orderly transaction.

At June 30, 2009, the Company’s internal models resulted in a fair value that was $154.7 million higher than those that would have been determined by utilizing third party values sourced through brokers or pricing services. This variance represents 19.2% of par value of these holdings, which based on the portfolio’s spread duration of 4.9 years corresponds to an approximate 390 basis point decrease relative to the spread levels implied in current market levels of trading which management believes are distressed trades. The Company believes that, in the aggregate, this is appropriate as compared to current estimates of market credit spreads.

The Company’s approach for determining its CLO portfolio fair value was to apply a 60% weighting to three scenarios that the Company considered as extreme, and 40% weighting to a scenario that the Company viewed as likely. This resulted in a valuation that was based primarily on extreme loss outcomes, which the Company does not believe are likely, but recognizes as a possibility that an orderly market would price into its credit assessments given the level of uncertainty currently in the market. The individual components can be summarized as follows:

60% extreme loss outcomes:


	•	20% weighting to current third party valuations, with a fair value of $295.8 million, which the Company believes includes the current market liquidity premium;

	•	20% weighting to current cash flow estimates discounted at management’s view of current market spreads, with a fair value of $277.0 million, which the Company believes includes the current market liquidity premium;

	•	20% weighting to current cash flow estimates, adjusted by a multiple of the current underlying loss estimates, discounted at the coupon of the securities, with a further reduction in value representing a liquidity premium equal to double the prevailing total credit spread levels of the most severe previous CLO market deterioration, which resulted in a fair value of $462.4 million; and

40% likely loss outcomes:


	•	40% weighting to likely loss outcomes, representing current cash flow estimates discounted at the coupon of the securities, with a further reduction in value representing a liquidity premium equal to the prevailing credit spread levels of the most severe previous CLO market deterioration, which resulted in a fair value of $608.7 million.

While a number of the Level 3 investments have been written down as a result of the Company’s impairment analysis, the Company continues to report, at June 30, 2009, gross unrealized losses of $493.2 million related to Level 3 available-for-sale investments. Management completed a detailed review in conjunction with its external investment managers and third party advisors, of the Company’s underlying sub-prime and related residential mortgage exposures, as well as a consideration of the broader structured credit market, and concluded that the unrealized gains and losses in these asset classes are the result of a decrease in value due to technical spreads widening and broader market sentiment, rather than fundamental collateral deterioration and are temporary in nature.

The remainder of the Level 3 assets relate to private equity investments where the nature of the underlying assets held by the investee include positions such as private business ventures and are such that significant Level 3 inputs are utilized in the valuation, and certain derivative positions.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Measurements (Continued)

Other investments

Included within the Other Investments component of the Company’s Level 3 valuations are private investments where the Company is not deemed to have significant influence over the investee. The fair value of these investments is based upon net asset values received from the investment manager or general partner of the respective entity. The nature of the underlying investments held by the investee which form the basis of the net asset value include assets such as private business ventures and are such that significant Level 3 inputs are utilized in the determination of the individual underlying holding values and accordingly the fair value of the Company’s investment in each entity is classified within Level 3. The Company also incorporates factors such as the most recent financial information received, the values at which capital transactions with the investee take place, and management’s judgment regarding whether any adjustments should be made to the net asset value in recording the fair value of each position which are recorded on a one quarter lag basis as a result.

Derivative instruments

Derivative instruments classified within Level 3 include: (i) certain interest rate swaps where the duration of the contract the Company holds exceeds that of the longest term on a market observable input, (ii) weather and energy derivatives, (iii) GMIB benefits embedded within a certain reinsurance contract, (iv) a put option included within the Company’s remaining contingent capital facility and (v) credit derivatives sold providing protection on senior tranches of structured finance transactions where the value is obtained directly from the investment bank counterparty for which sufficient information regarding the inputs utilized in the valuation was not obtained to support a Level 2 classification. The majority of inputs utilized in the valuations of these types of derivative contracts are considered Level 1 or Level 2; however, each valuation includes at least one Level 3 input that was significant to the valuation and accordingly the values are disclosed within Level 3.

In addition, see Item 8, Note 2 to the Consolidated Financial Statements, “Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for a general discussion of types of assets and liabilities that are classified within Level 3 of the fair value hierarchy as well as the Company’s valuation policies for such instruments.

Financial Instruments Not Carried at Fair Value

FAS 107, “Disclosures about Fair Value of Financial Instruments” (“FAS 107”) requires additional disclosure of fair value information for financial instruments not carried at fair value. Certain financial instruments, particularly insurance contracts, are excluded from the fair value disclosure requirements of FAS 107. The carrying values of cash and cash equivalents, accrued investment income, net receivable from investments sold, other assets, net payable for investments purchased, other liabilities and other financial instruments not included below approximated their fair values. The following table includes financial instruments for which the carrying amount differs from the estimated fair values:


	As of June 30, 2009				As of December 31, 2008
(U.S. dollars in thousands) (Unaudited)	Carrying Value		Fair Value		Carrying Value		Fair Value


Other investments	$	690.4	$	679.1	$	459.5	$	443.3

Financial Assets	$	690.4	$	679.1	$	459.5	$	443.3


Deposit Liabilities	$	2,436.8	$	1,963.1	$	2,711.0	$	1,714.9
Notes payable and debt		2,445.2		2,038.8		3,189.7		1,215.0

Financial Liabilities	$	4,882.0	$	4,001.9	$	5,900.7	$	2,929.9


Redeemable series C preference ordinary shares	$	182.7	$	77.6	$	500.0	$	110.0

Other investments includes direct equity investments, investment funds, limited partnerships, certain structured project finance transactions, and unrated tranches of collateralized debt obligations. Items included in other investments are carried at fair value except as mentioned below.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Measurements (Continued)

The Company historically participated in project finance related loan transactions. These transactions are accounted for in accordance with SOP 01-6, “Accounting by Certain Entities (Including Entities with Trade Receivables) That Lend to or Finance the Activities of Others” under which the loans are considered held for investment as the Company has the intent and ability to hold for the foreseeable future or until maturity or payoff. Accordingly, these funded loan participations are reported in the balance sheet at outstanding principal adjusted for any allowance for loan losses as considered necessary by management. In addition, the Company invested in a payment obligation that is carried at amortized cost as described in Note 7, “Other Investments”. These investments are not considered to be fair value measurements under FAS 157 and accordingly they have been excluded from the FAS 157 disclosures. The fair value of these investments held by the Company is determined through use of internal models utilizing reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. The carrying value and estimated fair value of these investments were $212.1 million and $200.8 million as of June 30, 2009 and were $80.1 million and $63.9 million as of December 31, 2008, respectively.

Unrated tranches of CDOs are carried under the cost recovery method given the uncertainty of future cash flows and accordingly it is not practicable to determine an estimate of the fair value of these positions. The carrying value of these investments held by the Company at June 30, 2009 and December 31, 2008 was $13.1 million and $14.7 million, respectively.

Deposit liabilities include obligations under structured insurance and reinsurance transactions as well as funding agreements issued. For purposes of fair value disclosures, The Company determines the fair value of the deposit liabilities by assuming a discount rate equal to the appropriate U.S. Treasury rate plus 902 basis points and the appropriate U.S. Treasury Rate plus 427 basis points at June 30, 2009 and December 31, 2008, respectively, to determine the present value of projected contractual liability payments through final maturity. The discount rate incorporates the Company’s own credit risk into the determination of estimated fair value. The carrying value and estimated fair value of these liabilities were $2.4 million and $2.0 million as of June 30, 2009 and were $2.7 million and $1.7 million as of December 31, 2008, respectively.

The fair value of the Company’s notes payable and debt outstanding are determined based on quoted market prices. The carrying value and estimated fair value of notes payable and debt outstanding were $2.4 billion and $2.0 billion as of June 30, 2009 and were $3.2 billion and $1.2 billion as of December 31, 2008, respectively.

The fair value of the Company’s redeemable series C preference ordinary shares outstanding is determined based on indicative quotes provided by brokers. The carrying value and estimated fair value of the redeemable series C preference ordinary shares outstanding were $182.7 million and $77.6 million as of June 30, 2009 and were $500.0 million and $110.0 million as of December 31, 2008, respectively.

There are no significant concentrations of credit risk within the Company’s financial instruments as defined in FAS 107.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Segment Information

Following a streamlining of the Company’s operating segments in the first quarter of 2009, the Company is organized into three operating segments: Insurance, Reinsurance and Life Operations – in addition to a Corporate segment that includes the general investment and financing operations of the Company.

The Company evaluates the performance for both the Insurance and Reinsurance segments based on underwriting profit and contribution from its Life Operations segment. Other items of revenue and expenditure of the Company are not evaluated at the segment level for reporting purposes. In addition, the Company does not allocate investment assets by segment for its property and casualty (“P&C”) operations. Investment assets related to the Company’s Life Operations and certain structured products included in the Insurance, Reinsurance and Corporate segments are held in separately identified portfolios. As such, net investment income from these assets is included in the contribution from each of these segments.


Three months ended June 30, 2009:
(U.S. dollars in thousands, except ratios) (Unaudited)	Insurance			Reinsurance			Total P&C			Life Operations			Corporate			Total

Gross premiums written	$	1,124,220		$	376,970		$	1,501,190		$	150,711		$	—		$	1,651,901
Net premiums written		766,606			311,672			1,078,278			140,674			—			1,218,952
Net premiums earned		881,490			400,259			1,281,749			147,951			—			1,429,700
Net losses incurred		598,784			180,844			779,628			174,588			—			954,216
Acquisition expenses		112,430			85,302			197,732			25,540			—			223,272
Operating expenses (1)		167,931			47,019			214,950			4,269			—			219,219

Underwriting profit (loss)	$	2,345		$	87,094		$	89,439		$	(56,446	)	$	—		$	32,993
Net investment income								218,490			82,855			—			301,345
Net results structured products (2)		4,093			6,172			10,265			—			5,019			15,284
Net fee income and other (3)		(3,220	)		545			(2,675	)		123			—			(2,552	)
Net realized (losses) gains on investments								(34,570	)		(51,663	)		5,803			(80,430	)

Contribution from P&C and Life Operations							$	280,949		$	(25,131	)	$	10,822		$	266,640

Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments													$	969		$	969
Net income (loss) from financial, investment and other operating affiliates														54,753			54,753
Exchange losses														145,221			145,221
Corporate operating expenses														32,219			32,219
Interest expense (4)														42,912			42,912
Non-controlling interest in net income (loss) of subsidiary														(40	)		(40	)
Income taxes and other													$	16,509		$	16,509

Net Income													$	(170,277	)	$	85,541

Ratios – P&C operations: (5)
Loss and loss expense ratio		67.9	%		45.2	%		60.8	%
Underwriting expense ratio		31.8	%		33.0	%		32.2	%

Combined ratio		99.7	%		78.2	%		93.0	%


Notes:

(1)	Operating expenses exclude corporate operating expenses, shown separately.

(2)	The net results from P&C and Corporate structured products includes net investment income, interest expense and operating expenses of $19.4 million and $7.6 million, $9.1 million and $2.2 million, and nil and $0.4, respectively.

(3)	Net fee income and other includes operating expenses from the Company’s loss prevention consulting services business.

(4)	Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance, Reinsurance, and Corporate segments.

(5)	Ratios are based on net premiums earned from property and casualty operations.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Segment Information (Continued)


Three months ended June 30, 2008:
(U.S. dollars in thousands, except ratios) (Unaudited)	Insurance			Reinsurance			Total P&C			Life Operations			Corporate			Total

Gross premiums written	$	1,388,771		$	397,460		$	1,786,231		$	161,251		$	—		$	1,947,482
Net premiums written		1,084,820			274,647			1,359,467			150,933			—			1,510,400
Net premiums earned		1,018,350			490,437			1,508,787			172,935			—			1,681,722
Net losses incurred		653,822			284,763			938,585			209,725			—			1,148,310
Acquisition expenses		113,877			106,528			220,405			25,832			—			246,237
Operating expenses (1)		178,282			45,159			223,441			9,299			—			232,740

Underwriting profit (loss)	$	72,369		$	53,987		$	126,356		$	(71,921	)	$	—		$	54,435
Net investment income								298,128			98,058						396,186
Net investment results structured products (2)		12,366			2,579			14,945			—			6,203			21,148
Net fee income and other (3)		1,389			471			1,860			136			—			1,996
Net realized gains (losses) on investments								(24,445	)		11,792			14,693			2,040

Contribution from P&C and Life Operations							$	416,844		$	38,065		$	20,896		$	475,805

Corporate & other:
Net realized & unrealized (losses) gains on derivative instruments													$	8,124		$	8,124
Net (loss) income from financial, investment and other operating affiliates (4)														(89,336	)		(89,336	)
Exchange losses														7,936			7,936
Corporate operating expenses														47,104			47,104
Interest expense (5)														50,077			50,077
Income taxes and other														51,625			51,625

Net Income													$	(217,058	)	$	237,851

Ratios – P&C operations: (6)
Loss and loss expense ratio		64.2	%		58.1	%		62.2	%
Underwriting expense ratio		28.7	%		30.9	%		29.4	%

Combined ratio		92.9	%		89.0	%		91.6	%


Notes:

(1)	Operating expenses exclude corporate operating expenses, shown separately.

(2)	The net results from P&C and corporate structured products includes net investment income, interest expense and operating expenses of $25.1 million and $19.1 million, $3.7 million and $11.7 million, and $6.5 million and $1.2 million, respectively.

(3)	Net fee income and other includes operating expenses from the Company’s loss prevention consulting services business.

(4)	Net loss from investment fund and operating affiliates for the three months ended June 30, 2008 includes additional losses totaling $82.4 million related to the reinsurance and guarantee agreements with Syncora.

(5)	Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance, Reinsurance, and Corporate segments.

(6)	Ratios are based on net premiums earned from property and casualty operations. The underwriting expense ratio excludes exchange gains and losses.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Segment Information (Continued)


Six months ended June 30, 2009:
(U.S. dollars in thousands, except ratios) (Unaudited)	Insurance			Reinsurance			Total P&C			Life Operations			Corporate			Total

Gross premiums written	$	2,215,465		$	1,163,953		$	3,379,418		$	285,823		$	—		$	3,665,241
Net premiums written		1,598,774			984,815			2,583,589			262,259			—			2,845,848
Net premiums earned		1,791,601			811,835			2,603,436			277,785			—			2,881,221
Net losses incurred		1,213,998			355,913			1,569,911			332,547			—			1,902,458
Acquisition expenses		217,842			181,026			398,868			42,623			—			441,491
Operating expenses (1)		347,259			94,107			441,366			8,110			—			449,476

Underwriting profit (loss)	$	12,502		$	180,789		$	193,291		$	(105,495	)	$	—		$	87,796
Net investment income								460,656			160,377			—			621,033
Net results structured products (2)		7,214			14,596			21,810			—			9,664			31,474
Net fee income and other (3)		(4,220	)		2,596			(1,624	)		174			—			(1,450	)
Net realized gains (losses) on investments								(197,383	)		(126,313	)		(8,671	)		(332,367	)


Contribution from P&C and Life Operations							$	476,750		$	(71,257	)	$	993		$	406,486

Corporate & other:
Net realized & unrealized (losses) gains on derivative instruments													$	(438	)	$	(438	)
Net income (loss) from financial, investment and other operating affiliates														17,532			17,532
Exchange losses (gains)														120,597			120,597
Corporate operating expenses														58,931			58,931
Interest expense (4)														92,527			92,527
Non-controlling interest in net income (loss) of subsidiary														(40	)		(40	)
Income taxes and other														62,927			62,927

Net Income													$	(316,855	)	$	88,638

Ratios – P&C operations: (5)
Loss and loss expense ratio		67.8	%		43.8	%		60.3	%
Underwriting expense ratio		31.5	%		33.9	%		32.3	%

Combined ratio		99.3	%		77.7	%		92.6	%


Notes:

(1)	Operating expenses exclude corporate operating expenses, shown separately.

(2)	The net results from P&C and Corporate structured products includes net investment income, interest expense and operating expenses of $39.7 million and $15.6 million, $17.9 million and $5.1 million, and nil and $0.8 million, respectively.

(3)	Net fee income and other includes operating expenses from the Company’s loss prevention consulting services business.

(4)	Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance, Reinsurance, and Corporate segments.

(5)	Ratios are based on net premiums earned from property and casualty operations.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Segment Information (Continued)


Six months ended June 30, 2008:
(U.S. dollars in thousands, except ratios) (Unaudited)	Insurance			Reinsurance			Total P&C			Life Operations			Corporate			Total

Gross premiums written	$	3,017,120		$	1,470,005		$	4,487,125		$	396,209		$	—		$	4,883,334
Net premiums written		2,268,672			1,227,348			3,496,020			375,146			—			3,871,166
Net premiums earned		2,026,752			1,034,815			3,061,567			332,517			—			3,394,084
Net losses incurred		1,338,634			600,844			1,939,478			406,024			—			2,345,502
Acquisition expenses		239,713			222,872			462,585			49,949			—			512,534
Operating expenses (1)		332,775			90,517			423,292			17,382			—			440,674

Underwriting profit (loss)	$	115,630		$	120,582		$	236,212		$	(140,838	)	$	—		$	95,374
Net investment income								606,169			195,193			—			801,362
Net investments results structured products (2)		3,173			13,403			16,576			—			13,926			30,502
Net fee income and other (3)		(1,159	)		1,234			75			200			—			275
Net realized gains (losses) on investments								(42,750	)		6,748			(64,209	)		(100,211	)

Contribution from P&C and Life Operations							$	816,282		$	61,303		$	(50,283	)	$	827,302

Corporate & other:
Net realized & unrealized gains (losses) on derivative instruments													$	52,806		$	52,806
Net (loss) income from financial, investment and other operating affiliates (4)														(56,984	)		(56,984	)
Exchange losses														75,681			75,681
Corporate operating expenses														83,030			83,030
Interest expense (5)														99,442			99,442
Income taxes & other														82,747			82,747

Net Income													$	(395,361	)	$	482,224

Ratios – P&C operations: (6)
Loss and loss expense ratio		66.0	%		58.1	%		63.3	%
Underwriting expense ratio		28.3	%		30.2	%		29.0	%

Combined ratio		94.3	%		88.3	%		92.3	%


Notes:

(1)	Operating expenses exclude corporate operating expenses, shown separately.

(2)	The net results from P&C and corporate structured products includes net investment income, interest expense and operating expenses of $59.2 million and $79.1 million, $31.3 million and $58.8 million, and $11.3 million and $6.3, respectively.

(3)	Net fee income and other includes operating expenses from the Company’s loss prevention consulting services business

(4)	Net loss from investment fund and operating affiliates for the six months ended June 30, 2008 includes additional losses totaling $87.1 million related to the reinsurance and guarantee agreements with Syncora.

(5)	Interest expense excludes interest expense related to deposit liabilities recorded in the Insurance, Reinsurance, and Corporate segments.

(6)	Ratios are based on net premiums earned from property and casualty operations. The underwriting expense ratio excludes exchange gains and losses.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Segment Information (Continued)

The following tables summarize the Company’s net premiums earned by line of business:


Three months ended June 30, 2009: (U.S. dollars in thousands) (Unaudited)	Insurance		Reinsurance		Life Operations		Total

P&C Operations:
Casualty – professional lines	$	311,071	$	57,115	$	—	$	368,186
Casualty – other lines		160,653		65,680		—		226,333
Property catastrophe		1,760		75,478		—		77,238
Other property		104,492		140,336		—		244,828
Marine, energy, aviation and satellite		139,835		20,333		—		160,168
Other specialty lines (1)		153,990		—		—		153,990
Other (2)		4,621		39,944		—		44,565
Structured indemnity		5,068		1,373		—		6,441

Total P&C Operations	$	881,490	$	400,259	$	—	$	1,281,749

Life Operations:
Other Life	$	—	$	—	$	114,560	$	114,560
Annuity		—		—		33,391		33,391

Total Life Operations	$	—	$	—	$	147,951	$	147,951

Total	$	881,490	$	400,259	$	147,951	$	1,429,700


Three months ended June 30, 2008: (U.S. dollars in thousands) (Unaudited)	Insurance			Reinsurance		Life Operations		Total

P&C Operations:
Casualty – professional lines	$	342,600		$	63,815	$	—	$	406,415
Casualty – other lines		206,102			104,756		—		310,858
Property catastrophe		(659	)		78,361		—		77,702
Other property		127,752			162,773		—		290,525
Marine, energy, aviation and satellite		151,531			29,152		—		180,683
Other specialty lines (1)		161,748			—		—		161,748
Other (2)		9,015			50,416		—		59,431
Structured indemnity		20,261			1,164		—		21,425

Total P&C Operations	$	1,018,350		$	490,437	$	—	$	1,508,787

Life Operations:
Other Life	$	—		$	—	$	129,944	$	129,944
Annuity		—			—		42,991		42,991

Total Life Operations	$	—		$	—	$	172,935	$	172,935

Total	$	1,018,350		$	490,437	$	172,935	$	1,681,722



(1)	Other specialty lines within the Insurance segment includes: environmental, programs, equine, warranty, specie, middle markets and excess and surplus lines.

(2)	Other includes credit and surety, whole account contracts and other lines.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Segment Information (Continued)

The following tables summarize the Company’s net premiums earned by line of business:


Six months ended June 30, 2009: (U.S. dollars in thousands) (Unaudited)	Insurance		Reinsurance		Life Operations		Total

P&C Operations:
Casualty – professional lines	$	627,260	$	110,237	$	—	$	737,497
Casualty – other lines		315,158		137,335		—		452,493
Property catastrophe		1,762		146,174		—		147,936
Other property		215,090		283,096		—		498,186
Marine, energy, aviation and satellite		287,483		41,614		—		329,097
Other specialty lines (1)		324,087		—		—		324,087
Other (2)		10,831		92,037		—		102,868
Structured indemnity		9,930		1,342		—		11,272

Total P&C Operations	$	1,791,601	$	811,835	$	—	$	2,603,436

Life Operations:
Other Life	$	—	$	—	$	214,967	$	214,967
Annuity		—		—		62,818		62,818

Total Life Operations	$	—	$	—	$	277,785	$	277,785

Total	$	1,791,601	$	811,835	$	277,785	$	2,881,221


Six months ended June 30, 2008: (U.S. dollars in thousands) (Unaudited)	Insurance			Reinsurance		Life Operations		Total

P&C Operations:
Casualty – professional lines	$	688,167		$	130,436	$	—	$	818,603
Casualty – other lines		425,370			222,645		—		648,015
Property catastrophe		107			171,510		—		171,617
Other property		258,766			342,374		—		601,140
Marine, energy, aviation and satellite		322,618			60,702		—		383,320
Other specialty lines (1)		324,924			—		—		324,924
Other (2)		(27,359	)		104,915		—		77,556
Structured indemnity		34,159			2,233		—		36,392

Total P&C Operations	$	2,026,752		$	1,034,815	$	—	$	3,061,567

Life Operations:
Other Life	$	—		$	—	$	247,809	$	247,809
Annuity		—			—		84,708		84,708

Total Life Operations	$	—		$	—	$	332,517	$	332,517

Total	$	2,026,752		$	1,034,815	$	332,517	$	3,394,084



(1)	Other specialty lines within the Insurance segment includes: environmental, programs, equine, warranty, specie, middle markets and excess and surplus lines.

(2)	Other includes credit and surety, whole account contracts and other lines.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Restructuring and Asset Impairment Charges

During the third quarter of 2008 and during the first quarter of 2009, expense reduction initiatives were implemented in order to reduce the Company’s operating expenses. The goal of these initiatives was to achieve enhanced efficiency and an overall reduction in operating expenses by streamlining processes across all geographic locations, with a primary emphasis on corporate functions. To date, this has been achieved through redundancies, increased outsourcing and the cessation of certain projects and activities. Charges have been recognized and accrued as restructuring and asset impairment charges and allocated to the Company’s reportable segments in accordance with FAS 146, “Accounting for Costs Associated with Exit or Disposal Activities” and FAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Other costs that do not meet the criteria for accrual are being expensed as restructuring charges as they are incurred. Restructuring charges relate mainly to employee termination benefits as well as costs associated with ceasing to use certain leased property accounted for as operating leases. Asset impairment charges relate primarily to the write-off of certain IT system and equipment costs previously capitalized. The Company recognizes an asset impairment charge when net proceeds expected from disposition of an asset are less than the carrying value of the asset and reduces the carrying amount of the asset to its estimated fair value. Restructuring and asset impairment charges noted above have been recorded in the Company’s income statement under “Operating Expenses”.

Total estimated costs the Company expects to incur in connection with the restructuring initiatives noted above as well as costs incurred during the six months ended June 30, 2009 and total cumulative costs incurred through June 30, 2009 are as follows:


(U.S. dollars in millions) (Unaudited)	Total Expected Costs		Costs Incurred During the Three Months Ended June 30, 2009			Costs Incurred During the Six Months Ended June 30, 2009		Cumulative Costs Incurred through June 30, 2009

Employee Termination Benefits	$	87.4	$	9.5		$	27.6	$	71.4
Lease Termination and Other Costs		14.6		0.8			7.0		13.6
Asset Impairment		16.3		(0.5	)		15.8		16.3

Total	$	118.3	$	9.8		$	50.4	$	101.3

These costs are allocated to the Company’s segments as follows:


(U.S. dollars in millions) (Unaudited)	Total Expected Costs		Costs Incurred During the Three Months Ended June 30, 2009		Costs Incurred During the Six Months Ended June 30, 2009		Cumulative Costs Incurred through June 30, 2009

Insurance (1)	$	64.5	$	4.1	$	35.2	$	62.6
Reinsurance (1)		12.3		3.0		7.2		11.1
Corporate		41.5		2.7		8.0		27.6

Total	$	118.3	$	9.8	$	50.4	$	101.3

(1) Includes allocated restructuring charges associated with eliminating the XL Financial Solutions business unit.

Activity related to restructuring and asset impairment charges for the six months ended June 30, 2009 was as follows:


(U.S. dollars in millions) (Unaudited)	Accrual at December 31, 2008		Costs Incurred During the Six Months Ended June 30, 2009		Amounts Paid and Assets Impaired During the Six Months Ended June 30, 2009		Balance of Liability at June 30, 2009

Employee Termination Benefits	$	4.4	$	27.6	$	22.8	$	9.2
Lease Termination and Other Costs		5.3		7.0		7.4		4.9
Asset Impairment		—		15.8		15.7		0.1

Total	$	9.7	$	50.4	$	45.9	$	14.2

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Investments

The cost (amortized cost for fixed maturities and short-term investments), fair value, gross unrealized gains, gross unrealized (losses), and Other-than-temporary impairments recorded in AOCI of the Company’s investments at June 30, 2009 and December 31, 2008 were as follows:


			Included in Accumulated Other Comprehensive Income (“AOCI”)

					Gross Unrealized Losses

June 30, 2009 (U.S. dollars in thousands) (Unaudited)	Cost or Amortized Cost		Gross Unrealized Gains		Related to changes in estimated fair value			OTTI included in other comprehensive income (Loss)(1)			Fair Value

Fixed maturities
U.S. Government and Government agency	$	4,413,428	$	108,891	$	(21,557	)	$	—		$	4,500,762
Corporate		10,834,884		152,004		(1,648,856	)		—			9,338,032
Residential mortgage-backed securities – Agency		3,008,701		77,847		(6,189	)		—			3,080,359
Residential mortgage-backed securities – Non-Agency		1,723,809		8,415		(508,657	)		(97,178	)		1,126,389
Commercial mortgage-backed securities		1,809,682		1,308		(298,832	)		(17,053	)		1,495,105
Collateralized debt obligations		1,055,312		3,734		(481,373	)		(12,816	)		564,857
Other asset-backed securities		1,957,406		11,528		(451,392	)		(128,218	)		1,389,324
U.S. States and political subdivisions of the States		498,198		9,639		(14,730	)		—			493,107
Non-U.S. Sovereign Government		3,618,193		127,097		(71,887	)		—			3,673,403

Total fixed maturities	$	28,919,613	$	500,463	$	(3,503,473	)	$	(255,265	)	$	25,661,338

Total short-term investments	$	2,034,109	$	13,235	$	(22,206	)	$	—		$	2,025,138

Total equity securities	$	59,960	$	2,749	$	(10,229	)	$	—		$	52,480


(1)	Represents the amount of other-than-temporary impairment losses in Accumulated other comprehensive income (loss) (“AOCI”), which from April 1, 2009 was not included in earnings under FSP FAS 115-2 and FAS 124-2.


			Included in Accumulated Other Comprehensive Income (“AOCI”)

					Gross Unrealized Losses

December 31, 2008 (U.S. dollars in thousands) (Unaudited)	Cost or Amortized Cost		Gross Unrealized Gains		Related to changes in estimated fair value			OTTI included in other comprehensive income (Loss)		Fair Value

Fixed maturities
U.S. Government and Government agency	$	3,649,168	$	334,302	$	(5,128	)	$	—	$	3,978,342
Corporate		11,187,246		80,049		(1,978,692	)		—		9,288,603
Residential mortgage-backed securities – Agency		2,039,783		62,638		(2,466	)		—		2,099,955
Residential mortgage-backed securities – Non-Agency		1,970,267		10,443		(614,508	)		—		1,366,202
Commercial mortgage-backed securities		2,505,698		1,200		(365,330	)		—		2,141,568
Collateralized debt obligations		1,100,358		3,521		(465,100	)		—		638,779
Other asset-backed securities		2,798,440		8,036		(526,724	)		—		2,279,752
U.S. States and political subdivisions of the States		486,394		5,229		(22,853	)		—		468,770
Non-U.S. Sovereign Government		3,253,123		224,094		(102,820	)		—		3,374,397

Total fixed maturities	$	28,990,477	$	729,512	$	(4,083,621	)	$	—	$	25,636,368

Total short-term investments	$	1,500,767	$	4,258	$	(38,702	)	$	—	$	1,466,323

Total equity securities	$	337,765	$	31,632	$	(7,578	)	$	—	$	361,819

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Investments (Continued)

The Company had gross unrealized losses totaling $3.8 billion at June 30, 2009, which it considers to be temporarily impaired. Individual security positions comprising this balance have been evaluated by management, based on specified criteria, to determine if these impairments should be considered other than temporary. These criteria include an assessment of the severity and length of time securities have been impaired, along with management’s assessment as to whether it believes it will continue to hold such securities to recovery, among other factors included below.

At June 30, 2009 and December 31, 2008, approximately 3.9% and 2.5%, respectively, of the Company’s fixed income investment portfolio at fair value was invested in securities which were below investment grade or not rated. Approximately 23.9% of the unrealized losses in the Company’s fixed income securities portfolio at June 30, 2009 related to securities that were below investment grade or not rated. The information shown below about the unrealized losses on the Company’s investments at June 30, 2009 relates to the potential effect upon future earnings and financial position should management later conclude that some of the current declines in the fair value of these investments are other than temporary declines.

The following is an analysis of how long each of those securities at June 30, 2009 had been in a continual unrealized loss position:


	Less than 12 months				Equal to or greater than 12 months

June 30, 2009 (U.S. dollars in thousands) (Unaudited)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses

Fixed maturities and short-term investments:
U.S. Government and Government agency	$	1,174,741	$	23,293	$	—	$	—
Corporate		1,468,205		400,374		4,441,950		1,262,789
Residential mortgage-backed securities – Agency		467,605		6,007		1,442		189
Residential mortgage-backed securities – Non-Agency		231,384		112,131		832,619		493,704
Commercial mortgage-backed securities		45,208		29,720		1,412,215		286,165
Collateralized debt obligations		59,912		32,890		520,283		462,093
Other asset-backed securities		314,809		235,864		733,740		343,803
U.S. States and political subdivisions of the States		73,877		1,616		88,316		13,114
Non-U.S. Sovereign Government		832,429		35,306		388,396		41,886

Total fixed maturities and short-term investments	$	4,668,170	$	877,201	$	8,418,961	$	2,903,743

Total equity securities	$	37,216	$	10,229	$	—	$	—

The following is an analysis of how long each of those securities at December 31, 2008 had been in a continual unrealized loss position:


	Less than 12 months				Equal to or greater than 12 months

December 31, 2008 (U.S. dollars in thousands) (Unaudited)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses

Fixed maturities and short-term investments:
U.S. Government and Government agency	$	103,040	$	7,214	$	—	$	—
Corporate		3,641,376		633,371		4,005,267		1,363,661
Residential mortgage-backed securities – Agency		32,279		1,276		3,162		1,190
Residential mortgage-backed securities – Non-Agency		849,662		328,957		604,726		285,551
Commercial mortgage-backed securities		961,040		155,279		832,537		210,051
Collateralized debt obligations		66,409		26,134		693,943		438,966
Other asset-backed securities		1,357,662		208,778		786,958		317,946
U.S. States and political subdivisions of the States		201,048		9,774		37,328		13,079
Non-U.S. Sovereign Government		612,380		92,676		168,834		28,420

Total fixed maturities and short-term investments	$	7,824,896	$	1,463,459	$	7,132,755	$	2,658,864

Total equity securities	$	188,614	$	7,578	$	—	$	—

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Investments (Continued)

The contractual maturities of fixed maturity securities are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	June 30, 2009 (1)				December 31, 2008 (1)

(U.S. dollars in thousands) (Unaudited)	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due after 1 through 5 years	$	9,359,907	$	9,042,822	$	7,451,243	$	6,987,957
Due after 5 through 10 years		4,216,296		4,036,764		5,316,304		5,097,672
Due after 10 years		5,788,500		4,925,718		5,808,384		5,024,483

		19,364,703		18,005,304		18,575,931		17,110,112
Residential mortgage-backed securities – Agency		3,008,701		3,080,359		2,039,783		2,099,955
Residential mortgage-backed securities – Non-Agency		1,723,809		1,126,389		1,970,267		1,366,202
Commercial mortgage-backed securities		1,809,682		1,495,105		2,505,698		2,141,568
Collateralized debt obligations		1,055,312		564,857		1,100,358		638,779
Other asset-backed securities		1,957,406		1,389,324		2,798,440		2,279,752

Total mortgage and asset-backed securities		9,554,910		7,656,034		10,414,546		8,526,256

Total	$	28,919,613	$	25,661,338	$	28,990,477	$	25,636,368

(1)

Included in the table above are $911.6 million and $980.6 million in Tier One and upper Tier Two securities, representing committed term debt and hybrid instruments senior to the common and preferred equities of the financial institutions, at fair value as at June 30, 2009 and December 31, 2008, respectively. These securities have been distributed in the table based on their call date and have net unrealized losses of $604.1 million and $637.1 million as at June 30, 2009 and December 31, 2008, respectively.

Factors considered in determining that additional other-than-temporary impairment charges were not warranted include management’s consideration of current and near term liquidity needs and other available sources, an evaluation of the factors and time necessary for recovery, and the results of on-going retrospective reviews of security sales and the basis for such sales.

Gross unrealized losses of $3.8 billion at June 30, 2009 can be attributed to the following significant drivers:


	•	gross unrealized losses of $957.7 million related to the Company’s Life Operations investment portfolio, which had a fair value of $6.2 billion as at June 30, 2009. Of this, $824.5 million of gross unrealized losses related to $3.3 billion of exposures to corporate financial institutions including Tier One and Upper Tier Two securities. During the quarter ended June 30, 2009, as a result of a substantial rally on financial credit spreads, the gross unrealized loss position has declined substantially. At June 30, 2009, this portfolio had average interest rate duration of 8.4 years, primarily denominated in U.K. Sterling and Euros. As a result of the long duration, significant gross losses have arisen as the fair values of these securities are more sensitive to prevailing government interest rates and credit spreads. This portfolio has limited turnover as it is matched to corresponding long duration liabilities. A hypothetical parallel increase in interest rates and credit spreads of 50 and 25 basis points, respectively, would increase the unrealized losses related to this portfolio at June 30, 2009 by approximately $246.4 million and $89.2 million, respectively. Given the long term nature of this portfolio, and the level of credit spreads as at June 30, 2009 relative to historical averages within the U.K. and Euro-zone as well as the Company’s liquidity needs at June 30, 2009, the Company believes that these assets will continue to be held until such time as they mature, or credit spreads revert to levels more consistent with historical averages.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Investments (Continued)


•	gross unrealized losses of $849.4 million related to the corporate holdings within the Company’s non-life operations fixed maturity portfolios, which had a fair value of $6.9 billion as at June 30, 2009. During the quarter ended June 30, 2009, as a result of declining credit spreads, the gross unrealized losses on these holdings has declined substantially. The Company believes these impairments are a function of the currently elevated levels of corporate credit spreads in the U.S. and globally, which spiked particularly during the third and fourth quarters of 2008 and continued to be at elevated levels, resulting in a severely depressed level of valuations. The amount of these gross losses has proven very volatile as a result of the severe deterioration in credit spreads over the past year. Despite the recent rally, corporate credit spreads remain at elevated levels relative to historical averages. The Company continues to believe that the gross unrealized losses are a reflection of a severe premium being charged by the market for credit, rather than fundamental deterioration in the debt service capabilities of the issuers.

•	gross unrealized losses of $743.5 million related to the Topical Asset portfolio (which consists of the Company’s holdings of sub-prime non-agency securities, second liens, ABS CDOs with sub-prime collateral as well as Alt-A mortgage exposures (“Topical Assets”)), which had a fair value of $743.2 million as at June 30, 2009. The Company undertakes a security level reviews of these securities and recognized charges to the extent it believed the intrinsic value of any security was below its amortized cost. The Company has recognized realized losses on this portfolio, consisting of charges for OTTI and realized cumulative losses from sales, of approximately $782.5 million since the beginning of 2007 and through June 30, 2009 on these asset classes. The Company purchased a number of these assets to support certain previously written GIC and funding agreement contracts and has previously announced its intention to reduce its exposure to these asset classes as part of its strategic portfolio realignment. The Company believes that based on market conditions and liquidity needs at June 30, 2009, this reduction will be realized through natural cash flows of the portfolio, and limited selective sales, rather than selling these assets into markets which continue to be illiquid and not reflective of the intrinsic value of these assets. The weighted average term-to-maturity of the sub-prime and Alt-A residential holdings within this portfolio at June 30, 2009 were 2.7 years and 3.8 years, respectively. The Company, based on current market conditions and liquidity needs as at June 30, 2009 as well as its assessment of the holdings, believes it will continue to hold these securities until either maturity, or a return of liquidity and valuations more reflective of the intrinsic value of these holdings.

•	gross unrealized losses of $490.6 million related to the non-life portfolio of Core CDO holdings (defined by the Company as investments in non-mortgage collateralized debt obligations), which consisted primarily of collateralized loan obligations and had a fair value of $585.9 million as of June 30, 2009. The Company undertook a security level review of these securities and recognized charges to the extent it believed the intrinsic value of the security was below the amortized cost. The Company believes that the level of impairment is primarily a function of historically wide spreads in the CLO market during the period, driven by the high level of illiquidity in this market. The Company purchased a number of these assets to support the previously written GIC and funding agreement contracts and has announced its intention to reduce its exposure to this asset class over time as a part of its strategic portfolio realignment. The Company, based on current market conditions and liquidity needs as well as its assessment of the holdings, believes it is likely that the Company will continue to hold these securities until either maturity or a recovery of value, following which the Company intends to reduce its exposure to this asset class.

•	gross unrealized losses of $300.7 million related to the non-life portion of CMBS holdings, which had a fair value of $1.4 billion as at June 30, 2009. The Company’s holdings in CMBS are 97.1% rated AAA. The Company believes that the currently depressed pricing, which represents approximately 79.1% of the par value of the securities, is directly related to the 525 basis point widening in credit spreads within this market since the beginning of 2008, as a result of the heightened risk premium attached to property collateral. Credit spreads have improved significantly in the first half of 2009, particularly during the second quarter. The Company’s portfolio is highly diversified, has limited delinquencies and has experienced limited downgrades.

•	gross unrealized losses of $269.6 million related to the Company’s holdings in non-agency RMBS secured by prime mortgages which had a fair value of $718.7 at June 30, 2009. In the U.S., the average price on these securities declined to approximately 56.0% of par value at June 30, 2009, reflecting concerns over rising unemployment in the U.S. and the potential impact on previously high quality borrowers to meet their obligations. The Company undertook a security level review of these securities and recognized charges to the extent it believed the intrinsic value of any security was below its amortized cost.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Investments (Continued)

Management, in its assessment of whether securities in a gross unrealized loss position are temporarily impaired, considers the significance of the impairments. The Company had securities with gross unrealized losses of $1.4 billion, with a fair value of $691.7 million, which as at June 30, 2009 were impaired by greater than 50% of amortized costs. The Company has evaluated each of these securities in conjunction with its investment managers and believes it is probable that the issuer will be able to fund sufficient principal and interest payments to exceed current amortized cost, and believes that the current levels of impairments are a function of the currently extremely elevated levels of credit spreads.

Structured credit securities with gross unrealized losses representing greater than 50% of amortized cost represent $934.1 million of gross unrealized losses, with a fair value of $408.5 million. Of these gross unrealized losses, $260.1 million are rated investment grade. The Company has evaluated each of these holdings on a security-by-security basis in conjunction with its investments managers and utilizing additional corroborative modeling techniques, and believes these securities will fund sufficient principal and interest payments to exceed current amortized cost. These securities include $255.1 million of Topical investments, $92.5 million of Core CDOs, $37.1 million of prime RMBS and $15.4 million of CMBS holdings.

Corporate securities with gross unrealized losses representing greater than 50% of amortized cost represent $468.3 million of gross unrealized losses, with a fair value of $283.1 million. Of these gross unrealized losses, $175.9 million are rated investment grade. Gross unrealized losses of $239.4 million are related to holdings of financial issuers, with the majority ($216.7 million) representing hybrid instruments. The Company believes these are high-grade issuers which will continue to service their principal and interest obligations.

For the quarter ended June 30, 2009, the Company recorded net impairment charges of $85.0 million. The significant assumptions and inputs associated with these securities consist of:


	•	For corporate securities, the Company recorded net impairments totaling $38.1 million. The impairment charges consisted of below-investment grade securities, where the Company believes the current fair value is representative of likely recoveries following default, below-investment grade hybrids, where the Company considered impairment factors consistent with an equity impairment model, along with a debt impairment model, and accordingly recorded impairment charges to fair value, or securities in an unrealized loss position that management intends to sell.

	•	For structured credit securities, the Company recorded net impairments of $46.9 million. The Company determined that the likely recovery on these securities was below the carrying value, and accordingly impaired the securities to the discounted value of the cash flows of these securities, or in certain instances fair value to the extent that the fair value was believed to be more representative of recoverable value given the extreme illiquidity within structured credit markets.

	•	Of the other-than-temporary impairments, $30.2 million related to changes of intent-to-hold, primarily representing planned exchanges of hybrid securities.

Included in the gross unrealized losses associated with the Company’s corporate portfolio are gross unrealized losses of $163.8 million related to Tier One and Upper Tier Two perpetual preferred securities that have been rated below investment grade by at least one major rating agency. Of this total $132.1 million have gross unrealized losses representing greater than 50% of amortized cost. The Company has completed its review of this portfolio and believes, at this time, that these impairments remain temporary in nature. The primary basis for this conclusion was the analysis of the fundamentals of these securities using a debt-based impairment model, which indicated these securities continue to meet their obligations, and the issuer has the ability to call these obligations at their call date. In addition, as these securities are below investment grade, the Company considered these securities using an equity-impairment model. Factors that were considered and supported that these impairments were temporary included that the vast majority of these securities had only recently been rated below-investment-grade, in certain cases alternative ratings were available that indicated these securities remained investment grade, or the securities were only slightly below investment-grade. At June 30, 2009, the Company believes that it is likely that the fair values of these securities will ultimately increase to equal the cost basis over a reasonable period of time. However, there is a high degree of judgment in reaching this conclusion, including an assessment of how various governments will treat the perpetual preferred shareholding in the event of governmental intervention in these institutions’ operations. Management will closely monitor the developments related to these securities and will consider these developments on other than temporary impairments (“OTTI”) conclusions reached in future quarters.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Investments (Continued)

The following represents an analysis of net realized gains (losses) on investments:


*(U.S. dollars in thousands)* *(Unaudited)*	Three Months Ended June 30, 2009 (Unaudited)			Six Months Ended June 30, 2009 (Unaudited)
Gross realized gains	$	97,579		$	285,254
Gross realized losses		(178,009	)		(617,621	)

Net realized (losses) on investments		(80,430	)		(332,367	)

As discussed in Note 2, a portion of certain other-than-temporary impairment (“OTTI”) losses on fixed maturity securities and short term investments are recognized in “Other comprehensive income (loss)” (“OCI”). Effective under FSP FAS 115-2/124-2, the amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other factors ( e.g., interest rates, market conditions, etc.) is recorded as a component of other comprehensive income (loss). The net amount recognized in earnings (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in OCI. The following table sets forth the amount of credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts.


	OTTI related to Credit Losses recognized in earnings (Unaudited)
(U.S. dollars and shares in thousands) (Unaudited)
Balance, March 31, 2009	$	—
Credit losses remaining in retained earnings related to adoption of FSP FAS 115-2 and FAS 124-2		187,773
Credit loss impairment recognized in the current period on securities not previously impaired		13,594
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(4,177	)
Credit loss impairments previously recognized on securities impaired to fair value during the period		—
Additional credit loss impairments recognized in the current period on securities previously impaired Increases due to the passage of time on previously recorded credit losses		27,988
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected		—

Balance, June 30, 2009	$	225,178

Prior to June 30, 2009, the Company participated in a securities lending program operated by a third party banking institution, whereby certain assets were loaned out and for which the Company earned an incremental return. During the quarter, the Company discontinued its participation in this program, and no longer holds any collateral, has no remaining liabilities to the borrowers of the securities. Prior to discontinuation, for securities on loan, the lending agent received cash collateral generally worth 102 to 105% of the loaned securities which must be returned to the borrower upon return of the securities and which in the meantime is invested in a collateral pool managed by the banking institution. The collateral pool was subject to written investment guidelines with key objectives which included safeguard of principal and adequate liquidity to meet anticipated needs with a maximum weighted average maturity of ninety days. At June 30, 2009 and December 31, 2008, nil and $238.5 million, respectively, of securities included in investments available for sale were loaned to various counterparties through the securities lending program. The cash collateral received as at June 30, 2009 and December 31, 2008 was nil and $242.8 million respectively. At June 30, 2009 and December 31, 2008, the value of the Company’s share of the collateral pool and investments available-for-sale held was nil and $231.0 million, respectively, in connection with these loans, and is included in cash and cash equivalents and investments available-for-sale, with a corresponding liability reflected in net payable for investments purchased.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Other Investments

On June 9, 2009, XL Specialty Insurance Company (“XL Specialty”), a wholly-owned subsidiary of XL Capital Ltd, entered into an agreement with National Indemnity Company, an insurance company subsidiary of Berkshire Hathaway Inc. (“National Indemnity”). Under the agreement, and a related reinsurance agreement, National Indemnity will issue endorsements (“Endorsements”) to certain directors and officers liability insurance policies known as “Side A” coverage policies underwritten by XL Specialty (the “Facility”).

The Endorsements entitle policyholders to present claims under such D&O policies directly to National Indemnity in the event that XL Specialty is unable to meet its obligations due to an order of insolvency, liquidation or an injunction that prohibits XL Specialty from paying claims. Under the terms of the Facility, National Indemnity will issue Endorsements with aggregate premiums up to $140 million. In addition, XL Specialty has an irrevocable option, which may be exercised during the first eleven months of the Facility, to require National Indemnity to issue Endorsements on D&O policies with additional aggregate premiums up to $100 million (the “Option”). The Endorsements will terminate on the tenth anniversary of their issuance. The Facility provides that National Indemnity will be obligated to issue Endorsements on D&O policies issued during an eighteen month period that commenced on June 8, 2009.

National Indemnity’s obligations under the Facility to issue new Endorsements will terminate if XL Specialty’s financial strength rating is downgraded to or below “BBB+” by Standard & Poor’s Corporation or to or below “A-” by A.M. Best. In connection with the Facility, XL Insurance (Bermuda) Ltd (“XLIB”) will purchase a payment obligation in an aggregate principal amount of $150 million from National Indemnity. If XL Specialty elects to exercise the Option, XLIB will purchase a second obligation in an aggregate principal amount of $100 million. In addition, XL Specialty will establish a trust to hold the premiums (net of commissions) on the D&O policies endorsed by National Indemnity. XL Specialty will also arrange to provide National Indemnity with a letter of credit in the event the assets in the trust are insufficient to meet XL Specialty’s obligations under the Facility (the “Letter of Credit”). The trust, the Letter of Credit and the payment obligations collateralize XL Specialty’s indemnity obligations under the Facility to National Indemnity for any payments National Indemnity is required to make under the Endorsements.

The outstanding payment obligation is recorded in Other Investments at an estimated fair value of $128.1 million, pays a coupon of 3.5%, and will be accreted to $150 million over the 11.5 year term of the payment obligation. The difference between the estimated fair value of the Obligation and the cost of that Obligation at the time of the transaction was approximately $21.9 million and is recorded in Other Assets. This difference is being amortized in relation to the earning of the underlying policies written.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Derivative Instruments

The Company enters into derivative instruments for both risk management and speculative purposes. The Company is exposed to potential loss from various market risks, and manages its market risks based on guidelines established by management. The Company recognizes all derivatives as either assets or liabilities in the balance sheet and measures those instruments at fair value with the changes in fair value of derivatives shown in the consolidated statement of income as “net realized and unrealized gains and losses on derivative instruments” unless the derivatives are designated as hedging instruments. The accounting for derivatives which are designated as hedging instruments is described in Note 2(b), “Significant Accounting Policies – Derivative Instruments”.

The following table summarizes information on the location and gross amounts of derivative fair values contained in the consolidated balance sheet as at June 30, 2009:


	Asset Derivatives					Liability Derivatives
As at June 30, 2009
(U.S. dollars in thousands) (Unaudited)	Balance Sheet Location	Notional Amount		Fair Value		Balance Sheet Location	Notional Amount			Fair Value

Derivatives designated as hedging instruments under FAS 133: Interest rate contracts (1)	Other assets	$	983,446	$	250,134	Other Liabilities	$	(98,248	)	$	(8,511	)

Total derivatives designated as hedging instruments under FAS 133		$	983,446	$	250,134		$	(98,248	)	$	(8,511	)


Derivatives not designated as hedging instruments under FAS 133:
Investment Related Derivatives:
Interest rate exposure	Other assets	$	85,108	$	5,241	Other Liabilities	$	7,100		$	(58	)
Foreign exchange exposure	Other assets		434,500		25,128	Other Liabilities		90,339			(7,356	)
Credit exposure	Other assets		448,666		18,770	Other Liabilities		417,800			(6,523	)
Financial market exposure	Other assets		797,208		3,471	Other Liabilities		13,300			(202	)
Financial Operations Derivatives:
Credit exposure	Other assets		—		—	Other Liabilities		296,044			(7,103	)
Other Non-Investment Derivatives:
Contingent capital facility	Other assets		350,000		—	Other Liabilities		—
Guaranteed minimum income benefit contract	Other assets		—		—	Other Liabilities		105,670			(28,182	)
Modified coinsurance funds withheld contract	Other assets		75,964		168	Other Liabilities		—			—
Foreign exchange exposure	Other assets		—		—	Other Liabilities		—			—
Weather and Energy Derivatives:
Structured weather risk management products	Other assets		—		—	Other Liabilities		—			—
Power generation outage contracts	Other assets		—		—	Other Liabilities		—			—

Total derivatives not designated as hedging under FAS 133		$	2,191,446	$	52,778		$	930,253		$	(49,424	)



(1)	The company holds cash collateral related to these derivative assets of $152.3 million. The collateral balance is included within cash and cash equivalents and the corresponding liability to return the collateral has been offset against the derivative asset within the balance sheet as appropriate under the netting agreement.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Derivative Instruments (Continued)

(a) Derivative Instruments Designated as Fair Value Hedges

The Company designates certain of its derivative instruments as fair value hedges or cash flow hedges and formally and contemporaneously documents all relationships between the hedging instruments and hedged items and links the hedging derivative to specific assets and liabilities. The Company assesses the effectiveness of the hedge, both at inception and on an on-going basis and determines whether the hedge is highly effective in offsetting changes in fair value or cash flows of the linked hedged item.

As at June 30, 2009, a portion of the Company’s liabilities are hedged against changes in the applicable designated benchmark interest rate. In addition, interest rate swaps are used to hedge the changes in fair value of certain fixed rate liabilities and fixed maturity securities due to changes in the designated benchmark interest rate.

The following table provides the total impact on earnings relating to derivative instruments formally designated as fair value hedges along with the impacts of the related hedged items for the three months ended June 30, 2009:


	Three Months Ended June 30, 2009 (Unaudited)

*(U.S. dollars in thousands)*	Location of Gain (Loss) Recognized in Income		Amount of Gain (Loss) Recognized in Income on Derivative			Amount of Gain (Loss) on Hedged Item Recognized in Income Attributable to Risk Being Hedged		Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)

Derivatives designated as fair value hedges and related hedged items:
Interest rate exposure		Net realized and unrealized gains (losses) on derivatives	$	(126,914	)	$	—	$	1,530
Interest rate exposure		Net investment income		9,920			—		—
Deposit liabilities		Net realized and unrealized gains (losses) on derivatives		—			117,832		—
Fixed maturity securities		Net realized and unrealized gains (losses) on derivatives		—			10,612		—

Total			$	(116,994	)	$	128,444	$	1,530


	Six Months Ended June 30, 2009 (Unaudited)

*(U.S. dollars in thousands)*	Location of Gain (Loss) Recognized in Income		Amount of Gain (Loss) Recognized in Income on Derivative			Amount of Gain (Loss) on Hedged Item Recognized in Income Attributable to Risk Being Hedged		Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)

Derivatives designated as fair value hedges and related hedged items:
Interest rate exposure		Net realized and unrealized gains (losses) on derivatives	$	(189,553	)	$	—	$	2,841
Interest rate exposure		Net investment income		18,645			—		—
Deposit liabilities		Net realized and unrealized gains (losses) on derivatives		—			182,635		—
Fixed maturity securities		Net realized and unrealized gains (losses) on derivatives		—			9,759		—

Total			$	(170,908	)	$	192,394	$	2,841

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Derivative Instruments (Continued)

(b) Derivative Instruments Designated as Cash Flow Hedges

During March 2007, the Company entered into an interest rate swap agreement in anticipation of the issuance of the 2027 Senior Notes, as described in Note 16, “Notes Payable and Debt Financing Arrangements” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. This transaction, which met the requirements of a cash flow hedge of a forecasted transaction under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” was entered into to mitigate the interest rate risk associated with the subsequent issuance of the 2027 Senior Notes. The gain on the settlement of the swap transaction on May 2, 2007 of $3.8 million was credited to Accumulated Other Comprehensive Income and is being amortized to interest expense over the 20-year term of the related debt. In addition, the Company entered into a treasury rate guarantee agreement in anticipation of the issuance of $300.0 million of 5.25% Senior Notes due September 15, 2014 during 2004. The loss on the settlement of the treasury rate guarantee transaction on August 18, 2004 of $6.3 million was charged to Accumulated Other Comprehensive Income and is being amortized to interest expense over the 10-year term of the related debt. The impact on earnings relating to these derivative instruments formally designated as cash flow hedges for the three and six months ended June 30, 2009 was an increase to interest expense of $0.1 million and $0.2 million, respectively.

The following tables provide the total impact on earnings relating to derivative instruments not formally designated as hedging instruments under FAS 133:


	Three Months Ended June 30, 2009 (Unaudited)

*(U.S. dollars in thousands)*	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) recognized in Income on Derivative

Derivatives not designated as hedging instruments under FAS 133:
Investment Related Derivatives:
Interest rate exposure	Net realized and unrealized gains (losses) on derivatives	$	4,751
Foreign exchange exposure	Net realized and unrealized gains (losses) on derivatives		14,930
Credit exposure	Net realized and unrealized gains (losses) on derivatives		(28,280	)
Financial market exposure	Net realized and unrealized gains (losses) on derivatives		367
Financial Operations Derivatives:
Credit exposure	Net realized and unrealized gains (losses) on derivatives		3,669
Other Non-Investment Derivatives:
Contingent capital facility	Net realized and unrealized gains (losses) on derivatives		(2,053	)
Guaranteed minimum income benefit contract	Net realized and unrealized gains (losses) on derivatives		3,355
Modified coinsurance funds withheld contract	Net realized and unrealized gains (losses) on derivatives		(213	)
Weather and Energy Derivatives:
Structured weather risk management products	Net realized and unrealized gains (losses) on derivatives		2,913
Power generation outage contracts	Net realized and unrealized gains (losses) on derivatives		—

Total derivatives not designated as hedging under FAS 133		$	(561	)
Amount of gain (loss) recognized in income from ineffective portion of fair value hedges			1,530

Net realized and unrealized gains (losses) on derivative instruments		$	969

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Derivative Instruments (Continued)


	Six Months Ended June 30, 2009 (Unaudited)

*(U.S. dollars in thousands)*	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) recognized in Income on Derivative

Derivatives not designated as hedging instruments under FAS 133:
Investment Related Derivatives:
Interest rate exposure	Net realized and unrealized gains (losses) on derivatives	$	5,624
Foreign exchange exposure	Net realized and unrealized gains (losses) on derivatives		8,514
Credit exposure	Net realized and unrealized gains (losses) on derivatives		(27,244	)
Financial market exposure	Net realized and unrealized gains (losses) on derivatives		2,327
Financial Operations Derivatives:
Credit exposure	Net realized and unrealized gains (losses) on derivatives		9,254
Other Non-Investment Derivatives:
Contingent capital facility	Net realized and unrealized gains (losses) on derivatives		(4,083	)
Guaranteed minimum income benefit contract	Net realized and unrealized gains (losses) on derivatives		(608	)
Modified coinsurance funds withheld contract	Net realized and unrealized gains (losses) on derivatives		24
Weather and Energy Derivatives:
Structured weather risk management products	Net realized and unrealized gains (losses) on derivatives		2,913
Power generation outage contracts	Net realized and unrealized gains (losses) on derivatives		—

Total derivatives not designated as hedging under FAS 133		$	(3,279	)
Amount of gain (loss) recognized in income from ineffective portion of fair value hedges			2,841

Net realized and unrealized gains (losses) on derivative instruments		$	(438	)

The Company’s objectives in using these derivatives are explained in sections (c) through (g) of this note below.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Derivative Instruments (Continued)

(c) Investment Related Derivatives

The Company, either directly or through its investment managers, may use derivative instruments within its investment portfolio, including interest rate swaps, inflation swaps, credit derivatives (single name and index credit default swaps), options, forward contracts and financial futures (foreign exchange, bond and stock index futures), primarily as a means of economically hedging exposures to interest rate, credit spread, equity price changes and foreign currency risk or in limited instances for investment purposes. The Company is exposed to credit risk in the event of non-performance by the counterparties under any swap contracts although the Company generally seeks to use credit support arrangements with counterparties to help manage this risk.

Investment Related Derivatives – Interest Rate Exposure

The Company utilizes risk management and overlay strategies that incorporate the use of derivative financial instruments, primarily to manage its fixed income portfolio duration and exposure to interest rate risks associated with certain of its assets and liabilities. The Company uses interest rate swaps to convert certain liabilities from a fixed rate to a variable rate of interest and may also use them to convert a variable rate of interest from one basis to another.

Investment Related Derivatives – Foreign Exchange Exposure

The Company uses foreign exchange contracts to manage its exposure to the effects of fluctuating foreign currencies on the value of certain of its foreign currency fixed maturities and equity securities investments. These contracts are not designated as specific hedges for financial reporting purposes and therefore, realized and unrealized gains and losses on these contracts are recorded in income in the period in which they occur. These contracts generally have maturities of twelve months or less.

In addition, certain of the Company’s investment managers may, subject to investment guidelines, enter into forward contracts where potential gains may exist. The Company has exposure to foreign currency exchange rate fluctuations through its operations and in its investment portfolio.

Investment Related Derivatives – Credit Exposure

Credit derivatives are purchased within the Company’s investment portfolio in the form of single name and basket credit default swaps, which are used to mitigate credit exposure through a reduction in credit spread duration (i.e. macro credit strategies rather than single-name credit hedging) or exposure to selected issuers, including issuers that are not held in the underlying bond portfolio.

Investment Related Derivatives – Financial Market Exposure

Stock index futures are purchased with the Company’s investment portfolio in order to create synthetic equity exposure and to add value to the portfolio with overlay strategies where market inefficiencies are believed to exist. The Company previously wrote a number of resettable strike swaps contracts relating to an absolute return index and diversified baskets of funds. Finally, from time to time, the Company may enter into other financial market exposure derivative contracts on various indices including, but not limited to, inflation, commodity and correlation contracts.

(d) Financial Operations Derivatives – Credit Exposure

Credit derivatives have been sold through a limited number of contracts written as part of the Company’s previous XL Financial Solutions (“XLFS”) business, and were entered into through the Company’s prior reinsurance agreements with Syncora, as described below. Following the secondary sale of Syncora common shares, the Company retained some credit derivative exposures written by Syncora and certain of its subsidiaries through reinsurance agreements that had certain derivatives exposures embedded within them. The change in value of the derivative portion of the financial guarantee reinsurance agreements the Company had with Syncora was included in “Net (loss) income from operating affiliates.” Following the closing of the Master Agreement during August 2008, as described in Note 4, “Syncora Holdings Ltd.” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, which terminated certain reinsurance and other agreements, these credit derivative exposures were eliminated by virtue of the commutation of the relevant reinsurance agreements.

As of June 30, 2009 and December 31, 2008 the remaining credit derivative exposure outside of the Company’s investment portfolio consisted of 2 and 23 contracts, respectively, written by the Company that provide credit protection on senior tranches of structured finance transactions with total insured contractual payments outstanding of $296.0 million ($247.5 million principal and $48.5 million interest), and $639.5 million ($499.5 million principal and $140.0 million of interest), weighted average contractual

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Derivative Instruments (Continued)

(d) Financial Operations Derivatives – Credit Exposure (Continued)

term to maturity of 6.6 years and 5.7 years, a total liability recorded of $7.1 million and $28.6 million, respectively, and an average rating of AA underlying obligations at each of June 30, 2009 and December 31, 2008. As of June 30, 2009, there were no reported events of default on the underlying obligations. Credit derivatives are recorded at fair value, which is determined using either models developed by the Company or third party prices and are dependent upon a number of factors, including changes in interest rates, future default rates, credit spreads, changes in credit quality, future expected recovery rates and other market factors. The change resulting from movements in credit and credit quality spreads is unrealized as the credit derivatives are not traded to realize this resultant value.

(e) Other Non-Investment Derivatives

The Company enters into derivatives as part of its contingent capital facilities including put options, interest rate swaps, and asset return swaps. These derivatives are recorded at fair value with changes in fair value recognized in earnings.

The Company also has derivatives embedded in certain reinsurance contracts. For a particular life reinsurance contract, the Company pays the ceding company a fixed amount equal to the estimated present value of the excess of guaranteed benefit GMIB over the account balance upon the policyholder’s election to take the income benefit. The fair value of this derivative is determined based on the present value of expected cash flows. In addition, the Company has modified coinsurance and funds withheld reinsurance agreements that provide for a return based on a portfolio of fixed income securities. As such, the agreements contain embedded derivatives. The embedded derivative is bifurcated from the funds withheld balance and recorded at fair value with changes in fair value recognized in earnings through net realized and unrealized gains and losses on derivative instrument.

(f) Weather and Energy Derivatives

Prior to August 2008, the Company offered weather and energy risk management products in insurance or derivative form to end-users and managed the risks in the OTC and exchange traded derivative markets or through the use of quota share or excess of loss arrangements. However, as part of the Company’s strategy to focus on its core lines of business within its Insurance and Reinsurance segments, the Company closed this unit in August 2008 and ceased writing such weather and energy risk management products. Weather and energy derivatives are recorded at fair value, which is determined through the use of quoted market prices where available. Where quoted market prices are unavailable, the fair values are estimated using available market data and internal pricing models based upon consistent statistical methodologies. Estimating fair value of instruments that do not have quoted market prices requires management’s judgment in determining amounts that could reasonably be expected to be received from, or paid to, a third party in settlement of the contracts. The amounts could be materially different from the amounts that might be realized in an actual sale transaction. Fair values are subject to change in the near-term and reflect management’s best estimate based on various factors including, but not limited to, actual and forecasted weather conditions, changes in commodity prices, changes in interest rates and other market factors. The majority of existing weather and energy contracts expired at the end of 2008 with the remainder of the portfolio expected to expire during 2009.

(g) Contingent Credit Features

Certain derivatives agreements entered into by the Company or its subsidiaries contain rating downgrade provisions that permit early termination of the agreement by the counterparty if collateral is not posted following failure to maintain certain credit ratings from one or more of the principal credit rating agencies. If the Company were required to early terminate such agreements due to rating downgrade, it could potentially be in a net liability position at time of settlement. The aggregate fair value of all derivatives agreements containing such rating downgrade provisions on June 30, 2009 was $7.2 million. The Company has not been required to post collateral under any of these agreements as of June 30, 2009.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Notes Payable and Debt and Financing Arrangements

In December 2005, the Company issued 29.8 million 7.0% Equity Security Units (the “7.0% Units”) in a public offering. Each 7.0% Unit had a stated amount of $25.00 and consisted of (a) a purchase contract pursuant to which the holder agreed to purchase, for $25.00, a variable number of shares of the Company’s Class A ordinary shares on February 15, 2009 and (b) a one-fortieth, or 2.5% in the 2011 Senior Notes. The 2011 Senior Notes were pledged by the holders to secure their obligations under the purchase contracts. The number of shares issued under the purchase contracts was adjustable based on, among other things, the average share price of the Company for the twenty consecutive trading days ending on the third trading day immediately preceding the stock purchase date and the dividend rate of the Company. In mid-February 2009, the 2011 Senior Notes were remarketed whereby the interest rate was reset in order to generate sufficient remarketing proceeds to satisfy the 7.0% Unit holders’ obligations under the purchase contracts. The Company purchased and retired the aggregate principle amount of the 2011 Senior Notes as a part of that remarketing. On February 15, 2009, the purchase contracts matured and the Company issued Class A ordinary shares in connection therewith. Each purchase contract provided for the sale by the Company of 0.38461 Class A Ordinary shares (the “Shares”) at a price of $25.00. The settlement of the purchase contracts resulted in the Company’s issuance of an aggregate of 11,461,080 Shares for net proceeds of approximately $745.0 million, which was used to retire the 2011 Senior Notes.

10. Share Capital

In connection with the maturity of the purchase contracts associated with the 7.0% Units, the Company issued 11,461,080 shares for net proceeds of approximately $745.0 million, which was used to retire the 2011 Senior Notes.

On March 26, 2009, the Company completed a cash tender offer for its outstanding Series C Preference Ordinary Shares that resulted in approximately 12.7 million Series C Preference Ordinary Shares with a liquidation value of $317.3 million being purchased by the Company for approximately $104.7 million plus accrued and unpaid dividends, combined with professional fees totaling $0.8 million. As a result, a book value gain to ordinary shareholders of approximately $211.8 million was recorded in the first quarter of 2009.

11. XL Capital Finance (Europe) plc

XL Capital Finance (Europe) plc (“XLFE”) is a wholly owned finance subsidiary of the Company. In January 2002, XLFE issued $600.0 million par value 6.5% Guaranteed Senior Notes due January 2012. These Notes are fully and unconditionally guaranteed by the Company. XL Capital Ltd’s ability to obtain funds from its subsidiaries is subject to certain contractual restrictions, applicable laws and statutory requirements of the various countries in which the Company operates including Bermuda, the U.S. and the U.K., among others. Required statutory capital and surplus for the principal operating subsidiaries of the Company was $7.2 billion as of December 31, 2008.

12. Related Party Transactions

At June 30, 2009 and December 31, 2008, the Company owned non-controlling stakes in nine independent investment management companies (“Investment Manager Affiliates”) totaling $195.8 million and $211.7 million, respectively. The Company sought to develop relationships with specialty investment management organizations, generally acquiring an equity interest in the business. The Company also invests in certain of the funds and limited partnerships and other legal entities managed by these affiliates and through these funds and partnerships pay management and performance fees to the Company’s Investment Manager Affiliates.

In the normal course of business, the Company enters into certain quota share reinsurance contracts with a subsidiary of one of its other strategic affiliates, ARX Holding Corporation. During the quarter ended June 30, 2009, these contracts resulted in reported net premiums written of $15.9 million, net paid claims of $5.4 million and reported acquisition costs of $6.1 million. During the same period in 2008, these contracts resulted in reported net premiums written of $21.5 million, net paid claims of $6.2 million and reported acquisition costs of $10.0 million. Management believes that these transactions are conducted at market rates consistent with negotiated arms-length contracts.

In the normal course of business, the Company enters into cost sharing and service level agreement transactions with certain other affiliates, which management believes to be conducted consistent with arms-length rates. Such transactions, individually and in the aggregate, are not material to the Company’s financial condition, results of operations and cash flows.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Variable Interest Entities

The Company utilizes variable interest entities both indirectly and directly in the ordinary course of business. The Company invests in equity tranches (or similar instruments) of CDOs, CBOs and other investment vehicles that are issued through variable interest entities as part of the Company’s risk asset portfolio. Certain collateral facilities and contingent capital facilities are also structured using variable interest entities, in which the Company has a variable interest. The Company was not the primary beneficiary and therefore does not consolidate any of these entities. In addition, the Company does not believe that any of such interests would be characterized as significant to the Company. The Company considers the significance of its share of the entity’s expected losses and expected residual returns in relation to the Company’s consolidated results of operations, whether the Company holds a first loss portion in the entity, and the rating of its exposure and probability of loss.

14. Computation of Earnings Per Ordinary Share and Ordinary Share Equivalent


	(Unaudited) Three Months Ended June 30,					(Unaudited) Six Months Ended June 30,

	2009			2008 (1)		2009			2008 (1)

Basic earnings per ordinary share and ordinary share equivalents:
Net income	$	85,541		$	237,851	$	88,638		$	482,224
Less: preference share dividends		(5,592	)		—		(42,126	)		(32,500	)
Plus: gain on redemption of Series C Preference Ordinary shares		—			—		211,816			—

Net income available to ordinary shareholders	$	79,949		$	237,851	$	258,328		$	449,724

Weighted average ordinary shares outstanding		342,154			179,054		339,155			178,701
Basic earnings per ordinary share & ordinary share equivalents outstanding	$	0.23		$	1.33	$	0.76		$	2.52

Diluted earnings per ordinary share and ordinary share equivalents:
Net income	$	85,541		$	237,851	$	88,638		$	482,224
Less: preference share dividends		(5,592	)		—		(42,126	)		(32,500	)
Plus: gain on redemption of Series C Preference Ordinary shares		—			—		211,816			—

Net income available to ordinary shareholders	$	79,949		$	237,851	$	258,328		$	449,724

Weighted average ordinary shares outstanding — basic		342,154			179,054		339,155			178,701
Impact of share based compensation and certain conversion features		314			—		107			—

Weighted average ordinary shares outstanding — diluted		342,468			179,054		339,262			178,701

Diluted earnings per ordinary share & ordinary share equivalents outstanding	$	0.23		$	1.33	$	0.76		$	2.52

Dividends per ordinary share	$	0.10		$	0.38	$	0.20		$	0.76

(1) Basic and diluted earnings per ordinary share was adjusted for 2008 as noted below.

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). This FASB Staff Position (“FSP”) addresses whether instruments granted in share-based payment transactions may be participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing basic earnings per share (“EPS”) pursuant to the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128, “Earnings per Share.” A share-based payment award that contains a non- forfeitable right to receive cash when dividends are paid to ordinary shareholders irrespective of whether that award ultimately vests or remains unvested shall be considered a participating security as these rights to dividends provide a non-contingent transfer of value to the holder of the share-based payment award. Accordingly, these awards should be included in the computation of basic EPS pursuant to the two-class method. Under the terms of the Company’s restricted stock awards, grantees are entitled to the right to receive dividends on the unvested portions of their awards. There is no requirement to return these dividends in the event the unvested awards are forfeited in the future. Accordingly, this FSP had an impact on the Company’s EPS calculations. The guidance in this FSP was effective for the Company as of January 1, 2009. All prior period EPS data presented has been adjusted retrospectively to conform to the provisions of the FSP.

XL CAPITAL LTD

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Computation of Earnings Per Ordinary Share and Ordinary Share Equivalent (Continued)

The impact of the adoption of FSP EITF 03-6-1 on the earnings per share for the three and six months ended June 30, 2008 was as follows:


	(Unaudited) Three Months Ended June 30,

*(U.S. dollars in millions)*	2008 – As adjusted			2008 – As originally reported

Weighted average ordinary shares and ordinary share equivalents outstanding – basic			179,054			176,655
Weighted average ordinary shares and ordinary share equivalents outstanding – diluted			179,054			176,910
Earnings per ordinary share and ordinary share equivalent – basic		$	1.33		$	1.35
Earnings per ordinary share and ordinary share equivalent – diluted		$	1.33		$	1.34


	(Unaudited) Six Months Ended June 30,

*(U.S. dollars in millions)*	2008 – As adjusted			2008 – As originally reported

Weighted average ordinary shares and ordinary share equivalents outstanding – basic			178,701			176,453
Weighted average ordinary shares and ordinary share equivalents outstanding – diluted			178,701			176,946
Earnings per ordinary share and ordinary share equivalent – basic		$	2.52		$	2.55
Earnings per ordinary share and ordinary share equivalent – diluted		$	2.52		$	2.54



ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following is a discussion of the Company’s financial condition and liquidity and results of operations. Certain aspects of the Company’s business have loss experience characterized as low frequency and high severity. This may result in volatility in both the Company’s and an individual segment’s results of operations and financial condition.

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements that involve inherent risks and uncertainties. Statements that are not historical facts, including statements about the Company’s beliefs and expectations, are forward-looking statements. These statements are based upon current plans, estimates and projections, all of which involve risk and uncertainty. Actual results may differ materially from those included in such forward-looking statements, and therefore undue reliance should not be placed on them. See “Cautionary Note Regarding Forward-Looking Statements” below for a list of factors that could cause actual results to differ materially from those contained in any forward-looking statement.

This discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and the audited Consolidated Financial Statements and notes thereto, presented under Item 7 and Item 8, respectively, of the Company’s Form 10-K for the year ended December 31, 2008.

Executive Overview

See “Executive Overview” in Item 7 of the Company’s Form 10-K for the year ended December 31, 2008.

Results of Operations

The following table presents an analysis of the Company’s net income available to ordinary shareholders and other financial measures (described below) for the three months ended June 30, 2009 and 2008:


	(Unaudited) Three Months Ended June 30,

*(U.S. dollars and shares in thousands, except per share amounts)*	2009		2008 (1)

Net income available to ordinary shareholders	$	79,949	$	237,851
Earnings per ordinary share – basic	$	0.23	$	1.33
Earnings per ordinary share – diluted	$	0.23	$	1.33
Weighted average number of ordinary shares and ordinary share equivalents – basic		342,154		179,054
Weighted average number of ordinary shares and ordinary share equivalents – diluted		342,468		179,054

Change in fully diluted book value per share (2)	$	3.87	$	(2.72	)

The following table presents an analysis of the Company’s net income available to ordinary shareholders and other financial measures (described below) for the six months ended June 30, 2008 and 2007:


	(Unaudited) Six Months Ended June 30,

*(U.S. dollars and shares in thousands, except per share amounts)*	2009		2008 (1)

Net income available to ordinary shareholders	$	258,328	$	449,724
Earnings per ordinary share – basic	$	0.76	$	2.52
Earnings per ordinary share – diluted	$	0.76	$	2.52
Weighted average number of ordinary shares and ordinary share equivalents – basic		339,155		178,701
Weighted average number of ordinary shares and ordinary share equivalents – diluted		339,262		178,701

Change in fully diluted book value per share (2)	$	3.43	$	(6.91	)


(1)	Basic and diluted earnings per ordinary share were adjusted for 2008. For further information, see Note 14 to the Consolidated Financial Statements, “Computation of Earnings per Ordinary Share and Ordinary Share Equivalents.”

(2)	Fully diluted book value per ordinary share is a non-GAAP measure and represents book value per ordinary share combined with the impact from dilution of share based compensation including in-the-money stock options at any period end. The Company believes that fully diluted book value per ordinary share is a financial measure important to investors and other interested parties who benefit from having a consistent basis for comparison with other companies within the industry. However, this measure may not be comparable to similarly titled measures used by companies either outside or inside of the insurance industry.

The Company’s net income and other financial measures as shown below for the three months ended June 30, 2009 have been affected by, among other things, the following significant items:

1) Impact of credit market movements on the Company’s investment portfolio

2) Factors impacting the underwriting environment

3) Favorable prior year reserve development

4) Redemption of Series C Preference Ordinary Shares

1) Impact of credit market movements on the Company’s investment portfolio

During the quarter ended June 30, 2009, financial market conditions continued to be extremely challenging as the global credit crisis that began in July 2007 continued to impact global markets. This unprecedented market volatility directly and materially affected the Company’s results of operations and investment portfolio during the three and six month periods ended June 30, 2009.

The deterioration in the market value of the Company’s investment portfolio reported in the first quarter of 2009 was almost completely offset by the improved market conditions in the second quarter. During the three month period ended June 30, 2009, credit spreads across most classes of fixed maturity investments tightened significantly. While the benefits of improved credit markets were partially offset by increasing global interest rates and the impact of FSP FAS 115, the net impact of the market conditions on the Company’s investment portfolio for the quarter resulted in a decrease in net unrealized losses on available-for-sale investments of $860.0 million and net realized losses of $80.4 million. This represents approximately a 2.4% appreciation of on average assets for the quarter ended June 30, 2009. See Item 1A, “Risk Factors,” “Deterioration in the public debt and equity markets could lead to additional investment losses” and “We are exposed to significant capital markets risk related to changes in interest rates, credit spreads, equity prices and foreign exchange rates which may adversely affect the Company’s results of operations, financial condition or cash flows,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. To the extent a period of inflation occurs as a result of the current market environment, such inflation may adversely impact the securities markets and the value of financial instruments.

The following table provides further detail regarding the extreme volatility in the global credit markets, as well as in government interest rates using some sample market indices:


	Interest Rate Movement for the quarter ended June 30, 2009 (1) (‘+’/’-’ represents an increase/decreases in interest rates)	Credit Spread Movement for the quarter ended June 30, 2009 (2) (‘+’/’-’ represents a widening/narrowing of credit spreads)

United States	+ 90 basis points (5 year Treasury)	- 276 basis points (US Corporate A rated)
		- 48 basis points (US Agency RMBS, AAA rated)
		- 228 basis points (US CMBS, AAA rated)
United Kingdom	+ 52 basis points (10 year Gilt)	- 121 basis points (UK Corporate, AA rated)
Euro-zone	+ 26 basis points (5 year Bund)	- 158 basis points (Europe Corporate, A rated)


(1)	Source: Bloomberg Finance L.P.

(2)	Source: Merrill Lynch Global Indices

Net realized losses on investments in the three months ended June 30, 2009 included net realized losses of approximately $84.9 million related to the write-down of certain of the Company’s fixed income, equity and other investments, where the Company determined that there was an other than temporary decline in the value of those investments. Of the other-than-temporary impairments, $27.0 million related to changes of intent to hold, of which $1.4 million was within the Company’s life operations. See below for further information.

$26.8 million of impairments related to the change in the intent to hold on certain Tier One and Upper Tier Two securities and $23.4 million related to credit impairments on securities with sub-prime and Alt-A collateral. The remaining impairment during the second quarter of 2009 was spread across the portfolio including structured credit and other fixed income investments. Consistent with prior quarters, management continues to evaluate the impairment of the portfolio and satisfy itself that the remaining gross unrealized losses are temporary in nature.

2) Factors Impacting the Underwriting Environment

Market concerns around the Company’s financial condition continue to dissipate, although market conditions in general remain challenging due to general economic conditions and continuation of soft market behavior, seen over the last year.

Insurance

To date, 2009 renewals are flat (no rate change) across the entire book as compared to a 6.5% decrease in rates for the same period a year ago. There was a continuing rate strengthening from April through June, albeit gradual, where rates increased 2% for the period in aggregate. For the quarter, low single digit price decreases were seen in property (-2%) and professional (-1%) which were offset by moderate increases in specialty (+3%) and casualty (+3%) pricing. The impact of the S&P ratings downgrade in December 2008 has affected premiums particularly in certain longer tail lines, but this impact continues to lessen quite rapidly. Premium volumes have also been negatively impacted by the global economic conditions, ratable exposure bases down and reduction in M&A, the exiting of certain lines of business and the ongoing efforts of risk managers to reduce their concentration of risk (limits) with all insurers. Partially offsetting these impacts have been strengthening of retentions broadly in the segment during the second quarter, and in particular in our professional lines and property books where stronger retentions and increases in new business written occurred.

The following table provides an analysis of gross premiums written, net premiums written and net premiums earned for the Insurance segment for the six month periods ended June 30, 2009 and 2008:


	(Unaudited) Six Months Ended June 30, 2009							(Unaudited) Six Months Ended June 30, 2008

*(U.S. dollars in thousands)*	Gross Premiums Written			Net Premiums Written		Net Premiums Earned		Gross Premiums Written			Net Premiums Written			Net Premiums Earned

Casualty – professional lines	$	582,110		$	539,128	$	627,260	$	690,471		$	624,297		$	688,167
Casualty – other lines		563,034			352,661		315,158		831,813			555,741			425,370
Property catastrophe		(25	)		1,762		1,762		(59	)		(2,162	)		107
Other property		407,925			187,416		215,090		600,697			398,873			258,766
Marine, energy, aviation, and satellite		344,182			266,055		287,483		408,377			325,022			322,618
Other specialty lines (1)		313,147			247,430		324,087		430,827			355,917			324,924
Other (2)		4,882			4,112		10,831		11,529			(29,831	)		(27,359	)
Structured indemnity		210			210		9,930		43,465			40,815			34,159

Total	$	2,215,465		$	1,598,774	$	1,791,601	$	3,017,120		$	2,268,672		$	2,026,752


(1)	Other specialty lines within the Insurance segment includes: environmental, programs, equine, warranty, specie, middle markets, and excess and surplus lines.

(2)	Other includes employers’ liability, surety, political risk and other lines.

Reinsurance

Across the Reinsurance segment, January 1, 2009 and April 1, 2009 renewals resulted in a moderate rise in premium rates across most major lines of business. Market conditions continued to harden across short tail lines as a result of the reduction in available reinsurer capital, due in part to the credit and liquidity crisis, causing a firming in market pricing across most lines of business. U.S. and non-U.S. catastrophe exposed property lines experienced rate increases of approximately 10% to 15%, while other property lines in the U.S. remain generally flat. U.S. casualty rates, excluding D&O, were down slightly as rate reductions in underlying primary portfolios have slowed during the second quarter. International renewals in the second quarter were principally in Japan where rates increased approximately 4%.

While rate changes have positively impacted gross premiums written, such increases have been more than offset by the Company’s focus on short-tail lines, certain lost renewals and reduced shares on certain accounts as a result of the S&P ratings downgrade in December 2008, most notably within the Company’s European based reinsurance operations. In addition, unfavorable foreign exchange rate movements negatively impacted gross premiums written as a result of the increase in the value of the U.S. Dollar against most major currencies over the past six months.

The following table provides an analysis of gross premiums written, net premiums written and net premiums earned for the Reinsurance segment for the six month periods ended June 30, 2009 and 2008:


	(Unaudited) Six Months Ended June 30, 2009								(Unaudited) Six Months Ended June 30, 2008

*(U.S. dollars in thousands)*	Gross Premiums Written			Net Premiums Written			Net Premiums Earned		Gross Premiums Written		Net Premiums Written		Net Premiums Earned

Casualty – professional lines	$	104,632			104,632			110,237	$	138,193	$	138,090	$	130,436
Casualty – other lines		144,546			139,714			137,335		250,444		244,610		222,645
Property catastrophe		295,896			251,341			146,174		331,278		231,106		171,510
Other property		431,843			324,927			283,096		455,300		349,595		342,374
Marine, energy, aviation, and satellite		62,259			58,988			41,614		89,321		83,266		60,702
Other (1)		126,559			106,995			92,037		204,109		179,321		104,915
Structured indemnity		(1,782	)		(1,782	)		1,342		1,360		1,360		2,233

Total	$	1,163,953			984,815			811,835	$	1,470,005	$	1,227,348	$	1,034,815


(1)	Other includes employers’ liability, surety, political risk and other lines.

3) Favorable prior year reserve development

The Company incurred net favorable prior year reserve development in property and casualty operations for the three and six month periods ended June 30, 2009 of $89.6 million and $179.7 million, respectively compared to $182.5 million and $249.5 million, respectively, for the same periods in 2008. Reinsurance segment favorable development for the three and six month periods ended June 30, 2009 accounted for $55.3 million and $138.7 million, respectively, of the favorable development in 2009, with the balance from the Insurance segment. For further details see the segment results in “Income Statement Analysis” below.

4) Redemption of Series C Preference Ordinary Shares

Financial Measures

The following are some of the financial measures management considers important in evaluating the Company’s operating performance:


	(Unaudited) Three Months Ended June 30,

*(U.S. dollars and shares in thousands, except ratios and per share amounts)*	2009			2008

Underwriting profit – property and casualty operations	$	89,439		$	126,356
Combined ratio – property and casualty operations		93.0	%		91.6	%
Net investment income – property and casualty operations (1)	$	218,490		$	298,128
Annualized return on average shareholders’ equity		5.5	%		11.9	%


	(Unaudited) Six Months Ended June 30,

*(U.S. dollars and shares in thousands, except ratios and per share amounts)*	2009			2008

Underwriting profit – property and casualty operations	$	193,291		$	236,212
Combined ratio – property and casualty operations		92.6	%		92.3	%
Net investment income – property and casualty operations (1)	$	460,656		$	606,169
Annualized return on average shareholders’ equity		8.9	%		10.8	%

	(Unaudited) June 30, 2009			December 31, 2008

Book value per ordinary share	$	18.91		$	15.46
Fully diluted book value per ordinary share (2)	$	18.89		$	15.46


(1)	Net investment income relating to property and casualty operations does not include the net investment income related to the net results from structured products.

(2)	Fully diluted book value per ordinary share is a non-GAAP measure and represents book value per ordinary share combined with the impact from dilution of share based compensation including in-the-money stock options at any period end. The Company believes that fully diluted book value per ordinary share is a financial measure important to investors and other interested parties who benefit from having a consistent basis for comparison with other companies within the industry. However, this measure may not be comparable to similarly titled measures used by companies either outside or inside of the insurance industry.

Underwriting profit – property and casualty operations

One way that the Company evaluates the performance of its insurance and reinsurance operations is the underwriting profit or loss. The Company does not measure performance based on the amount of gross premiums written. Underwriting profit or loss is calculated from premiums earned and fee income, less net losses incurred and expenses related to underwriting activities, plus unrealized foreign exchange gains and losses on underwriting balances. Underwriting profit in the six month period ended June 30, 2009 is primarily reflective of the combined ratio discussed below.

Combined ratio – property and casualty operations

The combined ratio for property and casualty operations is used by the Company and many other insurance and reinsurance companies as another measure of underwriting profitability. The combined ratio is calculated from the net losses incurred and underwriting expenses as a ratio of the net premiums earned for the Company’s insurance and reinsurance operations. A combined ratio of less than 100% indicates an underwriting profit and greater than 100% reflects an underwriting loss. The Company’s combined ratio for the six months ended June 30, 2009, is slightly higher than the same period in the previous year, primarily as a result of an increase in the underwriting expense ratio, partially offset by a decrease in the loss and loss expense ratio. The loss and loss expense ratio has declined as a result of lower levels of catastrophe losses in the reinsurance segment and lower current year professional lines losses in the insurance segment partially offset by larger prior year reserve releases reported in 2008. The increased underwriting expense ratio has been driven largely by increases in operating expenses against lower net premiums earned. Operating expenses increased mainly as a result of the Company’s restructuring activities as described further below.

Net investment income – property and casualty operations

Net investment income related to property and casualty operations is an important measure that affects the Company’s overall profitability. The largest liability of the Company relates to its unpaid loss reserves, and the Company’s investment portfolio provides liquidity for claims settlements of these reserves as they become due, and thus a significant part of the portfolio is invested in fixed income securities. Net investment income is influenced by a number of factors, including the amounts and timing of inward and outward cash flows, the level of interest rates and credit spreads and changes in overall asset allocation. Net investment income related to property and casualty operations decreased by $145.5 million during the first half of 2009 as compared to same period in the prior year. Overall, portfolio yields have decreased as the portfolio mix has changed as a result of the settlement of the GIC liabilities during 2008, as the property and casualty operations assumed a number of the floating rate securities that previously supported this business and are more sensitive to the year-on-year decline in U.S.dollar short-term interest rates. In addition, the Company increased its allocation to lower yielding U.S. Treasuries, cash and agencies as a result of the continued de-risking of the portfolio and to increase liquidity.

Book value per ordinary share

Management also views the change in the Company’s book value per ordinary share as an additional measure of the Company’s performance. Book value per share is calculated by dividing ordinary shareholders’ equity by the number of outstanding ordinary shares at any period end. Book value per ordinary share is affected primarily by the Company’s net income (loss), by any changes in the net unrealized gains and losses on its investment portfolio, currency translation adjustments and also the impact of any share repurchase or issuance activity. Book value per ordinary share increased by $3.45 in the first six months of 2009 as compared to a decrease of $6.91 in the first six months of 2008. During the six months ended June 30, 2009, there was an increase in net unrealized losses of $859.8 million, net of tax. Although there was significant quarter–to-quarter volatility, in aggregate the impact of widening credit spreads was slightly larger than the offsetting benefit from declining interest rates. During the second quarter, there was a significant decrease in net unrealized losses as tightening credit spreads were significantly larger than the impact of increasing rates within the quarter. Book value was further increased by the issuance of 11,461,080 shares issued at $65.0 per share upon the maturity of the purchase contracts associated with the 7.0% Units, as such issuance was accretive to book value. In addition, book value per ordinary share increased as a result of net income available to ordinary shareholders of $283.3 million which included a $211.8 million gain associated with the purchase of a portion of the Company’s Series C Preference Ordinary Shares.

Annualized return on average ordinary shareholders’ equity

Annualized return on average ordinary shareholder’s equity (“ROE”) is another financial measure that management considers important in evaluating the Company’s operating performance. ROE is calculated by dividing the net income for any period by the average of the opening and closing ordinary shareholders’ equity. The Company establishes minimum target ROEs for its total operations, segments and lines of business. If the Company’s minimum ROE targets over the longer term are not met with respect to any line of business, the Company seeks to modify and/or exit these lines. In addition, the Company’s compensation of its senior officers is significantly dependent on the achievement of the Company’s performance goals to enhance shareholder value as measured by ROE (adjusted for certain items considered to be ‘non-operating’ in nature). For the first half of 2009, ROE was 8.9%, 1.9 percentage points lower than the same period in the prior year, mainly as a result of lower net income to ordinary shareholders partially offset by lower levels of average shareholders’ equity. Shareholders’ equity decreased over the past twelve months mainly as a result of the Company’s net loss recorded in 2008 as well as from increases in unrealized losses on investments and unfavorable foreign exchange translation adjustments during this period.

Other Key Focuses of Management

See the discussion of the Other Key Focuses of Management in Item 7 of the Company’s Form 10-K for the year ended December 31, 2008. That discussion is updated with the disclosures set forth below.

Throughout the latter part of 2008 and into 2009, the Company remains focused on, among other things, simplifying the Company’s business model to focus on core property and casualty business and enhancing its enterprise risk management capabilities. Details relating to these initiatives are highlighted below.

Simplify the Company’s Business Model and Enhance Risk Management

In relation to these objectives, certain initiatives that have taken place or are underway include the following:


	•	Focus on P&C Businesses : As previously announced, the Company is focusing on those lines of business within its Insurance and Reinsurance segments that provide the best return on capital. As such, the Company will continue to be highly selective on new business, emphasize short-tail lines, where applicable, in the Company’s Reinsurance segment, exit other businesses (e.g., Casualty facultative business), non-renew certain insurance programs, as well as continue to reduce long-term agreements (within the Insurance segment) in order to capture the benefit of hardening markets. In addition, the Company recently completed a strategic review of its Life reinsurance business. In connection therewith, the Company announced that it sold renewal rights to a portion of its European life, accident and health reinsurance business, a relatively small block of business, and it will run-off its existing book of U.K. and Irish life and annuity business. In addition, subsequent to June 30, 2009, the Company entered into an agreement to sell its U.S. life reinsurance business. The transaction is expected to close on September 30, 2009, subject to regulatory approval and normal closing conditions.

	•	Enterprise Risk Management : The Company is focused on enhancing its risk management capabilities throughout all facets of its operations. This initiative is led by the Company’s Chief Enterprise Risk Officer (“CERO”) and is supported by, among others, the Company’s Enterprise Risk Management Committee (the “ERM Committee”) comprised of the most senior risk takers and managers of the Company. The ERM Committee will continue to assist with the efficient identification, assessment, monitoring and reporting of key risks across the Company.

	•	Simplify Investment Portfolio Over Time : The Company has continued to reposition the Company’s investment portfolio to one that supports a P&C focused operation so that a) book value volatility, particularly related to credit spreads arising from the portfolio, is reduced, b) a reduction in lower rated corporate securities and financial issuers is achieved, c) exposure to commercial mortgage-backed securities (“CMBS”) is reduced and d) a reduction in asset classes such as sub-prime, Alt-A and Core CDO’s previously supporting the guaranteed investment contract and funding agreement businesses is achieved. Realignment will be achieved primarily through cash generated from bond maturities and coupon reinvestment, cash flow from business operations as well as certain opportunistic sales.


		During the fourth quarter of 2008, the Company announced a charge on its investment portfolio for OTTI of $400.0 million in relation to impaired assets that it could no longer assert its intent to hold until recovery. During the first six months of 2009, the Company has substantively completed the sales associated with this charge. These actions, combined with sales of securities at realized gains and natural cash flows and maturities from the portfolio, had the effect of reducing the Company’s exposure to the previously mentioned asset classes, and alternative investments, by $3.5 billion during the first half of 2009.

	•	Reduction of Expenses to Reflect Simplified Business : In light of the changes in business strategy noted above and in response to the significant market and other events which impacted the Company throughout 2008, the Company implemented in the third quarter of 2008, and subsequently in the first quarter of 2009, expense reduction initiatives designed to streamline certain of its processes and functions and reduce the Company’s expense across all major geographic locations, with primary emphasis on corporate functions. In 2009, the Company expects to record a total of $2.4 million of restructuring charges associated with the restructuring efforts announced in the third quarter of 2008 and approximately $65.0 million associated with the restructuring efforts announced in the first quarter of 2009. Restructuring charges relate mainly to employee termination benefits as well as certain asset write-offs and ceasing to use certain leased property. For further details see Note 5 to the Consolidated Financial Statements, “Restructuring and Asset Impairment Charges”.

Capital Management

Fundamental to supporting the Company’s business model is its ability to underwrite business, which is largely dependent upon the quality of its claims paying and financial strength ratings as evaluated by independent rating agencies. As a result, in the event that the Company is further downgraded, its ability to write business as well as its financial condition and/or results of operations, could be adversely affected. See Item 1, “Business – Ratings” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 for further information regarding recent rating actions by the various rating agencies, as well as details regarding the Company’s financial strength and debt ratings.

In relation to the Company’s capital position, the following activities have occurred in 2009:


	•	On March 26, 2009, the Company completed a cash tender offer for its outstanding Series C Preference Ordinary Shares that resulted in approximately 12.7 million Series C Preference Ordinary Shares with a liquidation value of $317.3 million being purchased by the Company for approximately $104.7 million plus accrued and unpaid dividends, combined with professional fees totaling $0.8 million. As a result, a book value gain of approximately $211.8 million was recorded in the first quarter of 2009 to ordinary shareholders.

	•	In February 2009, the Board of Directors approved a reduction in the quarterly dividend payable on the Company’s Class A Ordinary Shares to $0.10 per ordinary share beginning with the quarterly dividend paid in March 2009.

	•	Following the settlement of the purchase contracts associated with the 7.0% Units in February 2009, the Company issued 11,461,080 Shares for net proceeds of approximately $745.0 million, which was used to retire the senior notes previously due February 2011 which had a fixed coupon of 5.25% (the “2011 Senior Notes”).

Catastrophe Risk Management

The Company manages its limits to a catastrophe risk from any single loss in a given region/peril at a 1% exceedance probability. Tier 1 limits which include natural catastrophe, terrorism and other realistic disaster scenario risks are targeted at a level not to exceed 15% of beginning of the year tangible shareholders’ equity (adjusted, in 2009, for the issuance of Class A ordinary shares following maturity of the purchase contracts associated with the 7.0% Units – for further information see Notes 9 and 10 to the Consolidated Financial Statements above), where Tier 2 limits, which include pandemic, longevity, and country risk, are established at no more than half of Tier 1 limits. These target limits are established by a combination of commercially available models, internally developed probable maximum loss estimates and the judgment of management.

Critical Accounting Policies and Estimates

See the discussion of the Company’s Critical Accounting Policies and Estimates in Item 7 of the Company’s Form 10-K for the year ended December 31, 2008.

Variable Interest Entities and Other Off-Balance Sheet Arrangements

At times, the Company has utilized VIEs both indirectly and directly in the ordinary course of the Company’s business. The Company invests in CDOs, and other investment vehicles that are issued through variable interest entities as part of the Company’s investment portfolio. The activities of these VIEs are generally limited to holding the underlying collateral used to service investments therein. Our involvement in these entities is passive in nature and we are not the arranger of these entities. The Company has not been involved in establishing these entities. The Company is not the primary beneficiary of these variable interest entities under paragraph 14 of FIN 46(R), “Consolidation of Variable Interest Entities” (“FIN 46(R)”).

In addition, the Company has utilized variable interest entities in certain instances as a means of accessing contingent capital. The Company has utilized unconsolidated entities in the formation of contingent capital facilities. The Company’s interests in Stoneheath represents an interest in a variable interest entity under FIN 46(R), however, the Company is not the primary beneficiary under paragraph 14 of that guidance. Given that there are no contractual requirements or intentions to enter into additional variable interests in this entity; management considers the likelihood of consolidating Stoneheath in the future to be remote. For further information, see Note 18 to the Consolidated Financial Statements, “Off-Balance Sheet Arrangements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Segment Results for the three months ended June 30, 2009 compared to the three months ended June 30, 2008

Income Statement Analysis

Insurance

Insurance business written includes risk management, professional and other specialty lines. Risk management products comprise global property and casualty insurance programs for large multinational companies, including excess and umbrella liability, products recall, U.S. workers’ compensation, property catastrophe, and primary property and liability coverages. Specialty lines products include the following lines of business: environmental liability, aviation and satellite, marine and offshore energy insurance, fine art and specie, equine and other insurance coverages including program business. In addition, certain structured indemnity products previously structured by XLFS are included within the results of the Insurance segment covering a range of insurance risks including property and casualty insurance, certain types of residual value exposures and other market risk management products.

The following table summarizes the underwriting results for this segment:


	(Unaudited) Three Months Ended June 30,

*(U.S. dollars in thousands)*	2009			2008		% Change

Gross premiums written	$	1,124,220		$	1,388,771		(19.0	)%
Net premiums written		766,606			1,084,820		(29.3	)%
Net premiums earned		881,490			1,018,350		(13.4	)%
Net losses and loss expenses		598,784			653,822		(8.4	)%
Acquisition costs		112,430			113,877		(1.3	)%
Operating expenses		167,931			178,282		(5.8	)%

Underwriting profit	$	2,345		$	72,369		(96.8	)%
Net fee income and other (1)	$	(3,220	)	$	1,389		NM	*
Net results – structured products	$	4,093		$	12,366		(66.9	)%



(1)	Net fee income and other includes operating expenses from the Company’s loss prevention consulting services business.

*	NM – not meaningful

Gross premiums written decreased by 19.0% during the three months ended June 30, 2009 compared with the three months ended June 30, 2008. While decreases were seen across most lines as a result of poor market and economic conditions impacting retention and new business opportunities, the majority of the variance results from fewer long term agreements, unfavorable foreign exchange rate impacts and the exiting of specific lines of business and agency contracts. While rates were generally flat to slightly lower across most lines of business during the first half of 2009, as compared to 2008, as noted above, the level of rate reduction experienced throughout 2008 has slowed during 2009.

The decrease in casualty lines was most significant in European excess lines and related primarily to a reduction in long term agreements, unfavorable changes to prior period estimates combined with unfavorable foreign exchange rate impacts and to a lesser extent pricing and overall retention. Decreases in specialty lines relate mostly to the decision to eliminate specific lines of business and agency contracts partially offset by increases in new lines of business. Gross premiums written in property lines decreased as a result of lower retention rates combined with unfavorable foreign exchange rate impacts and generally poor global economic conditions impacting construction, partially offset by new business opportunities. Net premiums written decreased by 29.3% during the second quarter of 2009 as compared to same period in 2008 primarily as a result of the decrease in gross premiums written noted above, combined with timing changes and increased reinsurance pricing on the renewal of certain ceded property treaties.

Net premiums earned decreased by 13.4% in the three month period ended June 30, 2009 compared with the three month period ended June 30, 2008. The decrease primarily resulted from the earn-out of overall lower net premiums written in the past twelve months.

Fee income decreased in the second quarter of 2009 as compared to the second quarter of 2008 mainly as a result of lower property business opportunities regarding engineering services and the run off of certain financial lines of business.

The following table presents the ratios for this segment:


	(Unaudited) Three Months Ended June 30,

	2009			2008

Loss and loss expense ratio		67.9	%		64.2	%
Underwriting expense ratio		31.8	%		28.7	%

Combined ratio		99.7	%		92.9	%

The loss and loss expense ratio includes net losses incurred for both the current year and any favorable or adverse prior year development of loss and loss expense reserves held at the beginning of the year. The following table summarizes the net (favorable) adverse prior year development relating to the Insurance segment for the three month periods ended June 30, 2009 and 2008:


	(Unaudited) Three Months Ended June 30,

*(U.S. dollars in millions)*	2009			2008

Property	$	(5.7	)	$	(53.3	)
Casualty and professional		(46.3	)		(58.0	)
Specialty and other		17.7			11.6

Total	$	(34.3	)	$	(99.7	)

Loss and loss expense ratio excluding prior year development		71.8	%		74.0	%

Loss and loss expense ratio excluding catastrophe losses and prior year development		71.9	%		68.1	%

Excluding prior year development, the loss ratio for the three months ended June 30, 2009 decreased by 2.2 loss percentage points as compared to the same period in 2008 due primarily to lower levels of large property risk and catastrophe losses occurring in the second quarter of 2009 and the impact of anticipated sub prime and credit related loss activity in 2008 partially offset by lower premium rate levels in certain lines such as environmental business.

Net favorable prior year development in the quarter ending June 30, 2009 totaled $34.3 million, with gross prior year unfavorable development of $110 million.

For Property lines, net prior year development during the second quarter of 2009 was $5.7 million favorable largely as a result of an $8 million reduction in ultimate losses for the 2008 hurricanes Ike and Gustav due to lower incurred activity than expected based on the Company’s prior valuation and the recognition of the increased maturity of the experience. Favorable Catastrophe development was partially offset by minor unfavorable developments related to non-catastrophe property exposures and provisions for unrecoverable reinsurance.


§	For Casualty lines, net prior year development during the second quarter of 2009 was $5.6 million unfavorable, with gross prior year unfavorable development of $110 million. The significant events impacting this movement are as follows:

	§	$40 million unfavorable in Excess Casualty business as a result of greater than expected reported loss activity on the 2007 and 2008 accident years related to two individual losses totaling $72 million net and $224 million gross.

	§	$28 million favorable in Primary Casualty results mainly from benign large loss experience on European business in the 2007 and 2008 accident years; this has been partially offset by strengthening for US business in the 2001 and prior accident years.

	§	$6 million favorable in US large risk casualty business results from continued favorable loss development for older years of Auto liability and General Liability which we are now recognizing due to the maturity of the experience.

	§	$1 million favorable resulted from a reduction in the provision for unrecoverable reinsurance caused by changes in the level of recoveries and the distribution of recoveries by reinsurer.

	§	Gross prior year unfavorable development significantly exceeds the corresponding net unfavorable development, as the impact of increases in gross reported losses in certain casualty lines was mostly offset by the impact of the reinsurance recoverable component on such losses. This is mainly caused by the two large losses in Excess Casualty discussed above.

§	For Professional lines, net prior year development during the second quarter of 2009 is $51.9 million favorable, primarily as a result of lower incurred activity than expected based on the Company’s prior valuation in US D&O lines, primarily for underwriting years 2003 to 2006. These releases were partially offset by strengthening of reserves primarily in the 1999 to 2002 years to reflect the potential for more adverse claim activity in the non-U.S. business. The Company continues to analyze claim activity associated with financial markets deterioration in 2007 and 2008 and has reallocated the level of carried reserves between the two years without impacting the expected ultimate losses.

§	For Specialty Lines, net prior year development during the second quarter is $17.7million unfavorable. The significant events impacting this movement are as follows:

	§	$7 million favorable in Aerospace due to the US Space and Aviation business, where development since the Company’s prior review has been lower than implied by the historical average.

	§	$10 million unfavorable in Environmental due to unexpectedly high allocated loss adjustment expense increases for the General Liability account and large losses over and above expectations based on the Company’s prior valuation related to pollution site exposures.

	§	$8 million unfavorable in Discontinued Specialty due to the results of a full valuation of the Lloyds Accident & Health business where incurred development was higher than implied by the Company’s selected benchmarks.

	§	Specie and Other specialty business deteriorated by $7 million in total.

The increase in the underwriting expense ratio in the three months ended June 30, 2009, compared to the same period in 2008 was due to an increase in the acquisition expense ratio of 1.6 points (12.8% as compared to 11.2%) combined with an increase in the operating expense ratio of 1.5 points (19.0% as compared to 17.5%). The increase in the acquisition expense ratio was primarily as a result of changes in the mix of business given the decreases in property and casualty lines which carry the lowest levels of acquisition cost. The increase in the operating expense ratio is attributable to the lower level of earned premium. Actual operating expenses in total decreased in 2009 as a result of the expense reduction initiatives announced in the third quarter of 2008 and first quarter of 2009.

Net results from structured insurance products include certain structured indemnity contracts that are accounted for as deposit contracts. Net results from these contracts for the three months ended June 30, 2009, have decreased compared to the same period in 2008 mainly due to a large gain on a negotiated cancellation in 2008 combined with the effects of the run off of this line of business.

Reinsurance

Reinsurance business written includes treaty and facultative reinsurance assumed from primary insurers of casualty and property risks, principally: general liability; professional liability; automobile and workers’ compensation; commercial and personal property risks; specialty risks including fidelity and surety and ocean marine; property catastrophe; property excess of loss; property pro-rata; marine and energy; aviation and satellite; and various other reinsurance to insurers on a worldwide basis. In addition, the results of certain transactions previously structured by XLFS that were generally written on an aggregate stop loss or excess of loss basis are included within the results of the Reinsurance segment.

The following table summarizes the underwriting results for this segment:


	(Unaudited) Three Months Ended June 30,

*(U.S. dollars in thousands)*	2009		2008		% Change

Gross premiums written	$	376,970	$	397,460		(5.2	)%
Net premiums written		311,672		274,647		13.5	%
Net premiums earned		400,259		490,437		(18.4	)%
Net losses and loss expenses		180,844		284,763		(36.5	)%
Acquisition costs		85,302		106,528		(19.9	)%
Operating expenses		47,019		45,159		4.1	%

Underwriting profit	$	87,094	$	53,987		61.3	%
Net fee income and other (1)		545		471		15.8	%
Net results – structured products	$	6,172	$	2,579		NM	*



(1)	Net fee income and other includes operating expenses from the Company’s loss prevention consulting services business.

*	NM – not meaningful

Gross premiums written decreased by 5.2%, while net written premiums increased by 13.5%, in the second quarter of 2009 as compared to the second quarter of 2008. The decrease in gross premiums written was largely as a result of the Company’s focus on short-tail lines, certain lost renewals and reduced shares on certain accounts as a result of the S&P ratings downgrade in December 2008 and unfavorable foreign exchange rate movements. Partially offsetting these decreases were rate increases in certain lines of business including property catastrophe, marine and aviation. The increase in net premiums written reflects a reduction in ceded premiums in the three months ended June 30, 2009 as compared to the same period in 2008. This decrease was mainly as a result of the cancellation and non-renewal of Cyrus Re II at December 31, 2008 combined with the impact of the catastrophe covers purchased in the second quarter of 2008 including industry loss warranties. Cyrus Re II previously assumed a 10% cession of certain lines of property catastrophe reinsurance and retrocession business underwritten by certain operating subsidiaries of the Company.

Net premiums earned in the second quarter of 2009 decreased by 18.4% as compared to the second quarter of 2008. The decrease was a reflection of the overall reduction of net premiums written over the last 24 months.

The following table presents the ratios for this segment:


	(Unaudited) Three Months Ended June 30,

	2009			2008

Loss and loss expense ratio		45.2	%		58.1	%
Underwriting expense ratio		33.0	%		30.9	%

Combined ratio		78.2	%		89.0	%

The loss and loss expense ratio includes net losses incurred for both the current year and any favorable or adverse prior year development of loss and loss expense reserves held at the beginning of the year. The following table summarizes the net (favorable) adverse prior year development relating to the Reinsurance segment for the three month periods ended June 30, 2009 and 2008:


	(Unaudited) Three Months Ended June 30,

*(U.S. dollars in millions)*	2009			2008

Property and other short-tail lines	$	(36.3	)	$	(55.0	)
Casualty and other		(19.0	)		(27.9	)

Total	$	(55.3	)	$	(82.9	)

Loss and loss expense ratio excluding prior year development		59.0	%		75.0	%

Loss and loss expense ratio excluding catastrophe losses and prior year development		59.0	%		67.2	%

Excluding prior year development, the loss ratio for the three months ended June 30, 2009 decreased by 16.0 loss percentage points as compared to the same period in 2008 with 7.8 loss ratio points attributable to the impact of catastrophe losses occurring in 2008 (7.8 points) compared to the second quarter of 2009 (0.0 points). 2008 catastrophes included losses related to mid-west floods and snow storms and earthquakes in China.

Net favorable prior year development for the quarter ended June 30, 2009 totalled $55.3 million. This represents less than 1% of the beginning net reserve. Gross prior year development was $60 million for the same period.


•	Net favorable prior year development of $36.3 million for the short tailed lines in the quarter and details of these by specific lines are as follows:

	•	$32 million in favorable Property Other development due to reported losses coming in better than expected, some of this due to case reserve reductions, primarily from underwriting years 2006 to 2008 in portfolios.

	•	$5 million in favorable Marine development due to small releases from US, Europe and Latin America portfolios across most underwriting years.

	•	No material changes for Property Cat and Aviation lines as losses developed as expected in the quarter.

•	Net favorable prior year development of $19.0 million for the long tailed lines in the quarter and details of these by specific lines are as follows:

	•	$12 million in favorable development primarily for US and European Professional portfolios. The US portfolio had favorable development of $8 million mainly due to favorable emergence in D&O and E&O non-proportional exposures in underwriting years 1998 through 2002. The European portfolio had releases of $6 million, predominantly from their Professional Indemnity exposures, due to better than expected activity in underwriting years 2004 through 2006.

	•	$7 million in releases for the Other lines mainly due to favorable emergence and reserve takedowns related to 2 treaties for US Bond runoff exposures from underwriting years 1997 through 2004.

	•	No material change for Casualty lines for the quarter. Adverse development in the US Casualty portfolio of $8 million mainly due to worker’s compensation clash and general liability non-proportional exposures in underwriting years 2001 and 2002 was offset by favorable development of $8 million in European portfolio related to releases from their motor liability book for most underwriting years and general liability non-proportional exposures in underwriting years 2007 and 2008.

The increase in the underwriting expense ratio in the three months ended June 30, 2009, as compared with the three months ended June 30, 2008, was due to an increase in the operating expense ratio of 2.5 points (11.7% as compared to 9.2%) partially offset by a decrease in the acquisition expense ratio of 0.4 points (21.3% as compared to 21.7%). The increase in the operating expense ratio was primarily as a result of higher operating expenses due to charges associated with the Company’s restructuring activities, against a lower level of net premiums earned. The decrease in the acquisition expense ratio was primarily as a result of changes in the mix of business, including the U.S. agricultural program.

Net results from structured reinsurance products include certain structured indemnity contracts that are accounted for as deposit contracts. Results from these products for the three months ended June 30, 2009, increased compared to the same period in 2008 mainly due to lower operating expenses and favorable development in the liability interest rate hedges in place partially offset by lower net investment income as a result of lower yields combined with a smaller investment base.

Life Operations

As noted above, the Company recently completed a strategic review of its Life reinsurance business which resulted in the Company selling the renewal rights to a portion of its European life, accident and health reinsurance business, a relatively small block of business, in late 2008 as well as ceasing to write new U.K. and Irish life and annuity business. In addition, subsequent to June 30, 2009, the Company entered into an agreement to sell its U.S. life reinsurance business. The transaction is expected to close on September 30, 2009, subject to regulatory approval and normal closing conditions. Business previously written by the Life Operations segment was primarily European life reinsurance and included term assurances, group life, critical illness cover, immediate annuities, disability income cover, and short-term life, accident and health business.

The following summarizes the contribution from this segment:


	(Unaudited) Three Months Ended June 30,

*(U.S. dollars in thousands)*	2009			2008		% Change

Gross premiums written	$	150,711		$	161,251		(6.6	)%
Net premiums written		140,674			150,933		(6.8	)%
Net premiums earned		147,951			172,935		(14.5	)%
Claims and policy benefits		174,588			209,725		(16.8	)%
Acquisition costs		25,540			25,832		(1.2	)%
Operating expenses		4,269			9,299		(54.1	)%
Fee income and other		123			136		(9.6	)%
Net investment income		82,855			98,058		(15.5	)%
Net realized (losses) gains on investments		(51,663	)		11,792		NM	*

Contribution from Life Operations	$	(25,131	)	$	38,065		NM	*



*	NM – Not meaningful

The following table is an analysis of the Life Operations gross premiums written, net premiums written and net premiums earned for the three month periods ended June 30, 2009 and 2008:


	(Unaudited) Three Months Ended June 30, 2009						(Unaudited) Three Months Ended June 30, 2008

*(U.S. dollars in thousands)*	Gross Premiums Written		Net Premiums Written		Net Premiums Earned		Gross Premiums Written		Net Premiums Written		Net Premiums Earned

Other Life	$	109,648	$	107,283	$	114,560	$	108,743	$	107,942	$	129,944
Annuity		41,063		33,391		33,391		52,508		42,991		42,991

Total	$	150,711	$	140,674	$	147,951	$	161,251	$	150,933	$	172,935

Gross premiums written relating to other life business increased by $0.9 million in the three months ended June 30, 2009 as compared to the same period in 2008. The increase is mainly driven by new business volumes in the term assurance treaties, almost entirely offset by unfavorable foreign exchange rate movements. Ceded premiums written for other life business increased by $1.6 million mainly as a result of short term life accident and health business, for which any residual 2009 renewals have been 100% retroceded in line with the sale of the renewal rights. There is also some impact from US business as more policies are above the retention sum assured of $2.0 million per life. Gross premiums written relating to annuity business decreased by $11.4 million in the three months ended June 30, 2009, mainly due to negative exchange rate movements. Ceded premiums written for annuities also decreased slightly by $1.8 million, again due to exchange rate movements.

Net premiums earned in the second quarter of 2009 decreased 14.5% as compared to the second quarter of 2008. This decrease was consistent with the decrease in gross and net premiums written as described above.

Claims and policy benefits decreased by $35.1 million or 16.8% in the three months ended June 30, 2009 as compared to the three months ended June 30, 2008, primarily as a result of favorable foreign exchange rate movements of $25.7 million, combined with a decrease in incurred losses associated with the short-term life, accident and health business. Changes in claims and policy benefits include the movement in policy benefit reserves related to other contracts (such as immediate annuities) where investment assets were acquired with the assumption of the policy benefit reserves at the inception of the contract.

For the three months ended June 30, 2009, acquisition costs decreased by 1.2% as compared to the same period in 2008, largely as a result of a decrease in business written associated with the short-term life, accident and health business combined with favorable foreign exchange rate movements. Operating expenses decreased by 54.1% in the second quarter of 2009 as compared to the same period in the prior year due mainly to corporate expenses which have not been allocated to life business in 2009. There are also impacts from lower compensation expenses as a result of overall lower staffing levels as well as from favorable foreign exchange rate movements in the second quarter of 2009.

Net investment income is included in the calculation of contribution from Life Operations, as it relates to income earned on portfolios of separately identified and managed life investment assets and other allocated assets. Net investment income decreased by $15.2 million or 15.5% in the three months ended June 30, 2009, as compared to the same period in 2008, primarily as a result of unfavorable foreign exchange rate movements, combined with lower investment yields.

See below for an analysis of the Company’s total realized losses on investments during the three months ended June 30, 2009.

Investment Activities

The following table illustrates the change in net investment income from property and casualty operations, net income from investment fund affiliates, net realized (losses) gains on investments and net realized and unrealized gains (losses) on investment derivative instruments for the three months ended June 30, 2009 and 2008:


	(Unaudited) Three Months Ended June 30,

*(U.S. dollars in thousands)*	2009			2008			% Change

Net investment income – property and casualty operations (1)	$	218,490		$	298,128			(26.8	)%
Net income (loss) from investment fund affiliates (2)		37,086			(20,435	)		NM	*
Net realized (losses) gains on investments		(80,430	)		2,040			NM	*
Net realized and unrealized gains (losses) on investment and other derivative instruments		969			8,124			NM	*


(1)	Net investment income relating to property and casualty operations does not include the net investment income related to the net results from structured products.

(2)	The Company records the income related to alternative fund affiliates on a one month lag and the private investment fund affiliates on a three month lag in order for the Company to meet the accelerated filing deadlines.

*	NM – Not meaningful

Net investment income related to property and casualty operations decreased in the second quarter of 2009 as compared to the second quarter of 2008 due primarily to declining portfolio yields. Portfolio yields decreased as yields earned on investment of cash flows and reinvestment of maturing or sold securities were generally lower than on securities previously held, as prevailing market interest rates, particularly in the U.S., decreased over the last year. In addition, the Company increased its holdings in lower-yielding cash, government and agency securities in connection with its portfolio de-risking efforts and to increase liquidity, and as a result of an allocation to floating rate securities previously supporting the GIC and funding agreement businesses which are sensitive to declines in short-term U.S. dollar interest rates.

Net income from investment fund affiliates increased in the second quarter of 2009 compared to the second quarter of 2008, due primarily to strong results from the Company’s alternative funds.

The Company manages its investment grade fixed income securities using an asset/liability management framework. Due to the unique nature of the underlying liabilities, customized benchmarks are used to measure investment performance and comparison to standard market indices is not meaningful. Investment performance is not monitored for certain assets primarily consisting of operating cash and special regulatory deposits. The following is a summary of the investment portfolio returns for the asset/liability portfolios and risk asset portfolios for the six months ended June 30, 2009 and 2008:


	(Unaudited) Three Months Ended June 30,

	2009 (1)			2008 (1)

Asset/Liability portfolios
USD fixed income portfolio		4.4	%		(0.9	)%
GBP fixed income portfolio		7.5	%		(1.3	)%
EUR fixed income portfolio		3.8	%		(1.5	)%
Risk Asset portfolios
Alternative portfolio (2)		5.5	%		(0.8	)%
Equity portfolio		(2.0	)%		(1.0	)%
High-Yield fixed income portfolio		18.2	%		2.0	%


(1)	Portfolio returns are calculated by dividing the sum of net investment income or net income from investment affiliates, realized gains (losses) and unrealized gains (losses) by the average market value of each portfolio. Performance is measured in either the underlying asset currency or the functional currency.

(2)	Performance on the alternative portfolio reflects the three months ended May 31, 2009 and May 31, 2008, respectively.

Net Realized Losses and Gains and Other than Temporary Declines in the Value of Investments

Net realized losses for the quarter ended June 30, 2009 can be summarized as follows:


	(Unaudited) Three Months Ended June 30,

*(U.S. dollars in thousands)*	2009			2008

Net realized gains (losses) on investments sold	$	4,520		$	49,742

Other-than temporary impairments on investments		(115,620	)		(47,702	)
Other-than-temporary impairments on investments transferred to other comprehensive income		30,670			—

Net impact from other-than-temporary impairments		(84,950	)		(47,702	)


Net realized gains (losses) on investments	$	(80,430	)	$	2,040

For the quarter ended June 30, 2009, the Company recorded net impairment charges of $85.0 million. The significant assumptions and inputs associated with these securities consist of:


	•	For corporate securities, the Company recorded net impairments totaling $38.1 million. The impairment charges consisted of below-investment grade securities, where the Company believes the current fair value is representative of likely recoveries following default, below-investment grade hybrids, where the Company considered impairment factors consistent with an equity impairment model, along with a debt impairment model, and accordingly recorded impairment charges to fair value, or securities in an unrealized loss position that management intends to sell.

	•	For structured credit securities, the Company recorded net impairments of $46.9 million. The Company determined that the likely recovery on these securities was below the carrying value, and accordingly impaired the securities to the discounted value of the cash flows of these securities, or in certain instances fair value to the extent that the fair value was believed to be more representative of recoverable value given the extreme illiquidity within structured credit markets.

	•	Of the other-than-temporary impairments, $30.2 million related to changes of intent-to-hold, primarily representing exchanges of hybrid securities.

The Company’s process for identifying declines in the fair value of investments that are other than temporary involves consideration of several factors. These primary factors include: (i) the time period during which there has been a significant decline in value; (ii) an analysis of the liquidity, business prospects and overall financial condition of the issuer; (iii) the significance of the decline; (iv) an analysis of the collateral structure and other credit support, as applicable, of the securities in question; (v) expected future interest rate movements; and (vi) the Company’s intent and ability to hold the investment for a sufficient period of time for the value to recover. Where the Company’s analysis of the above factors results in the conclusion that declines in fair values are other than temporary, the cost of the security is written down to fair value and the previously unrealized loss is therefore realized in the period such determination is made.

Net Realized and Unrealized Gains and Losses on Derivatives

Net realized and unrealized gains on investment derivatives for the three months ended June 30, 2009 resulted from the Company’s investment strategy to manage interest rate risk, foreign exchange risk and credit risk, and to replicate permitted investments. For further information see Note 8 to the Consolidated Financial Statements, “Derivative Instruments”.

Other Revenues and Expenses

The following table sets forth other revenues and expenses for the three months ended June 30, 2009 and 2008:


	(Unaudited) Three Months Ended June 30,

*(U.S. dollars in thousands)*	2009		2008			% Change

Net income (loss) from operating affiliates (1)	$	17,667	$	(68,901	)		NM	*
Exchange losses (gains)		145,221		7,936			NM	*
Amortization of intangible assets		464		420			10.5	%
Corporate operating expenses		32,219		47,104			(31.6	)%
Interest expense (2)		42,912		50,077			(14.3	)%
Income tax expense		16,045		51,205			(68.7	)%


(1)	The Company generally records the income related to certain operating affiliates on a three month lag in order for the Company to meet accelerated filing deadlines.

(2)	Interest expense does not include interest expense related structured products as reported within the Insurance, Reinsurance and Corporate segments.

*	NM – Not meaningful

The following table sets forth the net income (loss) from operating affiliates for the three months ended June 30, 2009 and 2008:


	(Unaudited) Three Months Ended June 30,

*(U.S. dollars in thousands)*	2009		2008			% Change

Net income (loss) from financial operating affiliates	$	3,883	$	(81,677	)		NM	*
Net income from investment manager affiliates		4,407		1,741			NM	*
Net income from other strategic operating affiliates		9,377		11,035			(15.1	)%

Total	$	17,667	$	(68,901	)		NM	*


*	NM – Not meaningful

Equity earnings from financial operating affiliates increased during the three months ended June 30, 2009 as a result of the Company no longer owning any interest in Syncora. During the three months ended June 30, 2008 the company reported $82.4 million in losses related to reinsurance and guarantee arrangements with Syncora.

Investment manager affiliate income increased during the second quarter of 2009 as compared to the same period in the prior year primarily as a result of the improved conditions for alternative asset managers in the first quarter of 2009.

Income from other strategic operating affiliates decreased in the second quarter of 2009 as compared to the second quarter of 2008 mainly due to lower earnings reported in the first quarter of 2009 relating to an insurance affiliate which writes largely direct U.S. homeowners insurance.

Foreign exchange losses in the quarter ended June 30, 2009 and June 30, 2008 were due primarily to the change in the value of the U.S. dollar against certain European currencies including the U.K. Sterling and the Euro on certain inter-company balances and net underwriting liability balances.

Corporate operating expenses in the three months ended June 30, 2009 decreased compared to the three months ended June 30, 2008 primarily as a result of cost savings achieved from restructuring activities implemented in 2008 and early 2009 as well as from higher professional fees recorded in the second quarter of 2008 associated with activities related to the Master Agreement that was executed in July 2008.

Interest expense for the three months ended June 30, 2009 as compared to the same period in 2008 was lower mainly as a result of lower interest associated with the retirement of the 2011 Senior Notes in February 2009 partially offset by interest associated with 8.25% senior notes which are part of the 10.75% Equity Security Units issued in August 2008. For more information on the Company’s financial structure, see “Liquidity and Capital Resources.”

The decrease in the Company’s income taxes arose principally from the increase in the profitability of the Company’s U.S. and European operations.

Segment Results for the six months ended June 30, 2009 compared to the six months ended June 30, 2008

Insurance

The following table summarizes the underwriting results for this segment:



	(Unaudited) Six Months Ended June 30,

(U.S. dollars in thousands)	2009			2008			% Change

Gross premiums written	$	2,215,465		$	3,017,120			(26.6	)%
Net premiums written		1,598,774			2,268,672			(29.5	)%
Net premiums earned		1,791,601			2,026,752			(11.6	)%
Net losses and loss expenses		1,213,998			1,338,634			(9.3	)%
Acquisition costs		217,842			239,713			(9.1	)%
Operating expenses		347,259			332,775			4.4	%

Underwriting profit	$	12,502		$	115,630			(89.2	)%
Net fee income and other (1)	$	(4,220	)	$	(1,159	)		NM	*
Net results—structured products	$	7,214		$	3,173			NM	*


(1)	Net fee income and other includes operating expenses from the Company’s loss prevention consulting services business.

*	NM – not meaningful

Gross premiums written decreased by 26.6% during the six months ended June 30, 2009 compared with the six months ended June 30, 2008. Reductions in long term agreements and unfavorable foreign exchange rate impacts account for more than half of this decrease. Poor market and economic conditions and unfavorable foreign exchange rate impacts combined with the impacts of the S&P downgrade in December 2008 noted in both the first, and to a much lesser extent, second quarter of 2009 also contributed to the decreases which were seen across most lines. As 2009 has progressed both retentions and new business volume have seen improvement.

Net premiums written decreased by 29.5% in the six months ended June 30, 2009 compared with the six months ended June 30, 2008 primarily as a result of the decrease in gross premiums written noted above, combined with timing changes on the renewal of certain ceded property treaties, and an overall increase in reinsurance rates.

Net premiums earned decreased by 11.6% in the six months ended June 30, 2009 compared with the six months ended June 30, 2008. The decrease primarily resulted from the factors affecting net premiums written noted above.

Fee income remained consistent in the first six months of 2009 as compared to the same period in 2008 mainly as a result of higher engineering fee income associated with the Company’s loss prevention consulting services business offset by the run off of certain financial lines of business.

The following table presents the ratios for this segment:


	(Unaudited) Six Months Ended June 30,

	2009			2008

Loss and loss expense ratio		67.8	%		66.0	%
Underwriting expense ratio		31.5	%		28.3	%

Combined ratio		99.3	%		94.3	%

The following table summarizes the net (favorable) adverse prior year development relating to the Insurance segment for the six month periods ended June 30, 2009 and 2008:


	(Unaudited) Six Months Ended June 30,

	2009			2008

Property	$	(14.7	)	$	(64.4	)
Casualty and Professional		(55.8	)		(62.0	)
Specialty and Other		29.5			9.4

Total	$	(41.0	)	$	(117.0	)

Loss and loss expense ratio excluding prior year development		70.1	%		71.8	%

Loss and loss expense ratio excluding catastrophe losses and prior year development		69.8	%		67.1	%

Net prior period reserve releases in the six months ended June 30, 2009 occurred largely in the second quarter as a result of the factors noted above. Excluding prior year development, the loss ratio for the six months ended June 30, 2009 decreased by 1.7 loss percentage points as compared to the same period in 2008 due primarily to lower levels of large property risk and catastrophe losses occurring in 2009 combined with the impact of anticipated sub prime and credit related losses in 2008 partially offset by lower than expected rate increases in certain specialty lines.

The increase in the underwriting expense ratio in the six months ended June 30, 2009, compared to the same period in 2008 was due to an increase in the acquisition expense ratio of 0.4% points (12.2% as compared to 11.8%) combined with an increase in the operating expense ratio of 2.8% points (19.3% as compared to 16.5%). The increase in the acquisition expense ratio was primarily as a result of changes in the mix of business given the decreases in property and casualty lines which carry the lowest levels of acquisition cost. The increase in the operating expense ratio is attributable to the lower level of earned premium combined with the costs associated with the Company’s expense reduction initiatives announced in the third quarter of 2008 and first quarter of 2009 including changes to the Company’s previously communicated operational transformation program.

Net results from structured insurance products include certain structured indemnity contracts that are accounted for as deposit contracts. Net results from these products for the six months ended June 30, 2009, increased slightly compared to the same period in 2008 mainly due to the lower operating expenses of this run off line of business and favorable development in the liability interest rate hedges in place partially offset by lower net investment income as a result of lower yields combined with a smaller investment base.

Reinsurance

The following table summarizes the underwriting results for this segment:



	(Unaudited) Six Months Ended June 30,

(U.S. dollars in thousands)	2009		2008		% Change

Gross premiums written	$	1,163,953	$	1,470,005		(20.8	)%
Net premiums written		984,815		1,227,348		(19.8	)%
Net premiums earned		811,835		1,034,815		(21.5	)%
Net losses and loss expenses		355,913		600,844		(40.8	)%
Acquisition costs		181,026		222,872		(18.8	)%
Operating expenses		94,107		90,517		4.0	%

Underwriting profit	$	180,789	$	120,582		49.9	%
Net fee income and other (1)	$	2,596	$	1,234		(110.4	)%
Net results — structured products	$	14,596	$	13,403		8.9	%


(1)	Net fee income and other includes operating expenses from the Company’s loss prevention consulting services business.

*	NM – not meaningful

Gross and net premiums written decreased by 20.8% and 19.8%, respectively, in the first six months of 2009 as compared to the first six months of 2008. The factors affecting gross and net written premiums for the first half of 2009 are consistent with those for the three months ended June 30, 2009 as mentioned above.

Net premiums earned decreased by 21.5% in the six months ended June 30, 2009 compared with the six months ended June 30, 2008 primarily as a result of the decrease in gross and net premiums written, as noted above.

The following table presents the ratios for this segment:


	(Unaudited) Six Months Ended June 30,

	2009			2008

Loss and loss expense ratio		43.8	%		58.1	%
Underwriting expense ratio		33.9	%		30.2	%

Combined ratio		77.7	%		88.3	%

The loss and loss expense ratio includes net losses incurred for both the current year and any favorable or adverse prior year development of loss reserves held at the beginning of the year. The following table summarizes the net (favorable) adverse prior year development relating to the Reinsurance segment for the six month periods ended June 30, 2009 and 2008:


	(Unaudited) Six Months Ended June 30,

(U.S. dollars in millions)	2008			2007

Property and other short-tail lines	$	(94.2	)	$	(71.6	)
Casualty and other		(44.5	)		(59.5	)
Structured Indemnity		—			(1.4	)

Total	$	(138.7	)	$	(132.5	)

Loss and loss expense ratio excluding prior year development		60.9	%		70.9	%

Loss and loss expense ratio excluding catastrophe losses and prior year development		57.9	%		64.6	%

For the six months ended June 30, 2009, property and other short-tail lines reserve releases were largely within property catastrophe and property risk portfolios while casualty reserve releases were largely within European casualty lines. Excluding prior year development, the loss ratio for the six months ended June 30, 2009 decreased by 10 loss percentage points as compared to the six months ended June 30, 2008 mainly as a result of lower levels of property, marine and professional liability losses during the second quarter of 2009. For the six months ended June 30, 2008, casualty reserve releases were primarily within European casualty lines, while property and other short-tail lines reserve releases were attributable to Bermuda and North American operations, partially offset by unfavorable reserve development in Latin American operations.

The increase in the underwriting expense ratio in the six months ended June 30, 2009, as compared with the six months ended June 30, 2008, was due to an increase in both operating expense and acquisition expense ratios to 11.6% and 22.3%, respectively, as compared with 8.7% and 21.5%, in the six months ended June 30, 2008. The increase in the operating expense ratio was primarily as a result of higher operating expenses due to charges associated with the Company’s restructuring activities, against a lower level of net premiums earned. The increase in the acquisition expense ratio relates to changes in the mix of business, increased commissions associated with the U.S. agricultural program as well as increased profit related commissions associated with certain Bermuda-based property catastrophe business.

Net results from structured reinsurance products include certain structured indemnity contracts that are accounted for as deposit contracts. Net results from these products for the six months ended June 30, 2009, increased slightly compared to the same period in 2008 mainly due to the lower operating expenses of this run off line of business and favorable development in the liability interest rate hedges in place partially offset by lower net investment income as a result of lower yields combined with a smaller investment base.

Foreign exchange losses in the six months ended June 30, 2009 and 2008 were due primarily to the change in the value of the U.S. dollar against certain European currencies including the U.K. Sterling and Euro on certain inter-company balances.

Life Operations

The following summarizes the contribution from this segment:


	(Unaudited) Six Months Ended June 30,

(U.S. dollars in thousands)	2009			2008		% Change

Gross premiums written	$	285,823		$	396,209		(27.9	)%
Net premiums written		262,259			375,146		(30.1	)%
Net premiums earned		277,785			332,517		(16.5	)%
Claims and policy benefits		332,547			406,024		(18.1	)%
Acquisition costs		42,623			49,949		(14.7	)%
Operating expenses		8,110			17,382		(53.3	)%
Net investment income		160,377			195,193		(17.8	)%
Net fee income and other		174			200		(13.0	)%
Net realized (losses) gains on investments		(126,313	)		6,748		NM	*

Contribution from Life operations	$	(71,257	)	$	61,303		NM	*



* NM — not meaningful

The following table is an analysis of the Life Operations gross premiums written, net premiums written and net premiums earned for the six month periods ended June 30, 2009 and 2008:


	(Unaudited) Six Months Ended June 30, 2009				(Unaudited) Six Months Ended June 30, 2008

(U.S. dollars in thousands)	Gross Premiums Written		Net Premiums Written	Net Premiums Earned	Gross Premiums Written		Net Premiums Written		Net Premiums Earned

Other Life	$	208,571	199,441	214,967	$	292,478	$	290,438	$	247,809
Annuity		77,252	62,818	62,818		103,731		84,708		84,708

Total	$	285,823	262,259	277,785	$	396,209	$	375,146	$	332,517

Gross premiums written relating to total life business decreased by $110.4 million in the six months to June 30, 2009 as compared to the same period in 2008 mainly due to $66.5 million of lower renewal premiums associated with the short-term life, accident and health business as the renewal rights for this business were sold in late 2008. In addition, while premium growth of $16.9 million was experienced in the core underlying book of term assurance and critical illness business, unfavorable foreign exchange rate movements of $46.5 million more than offset such growth during the six months to June 30, 2009. Partially offsetting these decreases was premium growth of $4.8 million related to U.S. life business. While gross premiums written decreased during the six months ended June 30, 2009, ceded premiums written increased slightly by $2.5 million mainly as a result of a higher cession ratio associated with short-term life, accident and health business underwritten in the 2009 underwriting year, which occurred as part of the sale of the renewal rights as noted above.

Net premiums earned in the first six months of 2009 decreased 16.5% as compared to the first six months of 2008. This decrease was consistent with the decrease in gross and net premiums written as described above.

Claims and policy benefit reserves decreased by $73.5 million or 18.1% in the six months ended June 30, 2009 as compared to the six months ended June 30, 2008, primarily as a result of favorable foreign exchange rate movements of $64.7 million combined with a decrease in incurred losses associated with the short-term life, accident and health business and consistent with the decrease in gross premiums written associated with this business as noted above. Changes in claims and policy benefits include the movement in policy benefit reserves related to other contracts (such as immediate annuities) where investment assets were acquired with the assumption of the policy benefit reserves at the inception of the contract.

For the six months ended June 30, 2009, acquisition costs decreased by 14.7% as compared to the six months ended June 30, 2008, largely as a result of a decrease in business written associated with the short-term life, accident and health business combined with favorable foreign exchange rate movements. Operating expenses decreased by 53.3% in the first six months of 2009 as compared to the first six months of 2008 due mainly to corporate expenses that have not been allocated to life business in 2009, combined with lower compensation expenses as a result of overall lower staffing levels and favorable foreign exchange rate movements in 2009.

Net investment income decreased by $34.8 million in the six months ended June 30, 2009, as compared to the same period in 2008, primarily as a result of unfavorable foreign exchange rate movements combined with lower investment yields.

See below for an analysis of the Company’s total realized losses on investments during the six months ended June 30, 2009.

Investment Activities

The following table illustrates the change in net investment income from property and casualty operations, net income from investment affiliates, net realized gains on investments and net realized and unrealized gains on investment and other derivative instruments from property and casualty operations for the six months ended June 30, 2009 and 2008:


	(Unaudited) Six Months Ended June 30

(U.S. dollars in thousands)	2009			2008			% Change

Net investment income — property and casualty operations (1)	$	460,656		$	606,169		(24.0	)%
Net income (loss) from investment affiliates (2)		10,193			(8,636	)	NM
Net realized (losses) gains on investments		(332,367	)		(100,211	)	NM
Net realized and unrealized (losses) gains on investment and other derivative instruments		(438	)		52,806		NM



(1)	Net investment income relating to property and casualty operations does not include the net investment income related to the net results from structured products.

(2)	The Company records the income related to alternative fund affiliates on a one month lag and the private investment affiliates on a three month lag in order for the Company to meet the accelerated filing deadlines.

*	NM — Not meaningful

Net investment income related to property and casualty operations decreased in the six months ended June 30, 2009 as compared to the same period in 2008 due primarily to declining portfolio yields. Portfolio yields decreased as yields earned on investment of cash flows and reinvestment of maturing or sold securities were generally lower than on securities previously held, as prevailing market interest rates, particularly in the U.S., decreased over the last year. In addition, the Company increased its holdings in lower-yielding cash, government and agency securities in connection with its portfolio de-risking efforts and to increase liquidity, and as a result of an allocation to floating rate securities previously supporting the GIC and funding agreement businesses which are sensitive to declines in short-term U.S. dollar interest rates.

Net income from investment fund affiliates increased in the first six months of 2009 compared to the first six months of 2008, due primarily to strong results from the Company’s alternative funds, in the first six months of 2009 as compared to marginally negative results in the same period of the prior year. These results were offset by a decline in the Company’s results from private investment funds, which reflect the deterioration in valuation in the first half of 2009.


	(Unaudited) Six Months Ended June 30,

	2009 (1)			2008 (1)

Asset/Liability portfolios
USD fixed income portfolio		2.2	%		(3.5	)%
GBP fixed income portfolio		1.0	%		(4.8	)%
EUR fixed income portfolio		1.3	%		(1.8	)%
Other fixed income portfolio		0.6	%		2.5	%
Risk Asset portfolios
Alternative portfolio (2)		7.4	%		(0.1	)%
Equity portfolio		(13.9	)%		(11.2	)%
High-Yield fixed income portfolio		26.3	%		(3.6	)%



(1)	Portfolio returns are calculated by dividing the sum of net investment income or net income from investment affiliates, realized gains (losses) and unrealized gains (losses) by the average market value of each portfolio. Performance is measured in either the underlying asset currency or the functional currency.

(2)	Performance on the alternative portfolio reflects the six months ended May 31, 2009 and May 31, 2008, respectively.

Net Realized Gains and Losses and Other than Temporary Declines in the Value of Investments

Net realized losses for the six months ended June 30, 2009 can be summarized as follows:


	(Unaudited) Six Months Ended June 30,

*(U.S. dollars in thousands)*	2009			2008

Net realized gains (losses) on investments sold	$	37,623		$	62,242

Other-than temporary impairments on investments		(400,660	)		(162,453	)
Other-than-temporary impairments on investments transferred to other comprehensive income		30,670			—

Net impact from other-than-temporary impairments		(369,990	)		(162,453	)


Net realized gains (losses) on investments	$	(332,367	)	$	(100,211	)

For the six months ended June 30, 2009, the Company recorded net impairment charges of $370.0 million. The significant assumptions and inputs associated with these securities consist of:


	•	The Company recorded net impairments in relation to corporate securities totaling $134.1 million. The impairment charges consisted either of below-investment grade securities, where the Company believes the current fair value is representative of likely recoveries following default, below-investment grade hybrids, where the Company considered impairment factors consistent with an equity impairment model, along with a debt impairment model, and accordingly recorded impairment charges to fair value, or securities in an unrealized loss position that management intends to sell.

	•	The Company recorded net impairments in relation to structured credit securities totaling $218.9 million. The Company determined that the likely recovery on these securities was below the carrying value, and accordingly impaired the securities to the discounted cash flows of the cash flows of these securities, or in certain instances fair value to the extent that the fair value was believed to be more representative of recoverable value given the extreme illiquidity within structured credit markets.

	•	The Company recorded net impairments in relation to equity securities totaling $17.0 million, primarily representing securities in an unrealized loss position that management intends to sell.

	•	Of the impairments, $147.7 million related to changes of intent-to-hold, primarily representing exchanges of hybrid securities, and as part of the fourth quarter 2008 restructuring charge.

Net realized losses on investments in the first six months of 2009 included net realized losses of $370.0 million related to the write-down of certain of the Company’s fixed income, equity and other investments where the Company determined that there was an other than temporary decline in the value of those investments as well as net realized gains of $37.6 million from sales of investments. Included in the balances noted above are realized losses and impairments in Topical Assets totaling $119.3 million.

Net realized gains on investments in the first six months of 2008 included net realized gains of $62.2 million from sales of investments and net realized losses of $162.5 million related to the write-down of certain of the Company’s fixed income and equity investments where the Company determined that there was an other than temporary decline in the value of those investments.

Net Realized Gains and Unrealized Gains and Losses on Derivatives

Net realized and unrealized gains on investment derivatives for the six months ended June 30, 2009 and 2008 resulted from the Company’s investment strategy to manage interest rate risk, foreign exchange risk, credit risk and to replicate permitted investments. For further information see Note 8 to the Consolidated Financial Statements, “Derivative Instruments”.

Other Revenues and Expenses

The following table sets forth other revenues and expenses for the six months ended June 30, 2008 and 2007:


	(Unaudited) Six Months Ended June 30,

(U.S. dollars in thousands)	2009		2008			% Change

Net income (loss) from operating affiliates (1)	$	7,339	$	(48,348	)		NM	*
Amortization of intangible assets		929		840			10.6	%
Corporate operating expenses		58,931		83,030			(29.1	)%
Interest expense (2)		92,527		99,442			(7.0	)%
Income tax expense		61,998		81,907			(24.3	)%



(1)	The Company records the income related to its operating affiliates on a three month lag in order for the Company to meet the accelerated filing deadlines.

(2)	Interest expense does not include interest expense related structured products as reported within the Insurance and Reinsurance segments.

*	NM — Not meaningful

The following table sets forth the net income (loss) from operating affiliates for the six months ended June 30, 2009 and 2008:


	(Unaudited) Six Months Ended June 30,

(U.S. dollars in thousands)	2009			2008			% Change

Net (loss) income from financial operating affiliates	$	3,883		$	(85,948	)		NM	*
Net income from investment manager affiliates		(11,132	)		14,620			NM	*
Net income from other strategic operating affiliates		14,588			22,980			(36.6	)%

Total	$	7,339		$	(48,348	)		NM	*



*	NM — Not meaningful

Equity earnings from financial operating affiliates increased during the six months ended June 30, 2009 as a result of the Company no longer owning any interest in Syncora. During the six months ended June 30, 2008 the Company recorded $87.2 million in losses related to reinsurance and guarantee arrangements with Syncora.

Investment manager affiliate income decreased during the first half of 2009 as compared to the same period in the prior year primarily as a result of the challenging conditions for alternative asset managers.

Income from other strategic operating affiliates decreased in the first half of 2009 as compared to the first half of 2008 mainly due to lower earnings relating to an insurance affiliate which writes largely direct U.S. homeowners insurance.

Corporate operating expenses in the six months ended June 30, 2009 decreased compared to the six months ended June 30, 2008 primarily as a result of cost savings achieved from restructuring activities implemented in 2008 and early 2009 as well as from higher professional fees recorded in 2008 associated with activities related to the Master Agreement that was executed in July 2008.

Interest expense for the six months ended June 30, 2009 as compared to the same period in 2008 was lower mainly as a result of lower interest associated with the retirement of the 2011 Senior Notes in February 2009 partially offset by interest associated with 8.25% senior notes which are part of the 10.75% Equity Security Units issued in August 2008. For more information, see “Liquidity and Capital Resources.”

The decrease in the Company’s income taxes arose principally from the increase in the profitability of the Company’s U.S. and European operations.

Balance Sheet Analysis

Investments

The primary objectives of the investment strategy are to support the liabilities arising from the operations of the Company, generate stable investment income and to build book value for the Company over the longer term. The strategy strives to balance investment returns against market and credit risk. The Company’s overall investment portfolio is structured to take into account a number of variables including local regulatory requirements, business needs, collateral management and risk tolerance.

At June 30, 2009 and December 31, 2008, total investments, cash and cash equivalents, accrued investment income and net receivable from investments sold were $34.0 billion and $34.3 billion, respectively. The following table summarizes the composition of the Company’s invested assets at June 30, 2009 and December 31, 2008:


*(U.S. dollars in thousands)*	(Unaudited) Fair Value at June 30, 2009		Percent of Total			Fair Value at December 31, 2008		Percent of Total

Cash and cash equivalents	$	3,989,372		11.7	%	$	4,353,826		12.7	%
Net receivable for investments sold		6,078		0.0	%		99,455		0.3	%
Accrued investment income		343,018		1.0	%		363,376		1.1	%
Short-term investments		2,025,138		6.0	%		1,466,323		4.3	%
Fixed maturities:
U.S. Government and Government agency	$	4,500,762		13.2	%	$	3,978,342		11.6	%
Corporate		9,338,032		27.5	%		9,288,603		27.1	%
Residential mortgage-backed securities – Agency		3,080,359		9.1	%		2,099,955		6.1	%
Residential mortgage-backed securities – Non-Agency		1,126,389		3.3	%		1,366,202		4.0	%
Commercial mortgage-backed securities		1,495,105		4.4	%		2,141,568		6.2	%
Collateralized debt obligations		564,857		1.7	%		638,779		2.0	%
Other asset-backed securities		1,389,324		4.1	%		2,279,752		6.6	%
U.S. States and political subdivisions of the States		493,107		1.4	%		468,770		1.4	%
Non-U.S. Sovereign Government		3,673,403		10.8	%		3,374,397		9.8	%

Total fixed maturities	$	25,661,338		75.5	%	$	25,636,368		74.8	%
Equity securities		52,480		0.2	%		361,819		1.0	%
Investments in affiliates		1,222,317		3.6	%		1,552,789		4.5	%
Other investments		690,364		2.0	%		459,481		1.3	%

Total investments and cash and cash equivalents	$	33,990,105		100.0	%	$	34,293,437		100.0	%

The Company reviews on a regular basis its corporate debt concentration, credit quality and compliance with established guidelines. At both June 30, 2009 and December 31, 2008, the average credit quality of the Company’s total fixed income portfolio (including fixed maturities, short-term investments, cash and cash equivalents and net payable for investment purchased) was “AA”. As at June 30, 2009, approximately 56.7% of the fixed income portfolio had an average rating of “AAA” from the principal rating agencies. Approximately 3.9% was below investment grade or not rated.

Refer to “Results of Operations” for further discussion surrounding the impact of credit market movements on the Company’s investment portfolio and exposure to sub-prime related assets.

Gross and Net Unrealized Losses and Gains on Investments

At June 30, 2009, the Company had net unrealized losses on fixed maturities and short-term investments of $3.3 billion and net unrealized losses on equities of $7.5 million. Of these amounts, gross unrealized losses on fixed maturities and short term investments and equities were $3.8 billion and $10.2 million, respectively. The information presented below for the gross unrealized losses on the Company’s investments at June 30, 2009 shows the potential effect upon future earnings and financial position should management later conclude that some of the current declines in the fair value of these investments are other than temporary. Realized losses or impairments, depending on their magnitude, may have a material adverse effect on the Company’s operations. The increase in net unrealized losses on investments during the three months ended June 30, 2009 was primarily due to a continued widening of credit spreads. See Item 3. “Quantitative and Qualitative Disclosures about Market Risk—Credit Risk.”

The following is an analysis of how long each of those securities with a gross unrealized loss at June 30, 2009 had been in a continual gross unrealized loss position:


*(U.S. dollars in thousands)* Type of Securities	Length of time in a continual gross unrealized loss position	(Unaudited) Amount of gross unrealized loss at June 30, 2009		(Unaudited) Fair Value of Securities in a gross unrealized loss position at June 30, 2009

Fixed Maturities and Short-Term Investments	Less than six months	$	209,428	$	2,756,757
	At least 6 months but less than 12 months		667,773		1,911,413
	At least 12 months but less than 2 years		1,036,380		3,779,690
	2 years and over		1,867,363		4,639,271

	Total	$	3,780,944	$	13,087,131

Equities	Less than six months	$	433	$	1,800
	At least 6 months but less than 12 months		9,796		35,416

	Total	$	10,229	$	37,216

The following is the maturity profile of the fixed income securities that were in a gross unrealized loss position at June 30, 2009:


*(U.S. dollars in thousands)* Maturity profile in years of fixed maturities in a continual gross unrealized loss position	(Unaudited) Amount of gross unrealized loss at June 30, 2009		(Unaudited) Fair value of securities in a gross unrealized loss position at June 30, 2009

Less than 1 year remaining	$	22,206	$	350,825
At least 1 year but less than 5 years remaining		505,543		2,948,678
At least 5 years but less than 10 years remaining		280,448		1,948,616
At least 10 years but less than 20 years remaining		193,438		977,675
At least 20 years or more remaining		777,601		2,268,298
Residential mortgage-backed securities - Agency		6,189		468,780
Residential mortgage-backed securities – Non-Agency		605,835		1,063,494
Commercial mortgage-backed securities		315,885		1,456,623
Collateralized debt obligations		494,189		562,446
Other asset-backed securities		579,610		1,041,696

Total	$	3,780,944	$	13,087,131

Factors considered in determining that additional OTTI charges were not warranted include management’s consideration of current and near term liquidity needs and other available sources, an evaluation of the factors and time necessary for recovery, and the results of on-going retrospective reviews of security sales and the basis for such sales.

Gross unrealized losses of $3.8 billion at June 30, 2009 can be attributed to the following significant drivers:


	•	gross unrealized losses of $957.7 million related to the Company’s Life Operations investment portfolio, which had a fair value of $5.9 billion as at June 30, 2009. Of this, $824.5 million of gross unrealized losses related to $3.3 billion of exposures to corporate financial institutions including Tier One and Upper Tier Two securities. During the quarter ended June 30, 2009, as a result of a substantial rally on financial credit spreads, the gross unrealized loss position has declined substantially. At June 30, 2009, this portfolio had average interest rate duration of 8.4 years,


		primarily denominated in U.K. Sterling and Euros. As a result of the long duration, significant gross losses have arisen as the fair values of these securities are more sensitive to prevailing government interest rates and credit spreads. This portfolio has limited turnover as it is matched to corresponding long duration liabilities. A hypothetical parallel increase in interest rates and credit spreads of 50 and 25 basis points, respectively, would increase the unrealized losses related to this portfolio at June 30, 2009 by approximately $246.4 million and $89.2 million, respectively. Given the long term nature of this portfolio, and the level of credit spreads as at June 30, 2009 relative to historical averages within the U.K. and Euro-zone as well as the Company’s liquidity needs at June 30, 2009, the Company believes that these assets will continue to be held until such time as they mature, or credit spreads revert to levels more consistent with historical averages.

	•	gross unrealized losses of $849.4 million related to the corporate holdings within the Company’s non-life fixed maturity portfolios, which had a fair value of $6.9 billion as at June 30, 2009. During the quarter ended June 30, 2009, as a result of declining credit spreads, the gross unrealized losses on these holdings has declined substantially. The Company believes these impairments are a function of the currently elevated levels of corporate credit spreads in the U.S. and globally, which spiked particularly during the third and fourth quarters of 2008 and continued to be at elevated levels, resulting in a severely depressed level of valuations. The amount of these gross losses has proven very volatile as a result of the severe deterioration in credit spreads in recent months. Despite the recent rally, corporate credit spreads remain at elevated levels relative to historical averages. The Company believes that the gross unrealized losses are a reflection of a severe premium being charged by the market for credit, rather than fundamental deterioration in the debt service capabilities of the issuers.

	•	gross unrealized losses of $743.5 million related to the Topical Asset portfolio (which consists of the Company’s holdings of sub-prime non-agency securities, second liens, ABS CDOs with sub-prime collateral as well as Alt-A mortgage exposures (“Topical Assets”), which had a fair value of $743.2 million as at June 30, 2009. The Company undertakes a security level reviews of these securities and recognized charges to the extent it believed the intrinsic value of any security was below its amortized cost. The Company has recognized realized losses, consisting of charges for OTTI and realized cumulative losses from sales, of approximately $782.5 million since the beginning of 2007 and through June 30, 2009 on these asset classes.

		The Company purchased a number of these assets to support the previously written GIC and funding agreement contracts and has announced its intention to reduce its exposure to these asset classes as part of its strategic portfolio realignment. The Company believes that based on market conditions and liquidity needs at June 30, 2009, this reduction will be realized through natural cash flows of the portfolio, and limited selective sales, rather than selling these assets into markets which continue to be illiquid and not reflective of the intrinsic value of these assets. The weighted average term-to-maturity of the sub-prime and Alt-A residential holdings within this portfolio at June 30, 2009 were 3.5 years and 4.2 years, respectively. The Company, based on current market conditions and liquidity needs as at June 30, 2009 as well as its assessment of the holdings, believes it will continue to hold these securities until either maturity, or a return of liquidity and valuations more reflective of the intrinsic value of these holdings.

	•	gross unrealized losses of $490.6 million related to the non-life portfolio of Core CDO holdings (defined by the Company as investments in non-mortgage collateralized debt obligations), which consisted primarily of collateralized loan obligations and had a fair value of $585.9 million as of June 30, 2009. The Company undertook a security level review of these securities and recognized charges to the extent it believed the intrinsic value of the security was below the amortized cost. The Company believes that the level of impairment is primarily a function of historically wide spreads in the collateralized loan obligations market during the period, driven by the high level of illiquidity in this market. The Company purchased a number of these assets to support the previously written GIC and Funding Agreement contracts and has announced its intention to reduce its exposure to this asset class over time as a part of its strategic portfolio realignment. The Company, based on current market conditions and liquidity needs as well as its assessment of the holdings, believes it is likely that the Company will continue to hold these securities until either maturity or a recovery of value, following which the Company intends to reduce its exposure to this asset class.

	•	gross unrealized losses of $300.7 million related to the non-life portion of CMBS holdings, which had a fair value of $1.4 billion as at June 30, 2009. The Company’s holdings in CMBS are 97.1% rated AAA. The Company’s exposure to downgrades has been negligible, and it believes that the currently depressed pricing, which represents approximately 79.1% of the par value of the securities, is directly related to the 753 basis point widening in credit spreads within this market during 2008, as a result of the heightened risk premium attached to property collateral. Credit spreads have improved significantly in the first half of 2009, particularly during the second quarter. The Company’s portfolio is highly diversified, has limited delinquencies and has experienced limited downgrades.

	•	gross unrealized losses of $269.6 million related to the Company’s holdings in non-agency RMBS secured by prime mortgages which had a fair value of $718.7 at June 30, 2009. In the U.S., the average price on these securities declined to approximately 56.0% of par value at June 30, 2009, reflecting concerns over rising unemployment in the U.S. and the potential impact on previously high quality


		borrowers to meet their obligations. The Company undertook a security level review of these securities and recognized charges to the extent it believed the intrinsic value of any security was below its amortized cost.

Gross Unrealized Gains and Losses

The following table summarizes the fair value, gross unrealized losses, credit rating and asset class of securities in a gross unrealized loss position within the Company’s structured credit and corporate portfolios, which comprised $3.7 billion of the Company’s total gross unrealized loss position of $3.8 billion at June 30, 2009:


*(U.S. dollars in millions)* Corporates:	AAA			AA			A			BBB			BB & Below			Total


Financials (1)
Fair value	$	350.0		$	369.9		$	1,663.4		$	484.6		$	181.0		$	3,048.9
Gross unrealized loss	$	(28.8	)	$	(39.9	)	$	(453.5	)	$	(241.6	)	$	(202.4	)	$	(966.2	)
Non-Financials
Fair value	$	63.9		$	475.0		$	1,058.6		$	879.7		$	506.4		$	2,983.6
Gross unrealized loss	$	(0.5	)	$	(49.9	)	$	(300.4	)	$	(222.4	)	$	(132.5	)	$	(705.7	)
Total
Fair value	$	413.9		$	844.9		$	2,722.0		$	1,364.3		$	687.4		$	6,032.5
Gross unrealized loss	$	(29.3	)	$	(89.8	)	$	(753.9	)	$	(464.0	)	$	(334.9	)	$	(1,671.9	)
% Impaired (of amortized cost) (3)		(6.7	)%		(9.7	)%		(22.1	)%		(25.9	)%		(33.3	)%		(22.1	)%


Structured Credit:	AAA			AA			A			BBB			BB & Below			Total

CMBS
Fair value	$	1,425.4		$	7.1		$	8.4		$	8.1		$	15.1		$	1,464.1
Gross unrealized loss	$	(278.9	)	$	(4.2	)	$	(5.9	)	$	(2.0	)	$	(22.1	)	$	(313.1	)
Prime RMBS
Fair value	$	233.3		$	138.6		$	69.7		$	82.9		$	142.7		$	667.2
Gross unrealized loss	$	(49.4	)	$	(74.6	)	$	(40.2	)	$	(41.7	)	$	(64.5	)	$	(270.4	)
Topical Assets
Fair value	$	174.8		$	92.5		$	95.8		$	162.9		$	192.3		$	718.3
Gross unrealized loss	$	(85.7	)	$	(94.4	)	$	(110.1	)	$	(186.7	)	$	(266.6	)	$	(743.5	)
Core CDOs (2)
Fair value	$	120.4		$	298.3		$	57.3		$	60.5		$	47.0		$	583.5
Gross unrealized loss	$	(34.2	)	$	(119.5	)	$	(46.2	)	$	(77.2	)	$	(213.5	)	$	(490.6	)
Other Asset & Mortgage Backed Securities
Fair value	$	320.9		$	117.6		$	143.4		$	123.1		$	33.0		$	738.0
Gross unrealized loss	$	(40.6	)	$	(23.0	)	$	(30.2	)	$	(44.8	)	$	(22.6	)	$	(161.2	)
Agency RMBS
Fair value	$	470.6		$	—		$	—		$	—		$	—		$	470.6
Gross unrealized loss	$	(6.1	)	$	—		$	—		$	—		$	—		$	(6.1	)
Total
Fair Value	$	2,745.4		$	654.1		$	374.6		$	437.5		$	430.1		$	4,641.7
Gross unrealized loss	$	(494.9	)	$	(315.7	)	$	(232.6	)	$	(352.4	)	$	(589.3	)	$	(1,984.9	)
% Impaired (of amortized cost) (3)		(15.3	)%		(32.7	)%		(38.4	)%		(44.7	)%		(58.0	)%		(30.1	)%


(1)	Included in the gross unrealized losses on corporate financials are gross unrealized losses of $604.5 million on Tier One and upper Tier Two securities of financials institutions (“Hybrids”), as well as $182.1 million of subordinated debt.

(2)	The Company defines Core CDOs as investments in non-mortgage collateralized debt obligations, which primarily consisted of collateralized loan obligations.

(3)	Management considers these impairments to be temporary.

Management, in its assessment of whether securities in a gross unrealized loss position are temporarily impaired, considers the significance of the impairments. The Company had securities with gross unrealized losses of $1.4 billion, with a fair value of $691.7 million, which as at June 30, 2009 were impaired by greater than 50% of amortized costs. The Company has evaluated each of these securities and believes it is probable that the issuer will be able to fund sufficient principal and interest payments to exceed current amortized cost, and believes that the current levels of impairments are a function of the currently extremely elevated levels of credit spreads.

Structured credit securities with gross unrealized losses representing greater than 50% of amortized cost represent $934.1 million of gross unrealized losses, with a fair value of $408.5 million. Of these gross unrealized losses, $260.1 million are rated investment grade. The Company has evaluated each of these holdings on a security-by-security basis in conjunction with its investment managers and utilizing additional corroborative modeling techniques, and believes these securities will fund sufficient principal and interest payments to exceed current amortized cost. These securities include $255.1 million of Topical investments, $92.5 million of Core CDOs, $37.1 million of prime RMBS and $15.4 million of CMBS holdings.

Corporate securities with gross unrealized losses representing greater than 50% of amortized cost represent $468.3 million of gross unrealized losses, with a fair value of $283.1 million. Of these gross unrealized losses, $176.0 million are rated investment grade. Gross unrealized losses of $239.4 million are related to holdings of financial issuers, with the majority ($216.7 million) representing hybrid instruments. The Company believes these are high-grade issuers which will continue to service their principal and interest obligations.

Included in the gross unrealized losses associated with the Company’s corporate portfolio are gross unrealized losses of $163.8 million related to Tier One and Upper Tier Two securities that have been rated below investment grade by at least one major ratings agency. Of this total $132.1 million have gross unrealized losses representing greater than 50% of amortized cost. The Company has completed its review of this portfolio and believes, at this time, that these impairments remain temporary in nature. The primary basis for this conclusion was analysis of the fundamentals of these securities using a debt-based impairment model, which indicated these securities continue to meet their obligations, and the issuer has the ability to call these obligations at their call date. In addition, as these securities are below investment grade, for securities representing perpetual securities, the Company considered these securities using an equity-impairment model. Factors that were considered and supported that these impairments were temporary included that the vast majority of these securities had only recently been rated below-investment-grade, alternative ratings were available that indicated these securities remained investment grade, or the securities were only slightly below investment-grade. At June 30, 2009, the Company believes that it is likely that the fair values of these securities will ultimately increase to equal the cost basis over a reasonable period of time. However, there is a high degree of judgment in reaching this conclusion, including an assessment of how various governments will treat the perpetual preferred shareholding in the event of governmental intervention in these institutions’ operations. Management will closely monitor the developments related to these securities and will consider these developments on OTTI conclusions reached in future quarters.

Net Unrealized Gains and Losses

The following table details the Company’s corporate credit exposures by certain asset classes as well as ratings levels within the Company’s fixed maturity portfolio and the current net unrealized (loss) position as at June 30, 2009:


*(U.S. dollars in millions)*
Corporates:	AAA			AA			A			BBB			BB & Below			Total

Financials
Fair value	$	548.7		$	934.7		$	2,087.9		$	500.8		$	194.9		$	4,267.0
Net unrealized (loss)	$	(25.5	)	$	(26.8	)	$	(445.2	)	$	(240.3	)	$	(200.4	)	$	(938.2	)
Non-Financials
Fair value	$	157.0		$	1,172.3		$	2,652.2		$	1,348.5		$	603.5		$	5,933.5
Net unrealized (loss)	$	2.2		$	(24.2	)	$	(232.8	)	$	(219.8	)	$	(115.7	)	$	(590.3	)
Total
Fair value	$	705.7		$	2,107.0		$	4,740.1		$	1,849.3		$	798.4		$	10,200.5
Net unrealized (loss)	$	(23.3	)	$	(51.0	)	$	(678.0	)	$	(460.1	)	$	(316.1	)	$	(1,528.5	)

At June 30, 2009, approximately $3.3 billion of the Company’s $10.2 billion in corporate financial sector securities was held in the portfolios supporting the Company’s Life Reinsurance Operations. The assets associated with that business are more heavily weighted towards longer term securities from financial institutions, including a significant portion of the Company’s Tier 1 and Upper Tier 2 securities, representing committed term debt and hybrid instruments senior to the common and preferred equity of the financial institutions. Financials held in Life portfolios accounted for $672.3 million of the Company’s net unrealized loss as at June 30, 2009. As at June 30, 2009 approximately 42.5% of the overall sensitivity to interest rate risk and 36.0% to credit risk was related to the life reinsurance portfolio, despite these portfolios accounting for only 19.4% of the fixed income portfolio.

The following table details the Company’s structured credit exposures by certain asset classes as well as ratings levels within the Company’s fixed maturity portfolio and the current net unrealized gain (loss) position as at June 30, 2009:


*(U.S. dollars in millions)*
Structured Credit:	AAA			AA			A			BBB			BB & Below			Total

CMBS
Fair value	$	1,460.8		$	7.1		$	10.3		$	8.5		$	16.0		$	1,502.7
Net unrealized (loss)	$	(278.5	)	$	(4.2	)	$	(5.8	)	$	(2.0	)	$	(22.0	)	$	(312.5	)
Prime RMBS
Fair value	$	263.0		$	139.1		$	70.7		$	83.1		$	145.0		$	700.9
Net unrealized (loss)	$	(48.2	)	$	(74.6	)	$	(40.2	)	$	(41.6	)	$	(6.9	)	$	(211.5	)
Topical Assets
Fair value	$	175.4		$	92.5		$	96.8		$	169.5		$	209.0		$	743.2
Net unrealized (loss)	$	(85.7	)	$	(94.4	)	$	(110.1	)	$	(186.2	)	$	(265.3	)	$	(741.7	)
Core CDOs (1)
Fair value	$	120.4		$	298.3		$	57.3		$	60.7		$	49.2		$	585.9
Net unrealized (loss)	$	(34.2	)	$	(119.5	)	$	(46.2	)	$	(77.2	)	$	(212.9	)	$	(490.0	)
Other Asset & Mortgage Backed Securities
Fair value	$	627.7		$	125.5		$	169.9		$	129.4		$	42.3		$	1,094.8
Net unrealized (loss)	$	(33.1	)	$	(22.2	)	$	(29.8	)	$	(44.7	)	$	(21.3	)	$	(151.1	)
Agency RMBS
Fair value	$	3,093.0		$	—		$	—		$	—		$	—		$	3,093.0
Net unrealized gain	$	75.1		$	—		$	—		$	—		$	—		$	75.1
Total
Fair value	$	5,740.3		$	662.5		$	405.0		$	451.2		$	461.5		$	7,720.5
Net unrealized (loss)	$	(404.6	)	$	(314.9	)	$	(232.1	)	$	(351.7	)	$	(528.4	)	$	(1,831.7	)



(1)	The Company defines Core CDOs as investments in non-mortgage collateralized debt obligations, primarily consisting of collateralized loan obligations.

The following table details the current exposures to Topical Assets within the Company’s fixed income portfolio as well as the current net unrealized (loss) gain position as at June 30, 2009 and December 31, 2008:


	As at June 30, 2009							As at December 31, 2008

*(U.S. dollars in thousands)*	Holding at Fair Value		Percent of Fixed Income Portfolio		Net Unrealized (Loss) Gain			Holding at Fair Value		Percent of Fixed Income Portfolio		Net Unrealized (Loss) Gain

Topical Assets:
Sub-prime first lien mortgages	$	384,983	1.2	%	$	(389,842	)	$	487,659	1.5	%	$	(311,435	)
Alt-A mortgages		311,098	1.0	%		(315,143	)		406,098	1.3	%		(270,486	)
Second lien mortgages (including sub-prime second lien mortgages)		41,840	0.1	%		(29,686	)		58,903	0.2	%		(5,313	)
ABS CDOs with sub-prime collateral		5,289	0.0	%		(7,016	)		10,595	0.0	%		(7,308	)

Total exposure to Topical Assets	$	743,210	2.3	%	$	(741,687	)	$	963,255	3.0	%	$	(594,542	)

Of the total Topical Assets with fair value exposure as at June 30, 2009 and December 31, 2008 of $743.2 million and $963.3 million, respectively, approximately $29.9 million and $40.5 million, respectively, of the related securities had ratings dependent on guarantees issued by third party guarantors (i.e., monoline insurers). Decreases in the ratings of such third party guarantors would typically decrease the fair value of guaranteed securities; however, at June 30, 2009, in the event of non-performance at such date on the part of these third party guarantors, the Company estimated that the average credit quality of this portfolio would be ‘A-’ and that approximately 95% would have remained investment grade at such date. In addition, of the total fixed income portfolio as at June 30, 2009 and December 31, 2008, of $32.0 billion and $31.9 billion, respectively, less than 2% were guaranteed by such third parties with no individual third party representing more than 1%.

At June 30, 2009, the Company’s sub-prime and Alt-A exposures remained primarily investment grade, had adequate underlying loan characteristics and the Company believed at such date that the current amortized cost levels were at or below the intrinsic value of the holdings, based on an analysis of subordination levels relative to current expectations of house price declines, loss severities and default levels. The Company had approximately $263.1 million of Topical Assets downgraded during the quarter ended June 30, 2009. However, 71.9% of the Company’s holdings remain rated investment grade at June 30, 2009.

Liquidations necessary to fund the repayment of the GIC liabilities and the maturity of certain funding agreements in 2008 were funded through sales of assets in the Other Financial Lines segment investment portfolios as well as the general investment portfolio. Management’s approach was to avoid the sale of assets where current market prices did not reflect intrinsic values or where transaction costs for liquidation were excessive. As a result, the Company continues to hold approximately $1.3 billion of Topical Assets and core CDOs and these have been transferred to the general portfolio in exchange for those assets that were liquidated.

Refer to “Results of Operations” for further discussion surrounding the impact of credit market movements on the Company’s investment portfolio and exposure to sub-prime related assets.

As noted in Item 8, Note 2 to the Consolidated Financial Statements, “Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, the determination of the amount of OTTI varies by investment type and is based upon management’s periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management considers a wide range of factors about the security issuer and uses their best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Management updates its evaluations regularly and reflects additional impairments in net income as determinations are made. Management’s determination of the amount of the impairment taken on investments is highly subjective and could adversely impact the Company’s results of operations. There can be no assurance that management has accurately assessed the level of OTTI taken and reflected in the Company’s financial statements. Furthermore, additional impairments may need to be taken in the future. Historical trends may not be indicative of future impairments.

Levels of write down or OTTI are also impacted by the Company’s assessment of the intent and ability to hold securities which have declined in value until recovery. If, due to changes in circumstances, the Company determines to reposition or realign portions of the portfolio where the Company determines not to hold certain securities in an unrealized loss position to recovery, then the Company will incur OTTI charges, which charges could be significant.

Unpaid Losses and Loss Expenses

The Company establishes reserves to provide for estimated claims, the general expenses of administering the claims adjustment process and for losses incurred but not reported. These reserves are calculated using actuarial and other reserving techniques to project the estimated ultimate net liability for losses and loss expenses. The Company’s reserving practices and the establishment of any particular reserve reflects management’s judgment concerning sound financial practice and do not represent any admission of liability with respect to any claims made against the Company.

Unpaid losses and loss expenses totaled $21.5 billion at June 30, 2009, and $21.7 billion at December 31, 2008.

The table below represents a reconciliation of the Company’s unpaid losses and loss expenses for the six months ended June 30, 2009:


*(U.S. dollars in thousands)*	(Unaudited) Gross unpaid losses and loss expenses			(Unaudited) Unpaid losses and loss expenses recoverable			(Unaudited) Net unpaid losses and loss expenses

Balance as at December 31, 2008	$	21,650,315		$	(3,964,836	)	$	17,685,479
Losses and loss expenses incurred		2,082,683			(512,772	)		1,569,911
Losses and loss expenses paid/recovered		(2,482,814	)		614,811			(1,868,003	)
Foreign exchange and other		202,814			(14,027	)		188,787

Balance as at June 30, 2009	$	21,452,998		$	(3,876,824	)	$	17,576,174

While the Company reviews the adequacy of established reserves for unpaid losses and loss expenses regularly, no assurance can be given that actual claims made and payments related thereto will not be in excess of the amounts reserved. In the future, if such reserves develop adversely, such deficiency would have a negative impact on future results of operations. See “Unpaid Losses and Loss Expenses” in Item 1, “Critical Accounting Policies and Estimates” in Item 7 and Item 8, Note 12 to the Consolidated Financial Statements, each in the Company’s Form 10-K for the year ended December 31, 2008 for further discussion.

Unpaid Losses and Loss Expenses Recoverable and Reinsurance Balances Receivable

As a significant portion of the Company’s net premiums written incept in the first six months of the year, certain assets and liabilities have increased at June 30, 2009 compared to December 31, 2008. This includes deferred acquisition costs, unearned premiums, premiums receivable and prepaid reinsurance premiums.

In the normal course of business, the Company seeks to reduce the potential amount of loss arising from claims events by reinsuring certain levels of risk assumed in various areas of exposure with other insurers or reinsurers. While reinsurance agreements are designed to limit the Company’s losses from large exposures and permit recovery of a portion of direct unpaid losses, reinsurance does not relieve the Company of its ultimate liability to its insureds. Accordingly, the loss and loss expense reserves on the balance sheet represent the Company’s total unpaid gross losses. Unpaid losses and loss expenses recoverable relate to estimated reinsurance recoveries on the unpaid loss and loss expense reserves.

Unpaid losses and loss expense recoverables were $3.9 billion and $4.0 billion at June 30, 2009, and December 31, 2008, respectively. At June 30, 2009 and December 31, 2008, reinsurance balances receivable were $0.4 billion and $0.6 billion, respectively. The table below presents the Company’s net paid and unpaid losses and loss expenses recoverable and reinsurance balances receivable at June 30, 2009 and December 31, 2008.


*(U.S. dollars in thousands)*	(Unaudited) June 30, 2009			December 31, 2008

Reinsurance balances receivable	$	469,828		$	636,284
Reinsurance recoverable on future policy benefits		32,286			32,886
Reinsurance recoverable on unpaid losses and loss expenses		3,993,912			4,079,860
Bad debt reserve on unpaid losses and loss expenses recoverable and reinsurance balances receivable		(186,544	)		(187,614	)

Net paid and unpaid losses and loss expenses recoverable and reinsurance balances receivable	$	4,309,482		$	4,561,416

Fair Value Measurements of Assets and Liabilities

As disclosed in Note 3 to the Consolidated Financial Statements, “Fair Value Measurements”, effective January 1, 2008, the Company adopted FAS 157 and has accordingly provided required disclosures by level within the fair value hierarchy of the Company’s assets and liabilities that are carried at fair value. As defined in the hierarchy, those assets and liabilities categorized as Level 3 have valuations determined using unobservable inputs. Unobservable inputs may include the entity’s own assumptions about market participant assumptions, applied to a modeled valuation, however, this is not the case with respect to the Company’s Level 3 assets and liabilities. The vast majority of the assets and liabilities classified as Level 3 are made up of those securities for which the values were obtained from brokers where either significant inputs were utilized in determining the value that were difficult to corroborate with observable market data, or sufficient information regarding the specific inputs utilized by the broker was not obtained to support a Level 2 classification or the Company utilized internal valuation models.

At June 30, 2009, a significant component of Level 3 assets represented Core CDOs, totaling $520.4 million. Certain asset classes, primarily consisting of privately placed investments, did not have sufficient market corroborated information available to allow a pricing service to provide a price and accordingly the valuation was determined by the use of broker quotes. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments as is currently the case for certain U.S. CMOs, ABSs, CMBSs, certain CDOs, for which sufficient information, such as cash flows or other security structure or market information, was not available to enable a third party pricing service to provide a price and as such valuation is determined based on broker quotes for which sufficient information regarding the specific inputs utilized by the broker in determining the fair value was not obtained to support a Level 2 classification. In addition, as noted below, for certain CDO holdings, the Company determined that internal models would be more appropriate and better representative of the fair value of these securities given that recent valuations were as a result of broker bids or valuation models that used recent market trading which the Company considered to be distressed transactions. While the remainder of the Company’s holdings in securities exposed to sub-prime mortgages are generally not based on quoted prices for identical securities, they are based on model-derived valuations from pricing services in which all significant inputs and significant value drivers are considered to be observable in active markets, and these securities continue to be classified within Level 2.

As noted above, the Company has determined that for certain of its CDO holdings with a fair value of $450.5 million and a par value of $807.5 million, valuations were as a result of broker bids that used recent market trading which the Company considered to be distressed transactions. The market for CDO’s remains extremely illiquid due to a number of factors including risk aversion and reduction among institutional buyers. As a result, the Company believes that current broker bids reflect loss expectations that do not reflect fair values at which willing buyers and sellers would transact.

At June 30, 2009, the Company’s internal models resulted in a fair value that was $154.7 million higher than those that would have been determined by its previous methodology of utilizing third party values sourced through brokers or pricing services. This variance represents 19.2% of par value of these holdings, which based on the portfolio’s spread duration of 4.9 years corresponds to an approximate 390 basis point decrease relative to the spread levels implied in current market levels of trading which management believes are distressed trades. The Company believes that, in the aggregate, this is appropriate as compared to current estimates of market credit spreads.

60% extreme loss outcomes:


	•	20% weighting to current third party valuations, with a fair value of $295.8 million, which the Company believes includes the current market liquidity premium;

	•	20% weighting to current cash flow estimates discounted at management’s view of current market spreads, with a fair value of $277.0 million, which the Company believes includes the current market liquidity premium;

	•	20% weighting to current cash flow estimates, adjusted by a multiple of the current underlying loss estimates, discounted at the coupon of the securities, with a further reduction in value representing a liquidity premium equal to double the prevailing total credit spread levels of the most severe previous CLO market deterioration, which resulted in a fair value of $462.4 million; and

40% likely loss outcomes:


	•	40% weighting to likely loss outcomes, representing current cash flow estimates discounted at the coupon of the securities, with a further reduction in value representing a liquidity premium equal to the prevailing credit spread levels of the most severe previous CLO market deterioration, which resulted in a fair value of $608.7 million.

Controls over Valuation of Financial Instruments

The Company performs quarterly reviews of the prices received from its third party valuation sources to assess if the prices represent a reasonable estimate of the fair value. This process is completed by investment and accounting personnel who are independent of those responsible for providing the valuations. These reviews include, but are not limited to, valuation comparisons between external sources and completing recurring reviews of third party pricing services methodologies. As a result of this analysis, if the Company determines there is a more appropriate fair value based upon available market data, the price received from one third party may be substituted for another or, in limited circumstances, management may determine that an adjustment is required to a third party value. In addition, similar valuation controls are followed by external parties responsible for sourcing appropriate valuations from third parties on the Company’s behalf which provides additional support regarding the reasonableness of the fair values recorded in the Company’s financial statements.

Valuation Methodology of Level 3 Assets and Liabilities

Refer to Notes 2 and 3 of the Consolidated Financial Statements, “Significant Accounting Policies” and “Fair Value Measurements” for a description of the valuation methodology utilized to value Level 3 assets and liabilities, how the valuation methodology is validated as well as further details associated with various assets classified as Level 3. As at June 30, 2009, the Company did not have any liabilities that were carried at fair value based on Level 3 inputs other than derivative instruments in a liability position at June 30, 2009.

Liquidity and Capital Resources

As a holding company, the Company’s assets consist primarily of its investments in subsidiaries, and the Company’s future cash flows depend on the availability of dividends or other statutorily permissible payments from its regulated subsidiaries. The ability to pay such dividends is limited by the applicable laws and regulations of the various countries the Company operates in including, among others, Bermuda, the United States, Ireland, Switzerland and the United Kingdom, and those of the Society of Lloyd’s and certain contractual provisions. No assurance can be given that the Company or its subsidiaries will be permitted to pay dividends or other payments in the future.

The Company and its subsidiaries provide no guarantees or other commitments (express or implied) of financial support to the Company’s subsidiaries or affiliates, except for where such guarantees are in writing.

Liquidity

Liquidity is a measure of the Company’s ability to generate sufficient cash flows to meet the short-and long-term cash requirements of the Company’s business operations.

As a holding company, XL Capital Ltd has no operations of its own and its assets consist primarily of its investments in its subsidiaries. Accordingly, XL Capital Ltd’s future cash flows depend on the availability of dividends or other statutorily permissible payments from its subsidiaries. The ability to pay such dividends is limited by the applicable laws and regulations of the various countries and states in which XL Capital Ltd’s subsidiaries operate, including, among others, Bermuda, Delaware, New York, Ireland, Switzerland and the United Kingdom. See “Risk Factors – Risks Related to the Company – Because we are a holding company, if the Company’s subsidiaries do not make dividend and other payments to XL Capital Ltd, the Company may not be able to pay dividends or make payments on its debt securities and other obligations” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. The ability to pay such dividends is also limited by the regulations of the Society of Lloyd’s and certain contractual provisions. No assurance can be given that the Company’s subsidiaries will pay dividends in the future to XL Capital Ltd.

XL Capital Ltd’s principal uses of liquidity are for dividend payments to holders of its ordinary shares and preferred shares, interest and principal payments on debt, capital investments in its subsidiaries and corporate operating expenses.

Historically, cash receipts from operations, consisting of premiums and investment income, generally have provided sufficient funds to pay losses as well as operating expenses of the Company’s subsidiaries and to fund dividends to XL Capital Ltd. Cash receipts from operations is generally derived from the receipt of investment income on the Company’s total investment portfolio as well as the net receipt of premiums less claims and expenses related to the Company’s underwriting activities in its property and casualty operations as well as its Life Operations segment. The Company’s operating subsidiaries provide liquidity in that premiums are generally received months or even years before losses are paid under the policies related to such premiums.

During the first six months of 2009, net cash flows used in operating activities was $609.6 million primarily as a result of lower levels of premium income to offset claims payments related to previous underwriting years.

As at June 30, 2009, the Company had cash and cash equivalents of approximately $4.0 billion as compared to approximately $4.4 billion at December 31, 2008. In addition, the Company maintains credit facilities which provide additional liquidity. Details of these facilities are described below in “Capital Resources.”

In February 2009, the Board of Directors approved a reduction in the quarterly dividend payable on the Company’s Class A Ordinary Shares to $0.10 per ordinary share beginning with the quarterly dividend paid in March 2009.

The Company’s liquidity needs may change. For instance, in the event of certain ratings downgrades, the Company may be required to post cash collateral in connection with its letters of credit and revolving credit facilities, to return premiums to clients in the case of the cancellation of certain reinsurance agreements and to return cash or assets to settle certain derivative transactions. See “ – Ratings” below.

Capital Resources

At June 30, 2009, the Company had total shareholders’ equity of $7.5 billion. In addition to ordinary and preferred share capital, the Company depends on external sources of financing such as debt, credit facilities and contingent capital to support its underwriting activities.

In connection with the maturity of the purchase contracts associated with the 7.0% Units, the Company issued 11,461,080 Class A ordinary shares for net proceeds of approximately $745.0 million, which was used to retire the 2011 Senior Notes.

On March 26, 2009, the Company completed a cash tender offer for its outstanding Series C Preference Ordinary Shares that resulted in approximately 12.7 million Series C Preference Ordinary Shares with a liquidation value of $317.3 million being purchased by the Company for approximately $104.7 million plus accrued and unpaid dividends, combined with professional fees totaling $0.8 million. As a result, a book value gain of approximately $211.8 million was recorded in the first quarter of 2009 to ordinary shareholders.

Debt

The following table presents the Company’s indebtedness under outstanding debt securities and lenders’ commitments as at June 30, 2009:


							Payments Due by Period
*(U.S. dollars in thousands)* Notes Payable and Debt	Commitment		In Use		Year of Expiry
	Commitment		In Use		Year of Expiry		Less than 1 Year		1 to 3 Years		3 to 5 Years		After 5 Years

5-year revolvers (1)	$	1,000,000	$	—		2010/2012	$	—	$	—	$	—	$	—
5-year revolver		100,000		—		2010		—		—		—		—
6.50% Guaranteed Senior Notes		599,190		599,190		2012		—		—		600,000		—
5.25% Senior Notes		596,606		596,606		2014		—		—		—		600,000
8.25% Senior Notes		575,000		575,000		2021		—		—		—		575,000
6.375% Senior Notes		350,000		350,000		2024		—		—		—		350,000
6.25% Senior Notes		324,434		324,434		2027		—		—		—		325,000

	$	3,545,230	$	2,445,230			$	—	$	—	$	600,000	$	1,850,000

“Commitment” and “In Use” data represent June 30, 2009 accreted values. “Payments Due by Period” data represent ultimate redemption values.

(1) The 2010 and 2012 5-year revolving credit facilities share a $1.0 billion revolving credit sublimit.

Credit facilities, contingent capital and other sources of collateral

At June 30, 2009, the Company had six letter of credit facilities in place with total availability of $7.0 billion, of which $3.4 billion was utilized.


							Amount of Commitment Expiration per period

*(U.S. dollars in thousands)* Other Commercial Commitments	Commitment		In Use		Year of Expiry		Less than 1 Year		1 to 3 Years		3 to 5 Years		After 5 Years

Letter of Credit Facility	$	250,000	$	204,969		Continuous	$	250,000	$	—	$	—	$	—
Letter of Credit Facility (1)		2,250,000		—		2010		—		2,250,000		—		—
Letter of Credit Facility (1)		4,000,000		2,652,154		2012		—		—		4,000,000		—
Letter of Credit Facility		186		186		2009		186		—		—		—
Letter of Credit Facility		93		93		2009		93		—		—		—
Letter of Credit Facility		501,874		501,874		2009		501,874		—		—		—

Six letter of credit facilities	$	7,002,153	$	3,359,276			$	752,153	$	2,250,000	$	4,000,000	$	—

(1) Of the total letter of credit facilities above, $1 billion is also included in the revolvers under notes payable and debt.

The Company has several letter of credit facilities provided on a syndicated and bilateral basis from commercial banks. The value of letters of credit required is driven by, among other things, loss development of existing reserves, the payment pattern of such reserves, the expansion of business written by the Company and loss experience of such business. These facilities are principally utilized to support non-admitted insurance and reinsurance operations in the United States and capital requirements at Lloyd’s. In addition to letters of credit, the Company has established insurance trusts in the U.S. that provide cedants with statutory relief under state insurance regulations in the U.S. It is anticipated that the commercial facilities will be renewed on expiry but such renewals are subject to the availability of credit from banks utilized by the Company. In the event that such credit support is insufficient, the Company could be required to provide alternative security to cedants. This could take the form of additional insurance trusts supported by the Company’s investment portfolio or funds withheld using the Company’s cash resources or combinations thereof.

In addition, the Company has previously entered into contingent capital transactions where no up-front proceeds were received by the Company, however, in the event that the associated irrevocable put and/or contingent put option agreements are exercised, proceeds previously raised from investors from the issuance of pass-through trust securities would be received in return for the issuance of preferred shares by the Company as applicable. As at June 30, 2009, the Company’s remaining contingent capital facility was the $350 million Stoneheath Re facility. For further information, see Note 18 to the Consolidated Financial Statements, “Off-Balance Sheet Arrangements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Ratings

The Company’s ability to underwrite business is dependent upon the quality of its claims paying and financial strength ratings as evaluated by independent rating agencies. As a result, in the event that the Company is downgraded, its ability to write business as well as its financial condition and/or results of operations could be adversely affected. The Company regularly evaluates its capital needs to support the volume of business written in order to maintain its claims paying and financial strength ratings.

A downgrade below “A –” of the Company’s principal insurance and reinsurance subsidiaries by either Standard & Poor’s (“S&P”) or A.M. Best Company (“A.M. Best”), which is two notches below the current S&P financial strength rating of “A” (Negative) and two notches below the current A.M. Best financial strength rating of “A” (Stable) of these subsidiaries, may trigger termination provisions in a significant amount of the Company’s assumed reinsurance agreements and may potentially require the Company to return unearned premium to cedants. Whether a client would exercise its termination rights after such a downgrade would likely depend on, among other things, the reasons for the downgrade, the extent of the downgrade, prevailing market conditions, the degree of unexpired coverage, and the pricing and availability of replacement reinsurance coverage. In the event of such a downgrade, the Company cannot predict whether or how many of its clients would actually exercise such termination rights or the extent to which any such terminations would have a material adverse effect on its financial condition, results of operations or future prospects and could have a significant adverse effect on the market price for the Company’s securities. In addition, due to collateral posting requirements under the Company’s letter of credit and revolving credit facility agreements, such a downgrade may require the posting of cash collateral in support of certain “in use” portions of these facilities. Specifically, a downgrade below “A –” by A.M. Best would trigger such collateral requirements for the Company’s two largest credit facilities. In certain limited instances, such downgrades may require the Company to return cash or assets to counterparties or to settle derivative and/or other transactions with the respective counterparties. For further information, see the Risk Factor titled “A downgrade or potential downgrade in the Company’s financial strength and credit ratings by one or more rating agencies could materially and negatively impact the Company’s business, financial condition, results of operations and/or liquidity” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

The following are the financial strength and claims paying ratings as at July 1, 2009 from internationally recognized rating agencies in relation to the Company’s principal insurance and reinsurance subsidiaries and pools:


Rating agency	Rating

Standard & Poor’s	A	(Negative	)
Fitch	A	(Rating Watch Negative	)
A.M. Best	A	(Stable	)
Moody’s Investor Services	A2	(Negative	)

In addition, as at July 1, 2009 XL Capital Ltd had the following long-term debt ratings: ‘bbb’ (Stable) from A.M. Best, ‘BBB+’ (Negative) from S&P, ‘Baa2’ (Negative) from Moody’s and ‘BBB+’ (Rating Watch Negative) from Fitch.

Other

Since 2005, we have offered and sold ordinary shares to our shareholders and other investors under a dividend reinvestment and share purchase plan (the “Old Plan”). We filed a registration statement with the SEC covering the Old Plan in 2005. As a result of a change to the SEC’s registration requirements, the Company was required to file a new registration statement covering the purchase and sale of our ordinary shares under the Old Plan by December 20, 2008. On June 25, 2009, we terminated the Old Plan and entered into a new plan administered by The Bank of New York Mellon (the “Bank”) which allows the Company’s shareholders and other investors the opportunity to buy and sell our ordinary shares in the open market. This new Bank plan is not required to be registered. Between December 20, 2008 and June 25, 2009, the Old Plan administrator acquired in the open market a small number of ordinary shares for delivery to purchasers pursuant to the Old Plan. Accordingly, the Company did not receive any proceeds from such purchases.

For information regarding cross-default and certain other provisions in the Company’s debt and convertible securities documents, see Item 7 of the Company’s Form 10-K for the year ended December 31, 2008.

See Part II, Item 2 “Unregistered Sales of Equity Securities and Use of Proceeds,” below.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking statements. Any prospectus, prospectus supplement, the Company’s Annual Report to ordinary shareholders, any proxy statement, any other Form 10-K, Form 10-Q or Form 8-K of the Company or any other written or oral statements made by or on behalf of the Company may include forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. Such statements include forward-looking statements both with respect to the Company in general, and to the insurance and reinsurance sectors in particular (both as to underwriting and investment matters). Statements that include the words “expect”, “intend”, “plan”, “believe”, “project”, “anticipate”, “will”, “may”, and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the PSLRA or otherwise.

All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements. The Company believes that these factors include, but are not limited to, the following: (i) changes in ratings, rating agency policies or practices; (ii) changes in the size of the Company’s claims relating to natural catastrophe losses due to the preliminary nature of some reports and estimates of loss and damage to date; (iii) trends in rates for property and casualty insurance and reinsurance; (iv) the timely and full recoverability of reinsurance placed by the Company with third parties, or other amounts due to the Company; (v) the projected amount of ceded reinsurance recoverables and the ratings and creditworthiness of reinsurers may change; (vi) the timing of claims payments being faster or the receipt of reinsurance recoverables being slower than anticipated by the Company; (vii) ineffectiveness or obsolescence of the Company’s business strategy due to changes in current or future market conditions; (viii) increased competition on the basis of pricing, capacity, coverage terms or other factors; (ix) greater frequency or severity of claims and loss activity than the Company’s underwriting, reserving or investment practices anticipate based on historical experience or industry data; (x) the effects of inflation on our business, including on pricing and reserving; (xi) developments, including uncertainties related to the depth and duration of the current recession, and future volatility in the world’s credit, financial and capital markets that adversely affect the performance and valuation of XL’s investments or access to such markets; (xii) the potential impact on the Company from government-mandated insurance coverage for acts of terrorism; (xiii) the potential for changes to methodologies; estimations and assumptions that underlie the valuation of the Company’s financial instruments that could result in changes to investment valuations; (xiv) to the Company’s assumptions as to whether it has the ability and intent to hold available-for-sale securities to recovery; (xv) developments in bankruptcy proceedings or other developments related to bankruptcies of companies insofar as they affect property and casualty insurance and reinsurance coverages or claims that the Company may have as a counterparty; (xvi) availability of borrowings and letters of credit under the Company’s credit facilities; (xvii) the ability of the Company’s subsidiaries to pay dividends to the holding company, XL Capital Ltd.; (xviii) the potential effect of domestic and foreign regulatory developments, including those which could increase the Company’s business costs and required capital levels; (xix) changes in regulation or tax laws applicable to the Company or its subsidiaries, brokers or customers; (xx) acceptance of the Company’s products and services, including new products and services; (xxi) changes in the availability, cost or quality of reinsurance; (xxii) changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers; (xxiii) loss of key personnel; (xxiv) the effects of mergers, acquisitions and divestitures; (xxv) changes in accounting policies or practices or the application thereof; (xxvi) legislative or regulatory developments including, but not limited to, changes in regulatory capital balances that must be maintained by the Company’s operating subsidiaries and recent governmental actions for the purpose of stabilizing the financial markets; (xxvii) other changes in general economic conditions, including changes in interest rates, credit spreads, foreign currency exchange rates, inflation and other factors; (xxviii) the effects of business disruption or economic contraction due to war, terrorism or other hostilities; and (xxix) the other factors set forth in the Company’s other documents on file with the SEC. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein or elsewhere. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.



ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Except as described below, there have been no material changes in the Company’s market risk exposures or how those exposures are managed, since December 31, 2008. The following discussion should be read in conjunction with “Quantitative and Qualitative Disclosures about Market Risk”, presented under Item 7A of the Company’s Form 10-K for the year ended December 31, 2008.

Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. The Company is principally exposed to the following market risks: interest rate risk; foreign currency exchange rate risk; equity price risk; credit risk; and other related market risks.

The Company’s investment market risk arises from its investment portfolio which consists of fixed income securities, alternative investments, public equities, private investments, derivatives, other investments, and cash, denominated in both U.S. and foreign currencies, which are sensitive to changes in interest rates, credit spreads, equity prices, foreign currency exchange rates and other related market risks. The Company’s fixed income and equity securities are classified as available-for-sale, and as such changes in interest rates, credit spreads on corporate and structured credit, equity prices, foreign currency exchange rates or other related market instruments will have an immediate effect on comprehensive income and shareholders’ equity but will not ordinarily have an immediate effect on net income. Nevertheless, changes in interest rates, credit spreads, equity prices and other related market instruments effect consolidated net income when, and if, a security is sold or impaired.

The Company enters into derivatives and other financial instruments primarily for risk management purposes. The Company conducts activities in three main types of derivative instruments: credit derivatives, weather and energy derivatives and investment-related derivative instruments. From time to time, the Company also uses investment derivative instruments such as futures, options, interest rate swaps, credit default swaps and foreign currency forward contracts to manage the duration of its investment portfolio and foreign currency exposures and also to obtain exposure to a particular financial market. Historically the Company entered into credit derivatives outside of the investment portfolio in conjunction with the financial guarantee and financial products operations. The Company attempts to manage the risks associated with derivative use with guidelines established by senior management. Derivative instruments are carried at fair value with the resulting changes in fair value recognized in income in the period in which they occur.

This risk management discussion and the estimated amounts generated from the sensitivity and VaR analyses presented in this document are forward-looking statements of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from these estimated results due to, among other things, actual developments in the global financial markets and changes in the composition of the Company’s investment portfolio. The results of analysis used by the Company to assess and mitigate risk should not be considered projections of future events of losses. See generally “Cautionary Note Regarding Forward-Looking Statements” in Item 2.

Interest Rate Risk

The Company’s fixed income portfolio is exposed to interest rate risk. Interest rate risk is the price sensitivity of a fixed income security to changes in interest rates. The Company manages interest rate risk within the context of its overall asset liability management strategy by setting duration targets for its investment portfolio in line with the estimated duration of its liabilities, thus mitigating the overall economic effect of interest rate risk. The Company remains nevertheless exposed to accounting interest rate risk since the assets are marked to market, thus subject to market conditions, while liabilities are accrued at a static rate. The hypothetical case of an immediate 100 basis point adverse parallel shift in global bond curves as at June 30, 2009, would decrease the fair value of the Company’s fixed income portfolio by approximately 3.9% or $1.25 billion.

Foreign Currency Exchange Rate Risk

Many of the Company’s non-U.S. subsidiaries maintain both assets and liabilities in local currencies. Foreign currency exchange rate gains and losses arise for accounting purposes where net assets or liabilities are denominated in foreign currencies that differ from the functional currency of those subsidiaries. In addition, the Company’s shareholders’ equity is impacted by movements in currency exchange rates through both the foreign exchange component of realized and unrealized gains and losses within the Company’s investment portfolio, and the cumulative translation adjustments resulting from the translation of foreign subsidiary results.

The principal currencies creating foreign exchange risk for us are the British pound sterling, the Euro, the Swiss Franc, and the Canadian dollar. The Company’s net notional foreign currency denominated exposure on foreign exchange contracts was $524.8 million and $186.2 million as at June 30, 2009 and December 31, 2008 respectively, with a net unrealized gain of $17.8 million and a net unrealized loss of $3.2 million as at June 30, 2009 and December 31, 2008, respectively.

Equity Price Risk

The Company’s equity portfolio as well as other investments, primarily representing certain derivatives and certain affiliate investments, are exposed to equity price risk. Equity price risk is the potential loss arising from changes in the market value of

equities. An immediate hypothetical 10% change in the value of each equity position in the Company’s equity portfolio would affect the fair value of the portfolio by approximately $2.9 million as at June 30, 2009. This excludes exposures to equities in the Company’s affiliate investments.

As at June 30, 2009, the Company’s equity portfolio was approximately $29 million as compared to $330 million as at December 31, 2008. This excludes fixed income fund investments that generally do not have the risk characteristics of equity investments. As at June 30, 2009, the Company’s allocation to equity securities was approximately 0.1% of the total investment portfolio (including cash and cash equivalents, accrued investment income and net payable for investments purchased) as compared to approximately 1.1% as at December 31, 2008.

As at June 30, 2009, approximately 97.1% of the equity holdings was invested in U.S. companies as compared to approximately 10.5% as at December 31, 2008. As at June 30, 2009, the top ten equity holdings represented approximately 26.4% of the Company’s total equity portfolio as compared to approximately 10.4% as at December 31, 2008.

Credit Risk

The Company’s exposure to credit spreads primarily relates to market price and cash flow variability associated with changes in credit spreads. A widening of credit spreads will increase the net unrealized loss position of the investment portfolio, will increase losses associated with credit based non-qualifying derivatives where the Company assumes credit exposure, and, if issuer credit spreads increase significantly or for an extended period of time, would likely result in higher other-than-temporary impairments. Credit spread tightening will reduce net investment income associated with new purchases of fixed maturities. In addition, market volatility can make it difficult to value certain of the Company’s securities if trading becomes less frequent. As such, valuations may include assumptions or estimates that may have significant period to period changes which could have a material adverse effect on the Company’s consolidated results of operations or financial condition. Credit spreads on both corporate and structured securities tightened during the quarter ended June 30, 2009, resulting in a slight recovery of market values, however market pricing continues to remain depressed. Continuing challenges include continued weakness in the U.S. real estate market and increased mortgage delinquencies, investor anxiety over the U.S. economy, rating agency downgrades of various structured products and financial issuers, unresolved issues with structured investment vehicles and monolines, deleveraging of financial institutions and alternative funds and a serious dislocation in the inter-bank market. If significant, continued volatility, changes in interest rates, changes in credit spreads and defaults, a lack of pricing transparency, market liquidity, declines in equity prices, and the strengthening or weakening of foreign currencies against the U.S. dollar, individually or in tandem, could have a material adverse effect on the Company’s consolidated results of operations, financial condition or cash flows through realized losses, impairments, and changes in unrealized positions.

The Company’s exposure to market movements related to credit risk is primarily due to its investment portfolio, receivable and ceded reinsurance balances. Within the investment portfolio, credit risk is the exposure to adverse changes in the creditworthiness of individual investment holdings, issuers, groups of issuers, industries or countries. In addition, credit risk pertains to adverse change in the creditworthiness of the Company’s reinsurers and retrocessionaires, and their ability to pay certain reinsurance receivable and recoverable balances. The hypothetical case of an immediate 25 basis point increase in all the global corporate and structured credit spreads to which the Company’s fixed income portfolio is exposed to at June 30, 2009 would decrease the fair value of the Company’s fixed income portfolio by approximately $258.6 million. This excludes exposure to credit in the Company’s alternative investments and counterparty exposure.

The table below shows the Company’s fixed income portfolio by credit rating in percentage terms of the Company’s total fixed income exposure (including fixed maturities, short-term investments, cash and cash equivalents, accrued investment income and net payable for investments purchased) as at June 30, 2009:


	Total

AAA		56.7	%
AA		14.7	%
A		16.8	%
BBB		7.8	%
BB & below		4.0	%

Total		100.0	%

At June 30, 2009, the average credit quality of the Company’s total fixed income portfolio was “AA.”

The Company is closely monitoring its corporate financial bond holdings in light of the current credit market conditions. The table below summarizes the Company’s significant exposures (defined as bonds issued by financial institutions with an amortized cost in excess of $50.0 million) to corporate bonds of financial issuers held within its available for sale investment portfolio at June 30, 2009, representing both amortized cost and unrealized gains (losses):


*(U.S. dollars in millions)* Issuer (by Global Ultimate Parent) (1)	Amortized Cost at June 30, 2009		Unrealized gain (loss) at June 30, 2009

Lloyds Banking Group, Plc	$	316.3	$	(78.8	)
Bank of America Corporation.		310.4		(39.6	)
The Goldman Sachs Group, Inc.		195.7		(12.7	)
Citigroup Inc		192.6		(29.8	)
Banco Santander, S.A		145.7		(47.2	)
Wells Fargo & Company		142.3		(3.0	)
HSBC Holdings Plc		141.6		(13.7	)
JPMorgan Chase & Co		120.0		(14.5	)
Barclays Plc		116.4		(42.7	)
Nationwide Building Society		105.6		(14.6	)
Morgan Stanley		104.3		(2.1	)
American International Group, Inc		93.7		(26.0	)
Caisse Nationale des Caisses D’Epargne et de Prevoyance (CNCEP)		89.1		(18.5	)
RFS Holdings B.V. (ABN AMRO)		86.1		(11.0	)
Aviva Plc		83.3		(33.5	)
HM Government Cabinet Office (Northern Rock plc)		71.3		(8.3	)
UBS AG		69.1		(19.6	)
Unicredit SpA		63.5		(20.1	)
Royal Bank of Canada		63.5		0.7
Australia & New Zealand Banking Group Ltd		62.4		(0.2	)
Assicurazioni Generali SPA		62.2		(18.7	)
Danske Bank A/S		62.2		(20.4	)
Credit Agricole		61.0		(13.6	)
Legal and General Group Plc		61.0		(22.2	)
BNP Paribas		60.5		(18.4	)
HM Treasury (The Royal Bank of Scotland)		58.5		(6.6	)
Metlife, Inc.		53.5		(4.6	)

Within the Company’s corporate financial bond holdings, the Company is further monitoring its exposures to hybrid securities, representing Tier One and Upper Tier Two securities of various financial institutions. The following table summarizes the top ten exposures to hybrid securities, representing both amortized cost and unrealized (losses) as June 30, 2009:


*(U.S. dollars in millions)* Issuer (by Global Ultimate Parent)	Tier One Amortized Cost at June 30, 2009		Upper Tier Two Amortized Cost at June 30, 2009		Total Amortized Cost at June 30, 2009		Net Unrealized (Loss) at June 30, 2009

Barclays, Plc	$	55.2	$	61.2	$	116.4	$	(42.7	)
Lloyds TSB Group, Plc.		103.7		8.7		112.4		(65.4	)
Banco Santander, S.A		50.0		61.2		111.2		(43.1	)
Assicurazioni Generali S.P.A		62.2		—		62.2		(18.7	)
Aviva, Plc.		5.8		55.4		61.2		(26.8	)
Danske Bank A/S		35.3		20.7		56.0		(20.4	)
Credit Agricole SA		11.9		43.4		55.3		(13.7	)
Unicredit S.P.A		46.1		1.8		47.9		(20.3	)
BNP Paribas		42.4		—		42.4		(17.1	)
Caisse Nationale des Caisses D’Epargne et de Prevoyance (CNCEP)		35.0		—		35.0		(18.8	)

Total	$	447.6	$	252.4	$	700.0	$	(287.0	)

As at June 30, 2009, the top 10 corporate holdings, which exclude government guaranteed and government sponsored enterprises, represented approximately 5.3% of the total fixed income portfolio and approximately 16.8% of all corporate holdings. The top 10 corporate holdings listed below represent the direct exposure to the corporations listed below, including their subsidiaries, and excludes any securitized, credit enhanced and collateralized asset or mortgage backed securities, cash and cash equivalents, pooled notes and any over-the-counter (“OTC”) derivative counterparty exposure, if applicable.


Top 10 Corporate Holdings	Percentage of Total Fixed Income Portfolio (1)

Bank of America Corporation	0.86	%
Lloyds Banking Group plc	0.76	%
General Electric Company	0.73	%
The Goldman Sachs Group, Inc	0.58	%
Citigroup Inc	0.52	%
Wells Fargo & Company	0.44	%
HSBC Holdings plc	0.41	%
AT&T Inc	0.37	%
JP Morgan Chase	0.33	%
Verizon Communications Inc	0.33	%



(1)	Including fixed maturities, short-term investments, cash and cash equivalents, accrued investment income and net payable for investments purchased.

As at June 30, 2009, the top 5 corporate sector exposures represented 21.5% of the total fixed income portfolio and 67.6% of all corporate holdings.


*(U.S. dollars in millions)* Top 5 Sector Exposures	Fair Value		Percent of Fixed Income Portfolio

Financials – Banks	$	3,165.4		9.9	%
Consumer, Non-Cyclical		1,226.9		3.8	%
Communications		911.4		2.8	%
Utilities		865.5		2.7	%
Industrials		726.6		2.3	%

Total	$	6,895.8		21.5	%

The Company also has exposure to market movement related to credit risk associated with its mortgage-backed and asset-backed securities. The table below shows the breakdown of the $7.7 billion structured credit portfolio as at June 30, 2009, of which approximately 74.3% is AAA rated:


*(U.S. dollars in millions)*	Fair Value		Percent of Portfolio

CMBS	$	1,502.7		19.5	%
Agency		3,093.0		40.1	%
Prime RMBS		718.7		9.3	%
Core CDO (non-ABS CDOs and CLOs)		585.9		7.6	%
Other ABS:
ABS – Auto		200.9		2.6	%
ABS – Credit Cards		208.4		2.7	%
ABS – Other		667.4		8.6	%
Topical:
Sub-prime first lien		385.0		5.0	%
Alt-A		311.1		4.0	%
Second lien (including sub-prime second lien mortgages)		41.8		0.5	%
ABS CDO’s with sub-prime collateral		5.5		0.1	%

Total	$	7,720.4		100.0	%

For further discussion of the exposure to credit market movements in the Company’s investment portfolio see the Investment Value-at-Risk section below.

Credit derivatives are purchased within the Company’s investment portfolio and have been sold through a limited number of contracts written as part of the Company’s previous XL Financial Solutions business. The Company may purchase credit default swaps to hedge an existing position or concentration of its holdings. The credit derivatives are recorded at fair value.

As of June 30, 2009, the remaining credit derivative exposure outside of the Company’s investment portfolio consisted of two contracts written by the Company that provide credit protection on senior tranches of structured finance transactions with total net par values outstanding of $296.0 million, a weighted average contractual term to maturity of 6.6 years and a total liability recorded of $7.1 million.

The Company has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, hedge funds and other investment funds and other institutions. Many of these transactions expose the Company to credit risk in the event of default of the Company’s counterparty. In addition, with respect to secured transactions, the Company’s credit risk may be exacerbated when the collateral held by the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure that is due. The Company also has exposure to financial institutions in the form of unsecured debt instruments, derivative transactions, revolving credit facility and letter of credit commitments and equity investments. There can be no assurance that any such losses or impairments to the carrying value of these assets would not materially and adversely affect the Company’s business and results of operations.

With regards to unpaid losses and loss expenses recoverable and reinsurance balances receivable, the Company has credit risk should any of its reinsurers be unable or unwilling to settle amounts due to the Company; however, these exposures are not marked to market. For further information relating to reinsurer credit risk, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Unpaid Losses and Loss Expenses Recoverable and Reinsurance Balances Receivable.”

The Company is exposed to credit risk in the event of non-performance by the other parties to its derivative instruments in general, however the Company does not anticipate non-performance. The difference between the notional principal amounts and the associated market value is the Company’s maximum credit exposure.

Weather and Energy Risk

Prior to August 2008, the Company previously offered weather and contingent energy risk management products in insurance or derivative form to end-users and managed the risks in the OTC and exchange traded derivatives markets or through the use of quota share or excess of loss arrangements. However, as part of the Company’s strategy to focus on its core Insurance and Reinsurance P&C operations, the Company, in August 2008, closed this unit and ceased writing such weather and energy risk management products.

Fair values for the Company’s existing portfolio of previously written speculative natural gas derivative contracts are determined through the use of quoted market prices. As quoted market prices are not widely available in the weather derivative market, management uses available market data and internal pricing models based upon consistent statistical methodologies to estimate fair values. Estimating fair value of instruments that do not have quoted market prices requires management’s judgment in determining amounts that could reasonably be expected to be received from, or paid to, a third party in respect of the contracts. The

amounts could be materially different from the amounts that might be realized in an actual sale transaction. Fair values are subject to change in the near-term and reflect management’s best estimate based on various factors including, but not limited to, realized and forecasted weather conditions, changes in interest rates and other market factors.

Previously, when the Company offered weather and contingent energy risk management products, the Company managed its portfolio of such products through the employment of a variety of strategies. These included geographical and directional diversification of risk exposures and direct hedging within the capital and reinsurance markets. As at June 30, 2009, the Company’s VaR related to these risks did not exceed $20.0 million in any one season. The remaining weather and energy contracts are expected to expire during 2009.

Other Market Risks

The Company’s private investment portfolio is invested in limited partnerships and other entities which are not publicly traded. In addition to normal market risks, these positions may also be exposed to liquidity risk, risks related to distressed investments, and risks specific to startup or small companies. As at June 30, 2009, the Company’s exposure to private investments was $361.4 million, as compared to $404.8 million as at December 31, 2008.

The Company’s alternative investment portfolio, which is exposed to equity and credit risk as well as certain other market risks, had a total exposure of $880.4 million making up approximately 2.6% of the total investment portfolio (including cash and cash equivalents, accrued investment income and net payable for investments purchased) at June 30, 2009, as compared to December 31, 2008, where the Company had a total exposure of $1.1 billion representing approximately 3.2% of the total investment portfolio. The VaR associated with the alternative investment portfolio at June 30, 2009 based on a 95% confidence level with a one month holding period, excluding foreign exchange risk, was approximately $29.8 million.

At June 30, 2009, bond and stock index futures outstanding had a net long position of $66.0 million as compared to a net long position of $101.7 million at December 31, 2008. A 10% appreciation or depreciation of the underlying exposure to these derivative instruments would have resulted in realized gains or realized losses of $6.6 million as at June 30, 2009 and $10.2 million as at December 31, 2008, respectively. The Company may reduce its exposure to these futures through offsetting transactions, including options and forwards.

The Company invests a portion of its invested assets in investment funds, many of which make private equity investments. The amount and timing of income from such investment funds tends to be uneven as a result of the performance of the underlying investments, including private equity investments. As a result, the amount of income that the Company records from these investments can vary substantially from quarter to quarter. Recent equity and credit market volatility may reduce net income from investment affiliates for these type of investments. The timing of distributions from the funds, which depends on particular events relating to the underlying investments, as well as the funds’ schedules for making distributions and their needs for cash, can be difficult to predict.

Investment Value-at-Risk (VaR)

The VaR of the investment portfolio at June 30, 2009, based on a 95% confidence level with a one month holding period, excluding foreign exchange risk, was approximately $510.7 million as compared to $892.4 million at December 31, 2008. The VaR of all investment related derivatives excluding investments in affiliates and other investments was approximately $28.4 million as at June 30, 2009 as compared to $42.9 million at December 31, 2008. The Company’s investment portfolio VaR as at June 30, 2009 is not necessarily indicative of future VaR levels.

To complement the VaR analysis based on normal market environments, the Company considers the impact on the investment portfolio of several different historical stress periods to analyze the effect of unusual market conditions. The Company establishes certain historical stress test scenarios which are applied to the actual investment portfolio. As these stress tests and estimated gains and losses are based on historical events, they will not necessarily reflect future stress events or gains and losses from such events. The results of the stress test scenarios are reviewed on a regular basis to ensure they are appropriate, based on current shareholders equity, market conditions and the Company’s total risk tolerance.

Given the investment portfolio allocations as at June 30, 2009, the Company would expect to lose approximately 5.0% of the portfolio excluding foreign exchange movements, if the most damaging event stress tested was repeated, all other things held equal, as compared to 4.2% at December 31, 2008. Given the investment portfolio allocations as at June 30, 2009, the Company would expect to gain approximately 12.6% of the portfolio if the most favorable event stress tested was repeated, all other things held equal, as compared to 14.0% at December 31, 2008. The Company assumes that no action is taken during the stress period to either liquidate or rebalance the portfolio. The Company believes that this fairly reflects the potential decreased liquidity that is often associated with distressed market environments.



I TEM 4.	CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that all material information relating to the Company required to be filed in this report has been made known to them in a timely fashion.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal control over financial reporting identified in connection with the Company’s evaluation required pursuant to Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934, as amended, that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

P ART II—OTHER INFORMATION



I TEM 1.	LEGAL PROCEEDINGS

In November 2006, a subsidiary of the Company received a grand jury subpoena from the Antitrust Division of the U.S. Department of Justice (“DOJ”) and a subpoena from the SEC, both of which sought documents in connection with an investigation into the municipal GICs market and related products. In June 2008, subsidiaries of the Company also received a subpoena from the Connecticut Attorney General and an Antitrust Civil Investigative Demand from the Office of the Florida Attorney General in connection with a coordinated multi-state Attorneys General investigation into the matters referenced in the DOJ and SEC subpoenas. The Company is fully cooperating with these investigations.

Commencing in March 2008, the Company and two of its subsidiaries were named, along with approximately 20 other providers and insurers of municipal Guaranteed Investment Contracts and similar derivative products in the U.S. (“collectively Municipal Derivatives”) as well as fourteen brokers of such products, in several purported federal antitrust class actions. The Judicial Panel on Multidistrict Litigation ordered that these be consolidated for pretrial purposes and assigned them to the Southern District of New York. The consolidated amended complaint filed in August 2008 alleges that there was a conspiracy among the defendants during the period from January 1, 1992 to the present to rig bids and otherwise unlawfully decrease the yield for Municipal Derivative products. The purported class of plaintiffs consists of purchasers of Municipal Derivatives. On October 21, 2008 most of the defendants filed motions to dismiss the consolidated amended complaint. The District Judge granted the motions by order dated April 29, 2009, but allowed plaintiffs leave to file a second amended complaint within 20 days of the order. Plaintiffs filed a Second Consolidated Amended Class Action Complaint on June 18, 2009, but did not include the Company or any subsidiaries as a defendant. In addition, the same two subsidiaries of the Company were named in a number of similar actions filed by various municipalities in California state courts. The Defendants removed those cases to federal court and the cases were then transferred to the Southern District of New York by the Judicial Panel on Multidistrict Litigation. The Company intends to vigorously defend these actions.

From time to time, the Company has also received and responded to additional requests from Attorneys General, state insurance regulators and federal regulators for information relating to the Company’s contingent commission arrangements with brokers and agents and/or the Company’s insurance and reinsurance practices in connection with certain finite-risk and loss mitigation products. Similarly, the Company’s affiliates outside the U.S. have, from time to time, received and responded to requests from regulators relating to the Company’s insurance and reinsurance practices regarding contingent commissions or finite-risk and loss mitigation products. The Company has fully cooperated with the regulators in these matters.

In August 2005, plaintiffs in a proposed class action (the “Class Action”) that was consolidated into a multidistrict litigation in the United States District Court for the District of New Jersey, captioned In re Brokerage Antitrust Litigation, MDL No. 1663, Civil Action No. 04-5184 (the “MDL”), filed a consolidated amended complaint (the “Amended Complaint”), which named as new defendants approximately 30 entities, including Greenwich Insurance Company, Indian Harbor Insurance Company and XL Capital Ltd. In the MDL, the Class Action plaintiffs asserted various claims purportedly on behalf of a class of commercial insureds against approximately 113 insurance companies and insurance brokers through which the named plaintiffs allegedly purchased insurance. The Amended Complaint alleged that the defendant insurance companies and insurance brokers conspired to manipulate bidding practices for insurance policies in certain insurance lines and failed to disclose certain commission arrangements and asserted

statutory claims under the Sherman Act, various state antitrust laws and the Racketeer Influenced and Corrupt Organizations Act (“RICO”), as well as common law claims alleging breach of fiduciary duty, aiding and abetting a breach of fiduciary duty and unjust enrichment. By Opinion and Order dated August 31, 2007, the Court dismissed the Sherman Act claims with prejudice and, by Opinion and Order dated September 28, 2007, the Court dismissed the RICO claims with prejudice. The plaintiffs then appealed both Orders to the U.S. Court of Appeals for the Third Circuit. Oral argument before the appellate court was held on April 21, 2009. In accordance with the Third Circuit’s April 23, 2009 directive, the parties submitted on May 13, 2009 their respective supplemental letter briefs addressing a question raised by the Court.

Various XL entities have been named as defendants in three of the many tag-along actions that have been consolidated into the MDL for pretrial purposes. These tag-along actions make allegations similar to the Amended Complaint but do not purport to be class actions. On April 4, 2006, a tag-along Complaint was filed in the U.S. District Court for the Northern District of Georgia on behalf of New Cingular Wireless Headquarters LLC and several other corporations against approximately 100 defendants, including Greenwich Insurance Company, XL Specialty Insurance Company, XL Insurance America, Inc., XL Insurance Company Limited, Lloyd’s syndicates 861, 588 and 1209 and XL Capital Ltd. (the “New Cingular Lawsuit”). On or about May 21, 2007, a tag-along Complaint was filed in the U.S. District Court for the District of New Jersey on behalf of Henley Management Company, Big Bear Properties, Inc., Northbrook Properties, Inc., RCK Properties, Inc., Kitchens, Inc., Aberfeldy LP and Payroll and Insurance Group, Inc. against multiple defendants, including “XL Winterthur International” (the “Henley Lawsuit”). On October 12, 2007, a Complaint in a third tag-along action, captioned Sears Roebuck & Co. v. Marsh & McLennan Companies, Inc., et al., No. 1:07-CV-2535 (the “Sears Lawsuit”), was filed in the U.S. District Court for the Northern District of Georgia by Sears, Roebuck & Co., Sears Holdings Corporation, Kmart Corporation and Lands’ End Inc. Among the many named defendants are X.L. America, Inc., XL Insurance America, Inc., XL Specialty Insurance Company and XL Insurance (Bermuda) Ltd. The three tag-along actions are currently stayed.

Three purported class actions on behalf of shareholders of Syncora have been filed in the Southern District of New York against the Company and one of its subsidiaries (collectively “XL”), Syncora, four Syncora officers, and various underwriters of Syncora securities. The Judge ordered that these be consolidated. The consolidated amended complaint, filed in August 2008, alleges violations of the Securities Act of 1933 arising out of the secondary public offering of Syncora common shares held by XL on June 6, 2007 and sales/exchanges by Syncora of certain preferred shares as well as under the Securities Exchange Act of 1934 arising out of trading in Syncora securities during the asserted class period of March 15, 2007 to March 17, 2008. The principal allegations are that Syncora failed to appropriately and timely disclose its exposures under certain derivative contracts and insurance of tranches of structured securities. XL is named as a party that “controlled” Syncora during the relevant time period. In October, 2008, XL and other defendants filed motions to dismiss the consolidated amended complaint, which motions have been fully briefed. The Company intends to vigorously defend these actions.

In connection with the secondary offering of the Company’s Syncora shares, the Company and Syncora each agreed to indemnify the several underwriters of that offering against certain liabilities, including liabilities under the Securities Act of 1933 for payment of legal fees and expenses, settlements and judgments incurred with respect to litigation such as this. The Company and Syncora have agreed to each bear 50% of this indemnity obligation.

The Company is subject to litigation and arbitration in the normal course of its business. These lawsuits and arbitrations principally involve claims on policies of insurance and contracts of reinsurance and are typical for the Company and for the property and casualty insurance and reinsurance industry in general. Such legal proceedings are considered in connection with the Company’s loss and loss expense reserves. Reserves in varying amounts may or may not be established in respect of particular claims proceedings based on many factors, including the legal merits thereof. In addition to litigation relating to insurance and reinsurance claims, the Company and its subsidiaries are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance or reinsurance policies. This category of business litigation typically involves, amongst other things, allegations of underwriting errors or misconduct, employment claims, regulatory activity, shareholder disputes or disputes arising from business ventures. The status of these legal actions is actively monitored by management. If management believed, based on available information, that an adverse outcome upon resolution of a given legal action was probable and the amount of that adverse outcome was reasonable to estimate, a loss would be recognized and a related liability recorded. The Company believes that the expected ultimate outcome of all outstanding litigation and arbitration will not have a material adverse effect on its consolidated financial condition, operating results and/or liquidity, although an adverse resolution of one or more of these items could have a material adverse effect on the Company’s results of operations in a particular fiscal quarter or year.



I TEM 1A.	RISK FACTORS

Refer to Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 for further information.



I TEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


	(c)	Purchases of Equity Securities by the Issuer and Affiliate Purchasers

The following table provides information about purchases by the Company during the three months ended June 30, 2009 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)

April 1-30, 2009	4,679	$	6.16	—	$	375.5 million
May 1-31, 2009	1,590	$	9.51	—	$	375.5 million
June 1-30, 2009	7,512	$	10.63	—	$	375.5 million

Total	13,781	$	8.98	—	$	375.5 million



(1)	All share purchased were purchased in connection with the vesting of restricted shares granted under the Company’s restricted stock plan. All of these purchases were made in connection with satisfying tax withholding obligations of those employees. These shares were not purchased as part of the Company’s share repurchase program noted below.

(2)	On September 24, 2007, the Board of Directors of the Company approved a share repurchase program, authorizing the Company to repurchase up to $500.0 million of its Class A ordinary shares. During the quarter ended June 30, 2009, no share repurchases were made under the share repurchase program. As at June 30, 2009, the Company could repurchase $375.5 million of its equity securities under the share repurchase program.



I TEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Annual General Meeting of holders of Class A Ordinary Shares (the “Shareholders”) held on April 24, 2009 at the Executive Offices of the Company, XL House, One Bermudiana Road, Hamilton HM 11, Bermuda, the Shareholders approved the following:

1. The election of three Class II Directors to hold office until 2012:


	Votes in Favor	Votes Withheld

Dale R. Comey	292,875,969	11,693,983
Robert R. Glauber	279,206,772	25,363,180
G. Thompson Hutton	301,094,512	3,475,440

2. Approval of the amendment and restatement of the Company’s 1991 Performance Incentive Program:


Votes In Favor	Votes Against	Abstentions

217,079,819	59,874,215	627,375

3. Approval of the amendment and restatement of the Company’s Director’s Stock and Option Plan


Votes In Favor	Votes Against	Abstentions

263,889,620	13,078,825	612,964

4. The appointment of PricewaterhouseCoopers LLP, New York, to act as the registered independent public accounting firm for the Company for the year ending December 31, 2009:


Votes In Favor	Votes Against	Abstentions

303,592,522	475,787	501,663



I TEM 6.		E XHIBITS

Exhibit		Description

10.1	**	Employment Agreement, dated as of January 25, 2008, by and between XL Capital Ltd and David B. Duclos.

10.2	**	Amendment to Employment Agreement, dated as of December 19, 2008, between XL Capital Ltd and David B. Duclos (amended in response to Internal Revenue Code Section 457A).

10.3	**	Consulting Agreement, dated as of April 24, 2009, between XL Capital Ltd and Brian O’Hara.

10.4	**	2008 Form of Employment Agreement between XL Capital Ltd and certain Executive Officers.

10.5	**	2008 Form of Amendment to Employment Agreement between XL Capital Ltd and certain Executive Officers (amended in response to Internal Revenue Code Section 457A).

10.6	**	2009 Form of Employment Agreement between XL Capital Ltd and certain Executive Officers.

10.7	**	Amended Employment Agreement, dated as of April 25, 2008, by and between XL Capital Ltd, X.L. Global Services, Inc. and James H. Veghte (amended in response to Internal Revenue Code Section 409A).

10.8	**	Amendment to Amended Employment Agreement, dated as of December, 2008, between XL Capital Ltd, X.L. Global Services, Inc. and Brian Nocco (amended in response to Internal Revenue Code Section 457A).

10.9	**	Amendment to Employment Agreement, dated as of December 2008, between XL Capital Ltd and Michael S. McGavick (amended in response to Internal Revenue Code Section 457A).

10.10	**	Master Commutation, Release and Restructuring Agreement by and among XL Capital Ltd, XL Insurance (Bermuda) Ltd, XL Reinsurance America Inc., X.L. Global Services, Inc., XL Services (Bermuda) Ltd and X.L. America, Inc., Security Capital Assurance Ltd (“SCA”), certain of SCA’s subsidiaries and certain financial institutions who have entered into various credit default swaps with affiliates of SCA, dated as of July 28, 2008, as amended.

10.11	**	Letter Agreement, dated May 5, 2009, by and between XL Global Services, Inc. and Accenture LLP relating to early termination of the May 6, 2008 Operational Transformation Agreement.

10.12	**	Amendment to Letter Agreement, dated May 6, 2009, by and between XL Global Services, Inc. and Accenture LLP relating to early termination of the May 6, 2008 Operational Transformation Agreement.

31	**	Rule 13a-14(a)/15d-14(a) Certifications.

32	**	Section 1350 Certification.

	**	filed herewith

S IGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Date: August 5, 2009

		XL CAPITAL LTD
		(Registrant)

		/s/ M ICHAEL S. M C G AVICK

		Michael S. McGavick
		Chief Executive Officer

	Date: August 5, 2009

		/s/ B RIAN W. N OCCO

		Brian W. Nocco
		Executive Vice President and
		Chief Financial Officer

Exhibit 10.1

EMPLOYMENT AGREEMENT
(dated as of January 25, 2008)

AGREEMENT, made and entered into as of the date first above written, by and between, XL Capital Ltd, a Cayman Islands corporation (the “Company”), and David B. Duclos (the “Executive”).

WHEREAS, the Executive has been in the employ of the Company and certain of its subsidiaries;

WHEREAS, the Company and the Executive desire to continue such employment and to amend the terms and conditions of such employment as set forth herein;

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the Company, the Guarantors (as hereinafter defined) and the Executive (the “Parties”) agree as follows:

1. EMPLOYMENT.

The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, for the term of this Agreement as set forth in Section 2, below, in the position and with duties and responsibilities set forth in Section 3, below, and upon such other terms and conditions as are hereinafter stated.

2. TERM OF EMPLOYMENT.

The stated term of employment under this Agreement shall commence on the date first above written (the “Date of the Agreement”) and shall continue through the close of business on the first anniversary of the Date of the Agreement, subject to earlier termination as provided in Section 8, below, and extension as provided in the next succeeding sentence. On the first anniversary of the Date of the Agreement and on each anniversary thereafter, the stated term of employment shall be automatically extended for an additional one year unless the Company gives notice in writing to the Executive or the Executive gives notice in writing to the Company at least six months prior to such anniversary that the term is not to be so extended.

3. POSITIONS, DUTIES AND RESPONSIBILITIES.

(a) GENERAL. The Executive shall be employed as the Chief Executive, Insurance Operations of the Company. In such position, the Executive shall have the duties, responsibilities and authority normally associated with the office, position and titles of such an officer of an insurance, reinsurance and financial services company, or holding company, whose shares are publicly traded in the United States. In carrying out his duties and responsibilities, the Executive shall report to the Chief Operating Officer of the Company. During the term of this Agreement, the Executive shall devote his full business time to the business and affairs of the Company, and shall use his best efforts, skills and abilities to promote the Company’s interests.

(b) PERFORMANCE OF SERVICES. The Executive’s services under this Agreement, which are global in nature, shall be performed at the location or locations reasonably

requested by the Company. The Executive acknowledges that the Company may require the Executive to travel to the extent such travel is reasonably necessary to perform the services here under and that such travel may be extensive. To the extent reasonably requested by the Company, the Executive shall allocate greater business time to a location other than his principal business location, and if reasonably requested by the Company, the Executive shall relocate to such other locations. Any such relocation will not be considered to be a breach of this Agreement.

4. BASE SALARY.

The Executive shall be paid a Base Salary by the Company equal to US$550,000, payable in accordance with the Company’s regular pay practices. Such Base Salary shall be subject to annual review in accordance with the Company’s practices for executives as in effect from time to time and may be increased at the discretion of the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”).

5. BONUSES.

In addition to the Base Salary provided for in Section 4, above, the Executive shall be eligible for an annual cash bonus under the Company’s Annual Incentive Compensation Plan as in effect from time to time, with a bonus opportunity which is substantially similar to that of similarly situated executives. The Executive may be awarded such annual bonuses thereunder as may be approved by the Compensation Committee based on corporate, individual and business unit performance measures, as appropriate, established or approved from time to time, by the Compensation Committee. Any annual bonus shall be paid in cash in a lump sum after the end of the calendar year for which the annual bonus is paid and no later than March 15 following such calendar year, unless deferred at the Executive’s option in accordance with the provisions of any applicable deferred compensation plan of the Company or it subsidiaries in effect from time to time. Nothing in this Section 5 shall confer upon the Executive any right to a minimum annual bonus.

6. EMPLOYEE BENEFIT PROGRAMS.

During the term of the Executive’s employment under this Agreement, the Executive shall be entitled to participate in all employee benefit programs of the Company as are in effect from time to time and in which similarly situated senior executives of the Company are eligible to participate.

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7. BUSINESS EXPENSE REIMBURSEMENT AND FRINGE BENEFITS. During the term of the Executive’s employment under this Agreement, the Executive shall be entitled to participate in the Company’s travel and entertainment expense reimbursement programs and its executive fringe benefit plans and arrangements, all in accordance with the terms and conditions of such programs, plans and arrangements as in effect from time to time as applied to the Company’s similarly situated executives.

8. TERMINATION OF EMPLOYMENT.

(a) TERMINATION DUE TO DEATH. In the event the Executive dies during the term of employment hereunder, the Executive’s spouse, if the spouse survives the Executive, (or, if the Executive’s spouse does not survive him, the estate or other legal representative of the Executive) shall be entitled to receive the Base Salary as provided in Section 4, above, at the rate in effect at the time of Executive’s death, to be paid in accordance with the Company’s regular payroll practices (as in effect at the time of death) through the end of the sixth month after the month in which the Executive dies. In addition to the above, the estate or other legal representative of the Executive shall be entitled to:


	(i) any annual bonus awarded in accordance with the Company’s bonus program but not yet paid under Section 5, above, to be paid at the time such bonus would otherwise be due under Section 5 above, and reimbursement of business expenses incurred prior to death in accordance with Section 7 above,

	(ii) within 45 days after the date of death (with the actual date of payment within such 45 day period to be determined by the Company), a pro rata bonus for the year of death in an amount determined by the Compensation Committee, but in no event less than a pro rata portion of the Executive’s average annual bonus for the immediately preceding three years (or the period of the Executive’s employment with the Company, if less),

	(iii) the rights under any options to purchase equity securities of the Company or other rights with respect to equity securities of the Company, including any restricted stock or other securities, held by the Executive determined in accordance with the terms thereof,

	(iv) for a period of six months following the Executive’s death, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive’s dependents, if any, under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the dependents) as is then in existence for other executives during the coverage period; provided, that, if the Executive’s dependents cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on substantially the same after-tax basis as if continued participation had been permitted (and any payment made by the Company in respect of any taxes imposed with respect to such benefits shall be paid to the Executive’s dependents, or to the applicable taxing authority on their behalf, no later than the due date of such taxes), and

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	(v) the vested accrued benefits, if any, under the employee benefit programs of the Company, as provided in Section 6, above, determined in accordance with the applicable terms and provisions of such programs.

(b) TERMINATION DUE TO DISABILITY. In the event the Executive’s employment hereunder is terminated due to his disability, as determined under the Company’s long-term disability plan, the Executive shall be entitled to:

	(i) a cash lump sum payment made, subject to Section 25 below, 60 days after the date of termination in an amount equal to the Base Salary as provided in Section 4, above, that would have been paid to the Executive had he remained employed through the end of the sixth month after the month in which the Executive’s employment terminates due to disability,

	(ii) any annual bonus awarded in accordance with the Company’s bonus program but not yet paid under Section 5, to be paid, subject to Section 25 below, at the time such bonus would otherwise be due under Section 5 above, and reimbursement of business expenses incurred prior to termination of employment in accordance with Section 7 above,

	(iii) subject to Section 25 below, 60 days after the date of termination, a pro rata bonus for the year of termination in an amount determined by the Compensation Committee, but in no event less than a pro rata portion of the Executive’s average annual bonus for the immediately preceding three years (or the period of the Executive’s employment with the Company, if less),

	(iv) the rights under any options to purchase equity securities of the Company or other rights with respect to equity securities of the Company, including any restricted stock or other securities, held by the Executive, determined in accordance with the terms thereof,

	(v) for a period of six months following the termination of the Executive’s employment, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive (and the Executive’s dependents, if any) under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the Executive) as is then in existence for other executives during the coverage period; provided , that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on substantially the same after-tax basis as if continued participation had been permitted (and any payment made by the Company in respect of any taxes imposed with respect to such benefits shall be paid to the Executive, or to the applicable taxing authority on his behalf, no later than the due date of such taxes); provided further, however , that, in the event the Executive becomes reemployed with another employer and becomes eligible to receive medical benefits from such employer, the medical benefits described herein shall immediately cease, and

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	(vi) the vested accrued benefits, if any, under the employee benefit programs of the Company, as provided in Section 6 above, determined in accordance with the applicable terms and provisions of such programs.

	(c) TERMINATION FOR CAUSE.

	(i) The employment of the Executive under this Agreement may be terminated by the Company for Cause, such termination to be effective upon the Company giving the Executive written notice of termination in accordance with the provisions of this Agreement. For this purpose, “Cause” shall mean:

	(A) conviction of the Executive of a felony involving moral turpitude, dishonesty or laws to which the Company or its Affiliates are subject in connection with the conduct of its or their business;

	(B) the Executive, in carrying out his duties for the Company under this Agreement, has been guilty of (1) willful misconduct or (2) substantial and continual refusal by the Executive to perform the duties assigned to the Executive pursuant to the terms hereof; provided, however , that any act or failure to act by the Executive shall not constitute Cause for purposes of this Section 8(c)(i)(B) if such act or failure to act was committed, or omitted, by the Executive in good faith and in a manner he reasonably believed to be in the overall best interests of the Company, as the case may be. The determination of whether the Executive acted in good faith and that he reasonably believed his action to be in the Company’s overall best interest, as the case may be, will be in the reasonable judgment of the General Counsel of the Company or, if the General Counsel shall have an actual or potential conflict of interest, the Compensation Committee; or

	(C) the Executive’s continued willful refusal to obey any lawful policy or requirement duly adopted by the Board of Directors of the Company and the continuance of such refusal after receipt of written notice.

	(ii) In the event of a termination for Cause under Section 8(c)(i), above, the Executive shall be entitled only to:

	(A) Base Salary as provided in Section 4, above, at the rate in effect at the time of his termination of employment for Cause, through the date on which termination for Cause occurs, to be paid in accordance with the Company’s regular payroll practices,

	(B) the rights under any options to purchase equity securities of the Company or other rights with respect to equity securities of the Company, including any restricted stock or other securities, held by the Executive, determined in accordance with the terms thereof, and

	(C) the vested accrued benefits, if any, under employee benefit programs of the Company, as provided in Section 6, above, and reimbursement of properly incurred unreimbursed business expenses under the business expense reimbursement program as described in Section 7, above, determined in accordance with the applicable terms and provisions of such employee benefit and expense reimbursement programs; provided that

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	the Executive shall not be entitled to any such benefits unless the terms and provisions of such programs expressly state that the Executive shall be entitled thereto in the event his employment is terminated for Cause (as defined in this Agreement or otherwise).

	(d) TERMINATION WITHOUT CAUSE.

	(i) Anything in this Agreement to the contrary notwithstanding, the Executive’s employment may be terminated by the Company without Cause as provided in this Section 8(d). A termination due to death or disability, as described in Section 8(a) or (b), above, or a termination for Cause, as described in Section 8(c), above, shall not be deemed a termination without Cause under this Section 8(d). For the avoidance of doubt, if a notice of non-renewal of this Agreement pursuant to Section 2 is issued by the Company, the termination of the Executive’s employment at the end of the term shall be considered a termination by the Company without Cause hereunder.

	(ii) In the event the Executive’s employment is terminated by the Company without Cause (x) prior to a Change in Control (other than as provided in the last paragraph of Section 8(d)(iii), in which case the provisions of Section 8(d)(iii) shall apply in lieu of this Section 8(d)(ii)) or (y) following the Post-Change Period (as hereinafter defined), the Executive shall be entitled to:

	(A) Base Salary as provided in Section 4, above, at the rate in effect at the time of his termination of employment without Cause, through the date on which termination without Cause occurs, to be paid in accordance with the Company’s regular payroll practices,

	(B) provided the Executive executes, on or before the date that is fifty (50) days following the date of his termination of employment, a general release of claims against the Company and its Affiliates (as defined below) in form and substance satisfactory to the Company and does not revoke such release prior to the end of the seven day statutory revocation period, a cash lump sum payment made, subject to Section 25 below, sixty (60) days after termination of employment equal to (x) two times the Executive’s annual Base Salary, at the annual rate in effect in accordance with Section 4, above, immediately prior to such termination and (y) one times the higher of the targeted annual bonus for the year of such termination, if any, or the average of the Executive’s annual bonus payable by the Company for the three years immediately preceding the year of termination (or such shorter period during which the Executive has been employed by the Company),

	(C) any annual bonus awarded in accordance with the Company’s bonus program but not yet paid under Section 5, above, to be paid, subject to Section 25 below, at the time such bonus would otherwise be due under Section 5 above, and reimbursement of business expenses incurred prior to termination of employment in accordance with Section 7 above,

	(D) the rights under any options to purchase equity securities of the Company or other rights with respect to equity securities of the Company, including any restricted

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	stock or other securities, held by the Executive, determined in accordance with the terms thereof,

	(E) for a period of twenty-four months following the termination of the Executive’s employment, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive (and the Executive’s dependents, if any) under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the Executive) as is then in existence for other executives during the coverage period; provided , that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on substantially the same after-tax basis as if continued participation had been permitted (and any payment made by the Company in respect of any taxes imposed with respect to such benefits shall be paid to the Executive, or to the applicable taxing authority on his behalf, no later than the due date of such taxes); provided, however , with respect to the participation by the Executive in the medical insurance plan hereunder, the following conditions shall be met: (i) the amount eligible for reimbursement or payment under any such plan in one calendar year may not affect the amount eligible for reimbursement or payment under such plan in any other calendar year (except that the plan may impose a limit on the amount that may be reimbursed or paid if such limit is imposed on all participants), and (ii) any reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred; provided, further, however , that, in the event the Executive becomes reemployed with another employer and becomes eligible to receive medical benefits from such employer, the medical benefits described herein shall immediately cease, and

	(F) the vested accrued benefits, if any, under the employee benefit programs of the Company, as provided in Section 6 above, determined in accordance with the applicable terms and provisions of such programs.

	(iii) In the event the Executive’s employment is terminated by (x) the Company without Cause within the twenty-four month period following a Change in Control (as defined in Exhibit A hereto) (the “Post-Change Period”) or (y) the Executive terminates his employment for “Good Reason” (as defined in Exhibit B hereto) during the Post-Change Period, the Executive shall be entitled to the following, paid in the case of amounts set forth in (B), (C) and (D) below, subject to Section 25 below, 60 days after termination of employment:

	(A) Base Salary as provided in Section 4, above, at the rate in effect at the time of his termination of employment, through the date on which termination occurs, to be paid in accordance with the Company’s regular payroll practices,

	(B) a cash lump sum payment equal to two times the Executive’s annual Base Salary, at the rate in effect in accordance with Section 4, above, or immediately prior to such termination or Change in Control, whichever is greater,

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	(C) a cash lump sum payment equal to two times the average annual bonus awarded to the Executive by the Company in the three years prior to the year in which the Change in Control occurs (or shorter period during which the Executive had been employed by the Company); provided such bonuses shall be at least equal to the targeted annual bonus, if any, for the year of such termination,

	(D) an amount equal to (i) the higher of (x) the bonus actually awarded to the Executive by the Company for the year immediately preceding the year in which the Change in Control occurs or (y) the targeted amount of bonus, if any, that would have been awarded to the Executive in respect of the year in which the termination of employment occurs, multiplied by (ii) a fraction, the numerator of which is the number of months or fraction thereof in which the Executive was employed by the Company in the year of termination of employment, and the denominator of which is 12,

	(E) options to purchase equity securities of the Company or other rights with respect to equity securities of the Company held by the Executive shall immediately vest in full and shall continue to be exercisable for three years from the date of termination of employment, notwithstanding the Executive’s termination of employment, or the original full term of the option or other right, if shorter,

	(F) for a period of twenty-four months following the termination of the Executive’s employment, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive (and the Executive’s dependents, if any) under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the Executive) as is then in existence for other executives during the coverage period; provided , that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on substantially the same after-tax basis as if continued participation had been permitted (and any payment made by the Company in respect of any taxes imposed with respect to such benefits shall be paid to the Executive, or to the applicable taxing authority on his behalf, no later than the due date of such taxes); provided, however , with respect to the participation by the Executive in the medical insurance plan hereunder, the following conditions shall be met: (i) the amount eligible for reimbursement or payment under any such plan in one calendar year may not affect the amount eligible for reimbursement or payment under such plan in any other calendar year (except that the plan may impose a limit on the amount that may be reimbursed or paid if such limit is imposed on all participants), and (ii) any reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred; provided further, however , that, in the event the Executive becomes reemployed with another employer and becomes eligible to receive medical benefits from such employer, the medical benefits described herein shall immediately cease, and

	(G) full and immediate vesting under the Company’s retirement plans as of the date of termination, to the extent permitted by applicable law; provided, however , that if such full and immediate vesting cannot be provided under a “qualified employer plan” (within the meaning of Treas. Reg. Section 1.409A-l(a)(2)) under applicable law, then

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	the present value of economically equivalent benefits, determined using reasonable assumptions and on an after-tax basis to the Executive, shall be paid in a cash lump sum to the Executive, subject to Section 25 below, 60 days after termination of employment.

Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled to the benefits described in (A)-(G) above, if the Executive’s employment with the Company is terminated by the Company (other than for Cause) within one year prior to the date on which a “409A Change in Control” (as defined below) occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated or intended to effect the 409A Change in Control or (ii) otherwise arose in connection with or anticipation of the 409A Change in Control; provided, however , that in such event, amounts in excess of those otherwise payable to the Executive under Section 8(d)(ii) above will be payable hereunder only following the 409A Change in Control (and, subject to Section 25 below, 10 days thereafter). For purposes hereof, a “409A Change in Control” means a “change in control event” (as defined in Treas. Reg. Section 1.409A-3(i)(5)) with respect to the Company that also constitutes a Change in Control.

(iv) If, in situations where Section 8(d)(iii) does not apply, at any time during the term of the Executive’s employment hereunder and without the Executive’s written consent, duties are assigned to the Executive that are materially inconsistent with his position as described in Section 3 above, or the Company does not cure any material breach by it of any provision of Sections 4 through 7 of this Agreement within 30 calendar days following written notice of same by the Executive (which written notice must be given within 30 calendar days after such breach), the Executive shall have the right to terminate his employment within 30 calendar days of the Company’s failure to rescind such assignment in accordance with the proviso below or of such failure to cure a breach, as the case may be, and such termination shall be deemed a termination by the Company without Cause under Section 8(d)(ii), above, provided , in the case of assignment of duties that are materially inconsistent with those set forth in Section 3 above, the Executive shall have given the Company written notice of such assignment within 30 calendar days of such assignment and shall not, within 30 calendar days thereafter, have had the assignment of inconsistent duties rescinded.

(e) VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may voluntarily terminate his employment prior to the expiration of the term of this Agreement upon at least three months’ prior written notice to the Company. Such termination shall constitute a voluntary termination and, except as provided in Section 8(d)(iii) or Section 8(d)(iv), above, in such event the Executive shall be limited to the same rights and benefits as applicable to a termination by the Company for Cause as provided in Section 8(c), above. A voluntary termination in accordance with this Section 8(e) shall not be deemed a breach of this Agreement. A termination of the Executive’s employment due to disability or death as described in Section 8(b) or 8(a), above, a termination by the Executive which the Executive is entitled to treat as a termination by the Company pursuant to Section 8(d), above, or a termination by the Executive under Section 8(d)(iv), above, shall not be deemed a voluntary termination within the meaning of this Section 8(e).

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9. EXCISE TAX PAYMENTS.

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that (i) any payment or distribution made, or benefit provided (including, without limitation, the acceleration of any payment, distribution or benefit or accelerated vesting or exercisability of any award) by the Company, any acquirer or any party related to the Company or the acquirer to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the United States Internal Revenue Code of 1986, as amended (the “Code”) (or any successor provision or similar excise tax), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), (ii) the aggregate amount of the Executive’s Parachute Payments (as defined in Section 280G(b)(2)(A) of the Code) is less than 3.25 times the Executive’s Base Amount (as defined in Section 280G(b)(3)(A) of the Code), and (iii) no such Payment would be subject to the Excise Tax if the payments set forth in Section 8(d)(iii)(B) and (C) hereof were each reduced by up to 20 percent, then the payments set forth in Section 8(d)(iii)(B) and (C) will each be reduced to the smallest extent possible (and in no event by more than 20 percent in the aggregate) such that no Payment is subject to the Excise Tax.

(b) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that (i) the aggregate amount of the Executive’s Parachute Payments equals or exceeds 3.25 times the Executive’s Base Amount, (ii) the aggregate amount of the Executive’s Parachute Payments is less than 3.25 times the Base Amount but one or more Payments would be subject to the Excise Tax even if the payments set forth in Section 8(d)(iii)(B) and (C) hereof were each reduced by 20 percent, or (iii) notwithstanding a reduction in payments pursuant to Section 9(a) above, an Excise Tax is payable by the Executive on one or more Payments, then, in any such case, Payments shall not be reduced and the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any income or Excise Tax) imposed upon the Gross-Up Payment and any interest or penalties imposed with respect to such taxes, the Executive retains from the Gross-Up Payment an amount equal to the Excise Tax imposed upon the Payments.

(c) Subject to the provisions of Section 9(d), all determinations required to be made under this Section 9, including determination of whether a Gross-Up Payment is required and of the amount of any such Gross-Up Payment, shall be made by a nationally recognized public accounting firm selected by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the date of termination of the Executive’s employment, if applicable, or such earlier time as is reasonably requested. The initial Gross-Up Payment, if any, as determined pursuant to this Section 9(c), shall be paid to the Executive within five business days of the receipt of the Accounting Firm’s determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that he has substantial authority not to report any Excise Tax on his Federal income tax return. Any determination by the Accounting Firm meeting the requirements of this Section 9(c) shall be binding upon the Company and the Executive, subject only to payments pursuant to the following sentence based on a de-

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termination that additional Gross-Up Payments should have been made, consistent with the calculations required to be made hereunder (the amount of such additional payments are referred to herein as the “Gross-Up Underpayment”). In the event that the Company exhausts its remedies pursuant to Section 9(d) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Gross-Up Underpayment that has occurred and any such Gross-Up Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. The fees and disbursements of the Accounting Firm shall be paid by the Company.

(d) The Executive shall notify the Company in writing of any claim by the United States Internal Revenue Service that, if successful, would require the payment by the Executive of any Excise Tax and, therefore, the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but not later than 30 business days after the Executive receives written notice of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires, in good faith, to contest such claim (which notice shall set forth the bases for such contest) and that it will bear the costs and provide the indemnification as required by this sentence, the Executive shall, in good faith:


	(i) give the Company any information reasonably requested by the Company relating to such claim,

	(ii) take such action in connection with contesting such claim as the Company shall, in good faith, reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney selected by the Company and reasonably acceptable to the Executive,

	(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

	(iv) permit the Company to participate, in good faith, in any proceedings relating to such claim;

provided , however , that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis to the Executive, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of all costs and expenses.

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refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided , however , that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis to the Executive, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to the payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(d), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 9(d)) promptly pay to the Company, as the case may be, the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(d), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then any obligation of the Executive to repay such advance shall be forgiven and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

Notwithstanding any provision herein to the contrary, the Executive’s failure to strictly comply with the notice provisions set forth in this Section 9, so long as such failure does not prevent the Company from contesting an excise tax claim, shall not adversely affect the Executive’s rights under this Section 9. Any amount advanced shall be deemed a nonrefundable payment to the extent a refundable advance would be a violation of the Sarbanes-Oxley Act. Anything in this Agreement to the contrary notwithstanding, except as otherwise provided in Treas. Reg. Section 1.409A-3(i)(l)(v), in no event shall any payment by the Company pursuant to this Section 9 be made later than the end of the Executive’s taxable year next following the Executive’s taxable year in which he remits the related taxes.

10. NO MITIGATION; NO OFFSET.

In the event of any termination of employment under Section 8, above, the Executive shall be under no obligation to mitigate damages or seek other employment, and, except as expressly set forth herein, there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that he may obtain.

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11. NONCOMPETITION AND NONSOLICITATION.

The Executive represents and warrants that, to the best of his knowledge, he is not using the confidential or proprietary information of any other person in violation of any agreement or rights of others known to him. The Executive agrees that the products of the Company and its Affiliates shall constitute the exclusive property of the Company and its Affiliates.

For the avoidance of doubt, all trademarks, policy language or forms, products or services (including products and services under development), trade names, trade secrets, service marks, designs, computer programs and software, utility models, copyrights, know-how and confidential information, applications for registration of any of the foregoing and the right to apply for them in any part of the world (whether any of the foregoing shall be registered or unregistered) created or discovered or participated in by the Executive during the course of his employment (whether or not pursuant to the terms of this Agreement) or under the instructions of the Company or its Affiliates are and shall be the absolute property of the Company and its Affiliates, as appropriate. Without limiting the foregoing, the Executive hereby assigns to the Company any and all of the Executive’s right, title and interest, if any, pertaining to the insurance and reinsurance (including, without limitation, finite insurance and reinsurance), risk assumption, risk management, brokerage, financial and other products or services developed or improved upon by the Executive (including, without limitation, any related “know-how”) while employed by the Company or its Affiliates, including any patent, trademark, trade name, copyright, ownership or other right that may pertain thereto.

Since Executive has obtained and is likely to obtain in the course of Executive’s employment with the Company and its Affiliates knowledge of trade names, trade secrets, know-how, products and services (including products and services under development), techniques, methods, lists, computer programs and software and other confidential information relating to the Company and its Affiliates, and their employees, clients, business or business opportunities, Executive hereby undertakes that:


	(i) Executive will not (either alone or jointly with or on behalf of others and whether directly or indirectly) encourage, entice, solicit or endeavor to encourage, entice or solicit away from employment with the Company or its Affiliates, or hire or cause to be hired, any officer or employee of the Company or its Affiliates (or any individual who was within the prior twelve months an officer or employee of the Company or its Affiliates), or encourage, entice, solicit or endeavor to encourage, entice or solicit any individual to violate the terms of any employment agreement or arrangement between such individual and the Company or any of its Affiliates;

	(ii) Executive will not (either alone or jointly with or on behalf of others and whether directly or indirectly) interfere with or disrupt or seek to interfere with or disrupt (A) the relationships between the Company and its Affiliates, on the one hand, and any customer or client of the Company and its Affiliates, on the other hand, (including any insured or reinsured party) who during the period of twenty-four months immediately preceding such termination shall have been such a customer or client, or (B) the supply to the Company and its Affiliates of any services by any supplier or agent or broker who during the period of twenty-four months immediately preceding such termination shall

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	have supplied services to any such person, nor will Executive interfere or seek to interfere with the terms on which such supply or agency or brokering services during such period as aforesaid have been made or provided; and

	(iii) Executive will not (either alone or jointly with or on behalf of others and whether directly or indirectly) whether as an employee, consultant, partner, principal, agent, distributor, representative or stockholder (except solely as a less than one percent stockholder of a publicly traded company), engage in any activities in Bermuda, the United States or greater London if such activities are competitive with the businesses that (i) are then being conducted by the Company or its Affiliates and (ii) during the period of the Executive’s employment were either being conducted by the Company or its Affiliates or actively being developed by the Company or its Affiliates.

The provisions of the immediately preceding sentence shall continue as long as the Executive is employed by the Company or its Affiliates and such provisions shall continue in effect after such employment is terminated for any reason until the first anniversary of such termination, provided that if such employment is terminated by the Company under Section 8(d)(iii) or by the Executive under Section 8(d)(iii), the provisions of clauses (ii) and (iii) shall automatically terminate upon such termination of employment, unless the Company elects, in writing, upon such termination to continue the provisions of clauses (ii) and (iii) in effect through the six-month anniversary of such termination of employment in which case the Company shall be obligated to pay the Executive, in addition to any of the Executive’s rights under Section 8(d)(iii), a lump sum payment equal to the sum of (x) six months of his Base Salary and (y) one half of the Executive’s average annual bonus payable by the Company or its subsidiaries for the three years (or shorter period of employment by any of such entities) immediately preceding the year of termination, and such lump sum payment shall, subject to Section 25 below, be made 60 days following his “separation from service” (within the meaning Treas. Reg. Section 1.409A-1(h)) with the Company.

For purposes of this Agreement, an “Affiliate” of the Company includes any person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the Company, and such term shall specifically include, without limitation, the Company’s majority-owned subsidiaries.

The limitations on the Executive set forth in this Section shall also apply to any agent or other representative acting on behalf of Executive.

While the restrictions aforesaid are considered by both parties to be reasonable in all the circumstances it is recognized that restrictions of the nature in question may fail for reasons unforeseen and accordingly it is hereby declared and agreed that if any of such restrictions or the geographic or other scope thereof shall be adjudged to be void as going beyond what is reasonable in the circumstances for the protection of the interests of the Company and its Affiliates but would be valid if part of the wording thereof were deleted and/or the periods (if any) thereof reduced and/or geographic or other area dealt with thereby reduced in scope then said restrictions shall apply with such modifications as may be necessary to make them valid and effective.

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Nothing contained in this Section 11 shall limit in any manner any additional obligations to which Executive may be bound pursuant to any other agreement or any applicable law, rule or regulation and Section 11 shall apply, subject to its terms, after employment has terminated for any reason.

12. CONFIDENTIAL INFORMATION.

The Executive covenants that he shall not, without the prior written consent of the Company, use for the Executive’s own benefit or the benefit of any other person or entity other than the Company and its Affiliates or disclose to any person, other than an employee of the Company or other person to whom disclosure is necessary to the performance by the Executive of his duties in the employ of the Company, any confidential, proprietary, secret, or privileged information about the Company or its Affiliates or their business or operations, including, but not limited to, information concerning trade secrets, know-how, software, data processing systems, policy language and forms, inventions, designs, processes, formulae, notations, improvements, financial information, business plans, prospects, referral sources, lists of suppliers and customers, legal advice and other information with respect to the affairs, business, clients, customers, agents or other business relationships of the Company or its Affiliates. Executive shall hold in a fiduciary capacity for the benefit of the Company all secret, confidential proprietary or privileged information or data relating to the Company or any of its Affiliates or predecessor companies, and their respective businesses, which shall have been obtained by Executive during his employment, unless and until such information has become known to the public generally (other than as a result of unauthorized disclosure by the Executive) or unless he is required to disclose such information by a court or by a governmental body with apparent authority to require such disclosure. The foregoing covenant by the Executive shall be without limitation as to time and geographic application and this Section 12 shall apply in accordance with its terms after employment has terminated for any reason. The Executive acknowledges and agrees that he shall have no authority to waive any attorney-client or other privilege without the express prior written consent of the Compensation Committee as evidenced by the signature of the Company’s General Counsel.

13. WITHHOLDING.

Anything in this Agreement to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive shall be subject to withholding of such amounts relating to taxes as the Company may reasonably determine should be withheld pursuant to any applicable law or regulation. In lieu of withholding such amounts, in whole or in part, the Company may, in its sole discretion, accept other provision for payment of taxes as required by law, provided it is satisfied that all requirements of law affecting its responsibilities to withhold such taxes have been satisfied.

14. GUARANTY AND AFFILIATE SERVICES.

(a) LIABILITY. Each of XL Insurance Ltd and XL Re Ltd (together, the “Guarantors”) hereby agrees to be jointly and severally liable together with the Company, for the performance of all obligations and duties, and the payment of all amounts, due to the Executive under this Agreement.

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(b) RESPONSIBILITY. All of the other terms and provisions of this Agreement relating to the Executive’s employment by the Company shall likewise apply mutatis mutandis to the Executive’s employment by any of its Affiliates, it being understood that if the Executive’s employment with the Company is terminated, his employment with its Affiliates shall also be terminated and the Executive shall be required to resign immediately from all directorships and other positions held by the Executive in the Company and its Affiliates or in any other entities in respect of which the Executive was acting as a representative or designee of the Company or its Affiliates in connection with his employment.

15. ENTIRE AGREEMENT.

This Agreement, together with the Exhibits, contains the entire agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the Company and the Executive with respect thereto.

16. ASSIGNABILITY; BINDING NATURE.

This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs and assigns. No rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than his right to compensation and benefits hereunder, which may be transferred by will or operation of law subject to the limitations of this Agreement. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation or amalgamation or scheme of arrangement in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes by operation of law or in writing duly executed by the assignee or transferee all of the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law.

17. INDEMNIFICATION.

The Executive shall be provided indemnification by the Company to the maximum extent permitted by applicable law and its charter documents against expenses incurred and damages paid or payable by the Executive with respect to claims based on actions or failures to act by the Executive in his capacity as an officer, director or employee of the Company or its Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive served at the request of the Company or an Affiliate. In addition, he shall be covered by a directors’ and officers’ liability policy with coverage for all directors and officers of the Company in an amount equal to at least US $75,000,000. Such directors’ and officers’ liability insurance shall be maintained in effect for a period of six years following termination of the Executive’s employment for any reason other than pursuant to Section 8(c) or Section 8(e) hereof.

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18. SETTLEMENT OF DISPUTES.

(a) Any dispute between the Parties arising from or relating to the terms of this Agreement or the Executive’s employment with the Company or its Affiliates shall, except as provided in Section 18(b) or Section 18(c), be resolved by binding arbitration held in New York City in accordance with the rules of the American Arbitration Association.

(b) Executive acknowledges that the Company and its Affiliates will suffer irreparable injury, not readily susceptible of valuation in monetary damages, if Executive breaches his obligations under Section 11 or 12. Accordingly, Executive agrees that the Company and its Affiliates will be entitled, in addition to any other available remedies, to obtain injunctive relief against any breach or prospective breach by Executive of his obligations under Section 11 or 12 in any Federal or state court sitting in the City and State of New York or court sitting in Bermuda or the United Kingdom, or, at the Company’s or any Affiliate’s election, in any other jurisdiction in which Executive maintains his residence or his principal place of business. Executive hereby submits to the non-exclusive jurisdiction of all those courts for the purposes of any actions or proceedings instituted by the Company or its Affiliates to obtain such injunctive relief, and Executive agrees that process in any or all of those actions or proceedings may be served by registered mail or delivery, addressed to the last address of Executive known to the Company or its Affiliates, or in any other manner authorized by law. Executive further agrees that, in addition to any other remedies available to the Company or its Affiliates by operation of law or otherwise, because of any breach by Executive of his obligations under Section 11 or 12 he will forfeit any and all bonus and rights to any payments to which he might otherwise then be entitled by virtue hereof and such payments may be suspended so long as any good faith dispute with respect thereto is continuing; provided , however , that payments, benefits and other rights and privileges of the Executive under this Agreement following termination of the Executive’s employment during a Post-Change Period shall not be forfeited, suspended, offset, diminished or otherwise altered in any way on account of any breach or prospective breach of Section 11, Section 12 or any other provision of this Agreement alleged by the Company.

(c) Notwithstanding any other provision of this Agreement, the Executive may elect to resolve any dispute involving a breach or alleged breach of this Agreement following termination of the Executive’s employment during a Post-Change Period in any Federal or State court sitting in the City and State of New York or court sitting in Bermuda or the United Kingdom. The Company and the Guarantors hereby submit to the non-exclusive jurisdiction of all those courts for the purposes of any such actions or proceedings instituted by the Executive, and the Company and the Guarantors agree that process in any or all of such actions or proceedings may be served by registered mail or delivery, addressed to the Company as set forth in Section 20, or in any other manner authorized by law. The Company and the Guarantors shall pay all costs associated with any court proceeding under this Section 18(c) without regard to the outcome of such proceeding, including all legal fees and expenses of the Executive, who shall be reimbursed for all such costs within ten (10) days following written demand therefor by the Executive (which written demand shall be made no later than six (6) months following the end of the calendar year in which such costs were incurred).

(d) Each Party shall bear its own costs incurred in connection with any proceeding under Sections 18(a) or 18(b) hereof, including all legal fees and expenses: provided ,

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however , that the Company shall bear all such costs of the Executive (to the extent such costs are reasonable) if the Executive substantially prevails in the proceeding. Following the final determination of the dispute in which the Executive has substantially prevailed, the Company shall reimburse all such reasonable costs within ten (10) days following written demand therefor (supported by documentation of such costs) by the Executive, and the Executive shall make such written demand within sixty (60) days following the final determination of the dispute; provided , however , that such payment shall be made no later than on or prior to the end of the calendar year following the calendar year in which the cost is incurred. Notwithstanding the foregoing, in the event a final determination of the dispute has not been made by December 20 of the year following the calendar year in which the cost is incurred, the Company shall, within ten (10) days after such December 20, reimburse such reasonable costs (supported by documentation of such costs) incurred in the prior taxable year; provided, however , that the Executive shall return such amounts to the Company within ten (10) business days following the final determination if the Executive did not substantially prevail in the dispute.

(e) The amount of any expenses eligible for payment under this Section 18 during a calendar year will not affect the amount of any expenses eligible for payment under this Section 18 in any other taxable year.

19. AMENDMENT OR WAIVER.

No provision in this Agreement may be amended unless such amendment is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company and the Guarantors. No waiver by any Party of any breach by the other Party of any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Except as set forth in Section 8(d)(iv) or Exhibit B, any waiver must be in writing and signed by the Executive or a duly authorized officer of the Company and the Guarantors, as the case may be.

20. NOTICES.

Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by courier, or by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently by similar process give notice of:


If to the Company:

	XL Capital Ltd
	One Bermudiana Road
	Hamilton HM11, Bermuda
	Att’n: General Counsel

If to the Executive:

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	To the last address delivered to
	the Company by the Executive in
	the manner set forth herein.

21. SEVERABILITY.

In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.

22. SURVIVORSHIP.

The respective rights and obligations of the Parties shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations.

23. REFERENCE.

In the event of the Executive’s death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his estate or other legal representative.

24. GOVERNING LAW.

This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York without reference to the principles of conflict of laws.

25. SECTION 409A.

(a) It is intended that this Agreement will comply with Section 409A of the Code (and any regulations and guidelines issued thereunder) to the extent the Agreement is subject thereto, and the Agreement shall be interpreted on a basis consistent with such intent. If an amendment of the Agreement is necessary in order for it to comply with Section 409A, the parties hereto will negotiate in good faith to amend the Agreement in a manner that preserves the original intent of the parties to the extent reasonably possible. No action or failure to act, pursuant to this Section 25 shall subject the Company to any claim, liability, or expense, and the Company shall not have any obligation to indemnify or otherwise protect the Executive from the obligation to pay any taxes pursuant to Section 409A of the Code.

(b) Notwithstanding any provision to the contrary in this Agreement, if the Executive is deemed on the date of his “separation from service” (within the meaning of Treas. Reg. Section 1.409A-l(h)) to be a “specified employee” (within the meaning of Treas. Reg. Section 1.409A-l(i)), then with regard to any payment that is required to be delayed pursuant to Section 409A(a)(2)(B) of the Code, such payment shall not be made prior to the earlier of (i) the expiration of the six (6)-month period measured from the date of his “separation from service,” or (ii) the date of his death (the “Delay Period”). Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 25 (whether they would have otherwise been payable in a

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single sum or in installments in the absence of such delay) shall be paid to the Executive in a lump sum, and any remaining payments due under this Agreement shall be paid in accordance with the normal payment dates specified for them herein. In no case will compliance with this Section by the Company constitute a breach of the Company’s or the Guarantors’ obligations under this Agreement. Notwithstanding any provision of this Agreement to the contrary, for purposes of Sections 8(b) and 8(d) above, the Executive will be deemed to have terminated his employment on the date of his “separation from service” (within the meaning of Treas. Reg. Section 1.409A-l(h)) with the Company.

26. HEADINGS.

The heading of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.

27. COUNTERPARTS.

This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all of which counterparts taken together will constitute one and the same agreement.

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.


	XL CAPITAL LTD

	By:	/s/ Kirstin R. Gould


	DAVID B. DUCLOS

	By:	/s/ David B. Duclos


	GUARANTORS:

	XL INSURANCE LTD

	By:	/s/ Kirstin R. Gould


	XL RE LTD

	By:	/s/ Kirstin R. Gould

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EXHIBIT A

CHANGE IN CONTROL

A “Change in Control” shall be deemed to have occurred:

(i) any person (which, for all purposes hereof, shall include, without limitation, an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate and a trustee, executor, administrator or other legal representative) (a “Person”) or any group, as defined in Sections 13(d) or 14(d) of the United States Securities Exchange Act of 1934 (other than a group of which the Executive is a member or which has been organized by the Executive), becomes the beneficial owner, directly or indirectly, of securities of the Company representing, or acquires the right to control or direct, or to acquire through the conversion of securities or the exercise of warrants or other rights to acquire securities, 30% or more of either (I) the outstanding Ordinary Shares of the Company, (II) the outstanding securities of the Company having a right to vote in the election of directors, or (III) the combined voting power of the outstanding securities of the Company having a right to vote in the election of directors; or

(ii) if there shall be elected or appointed to the Board of Directors of the Company (the “Board”) any director or directors whose appointment or election by the Board or nomination for election by the Company’s shareholders was not approved by a vote of at least a majority of the directors then still in office who were either directors on the date of execution of this Agreement or whose election or appointment or nomination for election was previously so approved; or

(iii) upon consummation of a reorganization, scheme of arrangement, merger, consolidation, combination, amalgamation, corporate restructuring, liquidation, winding up, exchange of securities, or similar transaction (each, an “Event”), in each case, in respect of which the beneficial owners of the outstanding Company Ordinary Shares immediately prior to such Event do not, following such Event, beneficially own, directly or indirectly, more than 60% of each of the outstanding equity share capital, and the combined voting power of the then outstanding voting securities entitled to vote in the election of the directors, of the Company and any resulting entity, in substantially the same proportions as their ownership, immediately prior to such Event, of the Ordinary Shares and voting power of the Company; or

(iv) if there occurs an Event involving the Company as a result of which 25% of more of the members of the Board of the Company are not persons who were members of the Board immediately prior to the earlier of (x) the Event, (y) execution of an agreement, the consummation of which would result in the Event, or (z) announcement by the Company of an intention to effect the Event; or

(v) if the Board adopts a resolution to the effect that, for purposes of this Agreement, a Change in Control has occurred.

EXHIBIT B

GOOD REASON

For purposes of this Agreement, “Good Reason” shall mean any of the following, unless done with the prior express written consent of the Executive:


	(i) (A) The assignment to Executive of duties inconsistent with Executive’s position (including duties, responsibilities, status, titles or offices as set forth in Section 3 hereof); or (B) any elimination, diminution or reduction of Executive’s duties or responsibilities except in connection with the termination of Executive’s employment for Cause, disability or as a result of Executive’s death or by Executive other than for Good Reason; and for purposes for this clause (i), the determination of whether there has been a reduction of duties or responsibilities or an assignment of duties inconsistent with the Executive’s position shall take into account the Executive’s duties, responsibilities and position with the ultimate parent of the parent/subsidiary group as a whole which includes the Company;

	(ii) The (A) reduction in Executive’s Base Salary from the level in effect immediately prior to the Change in Control, or (B) payment of an annual bonus in an amount less than the lesser of (x) the most recent annual bonus paid prior to the Change in Control or (y) the greater of (I) the most recent target bonus, if any, established prior to the Change in Control or (II) the annual average bonus paid for the preceding three complete years prior to the Change in Control (or such lesser number of complete years as the Executive shall have been employed by the Company);

	(iii) The failure by the Company or the Guarantors to obtain the specific written assumption of this Agreement by any successor or assign of the Company or the Guarantors or any person acquiring substantially all of the Company’s or the Guarantors’ assets;

	(iv) Any breach by the Company or the Guarantors of any provision of this Agreement or any agreements entered into pursuant thereto that remains uncured for 20 calendar days following written notice of same by the Executive;

	(v) Notwithstanding the provisions of Section 3(b) of this Agreement, requiring the Executive to be based at any office or location that is greater than 35 miles from the office or location at which the Executive was principally located immediately prior to the Change in Control;

	(vi) During the Post-Change Period, (A) the failure to continue in effect any compensation or incentive plan in which Executive participates immediately prior to the time of the Change in Control unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing Executive with at least the same aggregate economic opportunity on an after-tax basis available to the Executive immediately prior to the Change in Control) has been made with respect to such plan in connection with the Change in Control, or the failure to continue Executive’s participation therein on substantially the same basis both in terms of the amount of benefits provided



	and the level of his participation relative to other participants, as existed at the time of the Change in Control; or (B) the failure to continue to provide Executive with benefits and coverage at least as favorable in the aggregate as those enjoyed by him under the Company’s pension, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which he was participating at the time of the Change in Control; or

	(vii) The failure by the Company to pay within 7 calendar days of the due date any amounts due under any benefit or compensation plan, including any deferred compensation plan.

Notwithstanding any provision in this Agreement to the contrary, the Executive must give written notice of his intention to terminate his employment for Good Reason within sixty (60) days after the act or omission which constitutes Good Reason, and any failure to give such written notice within such period will result in a waiver by the Executive of his right to terminate for Good Reason as a result of such act or omission.

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Exhibit 10.2

AMENDMENT TO
EMPLOYMENT AGREEMENT

AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) dated as of December 19 , 2008 between XL Capital Ltd, a Cayman Islands corporation (the “Company”), and David B. Duclos (the “Executive”).

WHEREAS, the Company and the Executive are parties to an Employment Agreement dated as of January 25, 2008 (the “Agreement”);

WHEREAS, the Company and the Executive wish to amend the Agreement as set forth herein;

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company, the Guarantors (as defined in the Agreement) and the Executive hereby agree as follows:

1. The last paragraph of Section 8(d)(iii) is amended by deleting “10 days thereafter” and replacing it with “on the date of the 409A Change in Control.”

2 . The first sentence of Section 18(d) is amended to read in its entirety as follows:


	“Each Party shall bear its own costs incurred in connection with any proceeding under Sections 18(a) or 18(b) hereof, including all legal fees and expenses; provided , however , that the Company shall bear all such costs of the Executive (to the extent such costs are reasonable) if the Executive substantially prevails in a proceeding following his “separation from service” (as defined below) with the Company.

	3. Section 25(b) is amended to read in its entirety as follows:

	“(b) Without prejudice to the characterization of any other amounts payable under this Agreement, the parties hereto specifically intend that any amounts payable under Section 8(d)(ii)(A)-(C), Section 8(d)(iii)(A)-(D) and Section 11 will not be considered deferred compensation for purposes of Section 409A due to Treas. Reg. Section 1.409A-l(b)(4) or another applicable exception. However, notwithstanding any provision to the contrary in this Agreement, if the Executive is deemed on the date of his “separation from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)) with the Company to be a “specified employee” (within the meaning of Treas. Reg. Section 1.409A-1(i)), then with regard to any payment or benefit that is considered deferred compensation under Section 409A payable on account of a “separation from service” that is required to be delayed pursuant to Section 409A(a)(2)(B) of the Code (after taking into account any applicable exceptions to such requirement), such payment or benefit shall be made or provided on the date that is the earlier of (i) the expiration of the six (6)-month


	period measured from the date of the Executive’s “separation from service,” or (ii) the date of the Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section 25(b) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. Notwithstanding any provision of this Agreement to the contrary, for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment, references to the Executive’s “termination of employment” (and corollary terms) with the Company shall be construed to refer to the Executive’s “separation from service” (within the meaning of Treas. Reg. Section 1.409A-l(h)) with the Company. With respect to any reimbursement or in-kind benefit arrangements of the Company and its subsidiaries that constitute deferred compensation for purposes of Section 409A, except as otherwise permitted by Section 409A, the following conditions shall be applicable: (i) the amount eligible for reimbursement, or in-kind benefits provided, under any such arrangement in one calendar year may not affect the amount eligible for reimbursement, or in-kind benefits to be provided, under such arrangement in any other calendar year (except that the health and dental plans may impose a limit on the amount that may be reimbursed or paid), (ii) any reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred, and (iii) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit. Whenever a payment under this Agreement specifies a payment period with reference to a number of days ( e.g ., “payment shall be made within thirty (30) days after termination of employment”), the actual date of payment within the specified period shall be within the sole discretion of the Company. Whenever payments under this Agreement are to be made in installments, each such installment shall be deemed to be a separate payment for purposes of Section 409A.”

	4. The definition of “Good Reason” in Exhibit B is amended to read in its entirety as follows:

	“For purposes of this Agreement, “Good Reason” shall mean any of the following, unless done with the prior express written consent of Executive:

	(i) (A) The assignment to Executive of duties materially inconsistent with Executive’s position (including duties, responsibilities, status, titles or offices as set forth in Section 3 hereof); (B) any material diminution or material reduction of Executive’s duties or responsibilities except in connection with the termination of Executive’s employment for Cause, disability or as a result of Executive’s death or by Executive other than for Good Reason; (C) a material diminution in the authorities, duties or responsibilities of the supervisor to whom Ex-

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	ecutive is required to report; or (D) a material diminution in the budget over which Executive retains authority;

	(ii) The (A) material reduction in Executive’s Base Salary from the level in effect immediately prior to the Change in Control, or (B) material diminution in bonus opportunity that results in a material reduction in Executive’s compensation;

	(iii) Any material breach by the Company or the Guarantors of this Agreement or any material agreement entered into pursuant thereto;

	(iv) Notwithstanding the provisions of Section 3(b) of this Agreement, requiring Executive to be based at any office or location that is greater than 35 miles from the office or location at which Executive was principally located immediately prior to the Change in Control;

	(v) During the Post-Change Period, the failure to continue in effect any material compensation or incentive plan in which Executive participates immediately prior to the time of the Change in Control unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing Executive with substantially the same aggregate economic opportunity on an after-tax basis available to the Executive immediately prior to the Change in Control) has been made with respect to such plan in connection with the Change in Control, or the failure to continue Executive’s participation therein on substantially the same basis as existed at the time of the Change in Control, which in any such case results in a material reduction in Executive’s compensation.

	Notwithstanding any provision in this Agreement to the contrary, the Executive must give written notice of his intention to terminate his employment for Good Reason within sixty (60) days after the act or omission which constitutes Good Reason, and the Company shall have thirty (30) days from such notice to remedy the condition, in which case Good Reason shall no longer exist with regard to such condition. Any failure to give such written notice within such period will result in a waiver by the Executive of his right to terminate for Good Reason as a result of such act or omission. Any termination hereunder shall occur within one hundred twenty (120) days after the Good Reason event occurs.”

5. Except as set forth herein, the Agreement shall continue in full force and effect in accordance with its terms.

6. All questions concerning the construction, validity and interpretation of this Amendment and the Agreement shall be construed and governed in accordance with the laws of the State of New York, without reference to the principles of conflict of laws thereof.

7. This Amendment may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all of which counterparts taken together will constitute one and the same agreement.

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year first above written.


	XL CAPITAL LTD

	By:	/s/ Kirstin R. Gould


	GUARANTORS:

	XL INSURANCE (BERMUDA) LTD (formerly XL INSURANCE LTD)

	By:	/s/ Kirstin R. Gould


	XL RE LTD

	By:	/s/ Kirstin R. Gould


READ, ACCEPTED & AGREED

/s/ David B. Duclos

David B. Duclos

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Exhibit 10.3

CONSULTING AGREEMENT

CONSULTING AGREEMENT, dated as of April 24, 2009, by and between XL Capital Ltd, a Cayman Islands corporation (the “ Company ”), and Brian O’Hara (the “ Consultant ”), an individual.

WHEREAS, the Consultant was employed by the Company as its Chief Executive Officer and he was Chairman of its Board of Directors; and

WHEREAS, the Company desires to retain the services of the Consultant, and the Consultant desires to be retained by the Company, subject to and in accordance with the terms and conditions set forth herein; and

WHEREAS, the Consultant and the Company have agreed to the noncompetition, nonsolicitation and confidentiality provisions set forth herein.

NOW, THEREFORE, in consideration of the conditions and covenants set forth herein, the parties hereto hereby agree as follows:

1. Agreement . The Company hereby retains the Consultant as a consultant to the Company on and subject to the terms and conditions set forth herein, and the Consultant hereby accepts such consultancy, on and subject to such terms and conditions.

2. Consulting Services . During the Consulting Term (as defined below), the Consultant shall provide such consulting services to the Company commensurate with his status and experience as the former Chairman and Chief Executive Officer of the Company with respect to such matters as shall be reasonably requested from time to time by the Chief Executive Officer of the Company. Such services shall include, but not be limited to, services in connection with the Company’s ongoing operations, including, without limitation, advising on industry activities, government and public affairs matters and client relationship matters, and in connection with the defense and/or investigation of any third party claim or any investigation or proceeding relating to the Company or its Affiliates (as defined below). The Consultant shall not, by virtue of the consulting services provided hereunder, be considered an officer or employee of the Company, and he shall have no power or authority to contract in the name of or bind the Company or its Affiliates.

3. Consulting Fee . During the Consulting Term, in consideration of the services to be provided by the Consultant to the Company described herein and in consideration for the covenants of the Consultant set forth herein, the Company shall pay the Consultant a fee in the amount of $800,000 per year, payable (i) $800,000 on May 1, 2009, (ii) $800,000 on January 4, 2010, and (iii) $800,000 on December 31, 2010. The Consultant shall not be entitled to participate in any employee benefit plans maintained by the Company or any of its Affiliates by reason of this Agreement.

4. Consulting Term . The period during which the Consultant will be retained by the Company to provide the consulting services hereunder shall commence on April 25, 2009 and shall terminate on the third anniversary thereof, unless sooner terminated as provided in this

Section 4 (the “ Consulting Term ”). Notwithstanding the foregoing, the Consulting Term will end on the date of the Consultant’s death or termination of service due to his Permanent Disability (as defined below), and the Consulting Term may be terminated by the Company for Cause (as defined below). For purposes of this Agreement, the term “ Cause ” shall mean the Consultant’s (a) fraud or dishonesty in connection with the performance or provision by the Consultant of his services under this Agreement, (b) material breach of any of the terms of this Agreement or (c) the Consultant’s conviction of, or plea of nolo contendere to, a felony. For purposes of this Agreement, the term “ Permanent Disability ” means those circumstances where the Consultant has been unable to provide his services as described in this Agreement for at least 60 continuous days because of physical, mental or emotional incapacity resulting from injury, sickness or disease, and will be unable to continue to provide his services as described in this Agreement for a total of six (6) months in any twelve (12) month period because of physical, mental or emotional incapacity resulting from injury, sickness or disease. Any questions as to the existence of a Permanent Disability shall be determined by a qualified, independent physician selected by the Company and approved by the Consultant (which approval shall not be unreasonably withheld). The determination of any such physician shall be final and conclusive for all purposes of this Agreement.

5. Reimbursement of Expenses . The Company shall reimburse the Consultant for all reasonable expenses incurred by him in the course of performing his services under this Agreement (which expenses are consistent with the Company’s policies in effect from time to time with respect to travel and other business expenses), subject to the Company’s requirements with respect to reporting and documentation of expenses.

6. Noncompetition and Nonsolicitation . Since the Consultant has obtained in the course of his employment with the Company and his service as Chairman of the Board, and is likely to obtain in the course of his service as a consultant hereunder, knowledge of trade secrets, know-how, products and services (including products and services under development), techniques, methods, lists, computer programs and software and other confidential information relating to the Company and its Affiliates, and their employees, clients, business or business opportunities, the Consultant hereby undertakes that, during the period beginning on the date hereof and ending on April 25, 2012:


	(a) the Consultant will not (either alone or jointly with or on behalf of others and whether directly or indirectly) encourage, entice, solicit or endeavor to encourage, entice or solicit away from employment with the Company or its Affiliates, or hire or cause to be hired, any officer or employee of the Company or its Affiliates (or any individual who was within the prior twelve months an officer or employee of the Company or its Affiliates), or encourage, entice, solicit or endeavor to encourage, entice or solicit any individual to violate the terms of any employment agreement or arrangement between such individual and the Company or any of its Affiliates;

	(b) the Consultant will not (either alone or jointly with or on behalf of others and whether directly or indirectly) interfere with or disrupt or seek to interfere with or disrupt (A) the relationships between the Company and its Affiliates, on the one hand, and any customer or client of the Company and its Affiliates, on the other hand, (including any insured or reinsured party) who during the period of twenty-four months immedi-

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	ately preceding the date of this Agreement shall have been such a customer or client, or (B) the supply to the Company and its Affiliates of any services by any supplier or agent or broker who during the period of twenty-four months immediately preceding the date of this Agreement shall have supplied services to any such person, nor will the Consultant interfere or seek to interfere with the terms on which such supply or agency or brokering services during such period as aforesaid have been made or provided; and

	(c) the Consultant, without the express written consent of the Company (which shall not be unreasonably withheld), will not (either alone or jointly with or on behalf of others and whether directly or indirectly) whether as an employee, consultant, partner, principal, agent, distributor, representative, director or stockholder (except solely as a less than one percent stockholder of a publicly traded company), engage in any activities in Bermuda, the United States or greater London if such activities are competitive with the businesses that (i) are then being conducted by the Company or its Affiliates and (ii) during the period of the Consultant’s employment or consultancy were either being conducted by the Company or its Affiliates or actively being developed by the Company or its Affiliates.

For purposes of this Agreement, an “ Affiliate ” of the Company means any person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the Company, and such term shall specifically include, without limitation, the Company’s majority-owned subsidiaries.

The limitations on the Consultant set forth in this Section 6 shall also apply to any agent or other representative acting on behalf of the Consultant.

While the restrictions aforesaid are considered by both parties to be reasonable in all the circumstances it is recognized that restrictions of the nature in question may fail for reasons unforeseen and accordingly it is hereby declared and agreed that if any of such restrictions or the geographic, duration or other scope thereof shall be adjudged to be void as going beyond what is reasonable in the circumstances for the protection of the interests of the Company and its Affiliates but would be valid if part of the wording thereof were deleted and/or the periods thereof reduced and/or geographic or other area dealt with thereby reduced in scope then said restrictions shall apply with such modifications as may be necessary to make them valid and effective.

7. Confidential Information . The Consultant covenants that he shall not, without the prior written consent of the Company, use for his own benefit or the benefit of any other person or entity other than the Company and its Affiliates or disclose to any person, other than an employee of the Company or other person to whom disclosure is necessary to the performance by the Consultant of his duties as a consultant to the Company, any confidential, proprietary, secret, or privileged information about the Company or its Affiliates or their business or operations, including, but not limited to, information concerning trade secrets, know-how, software, data processing systems, policy language and forms, inventions, designs, processes, formulae, notations, improvements, financial information, business plans, prospects, referral sources, lists of suppliers and customers, legal advice and other information with respect to the affairs, business, clients, customers, agents or other business relationships of the Company

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or its Affiliates (the “Confidential Information”). The Consultant shall hold in a fiduciary capacity for the benefit of the Company all secret, confidential proprietary or privileged information or data relating to the Company or any of its Affiliates or predecessor companies, and their respective businesses, which shall have been obtained by the Consultant during his employment or consultancy, unless and until such information has become known to the public generally (other than as a result of unauthorized disclosure by the Consultant) or unless he is required to disclose such information by a court or by a governmental body with apparent authority to require such disclosure. The foregoing covenant by the Consultant shall be without limitation as to time and geographic application. The Consultant acknowledges and agrees that he shall have no authority to waive any attorney-client or other privilege without the express prior written consent of the Compensation Committee of the Company’s Board of Directors as evidenced by the signature of the Company’s General Counsel.

8. Return of Company Property . The Consultant agrees that, upon the expiration or termination of the Consulting Term, he will immediately return to the Company all materials containing or reflecting the Confidential Information and all copies, reproductions and summaries thereof, in his possession or under his control and shall erase all Confidential Information from all media in his possession or under his control, and, if the Company so requests, shall certify in writing that he has done so. All Confidential Information is and shall remain the property of the Company or its Affiliates, as the case may be.

9. Indemnification . The Company shall indemnify the Consultant against expenses incurred and damages paid or payable by him with respect to claims based on actions or failures to act by the Consultant in his capacity as a consultant under this Agreement, but not including expenses incurred or damages paid or payable by the Consultant arising out of his gross negligence or willful misconduct.

10. General Provisions .

(a) This Agreement constitutes the entire understanding of the Company and the Consultant with respect to the subject matter hereof and supersedes all prior understandings, written or oral, with respect thereto. The terms of this Agreement may be changed, modified or discharged only by an instrument in writing signed by the parties hereto. A failure of the Company or the Consultant to insist on strict compliance with any provision of this Agreement shall not be deemed a waiver of such provision or any other provision hereof. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.

(b) This Agreement shall be construed, enforced and interpreted in accordance with and governed by the laws of the State of New York, without regard to its conflict of laws provisions.

(c) This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement.

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(d) Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by courier, or by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently by similar process give notice of:


		If to the Company:

			XL Capital Ltd
			One Bermudiana Road
			Hamilton HM11, Bermuda
			Att’n: General Counsel

		If to the Consultant:

			To the last address delivered to
			the Company by the Consultant in
			the manner set forth herein.

(e) The Consultant and the Company agree that the Consultant is acting as an independent contractor to the Company for all purposes with regard to the performance of his services hereunder during the Consulting Term, including, without limitation, for US Federal (including social security and unemployment), state and local tax purposes. The Consultant shall be solely responsible for fulfilling when due all Federal, state and local income tax and self-employment tax obligations arising in connection with his consultancy for the Company. Should the Company be required to pay any such tax or payment, the Consultant shall promptly reimburse the Company for such tax or payments, including any interest and penalties with respect thereto. Should it be determined that any payment hereunder is subject to withholding of tax under applicable law, all payments to be made hereunder shall be net of applicable income, employment, social security or other taxes required to be withheld therefrom.

(f) Any dispute between the parties hereto arising from or relating to the terms of this Agreement or the Consultant’s services hereunder shall, except as otherwise provided in this Section 10(f), be resolved by arbitration held in New York City, New York, in accordance with the rules of the American Arbitration Association. The Consultant acknowledges that the Company and its Affiliates will suffer irreparable injury, not readily susceptible of valuation in monetary damages, if the Consultant breaches his obligations under Section 6 or 7 hereof. Accordingly, the Consultant agrees that the Company and its Affiliates will be entitled, in addition to any other available remedies, to obtain injunctive relief against any breach or prospective breach by the Consultant of his obligations under Section 6 or 7 hereof in any Federal or state court sitting in the City and State of New York or court sitting in Bermuda or the United Kingdom, or, at the Company’s or any Affiliate’s election, in any other jurisdiction in which the Consultant maintains his residence or his principal place of business. The Consultant hereby submits to the non-exclusive jurisdiction of all those courts for the purposes of any actions or proceedings instituted by the Company or its Affiliates to obtain such injunctive relief, and the Consultant agrees that process in any or all of those actions or proceedings may be served by registered mail or delivery, addressed to the last address of the Consultant known to the Com-

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pany or its Affiliates, or in any other manner authorized by law. The Consultant further agrees that, in addition to any other remedies available to the Company or its Affiliates by operation of law or otherwise, because of any breach by the Consultant of his obligations under Section 6 or 7 hereof he will forfeit any and all rights to any payments to which he might otherwise then be entitled by virtue of this Agreement and such payments may be suspended so long as any good faith dispute with respect thereto is continuing.

(g) This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. No rights or obligations of the Consultant under this Agreement may be assigned or transferred by him. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation or amalgamation or scheme of arrangement in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes by operation of law or in writing duly executed by the assignee or transferee all of the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law.

(h) It is intended that this Agreement will comply with Section 409A and Section 457A of the Internal Revenue Code of 1986, as amended (the “ Code ”) to the extent the Agreement is subject thereto, and the Agreement shall be interpreted on a basis consistent with such intent. If an amendment of the Agreement is necessary in order for it to so comply, the parties hereto will negotiate in good faith to amend the Agreement in a manner that preserves the original intent of the parties to the extent reasonably possible. No action or failure to act, pursuant to this Section 10(h) shall subject the Company to any claim, liability, or expense, and the Company shall not have any obligation to indemnify or otherwise protect the Consultant from the obligation to pay any taxes pursuant to Section 409A or 457A of the Code. With respect to any reimbursement arrangements of the Company and its Affiliates that constitute deferred compensation for purposes of Section 409A, except as otherwise permitted by Section 409A, the following conditions shall be applicable: (i) the amount eligible for reimbursement under any such arrangement in one calendar year may not affect the amount eligible for reimbursement under such arrangement in any other calendar year, (ii) any reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred, and (iii) the right to reimbursement is not subject to liquidation or exchange for another benefit. Whenever payments under this Agreement are to be made in installments, each such installment shall be deemed to be a separate payment for purposes of Section 409A.

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IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized representative and the Consultant has hereunto set his hand as of the day and year first above written.


	CONSULTANT

	/s/ Brian O’Hara

	Brian O’Hara

	XL CAPITAL LTD

	By:	/s/ Kirstin Gould

		Name: Kirstin Gould
		Title: Executive Vice President
		General Counsel & Secretary

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Exhibit 10.4

2008 FORM OF EMPLOYMENT AGREEMENT
(dated as of ____________________)

AGREEMENT, made and entered into as of the date first above written, by and between, XL Capital Ltd, a Cayman Islands corporation (the “Company”), and ______________ (the “Executive”).

WHEREAS, the Company and the Executive each desire that the Executive become employed by the Company and that the terms and condition of such employment be memorialized by a written agreement;

1. EMPLOYMENT.

[Subject to Section 3(c) below,]* the Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, for the term of this Agreement as set forth in Section 2, below, in the position and with duties and responsibilities set forth in Section 3, below, and upon such other terms and conditions as are hereinafter stated.

2. TERM OF EMPLOYMENT.

[Subject to Section 3(c) below,]* the stated term of employment under this Agreement shall commence on the date first above written (the “Date of the Agreement”) and shall continue through the close of business on the first anniversary of the Date of the Agreement, subject to earlier termination as provided in Section 8, below, and extension as provided in the next succeeding sentence. On the first anniversary of the Date of the Agreement and on each anniversary thereafter, the stated term of employment shall be automatically extended for an additional one year unless the Company gives notice in writing to the Executive or the Executive gives notice in writing to the Company at least six months prior to such anniversary that the term is not to be so extended.

3. POSITIONS, DUTIES AND RESPONSIBILITIES.

(a) GENERAL. The Executive shall be employed as the ____________ of the Company. In such position, the Executive shall have the duties, responsibilities and authority normally associated with the office, position and titles of such an officer of an insurance, reinsurance and financial services company, or holding company, whose shares are publicly traded in the United States. In carrying out his duties and responsibilities, the Executive shall report to the ________________ of the Company. During the term of this Agreement, the Executive shall

* Where applicable.

devote his full business time to the business and affairs of the Company, and shall use his best efforts, skills and abilities to promote the Company’s interests.

(b) PERFORMANCE OF SERVICES. The Executive’s services under this Agreement, which are global in nature, shall be performed at the location or locations reasonably requested by the Company; [ provided , however , that such services will be performed outside the United States and in accordance with the guidelines established by the Company from time to time for the location of the performance of services on behalf of the Company and its subsidiaries.]* The Executive acknowledges that the Company may require the Executive to travel to the extent such travel is reasonably necessary to perform the services hereunder and that such travel may be extensive. To the extent reasonably requested by the Company, the Executive shall allocate greater business time to a location other than his principal business location, and if reasonably requested by the Company, the Executive shall relocate to such other locations. Any such relocation will not be considered to be a breach of this Agreement.

(c) [WORK PERMITS. The employment of the Executive by the Company shall be contingent upon the issuance to the Executive of a suitable (for the purposes of the Executive’s contemplated employment by the Company) work permit by the Bermuda government authorities and any other permits required by any Bermuda government authority. Both the Company and the Executive shall use their respective best efforts to obtain, maintain and renew said permit(s) so as to allow the Executive to be employed under the terms hereof. The Company shall be responsible for permit fees. If at any time said permit(s), having been obtained, expire and are not renewed or cease to be valid and such renewal or validation is necessary in order for the Executive to be employed by the Company as contemplated by this Agreement and the non-renewal or invalidation is beyond the control of both the Company and the Executive, employment under this Agreement shall terminate immediately upon the expiration of said per-mit(s) or upon said permit(s) ceasing to be valid unless the Executive can discharge his duties and responsibilities effectively from another location not requiring said permit(s) that is reasonably acceptable to the Executive and non-prejudicial to the interests of the Company. In the event of such termination, the provisions of Section 8(d) shall apply to such termination of the Executive’s employment (or, if within (i) the one-year period prior to the date of a Change in Control, as hereinafter defined, provided the conditions set forth in the last paragraph of Section 8(d)(iii) are satisfied, or (ii) the Post-Change Period, as hereinafter defined, such termination shall, in the case of clauses (i) or (ii), be considered a termination by the employee for “Good Reason”) provided that non-renewal of said permit(s) or invalidation thereof are not a direct result of any material action or omission of the Executive that would reasonably cause such permit(s) not to be renewed or validated.]*

* Where applicable.

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4. BASE SALARY.

The Executive shall be paid a Base Salary by the Company equal to US$ _______ payable in accordance with the Company’s regular pay practices. Such Base Salary shall be subject to annual review in accordance with the Company’s practices for executives as in effect from time to time and may be increased at the discretion of the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”).

5. BONUSES.

6. EMPLOYEE BENEFIT PROGRAMS.

During the term of the Executive’s employment under this Agreement, the tive shall be entitled to participate in all employee benefit programs of the Company as are effect from time to time and in which similarly situated senior executives of the Company are eligible to participate.

7. BUSINESS EXPENSE REIMBURSEMENT, FRINGE BENEFITS AND RELOCATION EXPENSES.

(a) EXPENSE REIMBURSEMENT AND FRINGE BENEFITS. During the term of the Executive’s employment under this Agreement, the Executive shall be entitled to participate in the Company’s travel and entertainment expense reimbursement programs and its executive fringe benefit plans and arrangements, all in accordance with the terms and conditions of such programs, plans and arrangements as in effect from time to time as applied to the Company’s similarly situated executives.

(b) [RELOCATION EXPENSES. The Company shall pay directly or reimburse the Executive, in either case on an after-tax basis to the Executive, for reasonable moving expenses in relocating the Executive and his immediate family from Bermuda to a location in the United States designated by the Executive (or the Executive’s estate or other legal representative in the event of his death) following the Executive’s “separation from service” (within the meaning Treas. Reg. Section 1.409A -1(h)) with the Company for any reason other than Cause (as

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hereinafter defined). Any such expenses must be incurred by the Executive not later than the last day of the calendar year following the calendar year in which the Executive’s separation from service with the Company occurs. Any such reimbursement for moving expenses shall be made promptly by the Company and, in all events, no later than the last day of the second calendar year following the calendar year in which the Executive’s separation from service with the Company occurs. Any such payment or reimbursement for taxes shall be made on or before the due date of the Executive’s tax return for the applicable year, but in no event later than the end of the Executive’s taxable year next following the Executive’s taxable year in which he remits the related taxes.]*

8. TERMINATION OF EMPLOYMENT.

(i) any annual bonus awarded in accordance with the Company’s bonus program but not yet paid under Section 5, above, to be paid at the time such bonus would otherwise be due under Section 5 above, and reimbursement of business expenses incurred prior to death in accordance with Section 7[(a)]* above,

(ii) within 45 days after the date of death (with the actual date of payment within such 45 day period to be determined by the Company), a pro rata bonus for the year of death in an amount determined by the Compensation Committee, but in no event less than a pro rata portion of the Executive’s average annual bonus for the immediately preceding three years (or the period of the Executive’s employment with the Company, if less),

(iii) the rights under any options to purchase equity securities of the Company or other rights with respect to equity securities of the Company, including any restricted stock or other securities, held by the Executive determined in accordance with the terms thereof,

(iv) for a period of six months following the Executive’s death, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive’s dependents, if any, under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the dependents) as is then in existence for other executives during the coverage period; provided, that, if the Executive’s dependents cannot continue to participate in the

* Where applicable.

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Company plans providing such benefits, the Company shall otherwise provide such benefits on substantially the same after-tax basis as if continued participation had been permitted (and any payment made by the Company in respect of any taxes imposed with respect to such benefits shall be paid to the Executive’s dependents, or to the applicable taxing authority on their behalf, no later than the due date of such taxes), and

(v) the vested accrued benefits, if any, under the employee benefit programs of the Company, as provided in Section 6, above, determined in accordance with the applicable terms and provisions of such programs.

(b) TERMINATION DUE TO DISABILITY. In the event the Executive’s employment hereunder is terminated due to his disability, as determined under the Company’s long-term disability plan, the Executive shall be entitled to:

(i) a cash lump sum payment made, subject to Section 25 below, 60 days after the date of termination in an amount equal to the Base Salary as provided in Section 4, above, that would have been paid to the Executive had he remained employed through the end of the sixth month after the month in which the Executive’s employment terminates due to disability,

(ii) any annual bonus awarded in accordance with the Company’s bonus program but not yet paid under Section 5, to be paid, subject to Section 25 below, at the time such bonus would otherwise be due under Section 5 above, and reimbursement of business expenses incurred prior to termination of employment in accordance with Section 7(a) above,

(iii) subject to Section 25 below, 60 days after the date of termination, a pro rata bonus for the year of termination in an amount determined by the Compensation Committee, but in no event less than a pro rata portion of the Executive’s average annual bonus for the immediately preceding three years (or the period of the Executive’s employment with the Company, if less),

(iv) the rights under any options to purchase equity securities of the Company or other rights with respect to equity securities of the Company, including any restricted stock or other securities, held by the Executive, determined in accordance with the terms thereof,

(v) for a period of six months following the termination of the Executive’s employment, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive (and the Executive’s dependents, if any) under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the Executive) as is then in existence for other executives during the coverage period; provided , that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on substantially the same after-tax basis as if continued participation had been permitted (and any payment made by the Company in respect of any taxes imposed with respect to such benefits shall be paid to the Executive, or to the

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applicable taxing authority on his behalf, no later than the due date of such taxes); provided further, however , that, in the event the Executive becomes reemployed with another employer and becomes eligible to receive medical benefits from such employer, the medical benefits described herein shall immediately cease, and

(vi) the vested accrued benefits, if any, under the employee benefit programs of the Company, as provided in Section 6 above, determined in accordance with the applicable terms and provisions of such programs.

(i) The employment of the Executive under this Agreement may be terminated by the Company for Cause, such termination to be effective upon the Company giving the Executive written notice of termination in accordance with the provisions of this Agreement. For this purpose, “Cause” shall mean:

(A) conviction of the Executive of a felony involving moral turpitude, dishonesty or laws to which the Company or its Affiliates are subject in connection with the conduct of its or their business;

(B) the Executive, in carrying out his duties for the Company under this Agreement, has been guilty of (1) willful misconduct or (2) substantial and continual refusal by the Executive to perform the duties assigned to the Executive pursuant to the terms hereof; provided, however, that any act or failure to act by the Executive shall not constitute Cause for purposes of this Section 8(c)(i)(B) if such act or failure to act was committed, or omitted, by the Executive in good faith and in a manner he reasonably believed to be in the overall best interests of the Company, as the case may be. The determination of whether the Executive acted in good faith and that he reasonably believed his action to be in the Company’s overall best interest, as the case may be, will be in the reasonable judgment of the Compensation Committee; or

(C) the Executive’s continued willful refusal to obey any lawful policy or requirement duly adopted by the Board of Directors of the Company and the continuance of such refusal after receipt of written notice.

(ii) In the event of a termination for Cause under Section 8(c)(i), above, the Executive shall be entitled only to:

(A) Base Salary as provided in Section 4, above, at the rate in effect at the time of his termination of employment for Cause, through the date on which termination for Cause occurs, to be paid in accordance with the Company’s regular payroll practices,

(B) the rights under any options to purchase equity securities of the Company or other rights with respect to equity securities of the Company, including any restricted stock or other securities, held by the Executive, determined in accordance with the terms thereof, and

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(C) the vested accrued benefits, if any, under employee benefit programs of the Company, as provided in Section 6, above, and reimbursement of properly incurred unreimbursed business expenses under the business expense reimbursement program as described in Section 7, above, determined in accordance with the applicable terms and provisions of such employee benefit and expense reimbursement programs; provided that the Executive shall not be entitled to any such benefits unless the terms and provisions of such programs expressly state that the Executive shall be entitled thereto in the event his employment is terminated for Cause (as defined in this Agreement or otherwise).

(d) TERMINATION WITHOUT CAUSE.

(i) Anything in this Agreement to the contrary notwithstanding, the Executive’s employment may be terminated by the Company without Cause as provided in this Section 8(d). A termination due to death or disability, as described in Section 8(a) or (b), above, or a termination for Cause, as described in Section 8(c), above, shall not be deemed a termination without Cause under this Section 8(d). For the avoidance of doubt, if a notice of non-renewal of this Agreement pursuant to Section 2 is issued by the Company, the termination of the Executive’s employment at the end of the term shall be considered a termination by the Company without Cause hereunder.

(ii) In the event the Executive’s employment is terminated by the Company without Cause (x) prior to a Change in Control (other than as provided in the last paragraph of Section 8(d)(iii), in which case the provisions of Section 8(d)(iii) shall apply in lieu of this Section 8(d)(ii)) or (y) following the Post-Change Period (as hereinafter defined), the Executive shall be entitled to:

(A) Base Salary as provided in Section 4, above, at the rate in effect at the time of his termination of employment without Cause, through the date on which termination without Cause occurs, to be paid in accordance with the Company’s regular payroll practices,

(B) provided the Executive executes, on or before the date that is fifty (50) days following the date of his termination of employment, a general release of claims against the Company and its Affiliates (as defined below) in form and substance satisfactory to the Company and does not revoke such release prior to the end of the seven day statutory revocation period, a cash lump sum payment made, subject to Section 25 below, sixty (60) days after termination of employment equal to (x) two times the Executive’s annual Base Salary, at the annual rate in effect in accordance with Section 4, above, immediately prior to such termination and (y) one times the higher of the targeted annual bonus for the year of such termination, if any, or the average of the Executive’s annual bonus payable by the Company for the three years immediately preceding the year of termination (or such shorter period during which the Executive has been employed by the Company),

(C) any annual bonus awarded in accordance with the Company’s bonus program but not yet paid under Section 5, above, to be paid, subject to Section 25 below, at the time such bonus would otherwise be due under Section 5 above, and reimbursement

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of business expenses incurred prior to termination of employment in accordance with Section 7(a) above,

(D) the rights under any options to purchase equity securities of the Company or other rights with respect to equity securities of the Company, including any restricted stock or other securities, held by the Executive, determined in accordance with the terms thereof,

(E) for a period of twenty-four months following the termination of the Executive’s employment, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive (and the Executive’s dependents, if any) under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the Executive) as is then in existence for other executives during the coverage period; provided , that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on substantially the same after-tax basis as if continued participation had been permitted (and any payment made by the Company in respect of any taxes imposed with respect to such benefits shall be paid to the Executive, or to the applicable taxing authority on his behalf, no later than the due date of such taxes); provided, however , with respect to the participation by the Executive in the medical insurance plan hereunder, the following conditions shall be met: (i) the amount eligible for reimbursement or payment under any such plan in one calendar year may not affect the amount eligible for reimbursement or payment under such plan in any other calendar year (except that the plan may impose a limit on the amount that may be reimbursed or paid if such limit is imposed on all participants), and (ii) any reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred; provided, further, however , that, in the event the Executive becomes reemployed with another employer and becomes eligible to receive medical benefits from such employer, the medical benefits described herein shall immediately cease, and

(F) the vested accrued benefits, if any, under the employee benefit programs of the Company, as provided in Section 6 above, determined in accordance with the applicable terms and provisions of such programs.

(iii) In the event the Executive’s employment is terminated by (x) the Company without Cause within the twenty-four month period following a Change in Control (as defined in Exhibit A hereto) (the “Post-Change Period”) or (y) the Executive terminates his employment for “Good Reason” (as defined in Exhibit B hereto) during the Post-Change Period, the Executive shall be entitled to the following, paid in the case of amounts set forth in (B), (C) and (D) below, subject to Section 25 below, 60 days after termination of employment:

(A) Base Salary as provided in Section 4, above, at the rate in effect at the time of his termination of employment, through the date on which termination occurs, to be paid in accordance with the Company’s regular payroll practices,

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(B) a cash lump sum payment equal to two times the Executive’s annual Base Salary, at the rate in effect in accordance with Section 4, above, or immediately prior to such termination or Change in Control, whichever is greater,

(C) a cash lump sum payment equal to two times the average annual bonus awarded to the Executive by the Company in the three years prior to the year in which the Change in Control occurs (or shorter period during which the Executive had been employed by the Company); provided such bonuses shall be at least equal to the targeted annual bonus, if any, for the year of such termination,

(D) an amount equal to (i) the higher of (x) the bonus actually awarded to the Executive by the Company for the year immediately preceding the year in which the Change in Control occurs or (y) the targeted amount of bonus, if any, that would have been awarded to the Executive in respect of the year in which the termination of employment occurs, multiplied by (ii) a fraction, the numerator of which is the number of months or fraction thereof in which the Executive was employed by the Company in the year of termination of employment, and the denominator of which is 12,

(E) options to purchase equity securities of the Company or other rights with respect to equity securities of the Company held by the Executive shall immediately vest in full and shall continue to be exercisable for three years from the date of termination of employment, notwithstanding the Executive’s termination of employment, or the original full term of the option or other right, if shorter,

(F) for a period of twenty-four months following the termination of the Executive’s employment, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive (and the Executive’s dependents, if any) under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the Executive) as is then in existence for other executives during the coverage period; provided , that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on substantially the same after-tax basis as if continued participation had been permitted (and any payment made by the Company in respect of any taxes imposed with respect to such benefits shall be paid to the Executive, or to the applicable taxing authority on his behalf, no later than the due date of such taxes); provided, however , with respect to the participation by the Executive in the medical insurance plan hereunder, the following conditions shall be met: (i) the amount eligible for reimbursement or payment under any such plan in one calendar year may not affect the amount eligible for reimbursement or payment under such plan in any other calendar year (except that the plan may impose a limit on the amount that may be reimbursed or paid if such limit is imposed on all participants), and (ii) any reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred; provided further, however , that, in the event the Executive becomes reemployed with another employer and becomes eligible to receive medical benefits from such employer, the medical benefits described herein shall immediately cease, and

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(G) full and immediate vesting under the Company’s retirement plans as of the date of termination, to the extent permitted by applicable law; provided, however , that if such full and immediate vesting cannot be provided under a “qualified employer plan” (within the meaning of Treas. Reg. Section 1.409A -1(a)(2)) under applicable law, then the present value of economically equivalent benefits, determined using reasonable assumptions and on an after-tax basis to the Executive, shall be paid in a cash lump sum to the Executive, subject to Section 25 below, 60 days after termination of employment.

Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled to the benefits described in (A)-(G) above, if the Executive’s employment with the Company is terminated by the Company (other than for Cause) within one year prior to the date on which a “409A Change in Control” (as defined below) occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated or intended to effect the 409A Change in Control or (ii) otherwise arose in connection with or anticipation of the 409A Change in Control; provided , however , that in such event, amounts in excess of those otherwise payable to the Executive under Section 8(d)(ii) above will be payable hereunder only following the 409A Change in Control (and, subject to Section 25 be-low,10 days thereafter). For purposes hereof, a “409A Change in Control” means a “change in control event” (as defined in Treas. Reg. Section 1.409A -3(i)(5)) with respect to the Company that also constitutes a Change in Control.

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Section 8(d)(iv), above, shall not be deemed a voluntary termination within the meaning of this Section 8(e).

9. EXCISE TAX PAYMENTS.

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the Executive, it shall furnish the Executive with a written opinion that he has substantial authority not to report any Excise Tax on his Federal income tax return. Any determination by the Accounting Firm meeting the requirements of this Section 9(c) shall be binding upon the Company and the Executive, subject only to payments pursuant to the following sentence based on a determination that additional Gross-Up Payments should have been made, consistent with the calculations required to be made hereunder (the amount of such additional payments are referred to herein as the “Gross-Up Underpayment”). In the event that the Company exhausts its remedies pursuant to Section 9(d) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Gross-Up Underpayment that has occurred and any such Gross-Up Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. The fees and disbursements of the Accounting Firm shall be paid by the Company.

(i) give the Company any information reasonably requested by the Company relating to such claim,

(ii) take such action in connection with contesting such claim as the Company shall, in good faith, reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney selected by the Company and reasonably acceptable to the Executive,

(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

(iv) permit the Company to participate, in good faith, in any proceedings relating to such claim;

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Without limitation on the foregoing provisions of this Section 9(d), the Company shall, exercising good faith, control all proceedings taken in connection with such contest and, at its sole option (but in good faith), may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option (but in good faith), either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided , however , that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis to the Executive, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to the payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(d), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 9(d)) promptly pay to the Company, as the case may be, the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(d), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then any obligation of the Executive to repay such advance shall be forgiven and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

Notwithstanding any provision herein to the contrary, the Executive’s failure to strictly comply with the notice provisions set forth in this Section 9, so long as such failure does not prevent the Company from contesting an excise tax claim, shall not adversely affect the Executive’s rights under this Section 9. Any amount advanced shall be deemed a nonrefundable payment to the extent a refundable advance would be a violation of the Sarbanes-Oxley Act. Anything in this Agreement to the contrary notwithstanding, except as otherwise provided in Treas. Reg. Section 1.409A -3(i)(1)(v), in no event shall any payment by the Company pursuant to this Section 9 be made later than the end of the Executive’s taxable year next following the Executive’s taxable year in which he remits the related taxes.

10. NO MITIGATION; NO OFFSET.

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Agreement on account of any remuneration attributable to any subsequent employment that he may obtain.

11. NONCOMPETITION AND NONSOLICITATION.

For the avoidance of doubt, all trademarks, policy language or forms, products or services (including products and services under development), trade names, trade secrets, service marks, designs, computer programs and software, utility models, copyrights, know-how and confidential information, applications for registration of any of the foregoing and the right to apply for them in any part of the world (whether any of the foregoing shall be registered or unregistered) created or discovered or participated in by the Executive during the course of his employment (whether or not pursuant to the terms of this Agreement) or under the instructions of the Company or its Affiliates are and shall be the absolute property of the Company and its Affiliates, as appropriate. Without limiting the foregoing, the Executive hereby assigns to the Company any and all of the Executive’s right, title and interest, if any, pertaining to the insurance and reinsurance (including, without limitation, finite insurance and reinsurance), risk assumption, risk management, brokerage, financial and other products or services developed or improved upon by the Executive (including, without limitation, any related “know-how”) while employed by the Company or its Affiliates, including any patent, trademark, trade name, copyright, ownership or other right that may pertain thereto.

Since Executive has obtained and is likely to obtain in the course of Executive’s employment with the Company and its Affiliates knowledge of trade names, trade secrets, knowhow, products and services (including products and services under development), techniques, methods, lists, computer programs and software and other confidential information relating to the Company and its Affiliates, and their employees, clients, business or business opportunities, Executive hereby undertakes that:

(i) Executive will not (either alone or jointly with or on behalf of others and whether directly or indirectly) encourage, entice, solicit or endeavor to encourage, entice or solicit away from employment with the Company or its Affiliates, or hire or cause to be hired, any officer or employee of the Company or its Affiliates (or any individual who was within the prior twelve months an officer or employee of the Company or its Affiliates), or encourage, entice, solicit or endeavor to encourage, entice or solicit any individual to violate the terms of any employment agreement or arrangement between such individual and the Company or any of its Affiliates;

(ii) Executive will not (either alone or jointly with or on behalf of others and whether directly or indirectly) interfere with or disrupt or seek to interfere with or disrupt (A) the relationships between the Company and its Affiliates, on the one hand, and any customer or client of the Company and its Affiliates, on the other hand, (including any insured or reinsured party) who during the period of twenty-four months immediately

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preceding such termination shall have been such a customer or client, or (B) the supply to the Company and its Affiliates of any services by any supplier or agent or broker who during the period of twenty-four months immediately preceding such termination shall have supplied services to any such person, nor will Executive interfere or seek to interfere with the terms on which such supply or agency or brokering services during such period as aforesaid have been made or provided; and

(iii) Executive will not (either alone or jointly with or on behalf of others and whether directly or indirectly) whether as an employee, consultant, partner, principal, agent, distributor, representative or stockholder (except solely as a less than one percent stockholder of a publicly traded company), engage in any activities in Bermuda, the United States or greater London if such activities are competitive with the businesses that (i) are then being conducted by the Company or its Affiliates and (ii) during the period of the Executive’s employment were either being conducted by the Company or its Affiliates or actively being developed by the Company or its Affiliates.

The provisions of the immediately preceding sentence shall continue as long as the Executive is employed by the Company or its Affiliates and such provisions shall continue in effect after such employment is terminated for any reason until the first anniversary of such termination, provided that if such employment is terminated by the Company under Section 8(d)(iii) or by the Executive under Section 8(d)(iii), the provisions of clauses (ii) and (iii) shall automatically terminate upon such termination of employment, unless the Company elects, in writing, upon such termination to continue the provisions of clauses (ii) and (iii) in effect through the six-month anniversary of such termination of employment in which case the Company shall be obligated to pay the Executive, in addition to any of the Executive’s rights under Section 8(d)(iii), a lump sum payment equal to the sum of (x) six months of his Base Salary and (y) one half of the Executive’s average annual bonus payable by the Company or its subsidiaries for the three years (or shorter period of employment by any of such entities) immediately preceding the year of termination, and such lump sum payment shall, subject to Section 25 below, be made 60 days following his “separation from service” (as defined in Section 7(b) above) with the Company.

The limitations on the Executive set forth in this Section shall also apply to any agent or other representative acting on behalf of Executive.

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restrictions shall apply with such modifications as may be necessary to make them valid and effective.

12. CONFIDENTIAL INFORMATION.

The Executive covenants that he shall not, without the prior written consent of the Company, use for the Executive’s own benefit or the benefit of any other person or entity other than the Company and its Affiliates or disclose to any person, other than an employee of the Company or other person to whom disclosure is necessary to the performance by the Executive of her duties in the employ of the Company, any confidential, proprietary, secret, or privileged information about the Company or its Affiliates or their business or operations, including, but not limited to, information concerning trade secrets, know-how, software, data processing systems, policy language and forms, inventions, designs, processes, formulae, notations, improvements, financial information, business plans, prospects, referral sources, lists of suppliers and customers, legal advice and other information with respect to the affairs, business, clients, customers, agents or other business relationships of the Company or its Affiliates. Executive shall hold in a fiduciary capacity for the benefit of the Company all secret, confidential proprietary or privileged information or data relating to the Company or any of its Affiliates or predecessor companies, and their respective businesses, which shall have been obtained by Executive during her employment, unless and until such information has become known to the public generally (other than as a result of unauthorized disclosure by the Executive) or unless he is required to disclose such information by a court or by a governmental body with apparent authority to require such disclosure. The foregoing covenant by the Executive shall be without limitation as to time and geographic application and this Section 12 shall apply in accordance with its terms after employment has terminated for any reason. The Executive acknowledges and agrees that he shall have no authority to waive any attorney-client or other privilege without the express prior written consent of the Compensation Committee as evidenced by the signature of the Company’s General Counsel.

13. WITHHOLDING.

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14. GUARANTY AND AFFILIATE SERVICES.

(b) RESPONSIBILITY. All of the other terms and provisions of this Agreement relating to the Executive’s employment by the Company shall likewise apply mutatis mu-tandis to the Executive’s employment by any of its Affiliates, it being understood that if the Executive’s employment with the Company is terminated, his employment with its Affiliates shall also be terminated and the Executive shall be required to resign immediately from all directorships and other positions held by the Executive in the Company and its Affiliates or in any other entities in respect of which the Executive was acting as a representative or designee of the Company or its Affiliates in connection with his employment.

15. ENTIRE AGREEMENT.

16. ASSIGNABILITY; BINDING NATURE.

17. INDEMNIFICATION.

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officers’ liability policy with coverage for all directors and officers of the Company in an amount equal to at least US $75,000,000. Such directors’ and officers’ liability insurance shall be maintained in effect for a period of six years following termination of the Executive’s employment for any reason other than pursuant to Section 8(c) or Section 8(e) hereof.

18. SETTLEMENT OF DISPUTES.

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reimbursed for all such costs within ten (10) days following written demand therefor by the Executive (which written demand shall be made no later than six (6) months following the end of the calendar year in which such costs were incurred).

(d) Each Party shall bear its own costs incurred in connection with any proceeding under Sections 18(a) or 18(b) hereof, including all legal fees and expenses: provided , however , that the Company shall bear all such costs of the Executive (to the extent such costs are reasonable) if the Executive substantially prevails in the proceeding. Following the final determination of the dispute in which the Executive has substantially prevailed, the Company shall reimburse all such reasonable costs within ten (10) days following written demand therefor (supported by documentation of such costs) by the Executive, and the Executive shall make such written demand within sixty (60) days following the final determination of the dispute; provided, however , that such payment shall be made no later than on or prior to the end of the calendar year following the calendar year in which the cost is incurred. Notwithstanding the foregoing, in the event a final determination of the dispute has not been made by December 20 of the year following the calendar year in which the cost is incurred, the Company shall, within ten (10) days after such December 20, reimburse such reasonable costs (supported by documentation of such costs) incurred in the prior taxable year; provided, however , that the Executive shall return such amounts to the Company within ten (10) business days following the final determination if the Executive did not substantially prevail in the dispute.

19. AMENDMENT OR WAIVER.

20. NOTICES.

If to the Company:

XL Capital Ltd
One Bermudiana Road

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Hamilton HM11, Bermuda
Att’n: General Counsel

If to the Executive:

To the last address delivered to
the Company by the Executive in
the manner set forth herein.

21. SEVERABILITY.

22. SURVIVORSHIP.

The respective rights and obligations of the Parties shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations.

23. REFERENCE.

24. GOVERNING LAW.

This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York without reference to the principles of conflict of laws.

25. SECTION 409A.

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tion 1.409A -1(i)), then with regard to any payment that is required to be delayed pursuant to Section 409A(a)(2)(B) of the Code, such payment shall not be made prior to the earlier of (i) the expiration of the six (6)-month period measured from the date of his “separation from service,” or (ii) the date of his death (the “Delay Period”). Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 25 (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid to the Executive in a lump sum, and any remaining payments due under this Agreement shall be paid in accordance with the normal payment dates specified for them herein. In no case will compliance with this Section by the Company constitute a breach of the Company’s or the Guarantors’ obligations under this Agreement. Notwithstanding any provision of this Agreement to the contrary, for purposes of Sections 8(b) and 8(d) above, the Executive will be deemed to have terminated his employment on the date of his “separation from service” (within the meaning of Treas. Reg. Section 1.409A -1(h)) with the Company.

26. HEADINGS.

The heading of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.

27. COUNTERPARTS.

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.

	XL CAPITAL LTD

	By:

	EXECUTIVE OFFICER

	By:


	GUARANTORS:

	XL INSURANCE LTD

	By:

	XL RE LTD

	By:

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EXHIBIT A

CHANGE IN CONTROL

A “Change in Control” shall be deemed to have occurred:

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(v) if the Board adopts a resolution to the effect that, for purposes of this Agreement, a Change in Control has occurred.

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EXHIBIT B

GOOD REASON

For purposes of this Agreement, “Good Reason” shall mean any of the following, unless done with the prior express written consent of the Executive:

(i) (A) The assignment to Executive of duties inconsistent with Executive’s position (including duties, responsibilities, status, titles or offices as set forth in Section 3 hereof); or (B) any elimination, diminution or reduction of Executive’s duties or responsibilities except in connection with the termination of Executive’s employment for Cause, disability or as a result of Executive’s death or by Executive other than for Good Reason; and for purposes for this clause (i), the determination of whether there has been a reduction of duties or responsibilities or an assignment of duties inconsistent with the Executive’s position shall take into account the Executive’s duties, responsibilities and position with the ultimate parent of the parent/subsidiary group as a whole which includes the Company;

(ii) The (A) reduction in Executive’s Base Salary from the level in effect immediately prior to the Change in Control, or (B) payment of an annual bonus in an amount less than the lesser of (x) the most recent annual bonus paid prior to the Change in Control or (y) the greater of (I) the most recent target bonus, if any, established prior to the Change in Control or (II) the annual average bonus paid for the preceding three complete years prior to the Change in Control (or such lesser number of complete years as the Executive shall have been employed by the Company);

(iii) The failure by the Company or the Guarantors to obtain the specific written assumption of this Agreement by any successor or assign of the Company or the Guarantors or any person acquiring substantially all of the Company’s or the Guarantors’ assets;

(iv) Any breach by the Company or the Guarantors of any provision of this Agreement or any agreements entered into pursuant thereto that remains uncured for 20 calendar days following written notice of same by the Executive;

(v) Notwithstanding the provisions of Section 3(b) of this Agreement, requiring the Executive to be based at any office or location that is greater than 35 miles from the office or location at which the Executive was principally located immediately prior to the Change in Control;

(vi) During the Post-Change Period, (A) the failure to continue in effect any compensation or incentive plan in which Executive participates immediately prior to the time of the Change in Control unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing Executive with at least the same aggregate economic opportunity on an after-tax basis available to the Executive immedi-

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ately prior to the Change in Control) has been made with respect to such plan in connection with the Change in Control, or the failure to continue Executive’s participation therein on substantially the same basis both in terms of the amount of benefits provided and the level of his participation relative to other participants, as existed at the time of the Change in Control; or (B) the failure to continue to provide Executive with benefits and coverage at least as favorable in the aggregate as those enjoyed by him under the Company’s pension, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which he was participating at the time of the Change in Control; or

(vii) The failure by the Company to pay within 7 calendar days of the due date any amounts due under any benefit or compensation plan, including any deferred compensation plan.

Notwithstanding any provision in this Agreement to the contrary, the Executive must give written notice of his intention to terminate his employment for Good Reason within sixty (60) days after the act or omission which constitutes Good Reason, and any failure to give such written notice within such period will result in a waiver by the Executive of his right to terminate for Good Reason as a result of such act or omission.

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SCHEDULE 1

As of June 30, 2009, the following Executive Officers were parties to this Form of Agreement:

Celia R. Brown
Kirstin R. Gould
Jacob D. Rosengarten

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Exhibit 10.5

2008 FORM OF AMENDMENT TO EMPLOYMENT AGREEMENT IN RESPONSE TO
INTERNAL REVENUE CODE SECTION 457A

AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) dated as of _____________, 2008 between XL Capital Ltd, a Cayman Islands corporation (the “Company”) and _____________ (the “Executive”).

WHEREAS, the Company and the Executive are parties to an Employment Agreement dated as of ______________ (the “Agreement”);

WHEREAS, the Company and the Executive wish to amend the Agreement as set forth herein;

1. The last paragraph of Section 8(d)(iii) is amended by deleting “10 days thereafter” and replacing it with “on the date of the 409A Change in Control.”

2. The first sentence of Section 18(d) is amended to read in its entirety as follows:

“Each Party shall bear its own costs incurred in connection with any proceeding under Sections 18(a) or 18(b) hereof, including all legal fees and expenses; provided , however , that the Company shall bear all such costs of the Executive (to the extent such costs are reasonable) if the Executive substantially prevails in a proceeding following her “separation from service” (as defined below) with the Company.

3. Section 25(b) is amended to read in its entirety as follows:

“(b) Without prejudice to the characterization of any other amounts payable under this Agreement, the parties hereto specifically intend that any amounts payable under Section 8(d)(ii)(A)-(C), Section 8(d)(iii)(A)-(D) and Section 11 will not be considered deferred compensation for purposes of Section 409A due to Treas. Reg. Section 1.409A-1(b)(4) or another applicable exception. However, notwithstanding any provision to the contrary in this Agreement, if the Executive is deemed on the date of her “separation from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)) with the Company to be a “specified employee” (within the meaning of Treas. Reg. Section 1.409A-1(i)), then with regard to any payment or benefit that is considered deferred compensation under Section 409A payable on account of a “separation from service” that is required to be delayed pursuant to Section 409A(a)(2)(B) of the Code (after taking into account any ap-

plicable exceptions to such requirement), such payment or benefit shall be made or provided on the date that is the earlier of (i) the expiration of the six (6)-month period measured from the date of the Executive’s “separation from service,” or (ii) the date of the Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section 25(b) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. Notwithstanding any provision of this Agreement to the contrary, for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment, references to the Executive’s “termination of employment” (and corollary terms) with the Company shall be construed to refer to the Executive’s “separation from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)) with the Company. With respect to any reimbursement or in-kind benefit arrangements of the Company and its subsidiaries that constitute deferred compensation for purposes of Section 409A, except as otherwise permitted by Section 409A, the following conditions shall be applicable: (i) the amount eligible for reimbursement, or in-kind benefits provided, under any such arrangement in one calendar year may not affect the amount eligible for reimbursement, or in-kind benefits to be provided, under such arrangement in any other calendar year (except that the health and dental plans may impose a limit on the amount that may be reimbursed or paid), (ii) any reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred, and (iii) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit. Whenever a payment under this Agreement specifies a payment period with reference to a number of days ( e.g ., “payment shall be made within thirty (30) days after termination of employment”), the actual date of payment within the specified period shall be within the sole discretion of the Company. Whenever payments under this Agreement are to be made in installments, each such installment shall be deemed to be a separate payment for purposes of Section 409A.”

4. The definition of “Good Reason” in Exhibit B is amended to read in its entirety as follows:

	“For purposes of this Agreement, “Good Reason” shall mean any of the following, unless done with the prior express written consent of Executive:

	(i) (A) The assignment to Executive of duties materially inconsistent with Executive’s position (including duties, responsibilities, status, titles or offices as set forth in Section 3 hereof); (B) any material diminution or material reduction of Executive’s duties or responsibilities except in connection with the termination of Executive’s employment for Cause, disability or as a result of Executive’s death or by Executive other than for Good Reason; (C) a material diminution in the authorities, duties or responsibilities of the supervisor to whom Ex-

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	ecutive is required to report; or (D) a material diminution in the budget over which Executive retains authority;

	(ii) The (A) material reduction in Executive’s Base Salary from the level in effect immediately prior to the Change in Control, or (B) material diminution in bonus opportunity that results in a material reduction in Executive’s compensation;

	(iii) Any material breach by the Company or the Guarantors of this Agreement or any material agreement entered into pursuant thereto;

	(iv) Notwithstanding the provisions of Section 3(b) of this Agreement, requiring Executive to be based at any office or location that is greater than 35 miles from the office or location at which Executive was principally located immediately prior to the Change in Control;

	(v) During the Post-Change Period, the failure to continue in effect any material compensation or incentive plan in which Executive participates immediately prior to the time of the Change in Control unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing Executive with substantially the same aggregate economic opportunity on an after-tax basis available to the Executive immediately prior to the Change in Control) has been made with respect to such plan in connection with the Change in Control, or the failure to continue Executive’s participation therein on substantially the same basis as existed at the time of the Change in Control, which in any such case results in a material reduction in Executive’s compensation.

	Notwithstanding any provision in this Agreement to the contrary, the Executive must give written notice of her intention to terminate her employment for Good Reason within sixty (60) days after the act or omission which constitutes Good Reason, and the Company shall have thirty (30) days from such notice to remedy the condition, in which case Good Reason shall no longer exist with regard to such condition. Any failure to give such written notice within such period will result in a waiver by the Executive of her right to terminate for Good Reason as a result of such act or omission. Any termination hereunder shall occur within one hundred twenty (120) days after the Good Reason event occurs.”

5. Except as set forth herein, the Agreement shall continue in full force and effect in accordance with its terms.

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year first above written.

	XL CAPITAL LTD

	By:

	GUARANTORS:

	XL INSURANCE (BERMUDA) LTD
	(formerly XL INSURANCE LTD)

	By:

	XL RE LTD

	By:

READ, ACCEPTED & AGREED

________________________________________
Name of Executive Officer

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SCHEDULE 1

As of June 30, 2009, the following Executive Officers were parties to this Form of Agreement:

Kirstin R. Gould
Celia R. Brown

Exhibit 10.6

2009 FORM OF EMPLOYMENT AGREEMENT

AGREEMENT, made and entered into as of the _____ day of __________, 2009, by and between, XL Capital Ltd, a Cayman Islands corporation (the “Company”), __________, ¹ and _______________ (the “Executive”).

WHEREAS, the Company and the Executive each desire that the Executive become employed by the Company and that the terms and conditions of such employment be memorialized by a written agreement to be effective for two years following the Executive’s date of hire;

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the Company, _____________ ¹ and the Executive (the “Parties”) agree as follows:

1. EMPLOYMENT.

2. TERM OF EMPLOYMENT.

The stated term of employment under this Agreement shall commence on ___________ (the “Date of the Agreement”) and shall continue through the close of business on the second anniversary of the Date of the Agreement, subject to earlier termination as provided in Section 8, below. If the Executive’s employment by the Company continues following the expiration of the term of this Agreement, the Executive’s employment with the Company shall be “at will,” such that the Company may terminate the Executive’s employment at any time, with or without reason, and the Executive may resign at any time, with or without reason.

3. POSITIONS, DUTIES AND RESPONSIBILITIES.

(a) GENERAL. The Executive shall be employed as ___________________ of the Company. In such position, the Executive shall have the duties, responsibilities and authority normally associated with the office, position and titles of such an officer of an insurance and reinsurance company, or holding company, whose shares are publicly traded in the United States. In carrying out his duties and responsibilities, the Executive shall report to the ______________________ of the Company. During the term of this Agreement, the Executive

¹ Subsidiaries to be added if applicable.

shall devote his full business time to the business and affairs of the Company, and shall use his best efforts, skills and abilities to promote the Company’s interests.

(b) PERFORMANCE OF SERVICES. The Executive’s services under this Agreement, which are global in nature, shall be performed at the location or locations reasonably requested by the Company. The Executive acknowledges that the Company may require the Executive to travel to the extent such travel is reasonably necessary to perform the services hereunder and that such travel may be extensive. To the extent reasonably requested by the Company, the Executive shall allocate greater business time to a location other than his principal business location, and if reasonably requested by the Company, the Executive shall relocate to such other locations. Any such relocation will not be considered to be a breach of this Agreement. In the event of a relocation under this Section, Executive will receive relocation assistance as provided in the Company’s executive relocation policy then in effect.

4. BASE SALARY.

The Executive shall be paid an annual base salary by the Company equal to US$ ___________, payable in accordance with the Company’s regular payroll practices. Commencing in April of 20__, such base salary shall be subject to annual review in accordance with the Company’s practices for executives as in effect from time to time and may be increased at the discretion of the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”). The annual base salary in effect from time to time is referred to herein as the “Base Salary.”

5. BONUS. In addition to the Base Salary provided for in Section 4, above, the Executive shall be eligible for an annual bonus under the Company’s Annual Incentive Compensation Plan as in effect from time to time, with an annual target bonus equal to ___% of Base Salary. The Executive may be awarded such annual bonuses thereunder as may be approved by the Compensation Committee based on corporate, individual and business unit performance measures, as appropriate, established or approved from time to time, by the Compensation Committee. Any annual bonus shall be paid in cash in a lump sum after the end of the calendar year for which the annual bonus is paid and no later than March 15 following such calendar year, unless deferred at the Executive’s option in accordance with the provisions of any applicable deferred compensation plan of the Company or its subsidiaries in effect from time to time. [The Executive’s minimum annual bonus for 20__ shall be $ _________. The Executive shall not have a right to a minimum bonus for any other year.] ²

6. EMPLOYEE BENEFIT PROGRAMS.

(a) GENERAL. During the term of the Executive’s employment under this Agreement, the Executive shall be entitled to participate in all employee benefit programs of the

² If applicable.

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Company as are in effect from time to time and in which similarly situated senior executives of the Company are eligible to participate.

(b) [INITIAL STOCK OPTION GRANT. On ______________, and consistent with the Company’s Guidelines for the Granting of Equity-Based Compensation, the Company will grant to the Executive, under its 1991 Performance Incentive Program, a nonqualified stock option to purchase ________ ordinary shares of the Company. The exercise price per share of the stock option will be equal to the fair market value per share on the date of grant. The stock option will vest __________________, provided the Executive’s employment continues through such vesting dates, and the term of the stock option will be for ten years from the date of grant, subject to earlier termination upon termination of the Executive’s employment as set forth in the applicable award agreement. The stock option will also be subject to the other terms of the applicable award agreement.] ³

7. BUSINESS EXPENSE REIMBURSEMENT AND FRINGE BENEFITS.

During the term of the Executive’s employment under this Agreement, the Executive shall be entitled to participate in the Company’s travel and entertainment expense reimbursement programs and its executive fringe benefit plans and arrangements, all in accordance with the terms and conditions of such programs, plans and arrangements as in effect from time to time as applied to the Company’s similarly situated executives in the same jurisdiction as the Executive.

8. TERMINATION OF EMPLOYMENT.

(a) TERMINATION WITHOUT CAUSE. Anything in this Agreement to the contrary notwithstanding, the Executive’s employment may be terminated by the Company without Cause. Except as otherwise set forth in Section 8(b) below, in the event the Executive’s employment is terminated by the Company prior to the second anniversary of the Date of the Agreement without Cause, the Executive shall be entitled to:

(A) unpaid Base Salary through the date on which termination without Cause occurs, to be paid in accordance with the Company’s regular payroll practices;

³ If applicable.

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(C) for a period of twelve months following the termination of the Executive’s employment, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive (and the Executive’s dependents, if any) under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the Executive) as is then in existence for other executives during the coverage period; provided, however , that, in the event the Executive becomes reemployed with another employer and becomes eligible to receive medical benefits from such employer, the medical benefits described herein shall immediately cease; and

(D) the vested accrued benefits, if any, under the employee benefit programs of the Company, as provided in Section 6 above, and reimbursement of properly incurred unreimbursed business expenses under the business expense reimbursement program as described in Section 7 above, determined in accordance with the applicable terms and provisions of such employee benefit and expense reimbursement programs.

(b) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON AFTER CHANGE IN CONTROL. In the event the Executive’s employment is terminated prior to the second anniversary of the Date of the Agreement and following a Change in Control (as defined in Exhibit A hereto) (x) by the Company without Cause or (y) by the Executive for “Good Reason” (as defined in Exhibit B hereto), the Executive shall not be entitled to the payments and benefits provided for in Section 8(a) above, but he shall be entitled to the following:

(A) unpaid Base Salary through the date on which termination occurs, to be paid in accordance with the Company’s regular payroll practices;

(B) a cash lump sum payment made, subject to Section 25 below, sixty (60) days after termination of employment equal to (x) two times the Executive’s annual Base Salary, and (y) two times the Executive’s targeted annual bonus for the year of such termination;

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(c) OTHER TERMINATION. The Executive may terminate his employment prior to the expiration of the term of this Agreement upon at least three months’ prior written notice to the Company; provided, however , that any termination by the Executive for Good Reason in accordance with Section 8(b) above shall be effected in accordance with the notice and cure provisions set forth in Exhibit B hereto. In the event the Executive’s employment under this Agreement is terminated due to his disability (as determined under the Company’s long-term disability plan), due to his death, by the Company for Cause (such termination for Cause to be effective upon the Company giving the Executive written notice of termination in accordance with this Agreement), or by the Executive (other than for Good Reason in accordance with Section 8(b) above), the Executive shall be entitled only to:

(A) unpaid Base Salary through the date on which termination occurs, to be paid in accordance with the Company’s regular payroll practices; and

(B) the vested accrued benefits, if any, under employee benefit programs of the Company, as provided in Section 6, above, and reimbursement of properly incurred unreimbursed business expenses under the business expense reimbursement program as described in Section 7 above, determined in accordance with the applicable terms and provisions of such employee benefit and expense reimbursement programs.

For purposes of this Agreement, “Cause” shall mean: (A) conviction of the Executive of a felony involving moral turpitude, dishonesty or laws to which the Company or its Affiliates are subject in connection with the conduct of its or their business; (B) the Executive, in carrying out his duties for the Company under this Agreement, has been guilty of (1) willful misconduct or (2) refusal by the Executive to perform the duties assigned to the Executive pursuant to the terms hereof; or (C) the Executive’s refusal to obey any lawful policy or requirement duly adopted by the Board of Directors of the Company and the continuance of such refusal after receipt of written notice.

9. EXCISE TAX CUTBACK.

(a) Notwithstanding any other provision of this Agreement, in the event that the amount of payments or other benefits payable to the Executive under this Agreement (including, without limitation, the acceleration of any payment or the accelerated vesting of any payment or other benefit), together with any payments, awards or benefits payable under any other plan, program, arrangement or agreement maintained by the Company or one of its Affiliates, would constitute an “excess parachute payment” (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”)), the payments under Section 8(a)(B) or 8(b)(B), as applicable, of this Agreement shall be reduced (by the minimum possible amounts) until no amount payable to the Executive under this Agreement constitutes an “excess parachute payment” (within the meaning of Section 280G of the Code); provided , however , that no such reduction shall be made if the net after-tax payment (after taking into account federal, state, local or other income, employment and excise taxes) to which the Executive would otherwise be entitled without such reduction would be greater than the net after-tax payment (after taking into account federal, state, local or other income, employment and excise taxes) to the Executive resulting from the receipt of such payments with such reduction.

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(b) All determinations required to be made under this Section 9, including whether a payment would result in an “excess parachute payment” and the assumptions to be utilized in arriving at such determinations, shall be made by an accounting firm designated by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive as requested by the Company or the Executive. All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company. Absent manifest error, all determinations made by the Accounting Firm under this Section 9 shall be final and binding upon the Company and the Executive.

10. NO MITIGATION; NO OFFSET.

11. EXECUTIVE REPRESENTATIONS.

The Executive hereby represents and warrants to the Company that (a) the execution, delivery and performance of this Agreement by the Executive does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Executive is a party or by which he is bound, (b) except for agreements provided to the Company, the Executive is not a party to or bound by any employment agreement, noncompetition agreement, confidentiality agreement or similar agreement with any other person, and (c) upon the execution and delivery of this Agreement by the Company, this Agreement will be the valid and binding obligation of the Executive, enforceable in accordance with its terms. The Executive represents and warrants that he will not use the confidential or proprietary information of any other person in violation of any agreement or rights of others known to him.

12. EXECUTIVE COVENANTS.

The Executive agrees that the products of the Company and its Affiliates shall constitute their exclusive property. For the avoidance of doubt, all trademarks, policy language or forms, products or services (including products and services under development), trade names, trade secrets, service marks, designs, computer programs and software, utility models, copyrights, know-how and confidential information, applications for registration of any of the foregoing and the right to apply for them in any part of the world (whether any of the foregoing shall be registered or unregistered) created or discovered or participated in by the Executive during the course of his employment (whether or not pursuant to the terms of this Agreement) or under the instructions of the Company or its Affiliates are and shall be the absolute property of the Company and its Affiliates, as appropriate. Without limiting the foregoing, the Executive hereby assigns to the Company any and all of the Executive’s right, title and interest, if any, pertaining to the insurance and reinsurance (including, without limitation, finite insurance and reinsurance), risk assumption, risk management, brokerage, financial and other products or services developed or improved upon by the Executive (including, without limitation, any related “know-how”)

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while employed by the Company or its Affiliates, including any patent, trademark, trade name, copyright, ownership or other right that may pertain thereto.

Since the Executive is likely to obtain, in the course of the Executive’s employment with the Company and its Affiliates, knowledge of trade names, trade secrets, know-how, products and services (including products and services under development), techniques, methods, lists, computer programs and software and other confidential information relating to the Company and its Affiliates, and their employees, clients, business or business opportunities, the Executive hereby undertakes that:

(i) the Executive will not (either alone or jointly with or on behalf of others and whether directly or indirectly) encourage, entice, solicit or endeavor to encourage, entice or solicit away from employment with the Company or its Affiliates, or hire or cause to be hired, any officer or employee of the Company or its Affiliates (or any individual who was within the prior twelve months an officer or employee of the Company or its Affiliates), or encourage, entice, solicit or endeavor to encourage, entice or solicit any individual to violate the terms of any employment agreement or arrangement between such individual and the Company or any of its Affiliates;

(ii) the Executive will not (either alone or jointly with or on behalf of others and whether directly or indirectly) interfere with or disrupt or seek to interfere with or disrupt (A) the relationships between the Company and its Affiliates, on the one hand, and any customer or client of the Company and its Affiliates, on the other hand, (including any insured or reinsured party) who during the period of twenty-four months immediately preceding such termination shall have been such a customer or client, or (B) the supply to the Company and its Affiliates of any services by any supplier or agent or broker who, during the period of twenty-four months immediately preceding such termination, shall have supplied services to any such person, nor will the Executive interfere or seek to interfere with the terms on which such supply or agency or brokering services during such period as aforesaid have been made or provided; and

(iii) the Executive will not (either alone or jointly with or on behalf of others and whether directly or indirectly) whether as an employee, consultant, partner, principal, agent, distributor, representative or stockholder (except solely as a less than one percent stockholder of a publicly traded company), engage in any activities in Bermuda, the United States or greater London if such activities are competitive with the businesses that (i) are then being conducted by the Company or its Affiliates and (ii) during the period of the Executive’s employment were either being conducted by the Company or its Affiliates or actively being developed by the Company or its Affiliates.

The provisions of the immediately preceding sentence shall continue in effect (I) as long as the Executive is employed by the Company or its Affiliates, and (II) if the Executive’s termination of employment occurs for any reason prior to the second anniversary of the Date of the Agreement, until the first anniversary of such termination of employment; provided that if such employment is terminated by the Company or the Executive in accordance with Section 8(b), the provisions of clauses (ii) and (iii) shall automatically terminate upon such termination of employment, unless the Company elects, in writing, upon such termination to continue

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the provisions of clauses (ii) and (iii) above in effect through the six-month anniversary of such termination of employment in which case the Company shall be obligated to pay the Executive, in addition to any of the Executive’s rights under Section 8(b), a lump sum payment equal to the sum of (x) six months of his Base Salary, and (y) one half of the Executive’s target annual bonus for the year of termination, and such lump sum payment shall, subject to Section 25 below, be made 60 days following his “separation from service” (within the meaning Treas. Reg. Section 1.409A-1(h)) with the Company.

The limitations on the Executive set forth in this Section shall also apply to any agent or other representative acting on behalf of the Executive.

While the restrictions aforesaid are considered by the Parties to be reasonable in all the circumstances, it is recognized that restrictions of the nature in question may fail for reasons unforeseen, and accordingly it is hereby declared and agreed that if any of such restrictions, or the geographic or other scope thereof, shall be adjudged to be void as going beyond what is reasonable in the circumstances for the protection of the interests of the Company and its Affiliates but would be valid if part of the wording thereof were deleted and/or the periods (if any) thereof reduced and/or geographic or other area dealt with thereby reduced in scope, then said restrictions shall apply with such modifications as may be necessary to make them valid and effective.

Nothing contained in this Section 12 shall limit in any manner any additional obligations to which the Executive may be bound pursuant to any other agreement or any applicable law, rule or regulation.

13. CONFIDENTIAL INFORMATION.

The Executive covenants that he shall not, without the prior written consent of the Company, use for the Executive’s own benefit or the benefit of any other person or entity (other than the Company and its Affiliates) or disclose to any person, other than an employee of the Company or other person to whom disclosure is necessary to the performance by the Executive of his duties in the employ of the Company, any confidential, proprietary, secret, or privileged information about the Company or its Affiliates or their business or operations, including, but not limited to, information concerning trade secrets, know-how, software, data processing systems, policy language and forms, inventions, designs, processes, formulae, notations, improvements, financial information, business plans, prospects, referral sources, lists of suppliers and customers, legal advice and other information with respect to the affairs, business, clients, customers, agents or other business relationships of the Company or its Affiliates. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret, confidential proprietary or privileged information or data relating to the Company or any of its Affiliates or predecessor companies, and their respective businesses, which shall have been obtained by the Executive during his employment, unless and until such information has become known to the public generally (other

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than as a result of unauthorized disclosure by the Executive) or unless he is required to disclose such information by a court or by a governmental body with apparent authority to require such disclosure. The foregoing covenant by the Executive shall be without limitation as to time and geographic application and this Section 13 shall apply in accordance with its terms after employment has terminated for any reason. The Executive acknowledges and agrees that he shall have no authority to waive any attorney-client or other privilege without the express prior written consent of the Compensation Committee as evidenced by the signature of the Company’s General Counsel.

14. WITHHOLDING.

15. ENTIRE AGREEMENT.

16. ASSIGNABILITY; BINDING NATURE.

This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs and assigns. No rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than his right to compensation and benefits hereunder, which may be transferred by will or operation of law subject to the limitations of this Agreement. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company, except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation or amalgamation or scheme of arrangement in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes by operation of law or in writing duly executed by the assignee or transferee all of the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law.

17. INDEMNIFICATION.

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filiates or in any other capacity, including any fiduciary capacity, in which the Executive served at the request of the Company or an Affiliate. In addition, he shall be covered by a directors’ and officers’ liability policy with coverage for all directors and officers of the Company in an amount equal to at least US $75,000,000. Such directors’ and officers’ liability insurance shall be maintained in effect for a period of six years following termination of the Executive’s employment for any reason other than termination by the Company for Cause or by the Executive (other than for Good Reason in accordance with Section 8(b) hereof).

18. SETTLEMENT OF DISPUTES.

(a) Any dispute between the Parties arising from or relating to the terms of this Agreement or the Executive’s employment with the Company or its Affiliates shall, except as provided in Section 18(b), be resolved by binding arbitration held in New York City in accordance with the rules of the American Arbitration Association.

(b) The Executive acknowledges that the Company and its Affiliates will suffer irreparable injury, not readily susceptible of valuation in monetary damages, if the Executive breaches his obligations under Section 12 or 13 hereof. Accordingly, the Executive agrees that the Company and its Affiliates will be entitled, in addition to any other available remedies, to obtain injunctive relief against any breach or prospective breach by Executive of his obligations under Section 12 or 13 in any Federal or state court sitting in the City and State of New York or court sitting in Bermuda or the United Kingdom, or, at the Company’s or any Affiliate’s election, in any other jurisdiction in which Executive maintains his residence or his principal place of business. The Executive hereby submits to the non-exclusive jurisdiction of all those courts for the purposes of any actions or proceedings instituted by the Company or its Affiliates to obtain such injunctive relief, and the Executive agrees that process in any or all of those actions or proceedings may be served by registered mail or delivery, addressed to the last address of the Executive known to the Company or its Affiliates, or in any other manner authorized by law. The Executive further agrees that, in addition to any other remedies available to the Company or its Affiliates by operation of law or otherwise, because of any breach by Executive of his obligations under Section 12 or 13 he will forfeit any and all bonus and rights to any payments to which he might otherwise then be entitled by virtue hereof and such payments may be suspended so long as any good faith dispute with respect thereto is continuing; provided , however , that payments, benefits and other rights and privileges of the Executive under this Agreement following termination of the Executive’s employment after a Change in Control shall not be forfeited, suspended, offset, diminished or otherwise altered in any way on account of any breach or prospective breach of Section 12, Section 13 or any other provision of this Agreement alleged by the Company.

(c) Each Party shall bear its own costs incurred in connection with any proceeding under Sections 18(a) or 18(b) hereof, including all legal fees and expenses.

19. AMENDMENT OR WAIVER.

No provision in this Agreement may be amended unless such amendment is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any Party of any breach by the other Party of any condition or provision of this

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Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Except as set forth in Exhibit B, any waiver must be in writing and signed by the Executive or a duly authorized officer of the Company, as the case may be.

20. NOTICES.

Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of delivery, if delivered by hand, (b) on the date of transmission, if delivered by confirmed facsimile or electronic mail, (c) on the first business day following the date of deposit, if delivered by guaranteed overnight delivery service, or (d) on the fourth business day following the date mailed by United States registered or certified mail, return receipt requested, postage prepaid, in any case addressed to the Party concerned at the address indicated below or to such changed address as such Party may subsequently by similar process give notice of:

If to the Company:

XL Capital Ltd
One Bermudiana Road
Hamilton HM11, Bermuda
Att’n: General Counsel
fax:
email:

If to the Executive:

To the last address, fax number or email address delivered to the Company by the Executive in the manner set forth herein.

21. SEVERABILITY.

22. SURVIVORSHIP.

The respective rights and obligations of the Parties shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations.

23. REFERENCE.

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24. GOVERNING LAW.

This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York without reference to the principles of conflict of laws.

25. SECTION 409A.

(b) Without prejudice to the characterization of any other amounts payable under this Agreement, the parties hereto specifically intend that any amounts payable under Section 8(a)(A) and (B), Section 8(b)(A) and (B) and Section 12 will not be considered deferred compensation for purposes of Section 409A due to Treas. Reg. Section 1.409A-1(b)(4) or another applicable exception. However, notwithstanding any provision to the contrary in this Agreement, if the Executive is deemed on the date of his “separation from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)) with the Company to be a “specified employee” (within the meaning of Treas. Reg. Section 1.409A-1(i)), then with regard to any payment or benefit that is considered deferred compensation under Section 409A payable on account of a “separation from service” that is required to be delayed pursuant to Section 409A(a)(2)(B) of the Code (after taking into account any applicable exceptions to such requirement), such payment or benefit shall be made or provided on the date that is the earlier of (i) the expiration of the six (6)-month period measured from the date of the Executive’s “separation from service,” or (ii) the date of the Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section 25(b) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. Notwithstanding any provision of this Agreement to the contrary, for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment, references to the Executive’s “termination of employment” (and corollary terms) with the Company shall be construed to refer to the Executive’s “separation from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)) with the Company. With respect to any reimbursement or in-kind benefit arrangements of the Company and its subsidiaries that constitute deferred compensation for purposes of Section 409A, except as otherwise permitted by Section 409A, the following conditions shall be applicable: (i) the amount eligible for reimbursement, or in-kind benefits provided, under any such arrangement in one calendar year may not affect the amount eligible for reimbursement, or in-kind benefits to be provided, under such arrangement in any other calendar year (except that the health and dental plans may impose a limit on the amount that may be reimbursed or paid), (ii) any reim-

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bursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred, and (iii) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit. Whenever a payment under this Agreement specifies a payment period with reference to a number of days ( e.g ., “payment shall be made within thirty (30) days after termination of employment”), the actual date of payment within the specified period shall be within the sole discretion of the Company. Whenever payments under this Agreement are to be made in installments, each such installment shall be deemed to be a separate payment for purposes of Section 409A.

26. HEADINGS.

The heading of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.

27. COUNTERPARTS.

This Agreement may be executed and delivered (including by facsimile or pdf transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.


Executive


XL CAPITAL LTD
By:

[ SUBSIDIARIES
By:
	]	⁴

⁴ If applicable.

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EXHIBIT A

CHANGE IN CONTROL

A “Change in Control” shall be deemed to have occurred:

(v) if the Board adopts a resolution to the effect that, for purposes of this Agreement, a Change in Control has occurred.

EXHIBIT B

GOOD REASON

For purposes of this Agreement, “Good Reason” shall mean any of the following, unless done with the prior express written consent of the Executive:

(i) a material diminution in the Executive’s Base Salary;

(ii) a material diminution in the Executive’s authority, duties or responsibilities;

(ii) a material diminution in the authorities, duties or responsibilities of the supervisor to whom the Executive is required to report;

(iii) a material diminution in the budget over which the Executive retains authority;

(iv) notwithstanding the provisions of Section 3(b) of this Agreement, requiring the Executive to be based at any office or location that is greater than 35 miles from the office or location at which the Executive was principally located immediately prior to the Change in Control; or

(iii) any other action or inaction that constitutes a material breach by the Company of this Agreement.

Notwithstanding any provision in this Agreement to the contrary, the Executive must give written notice of his intention to terminate his employment for Good Reason within sixty (60) days after the act or omission which constitutes Good Reason, and the Company shall have thirty (30) days from such notice to remedy the condition, in which case Good Reason shall no longer exist with regard to such condition. Any failure to give such written notice within such period will result in a waiver by the Executive of his right to terminate for Good Reason as a result of such act or omission. Any termination hereunder shall occur no later than one hundred twenty (120) days after the Good Reason event occurs.

SCHEDULE 1

As of June 30, 2009, the following Executive Officers were parties to this Form of Agreement:

Elizabeth Reeves

Exhibit 10.7

AMENDED EMPLOYMENT AGREEMENT
(dated as of 4/25, 2008)

AGREEMENT, made and entered into as of the date first above written, by and between, XL Capital Ltd, a Cayman Islands corporation (the “Company”), X.L. Global Services, Inc. (“XLGS”), and James H. Veghte (the “Executive”).

WHEREAS, the Executive has been in the employ of the Company and certain of its subsidiaries;

WHEREAS, the Company and the Executive previously entered into an Amended Employment Agreement, dated as of August 1, 2006;

WHEREAS, the Company and the Executive desire to continue such employment and to amend the terms and conditions of such employment as set forth herein;

1. EMPLOYMENT.

2. TERM OF EMPLOYMENT.

3. POSITIONS, DUTIES AND RESPONSIBILITIES.

(a) GENERAL. The Executive shall be employed as the Chief Executive Officer-Reinsurance General Operations of the Company. In such position, the Executive shall have the duties, responsibilities and authority normally associated with the office, position and titles of such an officer of an insurance, reinsurance and financial services company, or holding company, whose shares are publicly traded in the United States. In carrying out his duties and responsibilities, the Executive shall report to the Chief Operating Officer of the Company. During the term of this Agreement, the Executive shall devote his full business time to the business

and affairs of the Company, and shall use his best efforts, skills and abilities to promote the Company’s interests.

(b) PERFORMANCE OF SERVICES. The Executive’s services under this Agreement, which are global in nature, shall be performed at the location or locations reasonably requested by the Company. The Executive acknowledges that the Company may require the Executive to travel to the extent such travel is reasonably necessary to perform the services here-under and that such travel may be extensive. To the extent reasonably requested by the Company, the Executive shall allocate greater business time to a location other than his principal business location, and if reasonably requested by the Company, the Executive shall relocate to such other locations. Any such relocation will not be considered to be a breach of this Agreement.

4. BASE SALARY.

The Executive shall be paid a Base Salary by the Company equal to US$500,000, payable in accordance with the Company’s regular pay practices. Such Base Salary shall be subject to annual review in accordance with the Company’s practices for executives as in effect from time to time and may be increased at the discretion of the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”).

5. BONUSES.

6. EMPLOYEE BENEFIT PROGRAMS.

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8. TERMINATION OF EMPLOYMENT.


	(i) any annual bonus awarded in accordance with the Company’s bonus program but not yet paid under Section 5, above, to be paid at the time such bonus would otherwise be due under Section 5 above, and reimbursement of business expenses incurred prior to death in accordance with Section 7 above,

	(ii) within 45 days after the date of death (with the actual date of payment within such 45 day period to be determined by the Company), a pro rata bonus for the year of death in an amount determined by the Compensation Committee, but in no event less than a pro rata portion of the Executive’s average annual bonus for the immediately preceding three years (or the period of the Executive’s employment with the Company, if less),

	(iii) the rights under any options to purchase equity securities of the Company or other rights with respect to equity securities of the Company, including any restricted stock or other securities, held by the Executive determined in accordance with the terms thereof,

	(iv) for a period of six months following the Executive’s death, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive’s dependents, if any, under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the dependents) as is then in existence for other executives during the coverage period; provided, that, if the Executive’s dependents cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on substantially the same after-tax basis as if continued participation had been permitted (and any payment made by the Company in respect of any taxes imposed with respect to such benefits shall be paid to the Executive’s dependents, or to the applicable taxing authority on their behalf, no later than the due date of such taxes), and

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	(v) the vested accrued benefits, if any, under the employee benefit programs of the Company, as provided in Section 6, above, determined in accordance with the applicable terms and provisions of such programs.

(b) TERMINATION DUE TO DISABILITY. In the event the Executive’s employment hereunder is terminated due to his disability, as determined under the Company’s long-term disability plan, the Executive shall be entitled to:

	(i) a cash lump sum payment made, subject to Section 25 below, 60 days after the date of termination in an amount equal to the Base Salary as provided in Section 4, above, that would have been paid to the Executive had he remained employed through the end of the sixth month after the month in which the Executive’s employment terminates due to disability,

	(ii) any annual bonus awarded in accordance with the Company’s bonus program but not yet paid under Section 5, to be paid, subject to Section 25 below, at the time such bonus would otherwise be due under Section 5 above, and reimbursement of business expenses incurred prior to termination of employment in accordance with Section 7 above,

	(iii) subject to Section 25 below, 60 days after the date of termination, a pro rata bonus for the year of termination in an amount determined by the Compensation Committee, but in no event less than a pro rata portion of the Executive’s average annual bonus for the immediately preceding three years (or the period of the Executive’s employment with the Company, if less),

	(iv) the rights under any options to purchase equity securities of the Company or other rights with respect to equity securities of the Company, including any restricted stock or other securities, held by the Executive, determined in accordance with the terms thereof,

	(v) for a period of six months following the termination of the Executive’s employment, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive (and the Executive’s dependents, if any) under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the Executive) as is then in existence for other executives during the coverage period; provided , that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on substantially the same after-tax basis as if continued participation had been permitted (and any payment made by the Company in respect of any taxes imposed with respect to such benefits shall be paid to the Executive, or to the applicable taxing authority on his behalf, no later than the due date of such taxes); provided further, however , that, in the event the Executive becomes reemployed with another employer and becomes eligible to receive medical benefits from such employer, the medical benefits described herein shall immediately cease, and

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	(vi) the vested accrued benefits, if any, under the employee benefit programs of the Company, as provided in Section 6 above, determined in accordance with the applicable terms and provisions of such programs.

(c) TERMINATION FOR CAUSE.

	(i) The employment of the Executive under this Agreement may be terminated by the Company for Cause, such termination to be effective upon the Company giving the Executive written notice of termination in accordance with the provisions of this Agreement. For this purpose, “Cause” shall mean:

	(A) conviction of the Executive of a felony involving moral turpitude, dishonesty or laws to which the Company or its Affiliates are subject in connection with the conduct of its or their business;

	(B) the Executive, in carrying out his duties for the Company under this Agreement, has been guilty of (1) willful misconduct or (2) substantial and continual refusal by the Executive to perform the duties assigned to the Executive pursuant to the terms hereof; provided, however, that any act or failure to act by the Executive shall not constitute Cause for purposes of this Section 8(c)(i)(B) if such act or failure to act was committed, or omitted, by the Executive in good faith and in a manner he reasonably believed to be in the overall best interests of the Company, as the case may be. The determination of whether the Executive acted in good faith and that he reasonably believed his action to be in the Company’s overall best interest, as the case may be, will be in the reasonable judgment of the General Counsel of the Company or, if the General Counsel shall have an actual or potential conflict of interest, the Compensation Committee; or

	(C) the Executive’s continued willful refusal to obey any lawful policy or requirement duly adopted by the Board of Directors of the Company and the continuance of such refusal after receipt of written notice.

	(ii) In the event of a termination for Cause under Section 8(c)(i), above, the Executive shall be entitled only to:

	(A) Base Salary as provided in Section 4, above, at the rate in effect at the time of his termination of employment for Cause, through the date on which termination for Cause occurs, to be paid in accordance with the Company’s regular payroll practices,

	(B) the rights under any options to purchase equity securities of the Company or other rights with respect to equity securities of the Company, including any restricted stock or other securities, held by the Executive, determined in accordance with the terms thereof, and

	(C) the vested accrued benefits, if any, under employee benefit programs of the Company, as provided in Section 6, above, and reimbursement of properly incurred unreimbursed business expenses under the business expense reimbursement program as described in Section 7, above, determined in accordance with the applicable terms and provisions of such employee benefit and expense reimbursement programs; provided that

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	the Executive shall not be entitled to any such benefits unless the terms and provisions of such programs expressly state that the Executive shall be entitled thereto in the event his employment is terminated for Cause (as defined in this Agreement or otherwise).

(d) TERMINATION WITHOUT CAUSE.

	(i) Anything in this Agreement to the contrary notwithstanding, the Executive’s employment may be terminated by the Company without Cause as provided in this Section 8(d). A termination due to death or disability, as described in Section 8(a) or (b), above, or a termination for Cause, as described in Section 8(c), above, shall not be deemed a termination without Cause under this Section 8(d). For the avoidance of doubt, if a notice of non-renewal of this Agreement pursuant to Section 2 is issued by the Company, the termination of the Executive’s employment at the end of the term shall be considered a termination by the Company without Cause hereunder.

	(ii) In the event the Executive’s employment is terminated by the Company without Cause (x) prior to a Change in Control (other than as provided in the last paragraph of Section 8(d)(iii), in which case the provisions of Section 8(d)(iii) shall apply in lieu of this Section 8(d)(ii)) or (y) following the Post-Change Period (as hereinafter defined), the Executive shall be entitled to:

	(A) Base Salary as provided in Section 4, above, at the rate in effect at the time of his termination of employment without Cause, through the date on which termination without Cause occurs, to be paid in accordance with the Company’s regular payroll practices,

	(B) provided the Executive executes, on or before the date that is fifty (50) days following the date of his termination of employment, a general release of claims against the Company and its Affiliates (as defined below) in form and substance satisfactory to the Company and does not revoke such release prior to the end of the seven day statutory revocation period, a cash lump sum payment made, subject to Section 25 below, sixty (60) days after termination of employment equal to (x) two times the Executive’s annual Base Salary, at the annual rate in effect in accordance with Section 4, above, immediately prior to such termination and (y) one times the higher of the targeted annual bonus for the year of such termination, if any, or the average of the Executive’s annual bonus payable by the Company for the three years immediately preceding the year of termination (or such shorter period during which the Executive has been employed by the Company),

	(C) any annual bonus awarded in accordance with the Company’s bonus program but not yet paid under Section 5, above, to be paid, subject to Section 25 below, at the time such bonus would otherwise be due under Section 5 above, and reimbursement of business expenses incurred prior to termination of employment in accordance with Section 7 above,

	(D) the rights under any options to purchase equity securities of the Company or other rights with respect to equity securities of the Company, including any restricted

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	stock or other securities, held by the Executive, determined in accordance with the terms thereof,

	(E) for a period of twenty-four months following the termination of the Executive’s employment, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive (and the Executive’s dependents, if any) under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the Executive) as is then in existence for other executives during the coverage period; provided , that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on substantially the same after-tax basis as if continued participation had been permitted (and any payment made by the Company in respect of any taxes imposed with respect to such benefits shall be paid to the Executive, or to the applicable taxing authority on his behalf, no later than the due date of such taxes); provided, however , with respect to the participation by the Executive in the medical insurance plan hereunder, the following conditions shall be met: (i) the amount eligible for reimbursement or payment under any such plan in one calendar year may not affect the amount eligible for reimbursement or payment under such plan in any other calendar year (except that the plan may impose a limit on the amount that may be reimbursed or paid if such limit is imposed on all participants), and (ii) any reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred; provided, further, however , that, in the event the Executive becomes reemployed with another employer and becomes eligible to receive medical benefits from such employer, the medical benefits described herein shall immediately cease, and

	(F) the vested accrued benefits, if any, under the employee benefit programs of the Company, as provided in Section 6 above, determined in accordance with the applicable terms and provisions of such programs.

	(iii) In the event the Executive’s employment is terminated by (x) the Company without Cause within the twenty-four month period following a Change in Control (as defined in Exhibit A hereto) (the “Post-Change Period”) or (y) the Executive terminates his employment for “Good Reason” (as defined in Exhibit B hereto) during the Post-Change Period, the Executive shall be entitled to the following, paid in the case of amounts set forth in (B), (C) and (D) below, subject to Section 25 below, 60 days after termination of employment:

	(A) Base Salary as provided in Section 4, above, at the rate in effect at the time of his termination of employment, through the date on which termination occurs, to be paid in accordance with the Company’s regular payroll practices,

	(B) a cash lump sum payment equal to two times the Executive’s annual Base Salary, at the rate in effect in accordance with Section 4, above, or immediately prior to such termination or Change in Control, whichever is greater,

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	(C) a cash lump sum payment equal to two times the average annual bonus awarded to the Executive by the Company in the three years prior to the year in which the Change in Control occurs (or shorter period during which the Executive had been employed by the Company); provided such bonuses shall be at least equal to the targeted annual bonus, if any, for the year of such termination,

	(D) an amount equal to (i) the higher of (x) the bonus actually awarded to the Executive by the Company for the year immediately preceding the year in which the Change in Control occurs or (y) the targeted amount of bonus, if any, that would have been awarded to the Executive in respect of the year in which the termination of employment occurs, multiplied by (ii) a fraction, the numerator of which is the number of months or fraction thereof in which the Executive was employed by the Company in the year of termination of employment, and the denominator of which is 12,

	(E) options to purchase equity securities of the Company or other rights with respect to equity securities of the Company held by the Executive shall immediately vest in full and shall continue to be exercisable for three years from the date of termination of employment, notwithstanding the Executive’s termination of employment, or the original full term of the option or other right, if shorter,

	(F) for a period of twenty-four months following the termination of the Executive’s employment, continued medical benefit plan coverage (including dental and vision benefits if provided under the applicable plans) for the Executive (and the Executive’s dependents, if any) under the Company’s medical benefit plans upon substantially the same terms and conditions (including cost of coverage to the Executive) as is then in existence for other executives during the coverage period; provided , that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on substantially the same after-tax basis as if continued participation had been permitted (and any payment made by the Company in respect of any taxes imposed with respect to such benefits shall be paid to the Executive, or to the applicable taxing authority on his behalf, no later than the due date of such taxes); provided, however , with respect to the participation by the Executive in the medical insurance plan hereunder, the following conditions shall be met: (i) the amount eligible for reimbursement or payment under any such plan in one calendar year may not affect the amount eligible for reimbursement or payment under such plan in any other calendar year (except that the plan may impose a limit on the amount that may be reimbursed or paid if such limit is imposed on all participants), and (ii) any reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred; provided further, however , that, in the event the Executive becomes reemployed with another employer and becomes eligible to receive medical benefits from such employer, the medical benefits described herein shall immediately cease, and

	(G) full and immediate vesting under the Company’s retirement plans as of the date of termination, to the extent permitted by applicable law; provided, however , that if such full and immediate vesting cannot be provided under a “qualified employer plan” (within the meaning of Treas. Reg. Section 1.409A-l(a)(2)) under applicable law, then

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	the present value of economically equivalent benefits, determined using reasonable assumptions and on an after-tax basis to the Executive, shall be paid in a cash lump sum to the Executive, subject to Section 25 below, 60 days after termination of employment.

Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled to the benefits described in (A)-(G) above, if the Executive’s employment with the Company is terminated by the Company (other than for Cause) within one year prior to the date on which a “409A Change in Control” (as defined below) occurs, and it is reasonably demonstrated that such termination (i) was at the request of a third party who has taken steps reasonably calculated or intended to effect the 409A Change in Control or (ii) otherwise arose in connection with or anticipation of the 409A Change in Control; provided , however , that in such event, amounts in excess of those otherwise payable to the Executive under Section 8(d)(ii) above will be payable hereunder only following the 409A Change in Control (and, subject to Section 25 below, 10 days thereafter). For purposes hereof, a “409A Change in Control” means a “change in control event” (as defined in Treas. Reg. Section 1.409A-3(i)(5)) with respect to the Company that also constitutes Change in Control.

(iv) If, in situations where Section 8(d)(iii) does not apply, at any time during the term of the Executive’s employment hereunder and without the Executive’s written consent, duties are assigned to the Executive that are materially inconsistent with his position as described in Section 3 above, or the Company does not cure any material breach by it of any provision of Sections 4 through 7 of this Agreement within 30 calendar days following written notice of same by the Executive (which written notice must be given within 30 calendar days after such breach), the Executive shall have the right to terminate his employment within 30 calendar days of the Company’s failure to rescind such assignment in accordance with the proviso below or of such failure to cure a breach, as the case may be, and such termination shall be deemed a termination by the Company without Cause under Section 8(d)(ii), above, provided , in the case of assignment of duties that are materially inconsistent with those set forth in Section 3 above, the Executive shall have given the Company written notice of such assignment within 30 calendar days of such assignment and shall not, within 30 calendar days thereafter, have had the assignment of inconsistent duties rescinded.

(e) VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may voluntarily terminate his employment prior to the expiration of the term of this Agreement upon at least three months’ prior written notice to the Company. Such termination shall constitute a voluntary termination and, except as provided in Section 8(d)(iii) or Section 8(d)(iv), above, in such event the Executive shall be limited to the same rights and benefits as applicable to a termination by the Company for Cause as provided in Section 8(c), above. A voluntary termination in accordance with this Section 8(e) shall not be deemed a breach of this Agreement. A termination of the Executive’s employment due to disability or death as described in Section 8(b) or 8(a), above, a termination by the Executive which the Executive is entitled to treat as a termination by the Company pursuant to Section 8(d), above, or a termination by the Executive under Section 8(d)(iv), above, shall not be deemed a voluntary termination within the meaning of this Section 8(e).

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9. EXCISE TAX PAYMENTS.

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that (i) any payment or distribution made, or benefit provided (including, without limitation, the acceleration of any payment, distribution or benefit or accelerated vesting or exercisability of any award) by the Company, any acquirer or any party related to the Company or the acquirer to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the United States Internal Revenue Code of 1986, as amended (the “Code”) (or any successor provision or similar excise tax), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), (ii) the aggregate amount of the Executive’s Parachute Payments (as defined in Section 280G(b)(2)(A) of the Code) is less than 3.25 times the Executive’s Base Amount (as defined in Section 280G(b)(3)(A) of the Code), and (iii) no such Payment would be subject to the Excise Tax if the payments set forth in Section 8(d)(iii)(B) and (C) hereof were each reduced by up to 20 percent, then the payments set forth in Section 8(d)(iii)(B) and (C) will each be reduced to the smallest extent possible (and in no event by more than 20 percent in the aggregate) such that no Payment is subject to the Excise Tax.

(b) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that (i) the aggregate amount of the Executive’s Parachute Payments equals or exceeds 3.25 times the Executive’s Base Amount, (ii) the aggregate amount of the Executive’s Parachute Payments is less than 3.25 times the Base Amount but one or more Payments would be subject to the Excise Tax even if the payments set forth in Section 8(d)(iii)(B) and (C) hereof were each reduced by 20 percent, or (iii) notwithstanding a reduction in payments pursuant to Section 9(a) above, an Excise Tax is payable by the Executive on one or more Payments, then, in any such case, Payments shall not be reduced and the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any income or Excise Tax) imposed upon the Gross-Up Payment and any interest or penalties imposed with respect to such taxes, the Executive retains from the Gross-Up Payment an amount equal to the Excise Tax imposed upon the Payments.

(c) Subject to the provisions of Section 9(d), all determinations required to be made under this Section 9, including determination of whether a Gross-Up Payment is required and of the amount of any such Gross-Up Payment, shall be made by a nationally recognized public accounting firm selected by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the date of termination of the Executive’s employment, if applicable, or such earlier time as is reasonably requested. The initial Gross-Up Payment, if any, as determined pursuant to this Section 9(c), shall be paid to the Executive within five business days of the receipt of the Accounting Firm’s determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that he has substantial authority not to report any Excise Tax on his Federal income tax return. Any determination by the Accounting Firm meeting the requirements of this Section 9(c) shall be binding upon the Company and the Executive, subject only to payments pursuant to the following sentence based on a de-

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termination that additional Gross-Up Payments should have been made, consistent with the calculations required to be made hereunder (the amount of such additional payments are referred to herein as the “Gross-Up Underpayment”). In the event that the Company exhausts its remedies pursuant to Section 9(d) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Gross-Up Underpayment that has occurred and any such Gross-Up Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. The fees and disbursements of the Accounting Firm shall be paid by the Company.

(d) The Executive shall notify the Company in writing of any claim by the United States Internal Revenue Service that, if successful, would require the payment by the Executive of any Excise Tax and, therefore, the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but not later than 30 business days after the Executive receives written notice of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires, in good faith, to contest such claim (which notice shall set forth the bases for such contest) and that it will bear the costs and provide the indemnification as required by this sentence, the Executive shall, in good faith:

	(i) give the Company any information reasonably requested by the Company relating to such claim,

	(ii) take such action in connection with contesting such claim as the Company shall, in good faith, reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney selected by the Company and reasonably acceptable to the Executive,

	(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

	(iv) permit the Company to participate, in good faith, in any proceedings relating to such claim;

provided , however , that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis to the Executive, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of all costs and expenses.

Without limitation on the foregoing provisions of this Section 9(d), the Company shall, exercising good faith, control all proceedings taken in connection with such contest and, at its sole option (but in good faith), may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option (but in good faith), either direct the Executive to pay the tax claimed and sue for a

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refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided , however , that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis to the Executive, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to the payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(d), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 9(d)) promptly pay to the Company, as the case may be, the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(d), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then any obligation of the Executive to repay such advance shall be forgiven and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

Notwithstanding any provision herein to the contrary, the Executive’s failure to strictly comply with the notice provisions set forth in this Section 9, so long as such failure does not prevent the Company from contesting an excise tax claim, shall not adversely affect the Executive’s rights under this Section 9. Any amount advanced shall be deemed a nonrefundable payment to the extent a refundable advance would be a violation of the Sarbanes-Oxley Act. Anything in this Agreement to the contrary notwithstanding, except as otherwise provided in Treas. Reg. Section 1.409A-3(i)(l)(v), in no event shall any payment by the Company pursuant to this Section 9 be made later than the end of the Executive’s taxable year next following the Executive’s taxable year in which he remits the related taxes.

10. NO MITIGATION; NO OFFSET.

In the event of any termination of employment under Section 8, above, the Executive shall be under no obligation to mitigate damages or seek other employment, and, except as expressly set forth herein, there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that he may obtain.

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11. NONCOMPETITION AND NONSOLICITATION.


	(i) Executive will not (either alone or jointly with or on behalf of others and whether directly or indirectly) encourage, entice, solicit or endeavor to encourage, entice or solicit away from employment with the Company or its Affiliates, or hire or cause to be hired, any officer or employee of the Company or its Affiliates (or any individual who was within the prior twelve months an officer or employee of the Company or its Affiliates), or encourage, entice, solicit or endeavor to encourage, entice or solicit any individual to violate the terms of any employment agreement or arrangement between such individual and the Company or any of its Affiliates;

	(ii) Executive will not (either alone or jointly with or on behalf of others and whether directly or indirectly) interfere with or disrupt or seek to interfere with or disrupt (A) the relationships between the Company and its Affiliates, on the one hand, and any customer or client of the Company and its Affiliates, on the other hand, (including any insured or reinsured party) who during the period of twenty-four months immediately preceding such termination shall have been such a customer or client, or (B) the supply to the Company and its Affiliates of any services by any supplier or agent or broker who during the period of twenty-four months immediately preceding such termination shall

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	have supplied services to any such person, nor will Executive interfere or seek to interfere with the terms on which such supply or agency or brokering services during such period as aforesaid have been made or provided; and

	(iii) Executive will not (either alone or jointly with or on behalf of others and whether directly or indirectly) whether as an employee, consultant, partner, principal, agent, distributor, representative or stockholder (except solely as a less than one percent stockholder of a publicly traded company), engage in any activities in Bermuda, the United States or greater London if such activities are competitive with the businesses that (i) are then being conducted by the Company or its Affiliates and (ii) during the period of the Executive’s employment were either being conducted by the Company or its Affiliates or actively being developed by the Company or its Affiliates.

The limitations on the Executive set forth in this Section shall also apply to any agent or other representative acting on behalf of Executive.

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12. CONFIDENTIAL INFORMATION.

13. WITHHOLDING.

14. GUARANTY AND AFFILIATE SERVICES.

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15. ENTIRE AGREEMENT.

16. ASSIGNABILITY; BINDING NATURE.

17. INDEMNIFICATION.

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18. SETTLEMENT OF DISPUTES.

(d) Each Party shall bear its own costs incurred in connection with any proceeding under Sections 18(a) or 18(b) hereof, including all legal fees and expenses: provided ,

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however , that the Company shall bear all such costs of the Executive (to the extent such costs are reasonable) if the Executive substantially prevails in the proceeding. Following the final determination of the dispute in which the Executive has substantially prevailed, the Company shall reimburse all such reasonable costs within ten (10) days following written demand therefor (supported by documentation of such costs) by the Executive, and the Executive shall make such written demand within sixty (60) days following the final determination of the dispute; provided, however , that such payment shall be made no later than on or prior to the end of the calendar year following the calendar year in which the cost is incurred. Notwithstanding the foregoing, in the event a final determination of the dispute has not been made by December 20 of the year following the calendar year in which the cost is incurred, the Company shall, within ten (10) days after such December 20, reimburse such reasonable costs (supported by documentation of such costs) incurred in the prior taxable year; provided, however , that the Executive shall return such amounts to the Company within ten (10) business days following the final determination if the Executive did not substantially prevail in the dispute.

19. AMENDMENT OR WAIVER.

20. NOTICES.

If to the Company:

                              XL Capital Ltd
                              One Bermudiana Road
                              Hamilton HM11, Bermuda
                              Att’n: General Counsel

If to the Executive:

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To the last address delivered to
the Company by the Executive in
the manner set forth herein.

21. SEVERABILITY.

22. SURVIVORSHIP.

The respective rights and obligations of the Parties shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations.

23. REFERENCE.

24. GOVERNING LAW.

This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York without reference to the principles of conflict of laws.

25. SECTION 409A.

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26. HEADINGS.

The heading of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.

27. COUNTERPARTS.

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.


	XL CAPITAL LTD

	By:	/s/ Kirstin R. Gould


	JAMES H. VEGHTE

	By:	/s/ James H. Veghte


	GUARANTORS:

	XL INSURANCE LTD

	By:	/s/ Kirstin R. Gould


	XL RE LTD

	By:	/s/ Kirstin R. Gould

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EXHIBIT A

CHANGE IN CONTROL


	A “Change in Control” shall be deemed to have occurred:

	(i) any person (which, for all purposes hereof, shall include, without limitation, an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate and a trustee, executor, administrator or other legal representative) (a “Person”) or any group, as defined in Sections 13(d) or 14(d) of the United States Securities Exchange Act of 1934 (other than a group of which the Executive is a member or which has been organized by the Executive), becomes the beneficial owner, directly or indirectly, of securities of the Company representing, or acquires the right to control or direct, or to acquire through the conversion of securities or the exercise of warrants or other rights to acquire securities, 30% or more of either (I) the outstanding Ordinary Shares of the Company, (II) the outstanding securities of the Company having a right to vote in the election of directors, or (III) the combined voting power of the outstanding securities of the Company having a right to vote in the election of directors; or

	(ii) if there shall be elected or appointed to the Board of Directors of the Company (the “Board”) any director or directors whose appointment or election by the Board or nomination for election by the Company’s shareholders was not approved by a vote of at least a majority of the directors then still in office who were either directors on the date of execution of this Agreement or whose election or appointment or nomination for election was previously so approved; or

	(iii) upon consummation of a reorganization, scheme of arrangement, merger, consolidation, combination, amalgamation, corporate restructuring, liquidation, winding up, exchange of securities, or similar transaction (each, an “Event”), in each case, in respect of which the beneficial owners of the outstanding Company Ordinary Shares immediately prior to such Event do not, following such Event, beneficially own, directly or indirectly, more than 60% of each of the outstanding equity share capital, and the combined voting power of the then outstanding voting securities entitled to vote in the election of the directors, of the Company and any resulting entity, in substantially the same proportions as their ownership, immediately prior to such Event, of the Ordinary Shares and voting power of the Company; or

	(iv) if there occurs an Event involving the Company as a result of which 25% of more of the members of the Board of the Company are not persons who were members of the Board immediately prior to the earlier of (x) the Event, (y) execution of an agreement, the consummation of which would result in the Event, or (z) announcement by the Company of an intention to effect the Event; or

	(v) if the Board adopts a resolution to the effect that, for purposes of this Agreement, a Change in Control has occurred.

EXHIBIT B

GOOD REASON

For purposes of this Agreement, “Good Reason” shall mean any of the following, unless done with the prior express written consent of the Executive:


	(i) (A) The assignment to Executive of duties inconsistent with Executive’s position (including duties, responsibilities, status, titles or offices as set forth in Section 3 hereof); or (B) any elimination, diminution or reduction of Executive’s duties or responsibilities except in connection with the termination of Executive’s employment for Cause, disability or as a result of Executive’s death or by Executive other than for Good Reason; and for purposes for this clause (i), the determination of whether there has been a reduction of duties or responsibilities or an assignment of duties inconsistent with the Executive’s position shall take into account the Executive’s duties, responsibilities and position with the ultimate parent of the parent/subsidiary group as a whole which includes the Company;

	(ii) The (A) reduction in Executive’s Base Salary from the level in effect immediately prior to the Change in Control, or (B) payment of an annual bonus in an amount less than the lesser of (x) the most recent annual bonus paid prior to the Change in Control or (y) the greater of (I) the most recent target bonus, if any, established prior to the Change in Control or (II) the annual average bonus paid for the preceding three complete years prior to the Change in Control (or such lesser number of complete years as the Executive shall have been employed by the Company);

	(iii) The failure by the Company or the Guarantors to obtain the specific written assumption of this Agreement by any successor or assign of the Company or the Guarantors or any person acquiring substantially all of the Company’s or the Guarantors’ assets;

	(iv) Any breach by the Company or the Guarantors of any provision of this Agreement or any agreements entered into pursuant thereto that remains uncured for 20 calendar days following written notice of same by the Executive;

	(v) Notwithstanding the provisions of Section 3(b) of this Agreement, requiring the Executive to be based at any office or location that is greater than 35 miles from the office or location at which the Executive was principally located immediately prior to the Change in Control;

	(vi) During the Post-Change Period, (A) the failure to continue in effect any compensation or incentive plan in which Executive participates immediately prior to the time of the Change in Control unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing Executive with at least the same aggregate economic opportunity on an after-tax basis available to the Executive immediately prior to the Change in Control) has been made with respect to such plan in connection with the Change in Control, or the failure to continue Executive’s participation therein on substantially the same basis both in terms of the amount of benefits provided


	and the level of his participation relative to other participants, as existed at the time of the Change in Control; or (B) the failure to continue to provide Executive with benefits and coverage at least as favorable in the aggregate as those enjoyed by him under the Company’s pension, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which he was participating at the time of the Change in Control; or

	(vii) The failure by the Company to pay within 7 calendar days of the due date any amounts due under any benefit or compensation plan, including any deferred compensation plan.

Notwithstanding any provision in this Agreement to the contrary, the Executive must give written notice of his intention to terminate his employment for Good Reason within sixty (60) days after the act or omission which constitutes Good Reason, and any failure to give such written notice within such period will result in a waiver by the Executive of his right to terminate for Good Reason as a result of such act or omission.

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Exhibit 10.8

AMENDMENT TO
AMENDED EMPLOYMENT AGREEMENT

AMENDMENT TO AMENDED EMPLOYMENT AGREEMENT (“Amendment”) dated as of December___, 2008 between XL Capital Ltd, a Cayman Islands corporation (the “Company”), X.L. Global Services, Inc. (“XLGS”), and Brian Nocco (the “Executive”).

WHEREAS, the Company, XLGS and the Executive are parties to an Amended Employment Agreement dated as of _________________ (the “Agreement”);

WHEREAS, the Company, XLGS and the Executive wish to amend the Agreement as set forth herein;

NOW, THEREFORE, in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company, XLGS, the Guarantors (as defined in the Agreement) and the Executive hereby agree as follows:

1. The last paragraph of Section 8(d)(iii) is amended by deleting “10 days thereafter” and replacing it with “on the date of the 409A Change in Control.”

2. The first sentence of Section 18(d) is amended to read in its entirety as follows:


	“Each Party shall bear its own costs incurred in connection with any proceeding under Sections 18(a) or 18(b) hereof, including all legal fees and expenses; provided , however , that the Company shall bear all such costs of the Executive (to the extent such costs are reasonable) if the Executive substantially prevails in a proceeding following his “separation from service” (as defined below) with the Company.

3. Section 25(b) is amended to read in its entirety as follows:

	“(b) Without prejudice to the characterization of any other amounts payable under this Agreement, the parties hereto specifically intend that any amounts payable under Section 8(d)(ii)(A)-(C), Section 8(d)(iii)(A)-(D) and Section 11 will not be considered deferred compensation for purposes of Section 409A due to Treas. Reg. Section 1.409A-1(b)(4) or another applicable exception. However, notwithstanding any provision to the contrary in this Agreement, if the Executive is deemed on the date of his “separation from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)) with the Company to be a “specified employee” (within the meaning of Treas. Reg. Section 1.409A-1(i)), then with regard to any payment or benefit that is considered deferred compensation under Section 409A payable on account of a “separation from service” that is required to be delayed pursuant to Section 409A(a)(2)(B) of the Code (after taking into account any applicable exceptions to such requirement), such payment or benefit shall be made or provided on the date that is the earlier of (i) the expiration of the six (6)-month


	period measured from the date of the Executive’s “separation from service,” or (ii) the date of the Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section 25(b) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. Notwithstanding any provision of this Agreement to the contrary, for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment, references to the Executive’s “termination of employment” (and corollary terms) with the Company shall be construed to refer to the Executive’s “separation from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)) with the Company. With respect to any reimbursement or in-kind benefit arrangements of the Company and its subsidiaries that constitute deferred compensation for purposes of Section 409A, except as otherwise permitted by Section 409A, the following conditions shall be applicable: (i) the amount eligible for reimbursement, or in-kind benefits provided, under any such arrangement in one calendar year may not affect the amount eligible for reimbursement, or in-kind benefits to be provided, under such arrangement in any other calendar year (except that the health and dental plans may impose a limit on the amount that may be reimbursed or paid), (ii) any reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred, and (iii) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit. Whenever a payment under this Agreement specifies a payment period with reference to a number of days ( e.g ., “payment shall be made within thirty (30) days after termination of employment”), the actual date of payment within the specified period shall be within the sole discretion of the Company. Whenever payments under this Agreement are to be made in installments, each such installment shall be deemed to be a separate payment for purposes of Section 409A.”

4. The definition of “Good Reason” in Exhibit B is amended to read in its entirety as follows:

	“For purposes of this Agreement, “Good Reason” shall mean any of the following, unless done with the prior express written consent of Executive:

	(i) (A) The assignment to Executive of duties materially inconsistent with Executive’s position (including duties, responsibilities, status, titles or offices as set forth in Section 3 hereof); (B) any material diminution or material reduction of Executive’s duties or responsibilities except in connection with the termination of Executive’s employment for Cause, disability or as a result of Executive’s death or by Executive other than for Good Reason; (C) a material diminution in the authorities, duties or responsibilities of the supervisor to whom Ex-

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	ecutive is required to report; or (D) a material diminution in the budget over which Executive retains authority;

	(ii) The (A) material reduction in Executive’s Base Salary from the level in effect immediately prior to the Change in Control, or (B) material diminution in bonus opportunity that results in a material reduction in Executive’s compensation;

	(iii) Any material breach by the Company or the Guarantors of this Agreement or any material agreement entered into pursuant thereto;

	(iv) Notwithstanding the provisions of Section 3(b) of this Agreement, requiring Executive to be based at any office or location that is greater than 35 miles from the office or location at which Executive was principally located immediately prior to the Change in Control;

	(v) During the Post-Change Period, the failure to continue in effect any material compensation or incentive plan in which Executive participates immediately prior to the time of the Change in Control unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing Executive with substantially the same aggregate economic opportunity on an after-tax basis available to the Executive immediately prior to the Change in Control) has been made with respect to such plan in connection with the Change in Control, or the failure to continue Executive’s participation therein on substantially the same basis as existed at the time of the Change in Control, which in any such case results in a material reduction in Executive’s compensation.

	Notwithstanding any provision in this Agreement to the contrary, the Executive must give written notice of his intention to terminate his employment for Good Reason within sixty (60) days after the act or omission which constitutes Good Reason, and the Company shall have thirty (30) days from such notice to remedy the condition, in which case Good Reason shall no longer exist with regard to such condition. Any failure to give such written notice within such period will result in a waiver by the Executive of his right to terminate for Good Reason as a result of such act or omission. Any termination hereunder shall occur within one hundred twenty (120) days after the Good Reason event occurs.”

5. Except as set forth herein, the Agreement shall continue in full force and effect in accordance with its terms.

6. All questions concerning the construction, validity and interpretation of this Amendment and the Agreement shall be construed and governed in accordance with the laws of the State of New York, without reference to the principles of conflict of laws thereof.

7. This Amendment may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all of which counterparts taken together will constitute one and the same agreement.

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year first above written.


	XL CAPITAL LTD

	By:	/s/ Kirstin R. Gould


	XL GLOBAL SERVICES, INC.

	By:	/s/ ILLEGIBLE


	GUARANTORS:

	XL INSURANCE (BERMUDA) LTD
	(formerly XL INSURANCE LTD)

	By:	/s/ Kirstin R. Gould


	XL RE LTD

	By:	/s/ Kirstin R. Gould


READ, ACCEPTED & AGREED

/s/ Brian Nocco

Brian Nocco

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Exhibit 10.9

AMENDMENT TO
EMPLOYMENT AGREEMENT

AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) dated as of December __, 2008 between XL Capital Ltd, a Cayman Islands corporation (the “Company”), and Michael S. McGavick (the “Executive”).

WHEREAS, the Company and the Executive are parties to an Employment Agreement dated as of March 14, 2008 (the “Agreement”);

WHEREAS, the Company and the Executive wish to amend the Agreement as set forth herein;

1. The last paragraph of Section 8(d)(iii) is amended by deleting “10 days thereafter” and replacing it with “on the date of the 409A Change in Control.”

2. The first sentence of Section 18(d) is amended to read in its entirety as follows:

“Each Party shall bear its own costs incurred in connection with any proceeding under Sections 18(a) or 18(b) hereof, including all legal fees and expenses; provided , however , that the Company shall bear all such costs of the Executive (to the extent such costs are reasonable) if the Executive substantially prevails in a proceeding following his “separation from service” (as defined below) with the Company.

3. Section 25(b) is amended to read in its entirety as follows:

“(b) Without prejudice to the characterization of any other amounts payable under this Agreement, the parties hereto specifically intend that any amounts payable under Section 8(d)(ii)(A)-(C), Section 8(d)(iii)(A)-(D) and Section 11 will not be considered deferred compensation for purposes of Section 409A due to Treas. Reg. Section 1.409A-1(b)(4) or another applicable exception. However, notwithstanding any provision to the contrary in this Agreement, if the Executive is deemed on the date of his “separation from service” (within the meaning of Treas. Reg. Section 1.409A-1 (h)) with the Company to be a “specified employee” (within the meaning of Treas. Reg. Section 1.409A-l(i)), then with regard to any payment or benefit that is considered deferred compensation under Section 409A payable on account of a “separation from service” that is required to be delayed pursuant to Section 409A(a)(2)(B) of the Code (after taking into account any applicable exceptions to such requirement), such payment or benefit shall be made or provided on the date that is the earlier of (i) the expiration of the six (6)-month

period measured from the date of the Executive’s “separation from service,” or (ii) the date of the Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section 25(b) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. Notwithstanding any provision of this Agreement to the contrary, for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment, references to the Executive’s “termination of employment” (and corollary terms) with the Company shall be construed to refer to the Executive’s “separation from service” (within the meaning of Treas. Reg. Section 1.409A-l(h)) with the Company. With respect to any reimbursement or in-kind benefit arrangements of the Company and its subsidiaries that constitute deferred compensation for purposes of Section 409A, except as otherwise permitted by Section 409A, the following conditions shall be applicable: (i) the amount eligible for reimbursement, or in-kind benefits provided, under any such arrangement in one calendar year may not affect the amount eligible for reimbursement, or in-kind benefits to be provided, under such arrangement in any other calendar year (except that the health and dental plans may impose a limit on the amount that may be reimbursed or paid), (ii) any reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred, and (iii) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit. Whenever a payment under this Agreement specifies a payment period with reference to a number of days ( e.g ., “payment shall be made within thirty (30) days after termination of employment”), the actual date of payment within the specified period shall be within the sole discretion of the Company. Whenever payments under this Agreement are to be made in installments, each such installment shall be deemed to be a separate payment for purposes of Section 409A.”

4. The definition of “Good Reason” in Exhibit B is amended to read in its entirety as follows:


	“For purposes of this Agreement, “Good Reason” shall mean any of the following, unless done with the prior express written consent of Executive:

	(i) (A) The assignment to Executive of duties materially inconsistent with Executive’s position (including duties, responsibilities, status, titles or offices as set forth in Section 3 hereof); (B) any material diminution or material reduction of Executive’s duties or responsibilities except in connection with the termination of Executive’s employment for Cause, disability or as a result of Executive’s death or by Executive other than for Good Reason; (C) a material diminution in the authorities, duties or responsibilities of the supervisor to whom Ex-

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	ecutive is required to report; or (D) a material diminution in the budget over which Executive retains authority;

	(ii) The (A) material reduction in Executive’s Base Salary from the level in effect immediately prior to the Change in Control, or (B) material diminution in bonus opportunity that results in a material reduction in Executive’s compensation;

	(iii) Any material breach by the Company or the Guarantors of this Agreement or any material agreement entered into pursuant thereto;

	(iv) Notwithstanding the provisions of Section 3(b) of this Agreement, requiring Executive to be based at any office or location that is greater than 35 miles from the office or location at which Executive was principally located immediately prior to the Change in Control;

	(v) During the Post-Change Period, the failure to continue in effect any material compensation or incentive plan in which Executive participates immediately prior to the time of the Change in Control unless an equitable arrangement (embodied in an ongoing substitute or alternative plan providing Executive with substantially the same aggregate economic opportunity on an after-tax basis available to the Executive immediately prior to the Change in Control) has been made with respect to such plan in connection with the Change in Control, or the failure to continue Executive’s participation therein on substantially the same basis as existed at the time of the Change in Control, which in any such case results in a material reduction in Executive’s compensation.

	Notwithstanding any provision in this Agreement to the contrary, the Executive must give written notice of his intention to terminate his employment for Good Reason within sixty (60) days after the act or omission which constitutes Good Reason, and the Company shall have thirty (30) days from such notice to remedy the condition, in which case Good Reason shall no longer exist with regard to such condition. Any failure to give such written notice within such period will result in a waiver by the Executive of his right to terminate for Good Reason as a result of such act or omission. Any termination hereunder shall occur within one hundred twenty (120) days after the Good Reason event occurs.”

5. Except as set forth herein, the Agreement shall continue in full force and effect in accordance with its terms.

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year first above written.


	XL CAPITAL LTD

	By:	/s/ Kirstin R. Gould


	GUARANTORS:

	XL INSURANCE (BERMUDA) LTD (formerly XL INSURANCE LTD)

	By:	/s/ Kirstin R. Gould


	XL RE LTD

	By:	/s/ Kirstin R. Gould


READ, ACCEPTED & AGREED

/s/ Michael S. McGavick

Michael S. McGavick

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Exhibit 10.10

MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT

among

XL Capital Ltd; XL Insurance (Bermuda) Ltd; XL Reinsurance America Inc.; X.L. Global
Services, Inc.; XL Services (Bermuda) Ltd and X.L. America, Inc.;

Security Capital Assurance Ltd; XL Financial Assurance Ltd.; XL Capital Assurance Inc.; XL
Financial Administrative Services Inc.; SCA Bermuda Administrative Ltd.; XL Capital
Assurance (U.K.) Limited; and Certain Portfolio Trusts that are Affiliates of XL Capital
Assurance Inc. and may become party to this Agreement from time to time;

and

Counterparties to Credit Default Swap Agreements with XL Capital Assurance Inc. and
Affiliates of XL Capital Assurance Inc. that may become party to this Agreement from time to
time.

Dated as of July 28, 2008


TABLE OF CONTENTS

		Page


ARTICLE I

DEFINITIONS

Section 1.01	Certain Defined Terms	8
Section 1.02	Definitions	17
Section 1.03	Interpretation and Rules of Construction	17

ARTICLE II

COMMUTATION AND RELEASE

Section 2.01	Commutation and Release of Reinsurance Agreements	18
Section 2.02	Termination of the Other Terminated Agreements	18
Section 2.03	Commutation and Release of Quota Share Treaty	18
Section 2.04	Commutation and Amendment of Other Reinsurance Agreements	18
Section 2.05	Mutual Releases	19
Section 2.06	Consideration	23
Section 2.07	Closing	23
Section 2.08	Closing Deliveries by the SCA Parties	23
Section 2.09	Closing Deliveries by the XL Parties	24
Section 2.10	Escrow	25

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SCA PARTIES

Section 3.01	Organization, Authority and Qualification of the SCA Parties	26
Section 3.02	No Conflict	26
Section 3.03	Governmental Consents and Approvals	27
Section 3.04	Financial Information	27
Section 3.05	Compliance with Laws	28
Section 3.06	Effect of Commutations	28
Section 3.07	Litigation	28
Section 3.08	Placement of Stock Consideration	28
Section 3.09	Regulatory Approvals	29
Section 3.10	MLI CDS Agreements	30
Section 3.11	Financial Security Master Facultative Commutation Agreement	30
Section 3.12	Third-Party Agreements	30
Section 3.13	Brokers	30


ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE XL PARTIES

Section 4.01	Organization and Authority of the XL Parties	31
Section 4.02	No Conflict	31
Section 4.03	Governmental Consents and Approvals	31
Section 4.04	Capitalization	32
Section 4.05	XL Owned SCA Common Shares	32
Section 4.06	Litigation	32
Section 4.07	Regulatory Approvals	32
Section 4.08	Brokers	33

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE CDS COUNTERPARTIES

Section 5.01	Status	33
Section 5.02	Powers	33
Section 5.03	No Violation or Conflict	33
Section 5.04	Consents	33
Section 5.05	Obligations Binding	33
Section 5.06	Absence of Litigation	33
Section 5.07	Consent to Transactions	34
Section 5.08	Ownership of Insurance Instruments	34
Section 5.09	Brokers	34

ARTICLE VI

ADDITIONAL AGREEMENTS

Section 6.01	Public Disclosure and Confidentiality	34
Section 6.02	Regulatory and Other Authorizations; Notices and Consents	36
Section 6.03	Notice of Developments	37
Section 6.04	MLI ABS CDO Credit Default Swap Agreements	37
Section 6.05	Third-Party Reinsurance Agreements	37
Section 6.06	Ownership of Insurance Instruments	38
Section 6.07	Compliance with Securities Laws	38
Section 6.08	Passive Investor	38
Section 6.09	XL Owned SCA Common Shares Covenant	38
Section 6.10	Forbearance	38
Section 6.11	Control of Litigation and Cooperation	40
Section 6.12	CDS Counterparty Restructuring	41
Section 6.13	Restriction on Commutations	42
Section 6.14	Treatment of Public Finance Business	42
Section 6.15	Further Action	43

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Section 6.16	Resignation of XL Nominees	43
Section 6.17	Disclosure Schedules; Supplementation and Amendment of Schedules	43
Section 6.18	SCA Shareholder Entity	43
Section 6.19	Portfolio Trust	44
Section 6.20	BlackRock	44
Section 6.21	XLFA Merger	44
Section 6.22	Collipulli Temuco and Banco de Brasil Policies	44
Section 6.23	XLFA Redomestication	45

ARTICLE VII

CONDITIONS TO CLOSING

Section 7.01	Conditions to Obligations of the SCA Parties	45
Section 7.02	Conditions to Obligations of the XL Parties	46
Section 7.03	Conditions to Obligations of the CDS Counterparties	47
Section 7.04	Frustration of Closing Conditions	48

ARTICLE VIII

TERMINATION AND WITHDRAWAL

Section 8.01	Termination	48
Section 8.02	Effect of Termination	49
Section 8.03	CDS Counterparty Withdrawal	50

ARTICLE IX

GENERAL PROVISIONS

Section 9.01	Expenses	50
Section 9.02	Notices	50
Section 9.03	Severability	51
Section 9.04	Joinder of CDS Counterparties and Additional SCA Parties	52
Section 9.05	Entire Agreement	52
Section 9.06	Assignment	52
Section 9.07	Amendment	52
Section 9.08	Waiver	52
Section 9.09	No Third-Party Beneficiaries	53
Section 9.10	Rights and Remedies	53
Section 9.11	Indemnification	53
Section 9.12	No Survival	54
Section 9.13	Several Liability of the CDS Counterparties	54
Section 9.14	Governing Law and Jurisdiction	54
Section 9.15	Waiver of Jury Trial	55
Section 9.16	Fully Negotiated Agreement	55

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Section 9.17	Currency	55
Section 9.18	Counterparts	55

EXHIBITS


Exhibit No.		Description


1.01(a)		2001 Facultative Quota Share Commutation Agreement
1.01(b)		Adverse Development Cover Commutation Agreement
1.01(c)		Joinder Agreement
1.01(d)		Excess of Loss Commutation Agreement
1.01(e)		Facultative Master Certificate Commutation Agreement
1.01(f)		Quota Share Treaty Commutation Agreement
1.01(g)		Subscription Agreement
1.01(h)		XL Stock Resale and Registration Rights Agreement
1.01(i)		SCA Shareholder Entity Agreement
1.01(j)		SCA Registration Rights Agreement
1.01(k)		Transition Agreement Amendment
2.06		Securities Law Representations of the SCA Shareholder Entity
6.18		Form of SCA Shareholder Entity Trust Agreement

SCHEDULES

Schedule		Description


1.01(a)		MLI ABS CDO Credit Default Swap Agreements
1.01(b)		Other Terminated Agreements
1.01(c)		Knowledge of SCA
1.01(d)		Terms of the Escrow Agreement
2.01		Commuted Reinsurance Agreements
2.04		Other Reinsurance to be Commuted or Amended
2.05		Schedule 2.05 Agreements
2.06(a)		SCA Parties Receiving a Portion of the Cash Consideration Amount
2.06(b)		SCA Parties Receiving a Portion of the Stock Consideration
9.02		Addresses for the CDS Counterparties

SCA PARTIES’ DISCLOSURE SCHEDULE

Section		Description

Section 3.02		Conflicts
Section 3.03		Governmental Consents and Approvals
Section 3.05		Compliance with Laws

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XL PARTIES’ DISCLOSURE SCHEDULE

Section		Description

Section 4.02		Conflicts
Section 4.03		Governmental Consents and Approvals
Section 4.04(a)		Capitalization

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PREAMBLE

MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT, dated as of July 28, 2008, is entered into by and among:

(a) XL CAPITAL LTD, an exempted limited company incorporated under the Laws of Cayman Islands (“ XL ”), XL INSURANCE (BERMUDA) LTD (formerly known as X.L. Insurance Ltd), a Bermuda exempted company (“ XLI ”), XL REINSURANCE AMERICA INC., a New York insurance corporation (“ XLRA ”), X.L. GLOBAL SERVICES, INC., a service company incorporated under the Laws of Delaware (“ XLGS ”), XL SERVICES (BERMUDA) LTD, a service company incorporated under the Laws of Bermuda (“ XLBS ”) and X.L. AMERICA, INC., a company incorporated under the Laws of Delaware (“ XLA ”);

(b) SECURITY CAPITAL ASSURANCE LTD, a Bermuda exempted company (“ SCA ”), XL FINANCIAL ASSURANCE LTD., a Bermuda exempted company (“ XLFA ”), XL CAPITAL ASSURANCE INC., a New York insurance company (“ XLCA ”), XL FINANCIAL ADMINISTRATIVE SERVICES INC., a company incorporated under the Laws of Delaware (“ XLFAS ”), SCA BERMUDA ADMINISTRATIVE LTD., a company incorporated under the Laws of Bermuda (“ SCAB ”), XL CAPITAL ASSURANCE (U.K.) LIMITED, an insurance company regulated by the Financial Services Authority and incorporated under the Laws of England and Wales (“ XLCAUK ”), and those portfolio trusts that are Affiliates of XLCA and become a Party to this Agreement from time to time pursuant to the execution of a joinder agreement in the form attached hereto as Exhibit 1.01(c) ; and

(c) Such counterparties to credit default swap agreements with XLCA or Affiliates of XLCA that may become a Party to this Agreement from time to time pursuant to the execution of a joinder agreement in the form attached hereto as Exhibit 1.01(c) .

RECITALS

WHEREAS, XLI is the record and beneficial owner of approximately forty-six percent (46%) of SCA’s issued and outstanding common shares (the “ XL Owned SCA Common Shares ”);

WHEREAS, certain XL Parties and SCA Parties have entered into the Excess of Loss Agreement, the Adverse Development Cover, the Facultative Master Certificate and the 2001 Facultative Quota Share Treaty (all as defined in Article I );

WHEREAS, XLCA and XLFA previously entered into a Facultative Quota Share Reinsurance Treaty, dated as of October 6, 1999, as amended and restated by an Amended and Restated Facultative Quota Share Reinsurance Treaty, dated as of June 22, 2001, as further amended and restated by a Second Amended and Restated Facultative Quota Share Reinsurance Treaty, dated as of May 1, 2004, and as further amended and restated by a Third Amended and Restated Facultative Quota Share Reinsurance Treaty, dated as of June 29, 2006 and effective July 1, 2006 (the “ Quota Share Treaty ”);

WHEREAS, XLI guarantees the obligations of XLFA to XLCA under the Quota Share Treaty pursuant to the Reinsurance Agreement Guarantee, dated as of October 6, 1999, as amended as of June 22, 2001, as further amended as of May 1, 2004, and as further amended as of August 4, 2006 (the “ Guarantee ”);

WHEREAS, XLFA and XLCA wish to (i) commute the Quota Share Treaty and all individual risk cessions thereunder and (ii) fully and finally extinguish all rights and obligations thereunder and thereby render the Guarantee null and void;

WHEREAS, the XL Parties and the SCA Parties wish to (i) commute the Excess of Loss Agreement, the Adverse Development Cover, the Facultative Master Certificate and all individual risk cessions thereunder, and the 2001 Facultative Quota Share Treaty and all individual risk cessions thereunder and (ii) fully and finally extinguish all the Parties’ rights and obligations under all such agreements;

WHEREAS, the XL Parties and the SCA Parties have previously entered into those agreements listed on Schedule 1.01(b) and now wish to (i) terminate such agreements listed in Part I of Schedule 1.01(b) and (ii) fully and finally extinguish all the Parties’ rights and obligations under such agreements, except as may be explicitly set forth in this Agreement; and

WHEREAS, certain CDS Counterparties now and, on or prior to the Closing Date, additional CDS Counterparties may, wish to enter into this Agreement and agree to consent to the Transactions on the terms and conditions set forth in this Agreement relating to the restructuring of SCA and its Affiliates.

NOW, THEREFORE, in consideration of the payments, covenants, conditions, promises and releases contained herein, and for other fair and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 Certain Defined Terms . For purposes of this Agreement:

“ 1505 Application ” means an application filed under Section 1505 of the New York Insurance Laws.

“ 2001 Facultative Quota Share Commutation Agreement ” means the 2001 Facultative Quota Share Commutation Agreement to be executed by XLFA and XLI and delivered at the Closing, in the form of Exhibit 1.01(a) .

“ 2001 Facultative Quota Share Treaty ” means the Facultative Quota Share Reinsurance Agreement, dated as of August 17, 2001, as amended by Amendment No. 1 to the Facultative Quota Share Reinsurance Agreement, dated as of August 4, 2006, between XLFA and XLI.

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“ ABS CDO CDSs ” means the asset backed securities collateralized debt obligation credit default swaps between XLCA or an Affiliate of XLCA and a CDS Counterparty that are listed on an official schedule held by the SCA Parties and the CDS Financial Advisor.

“ Action ” means any judicial, administrative or arbitral action, suit, or proceeding by or before any Governmental Authority.

“ Adverse Development Cover ” means the Adverse Development Reinsurance Agreement, dated as of August 4, 2006, between XLCA and XLRA, and the Indemnification Agreement, dated as of August 4, 2006, between XLFA and XLI.

“ Adverse Development Cover Commutation Agreement ” means the Adverse Development Cover Commutation Agreement to be executed by XLCA, XLRA, XLFA and XLI delivered at the Closing, in the form of Exhibit 1.01(b) .

“ Affiliate ” means, with respect to any Person, any other Person directly or indirectly Controlling, Controlled by, or under common Control with such Person, provided , that none of the SCA Parties shall be deemed to be an Affiliate of any XL Party.

“ Agreement ” or “ this Agreement ” means this Master Commutation, Release and Restructuring Agreement among the Parties (including the Exhibits and Schedules hereto, the SCA Parties’ Disclosure Schedule and the XL Parties’ Disclosure Schedule) and all amendments or waivers hereto made in accordance with the provisions of Sections 9.07 or 9.08 and joinder agreements hereto made in accordance with the provisions of Sections 9.04 .

“ Ancillary Agreements ” means the 2001 Facultative Quota Share Commutation Agreement, the Excess of Loss Commutation Agreement, the Adverse Development Cover Commutation Agreement, the Facultative Master Certificate Commutation Agreement, the Quota Share Treaty Commutation Agreement, the Subscription Agreement, the XL Stock Resale and Registration Rights Agreement and the SCA Shareholder Entity Agreement.

“ Banco de Brasil Policy ” means the Financial Guaranty Insurance Policy No. CA00127A, dated December 27, 2001, issued by XLCA in favor of MLI, together with any endorsements thereto, relating to payments that are required to be paid by FF Trust 2 to MLI in accordance with the original terms of a Single Transaction ISDA Master Agreement and Schedule thereto, dated as of December 27, 2001 between FF Trust 2 and MLI.

“ BlackRock ” means BlackRock Financial Management, Inc.

“ BMA ” means the Bermuda Monetary Authority.

“ Business Day ” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in Bermuda or New York.

“ CDS Counterparties ” means those counterparties to credit default swap agreements with XLCA or Affiliates of XLCA that may become a Party to this Agreement from time to time on or prior to Closing by way of executing a joinder agreement pursuant to

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Section 9.04 in the form of Exhibit 1.01(c) , either collectively or individually, as the context requires.

“ CDS Financial Advisor ” means FTI Consulting, Inc. or another advisor designated by the Required Consenting Counterparties.

“ Closing Date ” means the date of the Closing.

“ Control ,” “ Controlled ,” or “ Controlling ,” with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, or as trustee, personal representative or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee, as personal representative or executor, by contract, by credit arrangement or otherwise.

“ Collipulli Temuco Policy ” means the Financial Guaranty Insurance Policy No. 10030-X, together with any endorsements thereto, relating to up to UF 1,150,000 aggregate principal amount of outstanding borrowings under the Contrato de Apertura de Línea de Crédito, dated as of July 27, 2005, between Banco de Crédito e Inversiones and Ruta de la Araucanía Sociedad Concesionaria S.A. and issued pursuant to the Insurance and Reimbursement Agreement, dated as of November 29, 2005, between XLI and Banco de Crédito e Inversiones and Ruta de la Araucanía Sociedad Concesionaria S.A.

“ Credit Agreement ” means that certain Credit Agreement, dated as of August 1, 2006, among SCA, XLCA, and XLFA, the various lenders from time to time party thereto and Citibank, N.A., as administrative agent (as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof).

“ Declaration of Trust ” means a trust agreement in the form attached hereto as Exhibit 6.18 (with such reasonable changes thereto as the trustee of the SCA Shareholder Entity or its counsel may require and that are approved by counsel to the CDS Counterparties and counsel to the SCA Parties).

“ EIB ” means European Investment Bank, a non-profit bank owned by the Member States of the European Union and established under the Treaty of Rome.

“ EIB Guarantees ” means (i) the Financial Guaranty 10017-X, dated July 5, 2001, issued by XLI in favor of EIB (Algarve), (ii) the Financial Guaranty Number 10028-X, dated May 28, 2004, issued by XLI in favor of EIB (Autovia del Camino, S.A.), (iii) the Financial Guaranty Number 10029-X, dated October 28, 2004, issued by XLI in favor of EIB (Autovia del los Vinedos), (iv) the Financial Guaranty Number 10023-X, dated June 8, 2005, issued by XLI in favor of EIB (Transform School (North Lanarkshire) Funding plc), and (v) the Financial Guaranty Number 10019-X, dated May 4, 2005, issued by XLI in favor of EIB (Healthcare Support (Newcastle) Finance plc).

“ EIB Policies ” means (i) the Financial Guaranty Number CA00041A, dated July 5, 2001, issued by XLCA in favor of EIB, (ii) the Financial Guaranty Number CA00995A, dated May 28, 2004, issued by XLCA in favor of EIB and the Financial Guaranty Number UK0003A, dated May 28, 2004 issued by XLCAUK in favor of EIB, (iii) the Financial Guaranty Number

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CA01220A, dated October 28, 2004, issued by XLCA in favor of EIB and the Financial Guaranty Number UK0004A, dated October 28, 2004, issued by XLCAUK in favor of EIB, (iv) the Financial Guaranty Number CA02062A, dated June 8, 2005, issued by XLCA in favor of EIB and the Financial Guaranty Number UK0008A, dated June 8, 2005, issued by XLCAUK in favor of EIB and (v) the Financial Guaranty Number CA01937A, dated May 4, 2005 issued by XLCA in favor of EIB and the Financial Guaranty Number UK0007B, dated May 4, 2005, issued by XLCAUK in favor of EIB.

“ EIB Resolution Event ” means (i) commutation of all of the EIB Policies and full and final extinguishment of all Persons’ rights and obligations thereunder, (ii) a general release in form reasonably acceptable to the XL Parties by EIB of the XL Parties’ obligations with respect to all of the EIB Guarantees or (iii) the provision by a creditworthy entity reasonably acceptable to the XL Parties of a guaranty guaranteeing 100% of the XL Parties’ obligations under all of the EIB Guarantees.

“ Escrow Agent ” means HSBC Private Bank, Bermuda Trust Company Limited.

“ Escrow Agreement ” means the agreement pursuant to which the Escrow Agent will hold the XL Owned SCA Common Shares pursuant to terms substantially the same as those set forth in Schedule 1.01(d) , if the XL Owned SCA Common Shares are transferred to the Escrow Agent pursuant to Section 2.10 .

“ Excess of Loss Agreement ” means the Excess of Loss Reinsurance Agreement by and between XLFA and XLI, dated as of October 3, 2001.

“ Excess of Loss Commutation Agreement ” means the Excess of Loss Commutation Agreement to be executed by XLFA and XLI and delivered at the Closing, in the form of Exhibit 1.01(d) .

“ Facultative Master Certificate ” means the Facultative Master Certificate effective as of November 1, 2002, as amended and restated pursuant to the First Amended and Restated Facultative Master Certificate, effective as of August 4, 2006, and as further amended and restated pursuant to the Second Amended and Restated Facultative Master Certificate by and between XLRA and XLCA, dated as of March 1, 2007.

“ Facultative Master Certificate Commutation Agreement ” means the Facultative Master Certificate Commutation Agreement to be executed by XLCA and XLRA and delivered at the Closing, in the form attached hereto as Exhibit 1.01(e) .

“ Financial Statements ” means the GAAP Financial Statements, the XLCA Statutory Financial Statements and the XLFA Statutory Financial Statements.

“ Financial Security ” means Financial Security Assurance Inc.

“ Financial Security Commutations ” means the Financial Security Master Facultative Commutation and the commutations of the Other Financial Security Agreements.

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“ Financial Security Agreements ” means the Financial Security Master Facultative Agreement and the Other Financial Security Agreements.

“ Financial Security Guarantee ” means the Reinsurance Agreement Guarantee, dated November 3, 1998 and amended on July 5, 2006, issued by X.L. Insurance Company, Ltd (later renamed XLI), guaranteeing XLFA’s obligations to Financial Security under the Financial Security Master Facultative Agreement.

“ Financial Security Master Facultative Agreement ” means the Amended and Restated Master Facultative Reinsurance Agreement, dated as of November 3, 1998, between Financial Security and XLFA; as amended by the First Amendment to the Master Facultative Reinsurance Agreement, dated as of November 3, 1998, between Financial Security and XLFA; as amended by the First Amendment to the Amended and Restated Master Facultative Reinsurance Agreement, dated as of July 6, 2006, between Financial Security and XLFA.

“ Financial Security Master Facultative Commutation ” means the commutation of the Financial Security Master Facultative Agreement pursuant to a commutation and release agreement.

“ GAAP ” means United States generally accepted accounting principles in effect from time to time.

“ GAAP Financial Statements ” means (i) the audited balance sheet of each of SCA, XLFA and XLCA for the fiscal year ended December 31, 2007 and the related audited statements of income, retained earnings, stockholders’ equity and changes in financial position, together with all related notes and schedules thereto and accompanied by the reports thereon of the SCA Parties’ accountants, and (ii) the unaudited balance sheet of each of SCA, XLFA and XLCA for the three month period ended March 31, 2008 and the related unaudited statements of income, retained earnings, stockholders’ equity and changes in financial position, together with all related notes and schedules thereto.

“ Governmental Authority ” means any federal, national, supranational, state, provincial, local, or similar government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.

“ Governmental Order ” means any order, writ, judgment, injunction, decree, stipulation, determination or award issued or entered by or with any Governmental Authority.

“ Jeffco Policies ” means (i) the Municipal Bond Insurance Policy Number CA00370A, together with any endorsements thereto, relating to $839,500,000 Jefferson County, Alabama, Sewer Revenue Refunding Warrants Series 2002-C, consisting of $74,450,000 Series 2002-C-1-A Warrants, $74,450,000 Series 2002-C-1-B Warrants, $74,450,000 Series 2002-C-1-C Warrants, $75,450,000 Series 2002-C-1-D Warrants, $73,700,000 Series 2002-C-2 Warrants, $98,300,000 Series 2002-C-3 Warrants, $73,700,000 Series 2002-C-4 Warrants, $98,300,000 Series 2002-C-5 Warrants, $147,600,000 Series 2002-C-6 Warrants and $49,100,000 Series 2002-C-7 Warrants; (ii) the Municipal Bond Insurance Policy Number CA00522A, together with any endorsements thereto, relating to $300,000,000 Jefferson County, Alabama Sewer Revenue Refunding Warrants, Series 2003-B, consisting of $55,000,000 Series 2003-B-2 Warrants,

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$25,000,000 Series 2003B-3 Warrants, $25,000,000 Series 2003B-4 Warrants, $75,000,000 Series 2003B-5 Warrants, $15,000,000 Series 2003B-6 and $105,000,000 Series 2003B-7 Warrants; and (iii) the Debt Service Reserve Insurance Policy Number CA01568A, together with any endorsements thereto, relating to up to $164,863,746.40 Parity Securities as defined in the Trust Indenture, dated as of February 1, 1997, between Jefferson County, Alabama and The Bank of New York (as successor to AmSouth Bank of Alabama), as trustee, as such Indenture has been supplemented and amended.

“ Knowledge of SCA ” means the actual knowledge after due inquiry of those Persons identified on Schedule 1.01(c) .

“ Law ” means any federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule (including any rules regarding discovery), code, order, requirement or rule of law (including common law).

“ Lien ” means any lien, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement, servitude, proxy, voting trust or agreement, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction or limitation whatsoever.

“ Minimum Consenting CDS Counterparty Restructuring Threshold ” means (i) at least seventy-five percent (75%) in notional amount of the aggregate sum of the notional amounts of (A) the ABS CDO CDSs and (B) the collateralized debt obligation credit default swaps between XLCA or an Affiliate of XLCA and a CDS Counterparty that are listed on an official schedule held by the SCA Parties and the CDS Financial Advisor; (ii) at least sixty-six and two-thirds percent (66 ² / ₃ %) in total notional amount of the ABS CDO CDSs; and (iii) at least sixty-six and two-thirds percent (66 ² / ₃ %) in aggregate number of the CDS Counterparties.

“ MLI CDS Agreements ” means the eight asset backed securities collateralized debt obligation credit default swap agreements listed on Schedule 1.01(a) .

“ NYID ” means the New York State Insurance Department.

“ Other Financial Security Agreements ” means all agreements between any SCA Party and Financial Security, other than the Financial Security Master Facultative Agreement, as to which the obligations of such SCA Parties are secured by a letter of credit issued by the lenders pursuant to the Credit Agreement for the benefit of Financial Security on September 19, 2006, as heretofore amended, extended and renewed, bearing Citibank, N.A. reference number 61652611.

“ Other Terminated Agreements ” means those agreements listed on Schedule 1.01(b) .

“ Party ” means any party to this Agreement.

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“ Person ” means an individual, corporation, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“ Quota Share Treaty Commutation ” means the commutation of the Quota Share Treaty pursuant to the Quota Share Treaty Commutation Agreement.

“ Quota Share Treaty Commutation Agreement ” means the Quota Share Treaty Commutation Agreement to be executed by XLFA and XLCA and delivered at the Closing, in the form of Exhibit 1.01(f) .

“ Reinsurance Guarantees ” means (i) the Guarantee, (ii) the Financial Security Guarantee and (iii) the EIB Guarantees.

“ Required Consenting CDS Counterparties ” means greater than 50% of the total notional amount of all the credit default swaps between XLCA or an Affiliate of XLCA and the CDS Counterparties.

“ SCA Parties ” means SCA, XLFA, XLCA, XLFAS, SCAB, XLCAUK and each of the portfolio trusts that executes a joinder agreement pursuant to Section 9.04 in the form attached hereto as Exhibit 1.01(c) , either collectively or individually, as the context requires.

“ SCA Registration Rights Agreement ” means a registration rights agreement for the XL Owned SCA Common Shares in substantially the form attached hereto as Exhibit 1.01(j) .

“ SCA Share Sale Proceeds ” means the proceeds, together with any interest that may accrue thereon, of any sale of the XL Owned SCA Common Shares as owned by the SCA Shareholder Entity and any cash dividends or distributions paid with respect to such shares during such time as the XL Owned SCA Common Shares are owned by the SCA Shareholder Entity.

“ SCA Shareholder Entity ” means a special purpose trust or other entity formed pursuant to the Declaration of Trust.

“ SCA Shareholder Entity Agreement ” means an agreement substantially in the form attached hereto as Exhibit 1.01(i) .

“ SCA Shareholder Entity Formation Conditions ” means (i) the selection of a trustee of the SCA Shareholder Entity mutually acceptable to the Required Consenting CDS Counterparties and the SCA Parties; (ii) the establishment of the SCA Shareholder Entity; (iii) the delivery by the SCA Shareholder Entity of a true and correct written copy of customary securities Law representations and agreements set forth on Exhibit 2.06 to the XL Parties (or to the Escrow Agent, with a copy to the XL Parties, if the XL Owned Common Shares have been transferred to the Escrow Agent pursuant to Section 2.10 ); and (iv) any required approval the NYID, the Delaware Insurance Department and the UK FSA of the SCA Shareholder Entity’s acquisition of the XL Owned SCA Common Shares will have been obtained.

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“ SCA Shareholder Entity Formation Conditions Certificate ” means a certificate certified by the Secretaries of SCA, XLFA and XLCA stating that the SCA Shareholder Entity Formation Conditions have been satisfied.

“ Securities Act ” means the Securities Act of 1933, as amended.

“ Subscription Agreement ” means the Subscription Agreement to be executed by XLFA and XL and delivered at the Closing, in the form of Exhibit 1.01(g) .

“ Subsidiary ” or “ Subsidiaries ” means, with respect to a specified Person, any corporation, partnership, limited partnership, limited liability company or other entity as to which the specified Person, directly or indirectly (including through one or more Subsidiaries), owns a majority of the outstanding shares of stock or other ownership interests having voting power under ordinary circumstances to elect directors of such corporation or other Persons performing similar functions for such entity.

“ Third-Party Reinsurance Agreements ” means (i) the Financial Security Master Facultative Agreement, and all individual risk cessions thereunder and (ii) the EIB Policies.

“ Transaction Documents ” means this Agreement, the Ancillary Agreements and any certificate, Financial Statement, report, list, writing or other document delivered pursuant to this Agreement or the transactions contemplated by this Agreement.

“ Transactions ” means all transactions contemplated by this Agreement and the Ancillary Agreements.

“ Transfer ” means, with respect to a given security, any transaction whereby a Person (a) offers, pledges, sells or contracts to sell any option or contract to purchase, purchases any option or contract to sell, grants any option, right or warrant to purchase, lends, or otherwise transfers or disposes of, directly or indirectly, such security or any security convertible into, or exercisable or exchangeable for, any or all of such security; or (b) enters into any swap or other arrangement that transfers to another Person, in whole or in part, any of the economic consequences of ownership of any or all of the given security, whether any such transaction described in clause (a) or (b) is to be settled by delivery of any or all of the given security or any other security, in cash or otherwise. Notwithstanding the foregoing, in no event shall any transfer or other transaction solely between or among the SCA Parties constitute a “ Transfer .”

“ Transition Agreement ” means the Transition Agreement, dated as of August 4, 2006 and amended on May 3, 2007, among XL, XLI, XLA and SCA.

“ Transition Agreement Amendment ” means the Transition Agreement Amendment No. 2 among XL, XLI, XLA and SCA in the form attached hereto as Exhibit 1.01(k) .

“ Triggered Enforcement Rights ” means a Party’s right to accelerate, liquidate, close out, terminate, assess or demand damages or termination payments under, withhold or set off payments under, alter the payment terms of, demand collateral in respect of, or otherwise exercise remedies or enforcement rights in respect of one or more transactions (including swap

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transactions), agreements, policies, guarantees or treaties to which an SCA Party or an Affiliate thereof is a party, other than in respect of the Credit Agreement; provided , that, solely for purposes of Section 6.10(b) , the definition of “Triggered Enforcement Rights” includes the right of any counterparty to a credit default swap agreement with XLCA or Affiliates of XLCA to accelerate, liquidate, close out, terminate, assess or demand damages or termination payments under, withhold or set off payments under, alter the payment terms of, demand collateral in respect of, or otherwise exercise remedies or enforcement rights in respect of one or more transactions (including swap transactions), agreements, policies, guarantees or treaties to which an SCA Party or an Affiliate thereof is a party, other than in respect of the Credit Agreement.

“ UK FSA ” means the Financial Services Authority in the United Kingdom.

“ XLCA Statutory Financial Statements ” means the annual financial statements of XLCA filed with the NYID for the year ended December 31, 2007, the quarterly financial statements of XLCA filed with the NYID for the quarter ended March 31, 2008 and the Statement of Actuarial Opinion of XLCA filed with the NYID for the year ended December 31, 2007.

“ XLFA Redomestication ” means the discontinuance of XLFA as a company existing under the Laws of Bermuda and its continuation as a Delaware corporation and the contribution to XLCA by the SCA Parties of all of the common shares and Series A Redeemable Preferred Shares of XLFA.

“ XLFA Statutory Financial Statements ” means the annual financial statements of XLFA filed with the BMA for the year ended December 31, 2007, and the quarterly financial statements of XLFA filed with the BMA for the quarter ended March 31, 2008, each prepared in accordance with Bermuda statutory accounting principles applied on a basis consistent with past practices, and the Statement of Actuarial Opinion of XLFA filed with the BMA for the year ended December 31, 2007.

“ XL Parties ” means XL, XLI, XLRA, XLGS, XLBS and XLA, either collectively or individually, as the context requires.

“ XL Public Offering ” means an offering of XL’s Class A Ordinary Shares, par value $0.01 per share, and equity security units, in each case, registered pursuant to the Securities Act.

“ XL Stock Resale and Registration Rights Agreement ” means the Resale Registration Rights Agreement to be executed by XLFA and XL and delivered at the Closing, in the form of Exhibit 1.01(h) .

“ XL/SCA Commutation Agreements ” means (i) the 2001 Facultative Quota Share Commutation Agreement, (ii) the Excess of Loss Commutation Agreement, (iii) the Adverse Development Cover Commutation Agreement and (iv) the Facultative Master Certificate Commutation Agreement.

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Section 1.02 Definitions . The following terms have the meanings set forth in the Sections set forth below:


Definition		Location

Allocated Funds		Section 6.12
Cash Consideration Amount		Section 2.06
CDS Counterparty Restructuring		Section 6.12
Challenging Action		Section 6.11(a)
Closing		Section 2.07
Confidential Information		Section 6.01(b)
Consideration		Section 2.06
Guarantee		Recitals
Losses		Section 9.11(a)
MLI		Section 3.10
MLI Agreement		Section 3.10
Providing Group		Section 6.01(b)
Quota Share Treaty		Recitals
Receiving Group		Section 6.01(b)
SCA		Preamble
SCA Indemnitees		Section 9.11(a)
SCAB		Preamble
SEC		Section 3.08(e)
Stock Consideration		Section 2.06
XL		Preamble
XL Indemnitees		Section 9.11(b)
XL Owned SCA Common Shares		Recitals
XLA		Preamble
XLBS		Preamble
XLCA		Preamble
XLCAUK		Preamble
XLFA		Preamble
XLFAS		Preamble
XLGS		Preamble
XLI		Preamble
XLRA		Preamble

Section 1.03 Interpretation and Rules of Construction . In this Agreement, except to the extent otherwise provided or that the context otherwise requires:

(a) when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or a Schedule or Exhibit to, this Agreement unless otherwise indicated;

(b) the table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement;

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(c) whenever the words “include,” “includes” or “including” are used in this Agreement, they are deemed to be followed by the words “without limitation”;

(d) the words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;

(e) all terms defined in this Agreement have the defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein;

(f) the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms;

(g) any Law defined or referred to herein or in any agreement or instrument that is referred to herein means such Law or statute as from time to time amended, modified or supplemented, including by succession of comparable successor Laws;

(h) references to a Person are also to its successors and permitted assigns; and

(i) the use of “or” is not intended to be exclusive unless expressly indicated otherwise.

ARTICLE II

COMMUTATION AND RELEASE

Subject to the terms and conditions of this Agreement, at or prior to the Closing:

Section 2.01 Commutation and Release of Reinsurance Agreements . The SCA Parties and the XL Parties shall (i) commute the agreements listed in Part I of Schedule 2.01 and (ii) fully and finally extinguish all the Parties’ rights and obligations under all such agreements pursuant to the XL/SCA Commutation Agreements.

Section 2.02 Termination of the Other Terminated Agreements . The SCA Parties and the XL Parties shall terminate the Other Terminated Agreements listed in Part I of Schedule 1.01(b) and, notwithstanding anything in any of the Other Terminated Agreements listed in Part I of Schedule 1.01(b) that provides that any term or condition survives termination, fully and finally extinguish all rights and obligations of the Parties under all such agreements.

Section 2.03 Commutation and Release of Quota Share Treaty . XLCA and XLFA shall (i) commute the Quota Share Treaty and (ii) fully and finally extinguish all rights and obligations under the Quota Share Treaty pursuant to the Quota Share Treaty Commutation Agreement.

Section 2.04 Commutation and Amendment of Other Reinsurance Agreements . (a) The SCA Parties intend to, but shall not be obligated to, commute or amend the reinsurance

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agreements the SCA Parties have with third parties that are identified on Schedule 2.04 ; provided , that until October 15, 2008, no commutation or amendment of any agreement listed on Schedule 2.04 may involve the payment of cash or other consideration by any SCA Party. For the avoidance of doubt, no commutation or amendment of any agreement listed on Schedule 2.04 shall involve the payment of Allocated Funds.

(b) Notwithstanding the foregoing, (i) the Financial Security Commutations, (ii) the commutations of each EIB Policy, (iii) the general releases in a form reasonably acceptable to the XL Parties of the XL Parties with respect to each EIB Guarantee or (iv) the provision by a creditworthy entity reasonably acceptable to the XL Parties of a guarantee guaranteeing 100% of the XL Parties’ obligations under each EIB Guarantee may involve payment of cash or other consideration payable at any time by any SCA Party.

Section 2.05 Mutual Releases. (a) As of the Closing Date:

(i) each SCA Party, on behalf of itself and its respective Subsidiaries, hereby irrevocably and unconditionally releases and forever discharges each XL Party, its parents, Subsidiaries and Affiliates, and its respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, underwriters, and attorneys, from any and all past, present and future actions, causes of action, suits, debts, Liens, contracts, rights, agreements, obligations, promises, liabilities, claims, counterclaims, demands, damages, controversies, losses, costs and expenses (including attorneys’ fees and costs actually incurred) of any kind, character, description or nature whatsoever, known or unknown to any of the SCA Parties, suspected or unsuspected, reported or unreported, fixed or contingent, accrued or unaccrued, liquidated or unliquidated, whether grounded in Law or equity or sounding in tort or contract or otherwise, which the SCA Party now has, owns, holds or claims to have, own, or hold, or at any time heretofore had, owned, or held or claimed to have had, owned, or held, or may hereafter have, own, or hold or claim to have, own, or hold, arising directly or indirectly out of, based upon, or in any way related to or in connection with (A) (1) the Financial Security Agreements; (2) the agreements, understandings, arrangements commuted or terminated pursuant to Sections 2.01 , 2.02 and 2.03 , and Other Terminated Agreements listed in Part II of Schedule 1.01(b) ; (3) any of the Reinsurance Guarantees; (4) any commutation of an EIB Policy; (5) the commutation or termination of any of the foregoing listed in clauses (1), (2), (3) and (4); or (6) any commutation or amendment of any agreement listed on Schedule 2.04 pursuant to or in accordance with this Agreement; (B) conduct or other matters occurring on or prior to the Closing, other than contractual obligations arising under written agreements between any XL Party and any SCA Party (including those described on Schedule 2.05 , but excluding those expressly commuted or terminated pursuant to this Agreement or any Ancillary Agreement) or (C) any tax liability, whether stemming from policies issued by Subsidiaries of SCA prior to SCA’s IPO, after SCA’s IPO or otherwise, that results from the XLFA Redomestication; provided , however , with respect to both clauses (A) and (B), the provisions of this paragraph shall not discharge any obligation of any of the XL Parties that has been undertaken or imposed by the express terms of this Agreement or any Ancillary Agreement.

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	(ii) each SCA Party hereby irrevocably and unconditionally releases and forever discharges each CDS Counterparty, its parents, Subsidiaries and Affiliates, and its respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, underwriters, and attorneys, from any and all past, present and future actions, causes of action, suits, debts, Liens, contracts, rights, agreements, obligations, promises, liabilities, claims, counterclaims, demands, damages, controversies, losses, costs and expenses (including attorneys’ fees and costs actually incurred) of any kind, character, description or nature whatsoever, known or unknown to any of the SCA Parties, suspected or unsuspected, reported or unreported, fixed or contingent, accrued or unaccrued, liquidated or unliquidated, whether grounded in Law or equity or sounding in tort or contract or otherwise, which the SCA Party now has, owns, holds or claims to have, own, or hold, or at any time heretofore had, owned, or held or claimed to have had, owned, or held, or may hereafter have, own, or hold or claim to have, own, or hold, arising directly or indirectly out of, based upon, or in any way related to or in connection with (A) (1) the Financial Security Agreements; (2) the agreements, understandings, arrangements commuted or terminated pursuant to Sections 2.01 , 2.02 and 2.03 , and Other Terminated Agreements listed in Part II of Schedule 1.01(b) ; (3) any of the Reinsurance Guarantees; (4) the commutation or termination of any of the foregoing listed in clauses (1), (2) and (3); (5) any commutation of an EIB Policy, any general release by EIB of the XL Parties’ obligations with respect to an EIB Guarantee, or any guaranty by a creditworthy entity reasonably acceptable to the XL Parties of the XL Parties’ obligations under any EIB Guarantee, each in accordance with this Agreement; or (6) any commutation or amendment of any agreement listed on Schedule 2.04 pursuant to or in accordance with this Agreement or (B) conduct occurring on or prior to the Closing with respect to this Agreement and the Transactions; provided , however , with respect to both clauses (A) and (B), the provisions of this paragraph shall not discharge any obligation of any of the CDS Counterparties that has been undertaken or imposed by the express terms of this Agreement, any Ancillary Agreement or any other agreement to which such CDS Counterparty is a party.

	(b) As of the Closing Date:

	(i) each XL Party, on behalf of itself and its respective Subsidiaries, hereby irrevocably and unconditionally releases and forever discharges each SCA Party, its parents, Subsidiaries and Affiliates, and its respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, underwriters, and attorneys, from any and all past, present and future actions, causes of action, suits, debts, Liens, contracts, rights, agreements, obligations, promises, liabilities, claims, counterclaims, demands, damages, controversies, losses, costs and expenses (including attorneys’ fees and costs actually incurred) of any kind, character, description or nature whatsoever, known or unknown to any of the XL Parties, suspected or unsuspected, reported or unreported, fixed or contingent, whether grounded in Law or equity or sounding in tort or contract or otherwise, which the XL Party now has, owns, holds or claims to have, own, or hold, or at any time heretofore had, owned, or held or claimed to have had, owned, or held, or may hereafter have, own, or hold or claim to have, own, or hold, arising directly or indirectly out of, based upon, or in any way related to or in connection with (A) (1) the Financial Security Agreements; (2) the agreements,

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	understandings, arrangements commuted or terminated pursuant to Sections 2.01 , 2.02 and 2.03 , and Other Terminated Agreements listed in Part II of Schedule 1.01(b) ; (3) any of the Reinsurance Guarantees; (4) any commutation of an EIB Policy; (5) the commutation or termination of any of the foregoing listed in clauses (1), (2), (3) and (4); or (6) any commutation or amendment of any agreement listed on Schedule 2.04 pursuant to or in accordance with this Agreement or (B) conduct or other matters occurring on or prior to the Closing, other than contractual obligations arising under written agreements between any XL Party and any SCA Party (including those described on Schedule 2.05 , but excluding those expressly commuted or terminated pursuant to this Agreement or any Ancillary Agreement); provided , however , with respect to both clauses (A) and (B), the provisions of this paragraph shall not discharge any obligation of any of the SCA Parties that has been undertaken or imposed by the express terms of this Agreement or any Ancillary Agreement.

	(ii) each XL Party hereby irrevocably and unconditionally releases and forever discharges each CDS Counterparty, its parents, Subsidiaries and Affiliates, and its respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, underwriters, and attorneys, from any and all past, present and future actions, causes of action, suits, debts, Liens, contracts, rights, agreements, obligations, promises, liabilities, claims, counterclaims, demands, damages, controversies, losses, costs and expenses (including attorneys’ fees and costs actually incurred) of any kind, character, description or nature whatsoever, known or unknown to any of the XL Parties, suspected or unsuspected, reported or unreported, fixed or contingent, accrued or unaccrued, liquidated or unliquidated, whether grounded in Law or equity or sounding in tort or contract or otherwise, which the XL Party now has, owns, holds or claims to have, own, or hold, or at any time heretofore had, owned, or held or claimed to have had, owned, or held, or may hereafter have, own, or hold or claim to have, own, or hold, arising directly or indirectly out of, based upon, or in any way related to or in connection with (A) (1) the Financial Security Agreements; (2) the agreements, understandings, arrangements commuted or terminated pursuant to Sections 2.01 , 2.02 and 2.03 , and Other Terminated Agreements listed in Part II of Schedule 1.01(b) ; (3) any of the Reinsurance Guarantees; (4) the commutation or termination of any of the foregoing listed in clauses (1), (2) and (3); (5) any commutation of an EIB Policy, any general release by EIB of the XL Parties’ obligations with respect to an EIB Guarantee, or any guaranty by a creditworthy entity reasonably acceptable to the XL Parties of the XL Parties’ obligations under any EIB Guarantee, each in accordance with this Agreement; or (6) any commutation or amendment of any agreement listed on Schedule 2.04 pursuant to or in accordance with this Agreement, or (B) conduct occurring on or prior to the Closing with respect to this Agreement and the Transactions; provided , however , with respect to both clauses (A) and (B), the provisions of this paragraph shall not discharge any obligation of any of the CDS Counterparties that has been undertaken or imposed by the express terms of this Agreement, any Ancillary Agreement or any other agreement to which such CDS Counterparty is a party.

(c) As of the Closing Date, each CDS Counterparty hereby irrevocably and unconditionally releases and forever discharges each SCA Party, each XL Party, each of their respective parents, Subsidiaries and Affiliates, and each of their respective predecessors,

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successors, assigns, officers, directors, agents, employees, shareholders, representatives, underwriters, and attorneys, from any and all past, present and future actions, causes of action, suits, debts, Liens, contracts, rights, agreements, obligations, promises, liabilities, claims, counterclaims, demands, damages, controversies, losses, costs and expenses (including attorneys’ fees and costs actually incurred, except those costs and expenses expressly agreed in writing to be paid by the SCA Parties) of any kind, character, description or nature whatsoever, known or unknown to any of the CDS Counterparties, suspected or unsuspected, reported or unreported, fixed or contingent, accrued or unaccrued, liquidated or unliquidated, whether grounded in Law or equity or sounding in tort or contract or otherwise, which the CDS Counterparty now has, owns, holds or claims to have, own, or hold, or at any time heretofore had, owned, or held or claimed to have had, owned, or held, or may hereafter have, own, or hold or claim to have, own, or hold, arising directly or indirectly out of, based upon, or in any way related to or in connection with (A) (1) the Financial Security Agreements; (2) the agreements, understandings, arrangements commuted or terminated pursuant to Sections 2.01 , 2.02 and 2.03 , and Other Terminated Agreements listed in Part II of Schedule 1.01(b) ; (3) any of the Reinsurance Guarantees; (4) the commutation or termination of any of the foregoing listed in clauses (1), (2) and (3); (5) any commutation of an EIB Policy, any general release by EIB of the XL Parties’ obligations with respect to an EIB Guarantee, or any guaranty by a creditworthy entity reasonably acceptable to the XL Parties of the XL Parties’ obligations under any EIB Guarantee, each in accordance with this Agreement; or (6) commutation or amendment of any agreement listed on Schedule 2.04 pursuant to or in accordance with this Agreement; or (B) conduct occurring on or prior to the Closing with respect to this Agreement and the Transactions; provided , however , that nothing in this Section 2.05(c) releases any SCA Party or any XL Party from fraud or intentional misconduct; provided , further , that with respect to both clauses (A) and (B), the provisions of this paragraph shall not discharge any obligation of any of the SCA Parties or XL Parties that has been undertaken or imposed by the express terms of this Agreement, any Ancillary Agreement or any other written agreement under which such CDS Counterparty has any rights (whether as a party or otherwise) or otherwise amend existing credit default swaps to which such CDS Counterparty is a party.

(d) The Parties acknowledge and agree that (A) the SCA Parties shall not be responsible for the performance, or lack thereof, of any other Party’s obligations pursuant to this Agreement or the Ancillary Agreements, (B) the XL Parties shall not be responsible for the performance, or lack thereof, of any other Party’s obligations pursuant to this Agreement or the Ancillary Agreements and (C) a CDS Counterparty shall not be responsible for the performance, or lack thereof, of any other Party’s obligations pursuant to this Agreement or the Ancillary Agreements.

(e) Waiver of Statutory Rights . In connection with the releases granted herein, each of the Parties hereby waives all rights conferred by the provisions of California Civil Code Section 1542 and/or any similar state or federal law. California Civil Code § 1542 provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST

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HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

The Parties understand and acknowledge the significance and consequence of their waiver of § 1542 of the California Civil Code, as well as any other federal or state statute or common law principle of similar effect, and acknowledge that this waiver is a material inducement to and consideration for each Party’s execution of this Agreement; provided , however , the provisions of this paragraph shall not discharge any obligation of any of the Parties that has been undertaken or imposed by the express terms of this Agreement, any Ancillary or any other written agreement to which such Party is a party.

Section 2.06 Consideration . At the Closing, the XL Parties shall (i) pay to the SCA Parties an aggregate amount (inclusive of any amounts specified within the XL/SCA Commutation Agreements) equal to One Billion, Seven Hundred and Seventy-Five Million Dollars ($1,775,000,000) (the “ Cash Consideration Amount ”), which will be paid to each of the SCA Parties in the amounts set forth on Schedule 2.06(a) ; (ii) issue and transfer to the SCA Parties, free and clear of any Liens, an aggregate of eight million (8,000,000) shares of XL’s Class A Ordinary Shares, par value $0.01 per share (the “ Stock Consideration ”), which will be transferred to each of the SCA Parties in the number of shares set forth on Schedule 2.06(b) , pursuant to the terms of the Subscription Agreement and the XL Stock Resale and Registration Rights Agreement; and (iii) subject to Section 2.10 , transfer to the SCA Shareholder Entity, free and clear of any Liens, all of the XL Owned SCA Common Shares to be held in accordance with the terms of the Declaration of Trust (the XL Owned SCA Common Shares, together with the Cash Consideration Amount and the Stock Consideration, the “ Consideration ”).

Section 2.07 Closing . (a) Subject to (i) satisfaction or waiver of all conditions to the obligations of the parties set forth in Article VII (other than those conditions anticipated to occur at Closing) and (ii) the completion of an XL Public Offering, the closing of the commutations, terminations and releases that are the subject of this Agreement (the “ Closing ”) will be held at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, NY 10153 at 10:00 a.m., New York time, on the same Business Day as the completion of an XL Public Offering, or at such other place or at such other time or on such other date as the Parties may mutually agree upon in writing. Notwithstanding anything to the contrary contained herein, under no circumstances will the XL Parties have any obligation to consummate any of the Transactions required to be completed on or prior to the Closing until the completion of an XL Public Offering.

(b) All of the actions to be taken at Closing will be deemed to occur simultaneously, except that the Cash Consideration Amount to be received by XLFA shall be received prior to the XLFA Redomestication, and the commutation of the Quota Share Treaty shall occur after the XLFA Redomestication.

Section 2.08 Closing Deliveries by the SCA Parties . (a) At Closing, the SCA Parties shall deliver or cause to be delivered to the XL Parties:

(i) receipt for the Cash Consideration Amount and the Stock Consideration received by the applicable SCA Parties;

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(ii) the Subscription Agreement executed by each SCA Party which is a party thereto;

(iii) the XL Stock Resale and Registration Rights Agreement executed by each SCA Party which is a party thereto;

(iv) the 2001 Facultative Quota Share Commutation Agreement executed by each SCA Party which is a party thereto;

(v) the Excess of Loss Commutation Agreement executed by each SCA Party which is a party thereto;

(vi) the Adverse Development Cover Commutation Agreement executed by each SCA Party which is a party thereto;

(vii) the Facultative Master Certificate Commutation Agreement executed by each SCA Party which is a party thereto;

(viii) a true and complete original copy of a fully executed Quota Share Treaty Commutation Agreement;

(ix) the Transition Agreement Amendment executed by each SCA Party which is a party thereto; and

(x) an SCA Shareholder Entity Formation Conditions Certificate, if the SCA Shareholder Entity Formation Conditions have been satisfied.

(b) At Closing, the SCA Parties shall deliver or cause to be delivered to the XL Parties and the CDS Counterparties a true and complete copy, certified by the Secretary or Director of each of the SCA Parties, of the resolutions duly and validly adopted by the Boards of Directors (or, in the case of each portfolio trust that is an SCA Party, a direction letter authorized by its unitholder) of each of the SCA Parties evidencing its authorization of the execution and delivery of this Agreement and the Ancillary Agreements to which it is a party and the consummation of the Transactions.

Section 2.09 Closing Deliveries by the XL Parties . (a) At Closing, the XL Parties shall deliver to the SCA Parties:


	(i) the Cash Consideration Amount by wire transfer in immediately available funds to a bank account or bank accounts of XLFA or XLCA (and, for the avoidance of doubt, no other entity) as SCA may direct, consistent with the allocation of the Cash Consideration Amount attached hereto as Schedule 2.06(a) , in writing to XL at least three days prior to Closing;

	(ii) stock certificates evidencing the Stock Consideration registered in the names of those SCA Parties designated on Schedule 2.06(b), together with an executed share transfer form evidencing the transfer of the XL Owned SCA Common Shares;

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	(iii) the Subscription Agreement executed by each XL Party which is a party thereto;

	(iv) the XL Stock Resale and Registration Rights Agreement executed by each XL Party which is a party thereto;

	(v) the 2001 Facultative Quota Share Commutation Agreement executed by each XL Party which is a party thereto;

	(vi) the Excess of Loss Commutation Agreement executed by each XL Party which is a party thereto;

	(vii) the Adverse Development Cover Commutation Agreement executed by each XL Party which is a party thereto;

	(viii) the Facultative Master Certificate Commutation Agreement executed by each XL Party which is a party thereto; and

	(ix) the Transition Agreement Amendment executed by each XL Party which is a party thereto.

(b) At Closing, the XL Parties shall deliver to the SCA Parties and the CDS Counterparties a true and complete copy, certified by the Secretary or Director of each of the XL Parties, of the resolutions duly and validly adopted by the Boards of Directors of each of the XL Parties evidencing its authorization of the execution and delivery of this Agreement and the Ancillary Agreements to which it is a party and the consummation of the Transactions.

(c) At Closing, but subject to Section 2.10 , the XL Parties shall cause the XL Owned SCA Common Shares (together with certificates evidencing such XL Owned SCA Common Shares and stock powers duly endorsed in blank to be transferred to the SCA Shareholder Entity, which will be owned and managed pursuant to the terms of the Declaration of Trust.

Section 2.10 Escrow . Notwithstanding anything to the contrary contained in this Agreement, if XL does not receive an SCA Shareholder Entity Formation Conditions Certificate from the SCA Parties in accordance with Section 2.08(a) at or prior to the Closing, the XL Parties shall, at Closing, deposit with the Escrow Agent certificates evidencing all of the XL Owned SCA Common Shares, free and clear of any Liens, together with stock powers duly endorsed in blank, which are to be held by the Escrow Agent until released in accordance with the Escrow Agreement. From and after delivery of such certificates to the Escrow Agent at Closing, the XL Parties shall refrain from exercising, and hereby irrevocably disclaim, any and all voting, economic or other rights with respect to the XL Owned SCA Common Shares, and the XL Parties will have no liability or further obligations to the SCA Parties or the CDS Counterparties thereafter with respect to the XL Owned SCA Common Shares.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SCA PARTIES

The SCA Parties hereby jointly and severally represent and warrant to each of the XL Parties and CDS Counterparties as follows:

Section 3.01 Organization, Authority and Qualification of the SCA Parties . Each of the SCA Parties is a corporation, company or business entity duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization and has all necessary power and authority to enter into this Agreement and the Ancillary Agreements to which it may be a party, to carry out its obligations hereunder and thereunder and to consummate the Transactions. Except as set forth in Section 3.01 of the SCA Parties’ Disclosure Schedule, each of the SCA Parties is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary. The execution and delivery of this Agreement and the Ancillary Agreements to which each SCA Party is a party, the performance by each SCA Party of its obligations hereunder and thereunder and the consummation by each SCA Party of the Transactions have been duly authorized by all requisite action on the part of each SCA Party and its shareholders. This Agreement, the Transition Agreement Amendment, the SCA Shareholder Entity Agreement and each Transaction have been approved by an independent committee of SCA’s Board of Directors that did not include any member that was nominated to SCA’s Board by any of the XL Parties, and this Agreement and each Ancillary Agreement and Transaction to which each other SCA Party is a party has been approved by such SCA Party’s Board of Directors (or, in the case of each portfolio trust that is an SCA Party, a direction letter authorized by its unitholder) or other appropriate authorizing body or Person. This Agreement has been, and, upon their execution, the Ancillary Agreements to which each SCA Party is a party shall have been, duly executed and delivered by each SCA Party, and, assuming due authorization, execution and delivery by each of the XL Parties and CDS Counterparties and receipt of all consents and approvals by Governmental Authorities as required by Law, this Agreement constitutes, and, upon their execution, the Ancillary Agreements shall constitute, legal, valid and binding obligations of the SCA Parties enforceable against each of the SCA Parties in accordance with their respective terms, subject to remedies under applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting creditors’ rights.

Section 3.02 No Conflict . Assuming the making and obtaining of all filings, notifications, consents, approvals, authorizations and other actions referred to in Section 3.03 , the execution, delivery and performance by each of the SCA Parties of this Agreement and the Ancillary Agreements to which it is a party do not and will not (a) violate, conflict with or result in the breach of any provision of the Certificate of Incorporation or Bye-Laws (or similar organizational documents) of any SCA Party, (b) conflict with or violate any Law or Governmental Order applicable to any of the SCA Parties or any of their assets, properties or businesses or, (c) except as set forth in Section 3.02 of the SCA Parties’ Disclosure Schedule, conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or

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cancellation of, any note, bond, mortgage, indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which any SCA Party is a party, which would adversely affect the ability of any SCA Party to carry out its obligations under this Agreement or any Ancillary Agreement or to consummate the Transactions.

Section 3.03 Governmental Consents and Approvals . (a) The execution, delivery and performance of this Agreement and each Ancillary Agreement to which any SCA Party is a party by the SCA Parties does not and will not require any consent, approval, authorization or other order of, action by, filing with or notification to, any Governmental Authority, except as described in Section 3.03 of the SCA Parties’ Disclosure Schedule.

(b) The SCA Parties sought and obtained (other than with respect to obtaining confirmation from the NYID, the Delaware Insurance Department and the UK FSA that they do not object to the transfer of the XL Owned SCA Common Shares to the SCA Shareholder Entity, which confirmation will be sought and is anticipated to be obtained promptly after the completion of the documentation related to the Shareholder Entity) approval of this Agreement and each commutation or other Transaction to which XLCA is a party from the NYID on the grounds that (among other things) they are collectively, and each is individually, fair and equitable. The SCA Parties have obtained (other than with respect to obtaining confirmation from the NYID, the Delaware Insurance Department and the UK FSA that they do not object to the transfer of the XL Owned SCA Common Shares to the SCA Shareholder Entity, which confirmation will be sought and is anticipated to be obtained promptly after the completion of the documentation related to the Shareholder Entity) or completed all consents, approvals, authorizations, orders, actions, filings or notifications listed on Section 3.03 of the SCA Parties’ Disclosure Schedule. The SCA Parties have provided true and correct copies of such approvals to the XL Parties. To the Knowledge of SCA, approvals have not been rescinded, modified or amended in any way.

Section 3.04 Financial Information . (a) True and complete copies of the Financial Statements have been delivered by the SCA Parties to the XL Parties and CDS Counterparties. The Financial Statements (i) were prepared in accordance with the books of account and other financial records of the SCA Parties and (ii) present fairly the financial condition and results of operations of the SCA Parties as of the dates thereof or for the periods covered thereby. The GAAP Financial Statements have been prepared in accordance with GAAP applied on a basis consistent with past practices. The XLCA Statutory Financial Statements have been prepared in accordance with New York State statutory accounting principles applied on a basis consistent with past practices. The XLFA Statutory Financial Statements have been prepared in accordance with Bermuda statutory accounting principles applied on a basis consistent with past practices.

(b) True and complete copies of all pro forma balance sheets of the SCA Parties and any related statements of income, retained earnings, stockholders’ equity, changes in financial position and related notes and schedules thereto, prepared to reflect each of the SCA Parties’ financial condition after giving effect to the Transactions and provided to the NYID, have been delivered by the SCA Parties to the XL Parties and the CDS Counterparties.

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Section 3.05 Compliance with Laws . (a) There is no violation of Law by any SCA Party that has, or, if known by an appropriate Governmental Authority, could reasonably be expected to adversely affect the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the consummation of the Transactions and (b) except as provided in Section 3.05 of the SCA Parties’ Disclosure Schedule, there is no Governmental Order that is applicable to any SCA Party that has or could reasonably be expected to adversely affect the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the consummation of the Transactions.

Section 3.06 Effect of Commutations . As of the Closing, as a result of (i) commutation of the Quota Share Treaty pursuant to the Quota Share Commutation Agreement and (ii) commutation of the Financial Security Master Facultative Agreement, the Guarantee and the Financial Security Guarantee shall no longer have any force or effect and for all purposes shall be considered a nullity. If any of the EIB Policies are commutated, then each EIB Guarantee that guarantees XLCA’s obligations under each commuted EIB Policy will no longer have any force or effect and will, for all purposes, be considered a nullity.

Section 3.07 Litigation . No Action by or against any of the SCA Parties is pending or, to the Knowledge of SCA, threatened, which could reasonably be expected to affect the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the consummation of the Transactions.

Section 3.08 Placement of Stock Consideration . Each of the SCA Parties that will acquire a portion of the Stock Consideration:

(a) is acquiring the Stock Consideration for investment purposes only and not with a view to or for distributing or reselling such Stock Consideration or any part thereof, without prejudice, however, to such SCA Party’s right, subject to the provisions of this Agreement, at all times to sell or otherwise dispose of all or any part of such Stock Consideration pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities or “blue sky” Laws. Each such SCA Party understands that it must bear the economic risk of this investment indefinitely, unless the Stock Consideration is registered pursuant to the Securities Act and any applicable state securities or “blue sky” Laws or an exemption from such registration is available. None of the SCA Parties has any intention of participating in the formulation, determination, or direction of the basic business decisions of any of the XL Parties;

(b) at the time it was first offered the Stock Consideration was, and at the date hereof is, an “accredited investor” as defined in Rule 501(a) under the Securities Act;

(c) understands that the Stock Consideration is being offered and provided as partial consideration to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities or “blue sky” Laws, and that the XL Parties are relying upon the truth and accuracy of, and such SCA Party’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such SCA Party set forth herein in order to determine the availability of such exemptions and the eligibility of such SCA Party to acquire the Stock Consideration;

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(d) has, either alone or together with its representatives, such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Stock Consideration, and has so evaluated the merits and risks of such investment. Such SCA Party understands that an investment in the Stock Consideration involves a high degree of risk that could result in complete loss, is able to bear the economic risk of an investment in the Stock Consideration and, at the present time, is able to afford a complete loss of such investment;

(e) is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in securities representing an investment decision like that involved in the acquisition of the Stock Consideration. Such SCA Party acknowledges that it has (i) access to XL’s disclosures about its Class A Ordinary Shares made in XL’s filings with the Securities and Exchange Commission (“ SEC ”), including its Annual Report on Form 10-K for its last completed fiscal year, its Quarterly Reports on Form 10-Q for its latest fiscal quarters, and any Current Report on Form 8-K filed by XL since the date of its last respective Annual Report on Form 10-K for its last completed fiscal year; (ii) access to information about XL and its financial condition, results of operations, business, properties, management and prospects contained in an offering memorandum related to the issuance of the Stock Consideration provided to the SCA Parties; and (iii) adequate access and opportunity to discuss the investment opportunity with the management of the XL Parties;

(f) in connection with its acceptance of the Stock Consideration, has not relied upon any representations made by, or other information (whether oral or written) furnished by or on behalf of, any of the XL Parties other than as set forth in this Agreement, the Ancillary Agreements or XL’s filings with the SEC or an offering memorandum related to the issuance of the stock consideration provided to the SCA Parties.

(g) acknowledges that the Stock Consideration was offered and will be issued to the SCA Parties without any general solicitation or general advertising, including any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising;

(h) understands that nothing in this Agreement or any other materials presented by or on behalf of XL to the SCA Parties in connection with the issuance of the Stock Consideration constitutes legal, tax or investment advice. Each SCA Party has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its receipt of the Stock Consideration; and

(i) if located or domiciled outside the United States, has complied with all Laws in each foreign jurisdiction in which it will receive or be the record or beneficial owner of the Stock Consideration.

Section 3.09 Regulatory Approvals . The NYID has approved in writing the terms of this Agreement and any Transaction to which XLCA is a party, including the Quota Share Treaty Commutation Agreement, pursuant to applicable Law, including Section 1505 of the New York Insurance Law. The BMA has approved in writing the terms of this Agreement as

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they relate to XLFA prior to the XLFA Redomestication. The UK FSA has been provided a copy of this Agreement and has raised no objection to XLCAUK entering into this Agreement, and the UK FSA has confirmed in writing that the 14-day waiting period applicable under the Letter of Undertaking, dated May 20, 2008, will not apply to XLCAUK’s execution of this Agreement. A copy of each such written approval has been delivered to the XL Parties and the CDS Counterparties and such written approvals have not been withdrawn, rescinded, revoked, amended or altered in any way. The SCA Parties have provided the NYID, the BMA and the UK FSA with all information the SCA Parties deemed material and all information requested by the NYID, the BMA or the UK FSA. All information provided by the SCA Parties to the NYID, the BMA or the UK FSA was true, correct and complete in all material respects. Notwithstanding anything to the contrary, the NYID, the BMA and the UK FSA have not confirmed that they are not objecting to the transfer of the XL Owned SCA Common Shares to the SCA Shareholder Entity but the SCA Parties will seek to obtain such confirmations promptly and anticipate that such confirmations will be obtained promptly after the completion of the documentation related to the Shareholder Entity.

Section 3.10 MLI CDS Agreements . The SCA Parties have entered into an agreement with Merrill Lynch International (“ MLI ”) pursuant to which MLI will terminate the MLI CDS Agreements prior to or simultaneously with the Closing (the “ MLI Agreement ”). A true and correct copy of the MLI Agreement has been delivered to the XL Parties. The MLI Agreement remains in full force and effect and has not been amended, waived, terminated or repealed in any way. The amount of consideration for the termination of the MLI CDS Agreements pursuant to the MLI Agreement is no greater than $500 million in the aggregate together with the release of all claims related to such MLI CDS Agreements.

Section 3.11 Financial Security Master Facultative Commutation Agreement . The SCA Parties have entered into an agreement with Financial Security pursuant to which the Financial Security Master Facultative Agreement will be commuted prior to, or simultaneously with, the Closing. A true and correct copy of the Financial Security Master Facultative Commutation Agreement has been delivered to the XL Parties. The Financial Security Master Facultative Commutation Agreement remains in full force and effect and has not been amended, waived, terminated or repealed in any way.

Section 3.12 Third-Party Agreements . None of the transactions contemplated by Section 2.04 and listed on Schedule 2.04 is between any SCA Party or any of its affiliates, officers, directors, employees, agents, counsel, sub-contractors or other representatives or related parties, on the one hand, and any other SCA Party or any of its affiliates, officers, directors, employees, agents, counsel, sub-contractors or other representatives or related parties, on the other hand.

Section 3.13 Brokers . Except for Rothschild & Sons Limited, whose fees will be paid exclusively by the SCA Parties, no broker, advisor, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Transactions based upon arrangements made by or on behalf of the SCA Parties.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE XL PARTIES

The XL Parties hereby jointly and severally represent and warrant to each of the SCA Parties and the CDS Counterparties as follows:

Section 4.01 Organization and Authority of the XL Parties . Each of the XL Parties is a corporation, company or business entity duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization and has all necessary power and authority to enter into this Agreement and the Ancillary Agreements to which it may be a party, to carry out its obligations hereunder and thereunder and to consummate the Transactions. Each of the XL Parties is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary. The execution and delivery of this Agreement and the Ancillary Agreements to which each XL Party is a party, the performance by each XL Party of its obligations hereunder and thereunder, and the consummation by each XL Party of the Transactions have been duly authorized by all requisite action on the part of each XL Party. This Agreement has been, and, upon the execution of the Ancillary Agreements to which each XL Party is a party, shall have been, duly executed and delivered by each XL Party, and, assuming due authorization, execution and delivery by each of the SCA Parties and CDS Counterparties and receipt of all consents and approvals by Governmental Authorities as required by Law, this Agreement constitutes, and upon their execution, the Ancillary Agreements shall constitute, legal, valid and binding obligations of the XL Parties enforceable against each of the XL Parties in accordance with their respective terms, subject to remedies under applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting creditors’ rights.

Section 4.02 No Conflict . Assuming the making and obtaining of all filings, notifications, consents, approvals, authorizations and other actions referred to in Section 4.03 , the execution, delivery and performance by each of the XL Parties of this Agreement and the Ancillary Agreements to which it is a party do not and will not (a) violate, conflict with or result in the breach of any provision of the Certificate of Incorporation or Bye-Laws (or similar organizational documents) of each XL Party, (b) conflict with or violate any Law or Governmental Order applicable to any XL Party or (c) except as set forth in Section 4.02 of the XL Parties’ Disclosure Schedule, conflict with, or result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, any note, bond, mortgage, indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which any XL Party is a party, which would adversely affect the ability of any XL Party to carry out its obligations under this Agreement or any Ancillary Agreement and to consummate the Transactions.

Section 4.03 Governmental Consents and Approvals . (a) The execution, delivery and performance of this Agreement and each Ancillary Agreement to which it is a party by each of the XL Parties does not and will not require any consent, approval, authorization or

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other order of, action by, filing with or notification to any Governmental Authority, except as described in Section 4.03 of the XL Parties’ Disclosure Schedule.

(b) The XL Parties sought and obtained approval of this Agreement and each commutation or other Transaction to which XLRA is a party from the NYID on the grounds that (among other things) they are collectively, and each is individually, fair and equitable. The XL Parties have provided true and correct copies of such approval to the SCA Parties. To the knowledge of XL’s executive officers, after due inquiry, such approval has not been rescinded, modified or amended in any way.

Section 4.04 Capitalization . (a) Section 4.04(a) of the XL Parties’ Disclosure Schedule sets forth the type and number of authorized equity securities of XL and the type and number of such equity securities that are issued and outstanding as at July 25, 2008.

(b) All issued and outstanding shares of XL’s capital stock as at July 28, 2008 have been duly authorized for issuance, are validly issued and are fully paid and nonassessable. The Stock Consideration has been duly authorized and, upon issuance to the SCA Parties pursuant to the terms of this Agreement and the Subscription Agreement, will be validly issued, fully paid and nonassessable, free and clear of all Liens other than those contained in applicable securities Laws.

Section 4.05 XL Owned SCA Common Shares . XLI is the record and beneficial owner of the XL Owned SCA Common Shares, free and clear of any and all Liens other than restrictions on transfer imposed by applicable securities and insurance Laws, has all right, title and interest in and to the XL Owned SCA Common Shares and has all requisite power and authority to sell, assign, transfer and deliver the XL Owned SCA Common Shares, free and clear of all Liens other than restrictions on transfer contained in applicable securities or insurance Laws, or deposit with the Escrow Agent certificates evidencing all of the XL Owned SCA Common Shares, free and clear of any Liens, together with stock powers duly endorsed in blank pursuant to Section 2.10 , as the case may be, to the SCA Shareholder Entity.

Section 4.06 Litigation . No Action by or against any of the XL Parties is pending or, to the actual knowledge of each of the XL Parties after due inquiry, threatened, which could reasonably be expected to affect the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the consummation of the Transactions.

Section 4.07 Regulatory Approvals . The NYID has approved in writing the terms of this Agreement and any Transaction to which XLRA is a party, including the Adverse Development Cover Commutation Agreement, pursuant to applicable Law, including Section 1505 of the New York State Insurance Laws. A copy of each such written approval has been delivered to the SCA Parties and the CDS Counterparties and such written approvals have not been withdrawn, rescinded, revoked, amended or altered. The XL Parties have provided the NYID, the BMA and the UK FSA with all information the XL Parties deemed material and all information requested by the NYID, the BMA or the UK FSA. All information provided by the XL Parties to the NYID, the BMA or the UK FSA was true, correct and complete in all material respects.

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Section 4.08 Brokers . Except for The Blackstone Group L.P. whose fees will be paid exclusively by the XL Parties, no broker, advisor, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Transactions (other than in respect of the XL Public Offering) based upon arrangements made by or on behalf of the XL Parties.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE CDS COUNTERPARTIES

Each of the CDS Counterparties hereby represents and warrants as to itself only, and neither jointly nor jointly and severally with the other CDS Counterparties, to each of the XL Parties and SCA Parties as follows:

Section 5.01 Status . It is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, is in good standing.

Section 5.02 Powers . It has the power to execute this Agreement and any other documentation relating to this Agreement (including the Ancillary Agreements to which it is a party), to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver, and to perform its obligations under this Agreement, and it has taken all necessary action to authorize such execution, delivery and performance.

Section 5.03 No Violation or Conflict . Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets.

Section 5.04 Consents . All governmental and other consents that are required to have been obtained by it with respect to this Agreement have been obtained and are in full force and effect and all conditions of any such consents have been complied with.

Section 5.05 Obligations Binding . Its obligations under this Agreement constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar Laws affecting creditors’ rights generally, and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at Law)).

Section 5.06 Absence of Litigation . There is no pending, and it has not received written threat of any action, suit or proceeding at Law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability of this Agreement against it or its ability to perform its obligations under this Agreement.

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Section 5.07 Consent to Transactions . It consents to the effect of the consummation of the covenants contained in this Agreement and the Ancillary Agreements, including (i) the commutation of the Quota Share Treaty pursuant to the Quota Share Commutation Agreement, (ii) the commutation of the Financial Security Master Facultative Agreement, (iii) the commutation of any EIB Policy in accordance with Section 6.05(c) and (iv) as a consequence of the foregoing, the effective nullity of the Guarantee and the Financial Security Guarantee and, if any EIB Policy is commuted, the EIB Guarantee that guarantees XLCA’s obligation under such commuted EIB Policy, such that each has no further force or effect.


	Section 5.08 Ownership of Insurance Instruments . (a) It has:

	(i) provided to the SCA Parties a written list (prepared in good faith by, and reflecting the best belief of, an officer of such CDS Counterparty) of (A) those credit default swap agreements with XLCA or Affiliates of XLCA to which such CDS Counterparty is party, and of which such CDS Counterparty is a beneficial owner, at the time it became a Party and (B) the notional amount of each such credit default swap agreement; or

	(ii) confirmed in writing by an officer of such CDS Counterparty, to the best belief of such confirming officer, a list provided by the SCA Parties of (A) those credit default swap agreements with XLCA or Affiliates of XLCA to which such CDS Counterparty is party, and of which such CDS Counterparty is a beneficial owner, at the time it became a Party and (B) the notional amount of each such credit default swap agreement.

(b) For an abundance of clarity, the foregoing representations and warranties contained in Section 5.08(a) only reflect the best belief of the officer of the CDS Counterparty preparing the list or confirming a list prepared by SCA. The CDS Counterparty is not making any representation or warranty that is not qualified by the best belief of such officer, and it will not be bound by or subject to liability based on any inaccuracy contained in any such list that ultimately results from such officer’s best belief being inadvertently inaccurate.

Section 5.09 Brokers . Except for the CDS Financial Advisor and BlackRock, whose fees will be paid exclusively by the SCA Parties, no broker, advisor, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission from it in connection with the Transactions based upon arrangements made by or on behalf of any of the CDS Counterparties.

ARTICLE VI

ADDITIONAL AGREEMENTS

Section 6.01 Public Disclosure and Confidentiality . (a) No SCA Party or XL Party shall make or permit any of its officers, employees, agents, counsel, sub-contractors or other representatives to make any public disclosure simultaneously with, or close in time to, the execution of this Agreement or the Closing, other than in conjunction with an XL Public

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Offering (such information disclosed in conjunction with an XL Public Offering to be pursuant to a Quarterly Report on Form 10-Q, a Current Report on Form 8-K, a prospectus supplement, or other material that complies with the requirements of the Securities Act, including any press release, other material or internet postings) regarding the existence or terms of this Agreement, to any person or company or to the public, without the prior written consent of the other Parties subject to this Section 6.01 , such consent not to be unreasonably withheld or delayed; provided , further , that XL and any of its officers, employees, agents, counsels, sub-contractors or other representatives (expressly including any investment banks) may make disclosures relating to the existence and terms of this Agreement and the Transactions to rating agencies and potential investors in connection with the marketing of an XL Public Offering, including, for the avoidance of doubt, information relating to the reinsurance agreements and guarantees being terminated pursuant to this Agreement such as exposures, valuations and other data; provided , further , that if a disclosure is required by Law, the SCA Party or the XL Party so required may make such disclosure so long as (i) it uses its reasonable best efforts to reasonably cooperate as to the timing and content of such disclosure to the extent reasonably practicable without violating any Law and (ii) other than with respect to press releases, securities filings and similar public disclosure or disclosures in conjunction with an XL Public Offering, it reasonably cooperates with any other SCA Party or XL Party seeking to obtain a protective order concerning such disclosure if such XL Party or SCA Party requesting cooperation shall pay for all reasonable fees and expenses, including legal fees, associated with such cooperation.

(b) Past Confidential Information . The SCA Parties and their officers, employees, agents, counsel, sub-contractors and other representatives, as a group, and the XL Parties and their officers, employees, agents, counsel, sub-contractors and other representatives, as a group, agree to keep confidential within their groups any information received prior to Closing from any Party in the other group pursuant to a confidentiality agreement, arrangement or understanding in place prior to Closing between the SCA Parties and the XL Parties that was commuted or terminated pursuant to Sections 2.01 , 2.02 or 2.03 of this Agreement or set forth in Part II of Schedule 1.01(b) (“ Confidential Information ”), including information about exposure, claims, mark or other information related to an individual CDS Counterparty; provided , that Confidential Information will not include any information that (i) was publicly available prior to its disclosure to a member of the group receiving the Confidential Information (a “ Receiving Group ”), (ii) was known to a member of the Receiving Group prior to disclosure by a member of the group providing the Confidential Information (a “ Providing Group ”) and was not received under obligations of confidentiality or from a Person obligated to keep such information confidential or (iii) is or becomes available to the Receiving Group on a nonconfidential basis from a source other than the Providing Group or its agents, provided , that such other Person is not bound by a confidentiality agreement with the Providing Group, provided , further , that XL and any of its officers, employees, agents, counsels, sub-contractors or other representatives (expressly including any investment banks) may make disclosures relating to the existence and terms of this Agreement and the transactions contemplated in this Agreement to rating agencies and investors in connection with the marketing of an XL Public Offering, including, for the avoidance of doubt, information relating to the reinsurance agreements and guarantees being terminated pursuant to this Agreement such as exposures, valuations and other data. In the event that any Party subject to this Section 6.01(b) , or such Party’s agents, becomes legally compelled by deposition, subpoena, or other court or action by a Governmental Authority to disclose any of the Confidential Information covered by this Agreement, the Receiving Group with which such

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Party is associated is permitted to make such disclosure of Confidential Information as it determines is reasonably necessary, upon consultation with counsel, to comply with applicable Laws; provided , that such Receiving Group makes a reasonable effort to provide the Providing Group with prompt written notice to that effect and such Receiving Group reasonably cooperates with the Providing Group if the Providing Group seeks to obtain a protective order concerning such Confidential Information, provided , that the Providing Group pays for all of the Receiving Group’s fees and expenses, including legal fees, associated with such cooperation. Notwithstanding anything contained in any other agreement, arrangement or understanding between the SCA Parties and the XL Parties, (i) the XL Parties may disclose Confidential Information, as reasonably needed, to any other XL Party, any nationally recognized rating agency then providing a financial strength rating for any XL Party or any officer, employee, agent, counselor, sub-contractor and other representative of any such agency or any XL Party, (ii) the SCA Parties may disclose Confidential Information, as reasonably needed, to any other SCA Party, any nationally recognized rating agency then providing a financial strength rating for any SCA Party, or any officer, employee, agent, counselor, sub-contractor and other representative of any such agency or any SCA Party and (iii) this Section 6.01(b) supersedes all prior confidentiality rights and obligations between the SCA Parties and the XL Parties with respect to “Confidential Information,” as defined above.

(c) Regulatory Compliance . The SCA Parties will provide the XL Parties, at the XL Parties’ sole cost and expense, upon reasonable notice and during normal business hours, all documents, files, books and records and reasonable access to, and will request reasonable cooperation from, all employees of the SCA Parties, as the XL Parties may reasonably request from time to time, for the limited use by the XL Parties in compliance with any legal, regulatory, accounting, or audit requirement or examination. The XL Parties will provide the SCA Parties, at the SCA Parties’ sole cost and expense, upon reasonable notice and during normal business hours, all documents, files, books and records and reasonable access to, and will request reasonable cooperation from, all employees of the XL Parties, as the SCA Parties may reasonably request from time to time, for the limited use by the SCA Parties in compliance with any legal, regulatory, accounting, or audit requirement or examination. The XL Parties and the SCA Parties will treat all information received pursuant to this Section 6.01(c) as if it were Confidential Information subject to Section 6.01(b) .

Section 6.02 Regulatory and Other Authorizations; Notices and Consents . The SCA Parties and the XL Parties shall use their reasonable best efforts to obtain and maintain all authorizations, consents, orders and approvals of all Governmental Authorities and officials that may be or become necessary for the execution and delivery of, and the performance of their obligations pursuant to, this Agreement and the Ancillary Agreements, and will reasonably cooperate with the other SCA Parties and XL Parties in promptly seeking to obtain all such authorizations, consents, orders and approvals. Each of the SCA Parties and XL Parties shall use reasonable best efforts to resolve objections, if any, as may be asserted by any Governmental Authority with respect to the Transactions under any Law. In connection therewith, if any Action is instituted (or threatened to be instituted) challenging any Transaction as violative of any Law, subject to and in accordance with Section 6.11 , the SCA Parties and the XL Parties shall use their reasonable best efforts and reasonably cooperate with one another to contest and resist any such Action and to have vacated, lifted, reversed, or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits,

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prevents, or restricts consummation of the Transactions, including by pursuing all available avenues of administrative and judicial appeal, unless, by mutual agreement, the SCA Parties and the XL Parties decide that litigation is not in their respective best interests.

Section 6.03 Notice of Developments . Prior to the Closing, each Party shall promptly notify the other Parties in writing of all events, circumstances, facts and occurrences arising subsequent to the date of this Agreement which could reasonably be expected to result in any material breach of a representation or warranty or covenant of such Party contained in this Agreement or which could have the effect of making any material representation or warranty of such Party contained in this Agreement untrue or incorrect in any respect.

Section 6.04 MLI ABS CDO Credit Default Swap Agreements . Prior to the Closing, the SCA Parties shall not amend, alter, waive or repeal any of the terms of the MLI CDS Agreement without the prior written approval of the XL Parties.

Section 6.05 Third-Party Reinsurance Agreements . (a) The SCA Parties shall (i) provide the XL Parties with copies of all documents, files, books and records relating to any Third-Party Reinsurance Agreement for so long as it remains in force as reasonably requested by the XL Parties from time to time, and reasonable access to, and will request reasonable cooperation from, upon reasonable notice during normal business hours, all employees of the SCA Parties whose employment responsibilities are related to any Third-Party Reinsurance Agreement for so long as it remains in force and (ii) subject to any applicable Law, pay all claims under any Third-Party Reinsurance Agreement for so long as it remains in force as they become due, other than claims reasonably contested by the SCA Parties in good faith.

(b) Prior to the Closing, the SCA Parties shall not amend, alter, waive or repeal any of the terms of the Financial Security Master Facultative Commutation Agreement without the prior written approval of the XL Parties.

(c) The SCA Parties shall use their commercially reasonable efforts to commute each of the EIB Policies and fully and finally extinguish each Person’s rights and obligations thereunder pursuant to commutation and release agreements in forms reasonably satisfactory to the XL Parties or effectuate another EIB Resolution Event; provided , however , that the use of such commercially reasonable efforts shall not require the SCA Parties to pay amounts in excess of those set forth in a letter delivered concurrently herewith to the XL Parties and the CDS Financial Advisor. Until an EIB Resolution Event occurs, XLCA shall (i) refrain from novating or assigning the EIB Policies to any Person, provided , that it may reinsure the EIB Policies as it sees fit and (ii) refrain from selling, leasing, assigning, reinsuring or transferring in any way (whether in one transaction or a series of related transactions) a majority of its assets to any Person, unless either (A) the EIB Policies are sold, leased, assigned, reinsured or transferred (as the case may be) with all or substantially all of such assets to the Person purchasing, leasing, reinsuring, or receiving all or substantially all of such assets or (B) the XL Parties provide their consent, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, nothing in this paragraph shall in any way restrict or limit the SCA Parties from selling, leasing, assigning, reinsuring, transferring or otherwise disposing of, in any manner (whether in one or more transactions) the public finance business of the SCA Parties.

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Section 6.06 Ownership of Insurance Instruments . (a) On and as of the date hereof, and on the Closing Date (at a time prior to the Closing) and as of the Closing, the SCA Parties shall provide written notice to the XL Parties setting forth, to the Knowledge of SCA, the then current aggregate notional value of all credit default swap agreements with XLCA or Affiliates of XLCA of which the CDS Counterparties have either represented in writing to the SCA Parties in accordance with Section 5.08 or confirmed in writing to the SCA Parties in accordance with Section 5.08 , as being a party thereto and a beneficial owner thereof.

(b) Each CDS Counterparty, in respect of itself, agrees that, prior to Closing, it will not sell or transfer in any way any right to or title in any credit default swap agreement with XLCA or an Affiliate of XLCA in which such CDS Counterparty has beneficial ownership, or to which it is party, unless the transferee agrees to become a Party to this Agreement pursuant to Section 9.04 by signing a joinder agreement immediately upon consummation of any such sale or transfer.

Section 6.07 Compliance with Securities Laws . If any SCA Party is or becomes the record or beneficial owner of any or all of the Stock Consideration, it will comply with all Laws applicable to the Transfer of any or all of the Stock Consideration.

Section 6.08 Passive Investor . For a period of two years from the Closing, none of the SCA Parties will take any action to participate in the formulation, determination or direction of the basic business decisions of any of the XL Parties.

Section 6.09 XL Owned SCA Common Shares Covenant . If any CDS Counterparty becomes the record or beneficial owner of any or all of the XL Owned SCA Common Shares, it will comply with all Laws applicable to the Transfer of any or all of the XL Owned SCA Common Shares.

Section 6.10 Forbearance . The Parties covenant and agree with each other and their respective Affiliates, successors and assigns, that:


	(a) subsequent to the date hereof:

	(i) none of the SCA Parties shall hereinafter, for any reason whatsoever, demand, claim, file suit or initiate any Action against any of the XL Parties or the CDS Counterparties in respect of any rights released pursuant to Section 2.05(a) ;

	(ii) none of the XL Parties shall hereinafter, for any reason whatsoever, demand, claim, file suit or initiate any Action against any of the SCA Parties or the CDS Counterparties in respect of any rights released pursuant to Section 2.05(b) ; and

	(iii) none of the CDS Counterparties shall hereinafter, for any reason whatsoever, demand, claim, file suit or initiate any Action against any of the SCA Parties or the XL Parties in respect of any rights released pursuant to Section 2.05(c) .

(b) Subsequent to the date hereof and until the earlier of (i) October 15, 2008 or (ii) the termination of this Agreement pursuant to Section 8.01 , no CDS Counterparty will exercise any Triggered Enforcement Right to the extent triggered (or argued by any CDS

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Counterparty to be triggered) as a result of the fact that any of the SCA Parties or any of their Affiliates (A) is or is becoming insolvent (either because its financial condition is such that the sum of its debts is greater than the fair market value of its assets, or because the fair saleable value of its assets is less than the amount required to pay its probable liabilities on its existing debts as they mature), (B) has or will have unreasonably small capital with which to engage in its business, (C) has or will have incurred debts beyond its ability to pay as they become due, (D) does not have or will not have an excess of required reserves and other liabilities over admitted assets, (E) has or will have insufficient assets to reinsure all outstanding risks with other solvent authorized assuming insurers after paying all accrued claims owed, (F) has a credit rating that has been downgraded or withdrawn by any rating agency, or has sold credit protection or provided a guarantee with respect to an asset-backed security or other reference obligation and the credit rating with respect to such asset-backed security or other reference obligation has been downgraded or withdrawn by any rating agency, (G) is a party to an agreement with or for the benefit of a CDS Counterparty where a cross-default or termination event has occurred or to the extent it results from the occurrence of an event described in clauses (A) through (F), or (H) has admitted in writing to any set of circumstances described in clauses (A) through (G); provided , that if any counterparty to a credit default swap agreement with XLCA or Affiliates of XLCA exercises a Triggered Enforcement Right in respect of such credit default swap as a result of the occurrence of an event described in clauses (A) through (E) or (H) (but solely with respect to clauses (A) through (E)), and the CDS Counterparties representing the Minimum Consenting CDS Counterparty Restructuring Threshold so elect in writing, this Section 6.10(b) shall no longer apply to any CDS Counterparty; provided , further that this sentence shall not apply with respect to any such Triggered Enforcement Right (x) withdrawn by such counterparty or deemed ineffective by a Governmental Authority within five (5) Business Days or (y) if the current payment obligation of the SCA Parties arising from the exercise of such Triggered Enforcement Right does not exceed $35 million with respect to any given counterparty. The SCA Parties shall give notice to the CDS Counterparties promptly after receiving notice of the exercise of a Triggered Enforcement Right.

(c) Subsequent to the date hereof and until the earlier of (i) Closing or (ii) the termination of this Agreement pursuant to Section 8.01 , the XL Parties will not exercise any Triggered Enforcement Rights to the extent triggered as a result of the fact that any of the SCA Parties or any of their Affiliates (A) is or is becoming insolvent (either because its financial condition is such that the sum of its debts is greater than the fair market value of its assets or because the fair saleable value of its assets is less than the amount required to pay its probable liabilities on its existing debts as they mature), (B) has or will have unreasonably small capital with which to engage in its business and (C) has or will have incurred debts beyond its ability to pay as they become due, (D) does not have or will not have an excess of required reserves and other liabilities over admitted assets, (E) has or will have insufficient assets to reinsure all outstanding risks with other solvent authorized assuming insurers after paying all accrued claims owed, (F) has a credit rating that has been downgraded or withdrawn by any rating agency, or has sold credit protection or provided a guarantee with respect to an asset-backed security or other reference obligation and the credit rating with respect to such asset-backed security or other reference obligation has been downgraded or withdrawn by any rating agency, (G) is a party to an agreement with or for the benefit of a CDS Counterparty where a cross-default or termination event has occurred or to the extent it results from the occurrence of an event described in clauses

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(A) through (F), or (H) has admitted in writing to any set of circumstances described in clauses (A) through (G).

(d) For the avoidance of doubt, nothing herein shall restrict or impair the exercise of Triggered Enforcement Rights by any CDS Counterparty or by any XL Party in the event that any of the SCA Parties or any of their Affiliates institutes or has instituted against it a proceeding relating to its insolvency, bankruptcy, rehabilitation, liquidation, or reorganization under any bankruptcy or insolvency Law or other similar Law affecting creditors’ rights, or has a petition presented relating to its winding-up, rehabilitation, insolvency, bankruptcy, reorganization or liquidation, regardless of whether or not such proceeding or petition (i) results in a judgment of insolvency or bankruptcy or the entry of an order against it relating to any rehabilitation, insolvency, bankruptcy, reorganization or liquidation or (ii) is not dismissed, discharged, stayed or restrained. Further, for the avoidance of doubt, the CDS Counterparties may submit claims on account of their credit default swaps, policies or other agreements with any SCA Party to the SCA Parties as they become due in the ordinary course, other than claims subject to forbearance pursuant to Section 6.10(b) .

Section 6.11 Control of Litigation and Cooperation . (a) As between the SCA Parties and the XL Parties, the XL Parties shall have the right (but not the obligation) to control and direct, through counsel of its own choosing, the defense and settlement of any Action against any SCA Party brought by any Person that challenges the validity or enforceability of this Agreement or any Ancillary Agreement, including any fraudulent conveyance Action or any other Action under any bankruptcy or insolvency Law or other similar Law affecting creditors’ rights (a “ Challenging Action ”). The SCA Parties and the XL Parties shall promptly provide written notice to each other and the CDS Counterparties upon becoming aware of any Challenging Action or threatened Challenging Action. Subject to the first sentence of this Section 6.11(a) , the SCA Parties shall be entitled to participate fully in the defense of such Challenging Action with internal counsel or with outside counsel (at the SCA Parties’ own expense).

(b) The SCA Parties shall actively and in good faith reasonably cooperate in any defense of a Challenging Action controlled by the XL Parties. Such cooperation by the SCA Parties shall include (i) providing to the XL Parties, upon their reasonable request, all documents and information necessary to, or which could assist in, the defense, appeal or settlement of any such Challenging Action, (ii) making the SCA Parties’ employees (and using its commercially reasonable efforts to make the SCA Parties’ former employees) and representatives available to be interviewed by the XL Parties upon reasonable notice and at reasonable times and (iii) offering truthful deposition and trial testimony upon the request of the XL Parties.

(c) The XL Parties and the SCA Parties shall actively and in good faith reasonably cooperate in the defense of any third-party Actions other than Challenging Actions brought or made against any such Party relating to the subject matter of, or any Transactions consummated or to be consummated under, this Agreement or any Ancillary Agreement. Such cooperation shall include (i) providing to any such Party against which any such Action is made, upon such Party’s reasonable request, all documents and information necessary to, or which could assist in, the defense, appeal or settlement of any such Action, (ii) making its employees (and using its commercially reasonable efforts to make its former employees) and representatives

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available to be interviewed by the Party against which any such Action is made upon reasonable notice and at reasonable times, (iii) offering truthful deposition and trial testimony upon the request of the Party against which any such Action is made and (iv) otherwise consulting with the Party against which any such Action is made and, to the extent the Action is made against more than one Party, coordinating, to the extent feasible, the handling and defense of any such Action; provided , however , that nothing herein shall require disclosure by any such Party of any information subject to the attorney-client privilege or in conflict with any contractual confidentiality restriction to which such Party is bound, except when a protective order issued by a Governmental Authority would reasonably ensure Confidentiality of the disclosed.

Section 6.12 CDS Counterparty Restructuring . Following the Closing Date (except to the extent the Allocated Funds, as defined below, are paid to or for the benefit of the CDS Counterparties pursuant to clause (i) or (ii) of this Section 6.12 ), XLCA shall segregate and hold an aggregate amount of Eight Hundred and Twenty Million Dollars ($820,000,000) in cash (together with any SCA Share Sale Proceeds and the premiums or other payments described in the last sentence of this Section 6.12 ) separately in an interest bearing account or otherwise invested as may be agreed in writing between the SCA Parties and the Required Consenting CDS Counterparties (together with any interest earned thereon, the “ Allocated Funds ”), it being understood that such interest bearing account or other investment vehicle described in this sentence will be maintained at Wilmington Trust Company, or, if maintained with a CDS Counterparty or an Affiliate of a CDS Counterparty, such CDS Counterparty shall have waived in writing its rights of set-off with respect to, and any security interest or other lien on, the Allocated Funds, solely for purposes of (i) commuting, terminating, amending and/or otherwise restructuring, as applicable, existing agreements (a “ CDS Counterparty Restructuring ”) pursuant to an agreement among the applicable SCA Parties and CDS Counterparties representing not less than the Minimum Consenting CDS Counterparty Restructuring Threshold and (ii) after October 15, 2008, the payment of any actual claims or losses on existing agreements and insurance policies issued to or for the benefit of CDS Counterparties and, it being understood that, such funds shall not be used for any other purpose, except that, in the event that XLCA becomes subject to a rehabilitation or liquidation proceeding, the Allocated Funds shall no longer be separately held or segregated or limited in use to the purpose stated above and shall be part of the general assets of XLCA. XLCA shall provide quarterly reports to the CDS Counterparties setting forth an accounting, in reasonable detail, with respect to the Allocated Funds and any investments maintained therein; provided , that nothing in this Section 6.12 , including the creation of the Allocated Funds, shall (i) in any way limit the rights or claims of the CDS Counterparties, the liabilities of the SCA Parties in respect of such claims, or the rights of the CDS Counterparties in respect of other assets of the SCA Parties or (ii) constitute a waiver of any defense the SCA Parties may have with respect to any such claims or liabilities. Notwithstanding anything else herein, no CDS Counterparty has any obligation to participate in the CDS Counterparty Restructuring, including, for the avoidance of doubt, commuting, terminating, amending and/or otherwise restructuring, as applicable, existing agreements. The premiums or other payments that a CDS Counterparty makes in respect of its credit default swap agreements with XLCA or Affiliates of XLCA during the period that such CDS Counterparty forbears from exercising any Triggered Enforcement Right under such credit default swap pursuant to Section 6.10(b) shall be included in the Allocated Funds. After the Closing, the SCA Parties and the CDS Counterparties will negotiate in good faith in an effort to reach agreement

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on a CDS Counterparty Restructuring on or prior to October 15, 2008 that is fair and equitable to both the SCA Parties and the CDS Counterparties.

Section 6.13 Restriction on Commutations . Until October 15, 2008, the SCA Parties shall not effect any commutations, settlements, restructurings or terminations of policies or contracts not expressly contemplated by this Agreement that involve the payment of any consideration by the SCA Parties, without the consent of CDS Counterparties representing the Minimum Consenting CDS Counterparty Restructuring Threshold, provided , that during such period the SCA Parties may effect any action (including commutations) related to the EIB Policies in accordance with Section 6.05 , may consummate the Financial Security Commutations, and may effect commutations, settlements, restructurings and terminations (i) that involve cash payments not in excess of an aggregate amount set forth in a letter delivered concurrently herewith to the XL Parties and the CDS Financial Advisor during such period (of which (A) an amount set forth in such letter may not be used for the commutation, settlement, restructuring or termination of any policy or contract other than JeffCo Policies and (B) no more than an amount set forth in such letter may be for CDS policies and contracts); provided , however , that no such commutation, settlement, restructuring or termination (other than with respect to JeffCo Policies) may involve payment by the SCA Parties of cash, debt or other consideration in excess of the reserves (including case and unearned premium reserves) related to the risks being commuted; (ii) of the reinsurance contracts provided in Schedule 2.04 (in accordance with Section 2.04 ); (iii) that are settlements required pursuant to the express terms of insurance policies and contracts of the SCA Parties; and (iv) that are for cash collateralization of up to $24 million of letters of credit issued under the Credit Agreement; provided , that such outstanding letters of credit shall be extended for one year; provided , further , that until October 15, 2008, prior to effecting any commutation, settlement, restructuring or termination permitted under Section 6.13(i) or (ii) : (w) XLCA shall provide the CDS Financial Advisor reasonable advance notice and such information as may be reasonably necessary to evaluate such proposed commutation, settlement, restructuring or termination (which advance notice and information shall be supplied to the CDS Financial Advisor not later than five (5) Business Days prior to consideration of such commutation, settlement, restructuring or termination by XLCA’s board of directors as provided below); (x) at the option of the CDS Financial Advisor, and no later than five (5) Business Days after being provided such notice and information by XLCA regarding such proposed commutation, settlement, restructuring or termination, the CDS Financial Advisor may provide XLCA with a written response to such proposed commutation, settlement, restructuring or termination; (y) XLCA shall provide such written response to its board of directors for consideration at the XLCA board of directors meeting at which such commutation, settlement, restructuring or termination will be presented for approval; and (z) will obtain the approval of the XLCA board of directors for such commutation, settlement, restructuring or termination after so providing such response to the board. For the avoidance of doubt, no such commutation, settlement, restructuring or amendment shall involve the payment of Allocated Funds except to the extent provided in Section 6.12 .

Section 6.14 Treatment of Public Finance Business . The SCA Parties and the CDS Counterparties understand that the approval by the NYID of any CDS Counterparty Restructuring will require addressing XLCA’s public finance business to the satisfaction of the NYID. The SCA Parties and the CDS Counterparties hereby agree to negotiate in good faith in an effort to reach an agreement on the appropriate treatment of such public finance business in

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connection with the CDS Counterparty Restructuring (it being understood that failure to reach such agreement, notwithstanding good faith negotiations, shall not constitute a default hereunder or give rise to any cause of action against any Party hereto). Without the consent of CDS Counterparties representing the Minimum Consenting CDS Counterparty Restructuring Threshold, the SCA Parties shall not transfer or otherwise dispose of such public finance business prior to October 15, 2008, except for reinsurance cessions for risk management purposes not intended to effectuate a transfer of the business in whole or any substantial part or to the extent it is agreed between the NYID and the SCA Parties that to transfer such public finance business is necessary and/or in the public interest (as to which the CDS Counterparties reserve all rights to challenge or object).

Section 6.15 Further Action . Subject to the next sentence, each of the Parties shall use its reasonable best efforts to take, or cause to be taken, all appropriate action, to do or cause to be done all things necessary, proper or advisable under applicable Law, and to execute and deliver such documents and other papers, as may be required to carry out the provisions of this Agreement and the Ancillary Agreements to which it is a party and to consummate and make effective the Transactions reasonably as requested by the Parties, including the matters contemplated by Section 6.18 . Notwithstanding anything to the contrary herein or otherwise, the Parties agree that the XL Parties have (i) complete and sole discretion whether or not any XL Public Offering will be completed and (ii) no obligation to the SCA Parties or the CDS Counterparties to complete any XL Public Offering.

Section 6.16 Resignation of XL Nominees . The XL Parties shall use their reasonable best efforts to cause those four members of the SCA Board of Directors nominated by any of the XL Parties to resign from SCA’s Board of Directors effective as of the Closing. From and after the Closing, XL shall refrain from exercising any rights granted to it under SCA’s Bye-Laws.

Section 6.17 Disclosure Schedules; Supplementation and Amendment of Schedules . The SCA Parties may, at their option, include in the Schedules items that are not material in order to avoid any misunderstanding, and such inclusion, or any references to dollar amounts, shall not be deemed to be an acknowledgement or representation that such items are material, to establish any standard of materiality or to define further the meaning of such terms for purposes of this Agreement. Information disclosed in the Schedules shall constitute a disclosure for all purposes under this Agreement notwithstanding any reference to a specific section, and all such information shall be deemed to qualify the entire Agreement and not just such section. From time to time, prior to the Closing, the SCA Parties shall have the right to supplement or amend the Schedules with respect to any matter arising hereafter or discovered after the delivery of the Schedules pursuant to this Agreement. No such supplement or amendment shall have any effect on the satisfaction of the condition to closing set forth in Section 7.01(a) ; provided , however , if the Closing shall occur, then the Parties (other than the SCA Parties) shall be deemed to have waived any right or claim pursuant to the terms of this Agreement or otherwise, including pursuant to Section 9.11 hereof, with respect to any and all matters disclosed pursuant to any such supplement or amendment prior to the Closing.

Section 6.18 SCA Shareholder Entity . The SCA Parties and the CDS Counterparties agree to cause the SCA Shareholder Entity to be promptly created, and in no

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event later than ten (10) days after the Closing, by taking all actions reasonably necessary to cause a trustee to enter into the Declaration of Trust. SCA and the SCA Shareholder Entity shall enter into the SCA Shareholder Entity Agreement and the SCA Registration Rights Agreement concurrent with or promptly after creation of the SCA Shareholder Entity. If the XL Owned SCA Common Shares are transferred to the Escrow Agent pursuant to Section 2.10 , then SCA and XLCA shall promptly, but in no event later than two (2) Business Days following the satisfaction of the SCA Shareholder Entity Formation Conditions, deliver a written notice to the Escrow Agent conforming to the requirements of the Escrow Agreement directing the Escrow Agreement to release all of the XL Owned SCA Common Shares (together with the related certificates and stock powers) to the SCA Shareholder Entity. The vacancies on the board of directors of SCA created by the resignations as of the Closing of the four directors of SCA nominated by the XL Parties shall be filled by appointment of the initial nominees of the SCA Shareholder Entity to the board of directors of SCA in accordance with the SCA Shareholder Entity Agreement. Each of the SCA Parties and the Required Consenting CDS Counterparties will use their reasonable best efforts to take all appropriate action and will cooperate fully with each other and their respective officers, directors, employees, agents, counsel, accountants and other designees in connection with any steps required to be taken to satisfy each of the SCA Shareholder Entity Formation Conditions. Furthermore, the SCA Parties and the CDS Counterparties shall work together in good faith to achieve the goals of the SCA Parties and the CDS Counterparties as set forth in this Agreement and any Ancillary Agreement to which an SCA Party and a CDS Counterparty is a party, and those described in this Section 6.18 . Notwithstanding Sections 9.07 and 9.08 , the SCA Shareholder Entity Formation Conditions may be amended and modified from time to time upon the written agreement of SCA and the Required Consenting CDS Counterparties.

Section 6.19 Portfolio Trust . The SCA Parties will direct each portfolio trust that is a party to a credit default swap agreement with a CDS Counterparty to execute a joinder agreement in the form attached hereto as Exhibit 1.01(c) and become a Party to this Agreement promptly upon receiving notice that such CDS Counterparty became a Party, and in no event later than the earlier of (i) the Closing or (ii) three (3) Business Days after such CDS Counterparty became a Party.

Section 6.20 BlackRock . The SCA Parties shall reasonably cooperate with BlackRock, including providing BlackRock with reasonable access to information and reasonable access to, and will request reasonable cooperation from, personnel of the SCA Parties, in order to permit BlackRock to complete its work as early in the month of August 2008 as is reasonably practicable.

Section 6.21 XLFA Merger . As soon as practicable following the later of (i) the Closing and (ii) the occurrence of the XLFA Redomestication, XLFA as continued in Delaware or its successor pursuant to the XLFA Redomestication shall merge into and with XLCA.

Section 6.22 Collipulli Temuco and Banco de Brasil Policies . (a) (i) The SCA Parties will provide the XL Parties with copies of all documents, files, books and records relating to either the Collipulli Temuco Policy or the Banco de Brasil Policy as reasonably requested by the XL Parties from time to time, and reasonable access to, and will request reasonable cooperation from, upon reasonable notice and during normal business hours, all employees of the

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SCA Parties whose employment responsibilities are related to either the Collipulli Temuco Policy or the Banco de Brasil Policy.

(ii) The XL Parties will provide the SCA Parties with copies of all documents, files, books and records relating to either the Collipulli Temuco Policy or the Banco de Brasil Policy as reasonably requested by the SCA Parties from time to time, and reasonable access to, and will request reasonable cooperation from, upon reasonable notice and during normal business hours, all employees of the XL Parties whose employment responsibilities are related to either the Collipulli Temuco Policy or the Banco de Brasil Policy.

(b) The XL Parties will reasonably cooperate with the SCA Parties in connection with the remediation of the Collipulli Temuco Policy and will cause XLI to issue a replacement policy for the Collipulli Temuco Policy to the new liquidity provider on substantially the same terms as the XLI policy currently in force.

(c) Upon written direction of the SCA Parties, and only upon written direction of the SCA Parties, the XL Parties will exercise any right, power or authority provided to it with respect to the Collipulli Temuco transaction, including the giving of consents, providing appropriate waivers and taking any other actions related to the performance and enforcement of its rights under the financing documents; provided , that the XL Parties are not required to take any action that will be in violation of any Law, and may take any action required by, or necessary to be in compliance with, any applicable Law.

Section 6.23 XLFA Redomestication . Prior to the Closing, the SCA Parties shall pre-clear the certificate that will effect the XLFA Redomestication with the Delaware Secretary of State and provide evidence of such pre-clearance to the other parties hereto. At the Closing, after XLFA receives the Cash Consideration Amount to be received by it under Section 2.08 , the SCA Parties shall cause such pre-cleared certificate to be filed with the Secretary of State of Delaware, thereby effecting the XLFA Redomestication.

ARTICLE VII

CONDITIONS TO CLOSING

Section 7.01 Conditions to Obligations of the SCA Parties . The obligations of the SCA Parties to consummate the Transactions are subject to the fulfillment or written waiver, at or prior to the Closing, of each of the following conditions:

(a) Representations, Warranties and Covenants . (i) The representations and warranties of the XL Parties contained in this Agreement (A) that are not qualified by “materiality” will have been true and correct in all material respects when made and will be true and correct in all material respects as of the Closing with the same force and effect as if made as of the Closing, and (B) that are qualified by “materiality” will have been true and correct when made and will be true and correct as of the Closing with the same force and effect as if made as of the Closing, except to the extent such representations and warranties are as of another date, in which case such representations and warranties will be true and correct as of that date, (ii) the

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covenants and agreements contained in this Agreement to be complied with by the XL Parties on or before the Closing will have been complied with in all material respects, (iii) the representations and warranties of the CDS Counterparties contained in this Agreement (A) that are not qualified by “materiality” will have been true and correct in all material respects when made and will be true and correct in all material respects as of the Closing with the same force and effect as if made as of the Closing, and (B) that are qualified by “materiality” will have been true and correct when made and will be true and correct as of the Closing with the same force and effect as if made as of the Closing, except to the extent such representations and warranties are as of another date, in which case such representations and warranties will be true and correct as of that date, and (iv) the covenants and agreements contained in this Agreement to be complied with by the CDS Counterparties on or before the Closing will have been complied with in all material respects;

(b) No Proceeding or Litigation . No Action will have been commenced by any Governmental Authority against any of the Parties seeking to restrain or materially and adversely alter the Transactions which, in the reasonable, good faith determination of the Board of Directors of each of the SCA Parties, after consulting with legal counsel, is likely to render it impossible or unlawful to consummate such transactions;

(d) Closing Deliveries . All closing documents required to be delivered under Section 2.08 and Section 2.09 hereof shall have been delivered;

(e) Financial Security Commutations . The Financial Security Commutations shall have been consummated prior to or simultaneously with the Closing;

(f) MLI CDS Agreements . Termination of the MLI CDS Agreements will have occurred prior to, or will occur simultaneously with, the Closing;

(g) Effectiveness of Board Resignations . All four directors of SCA designated by the XL Parties shall have tendered their resignations effective as of the Closing;

(h) Consents . None of the consents listed in Section 3.03 of the SCA Parties’ Disclosure Schedule or Section 4.03 of the XL Parties’ Disclosure Schedule have been withdrawn, rescinded, revised, amended or altered in any way; and

(i) Officers Certificate . Receipt of a certificate simultaneously with the Closing of a duly authorized officer of each of the XL Parties certifying in respect of such XL Party as to the matters set forth in Sections 7.01(a)(i) and 7.01(a)(ii) .

Section 7.02 Conditions to Obligations of the XL Parties . The obligations of the XL Parties to consummate the Transactions are subject to the fulfillment or written waiver, at or prior to the Closing, of each of the following conditions:

(a) Representations, Warranties and Covenants . (i) The representations and warranties of the SCA Parties contained in this Agreement (A) that are not qualified by

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“materiality” will have been true and correct in all material respects when made and will be true and correct in all material respects as of the Closing with the same force and effect as if made as of the Closing, and (B) that are qualified by “materiality” will have been true and correct when made and will be true and correct as of the Closing with the same force and effect as if made as of the Closing, except to the extent such representations and warranties are as of another date, in which case such representations and warranties will be true and correct as of that date, (ii) the covenants and agreements contained in this Agreement to be complied with by the SCA Parties on or before the Closing will have been complied with in all material respects, (iii) the representations and warranties of the CDS Counterparties contained in this Agreement (A) that are not qualified by “materiality” will have been true and correct in all material respects when made and will be true and correct in all material respects as of the Closing with the same force and effect as if made as of the Closing, and (B) that are qualified by “materiality” will have been true and correct when made and will be true and correct as of the Closing with the same force and effect as if made as of the Closing, except to the extent such representations and warranties are as of another date, in which case such representations and warranties will be true and correct as of that date, and (iv) the covenants and agreements contained in this Agreement to be complied with by the CDS Counterparties on or before the Closing will have been complied with in all material respects;

(b) Financial Security Commutations . The Financial Security Commutations shall have been consummated prior to or simultaneously with the Closing;

(c) No Proceeding or Litigation . No Action will have been commenced by any Governmental Authority against any of the Parties seeking to restrain or materially and adversely alter the Transactions which, in the reasonable, good faith determination of the Board of Directors of each of the XL Parties, after consulting with legal counsel, is likely to render it impossible or unlawful to consummate such transactions;

(d) Consents . None of the consents listed in Section 3.03 of the SCA Parties’ Disclosure Schedule or Section 4.03 of the XL Parties’ Disclosure Schedule have been withdrawn, rescinded, revised, amended or altered in any way;

(e) Closing Deliveries . The closing documents required to be delivered under Section 2.08 and Section 2.09 hereof shall have been delivered;

(f) MLI CDS Agreements . Termination of the MLI CDS Agreements will have occurred prior to, or will occur simultaneously with, the Closing; and

(g) Officers Certificate . Receipt of a certificate simultaneously with the Closing of a duly authorized officer of each of the SCA Parties certifying in respect of such SCA Party as to the matters set forth in Sections 7.02(a)(i) and 7.02(a)(ii) .

Section 7.03 Conditions to Obligations of the CDS Counterparties . The obligations of each CDS Counterparty to consummate the Transactions are subject to the fulfillment or written waiver, at or prior to the Closing, of each of the following conditions:

(a) Representations, Warranties and Covenants . (i) The representations and warranties of the SCA Parties contained in this Agreement (A) that are not qualified by

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“materiality” will have been true and correct in all material respects when made and will be true and correct in all material respects as of the Closing with the same force and effect as if made as of the Closing, and (B) that are qualified by “materiality” will have been true and correct when made and will be true and correct as of the Closing with the same force and effect as if made as of the Closing, except to the extent such representations and warranties are as of another date, in which case such representations and warranties will be true and correct as of that date, (ii) the covenants and agreements contained in this Agreement to be complied with by the SCA Parties on or before the Closing will have been complied with in all material respects, (iii) the representations and warranties of the XL Parties contained in this Agreement (A) that are not qualified by “materiality” will have been true and correct in all material respects when made and will be true and correct in all material respects as of the Closing with the same force and effect as if made as of the Closing, and (B) that are qualified by “materiality” will have been true and correct when made and will be true and correct as of the Closing with the same force and effect as if made as of the Closing, except to the extent such representations and warranties are as of another date, in which case such representations and warranties will be true and correct as of that date, and (iv) the covenants and agreements contained in this Agreement to be complied with by the XL Parties on or before the Closing will have been complied with in all material respects;

(b) No Proceeding or Litigation . No Action will have been commenced by any Governmental Authority against any of the Parties seeking to restrain or materially and adversely alter the Transactions which, in the reasonable, good faith determination of the CDS Counterparties, after consulting with legal counsel, is likely to render it impossible or unlawful to consummate such Transactions;

(c) Effectiveness of Board Resignations . All four directors of SCA designated by the XL Parties shall have tendered their resignations effective as of the Closing; and

(d) Closing Deliveries . The closing documents required to be delivered under Section 2.08 and Section 2.09 hereof shall have been delivered.

Section 7.04 Frustration of Closing Conditions . None of the XL Parties, the SCA Parties or any CDS Counterparty may rely on the failure of any condition set forth in Section 7.01 , Section 7.02 or Section 7.03 , as the case may be, to be satisfied if such failure was primarily caused by such Party’s or Parties’ breach of any provision of this Agreement or failure to use its or their reasonable best efforts to consummate the Transactions in accordance with the terms of this Agreement.

ARTICLE VIII

TERMINATION AND WITHDRAWAL

Section 8.01 Termination . This Agreement may be terminated at any time prior to the Closing:

(a) by the XL Parties, provided , that they are not in breach of this Agreement, if between the date hereof and the Closing Date if: (i) any of the representations and warranties of any of the SCA Parties or the CDS Counterparties contained in this Agreement, (A) that are

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not qualified by “materiality,” were not true and correct in all material respects when made, or, (B) that are qualified by “materiality,” were not true and correct when made; (ii) any of the SCA Parties or the CDS Counterparties failed to comply in any material respect with the covenants or agreements contained in this Agreement to be complied with by it; or (iii) any of the SCA Parties makes a general assignment for the benefit of its creditors or any proceeding is instituted by or against any of the SCA Parties seeking to adjudicate any one of them as bankrupt or insolvent, seeking the liquidation, winding up or reorganization of any one of them, or seeking any arrangement, adjustment, protection, relief or composition of its debts under any Law relating to bankruptcy, insolvency, rehabilitation or reorganization as to any one of them; provided , however , that prior to termination for any breach of this Agreement described in the preceding subsection (i) or (ii), the XL Parties must provide written notice of such breach to the SCA Parties and such breach must remain outstanding without material cure for fifteen (15) days after delivery of such notice;

(b) by the SCA Parties, provided , that they are not in breach of this Agreement, if between the date hereof and the Closing Date if: (i) any of the representations and warranties of any of the XL Parties or the CDS Counterparties contained in this Agreement, (A) that are not qualified by “materiality,” were not true and correct in all material respects when made, or, (B) that are qualified by “materiality,” were not true and correct when made; (ii) any of the XL Parties or the CDS Counterparties failed to comply in any material respect with the covenants or agreements contained in this Agreement to be complied with by it; or (iii) any of the XL Parties makes a general assignment for the benefit of its creditors or any proceeding is instituted by or against any XL Party seeking to adjudicate any one of them as bankrupt or insolvent, seeking the liquidation, winding up or reorganization of any one of them, or seeking any arrangement, adjustment, protection, relief or composition of its debts under any Law relating to bankruptcy, insolvency, rehabilitation or reorganization as to any one of them; provided , however , that prior to termination for any breach of this Agreement described in the preceding subsection (i) or (ii) , the SCA Parties must provide written notice of such breach to the XL Parties and such breach must remain outstanding without material cure for fifteen (15) days after delivery of such notice;

(c) by the SCA Parties, as a group, or the XL Parties, as a group, if the Closing shall not have occurred on or prior to August 15, 2008; provided , however , that the right to terminate this Agreement under this Section 8.01(c) shall not be available to the SCA Parties, as a group, or the XL Parties, as a group, if failure to fulfill any obligation under this Agreement by any member of such group shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date;

(d) by any Party, in the event that any Governmental Authority shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the Transactions, and such order, decree, ruling or other action shall have become final and non-appealable; or

(e) by the mutual written consent of the SCA Parties and the XL Parties.

Section 8.02 Effect of Termination . In the event of termination of this Agreement as provided in Section 8.01 , this Agreement shall forthwith become void and there

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shall be no continuing obligations on the part of any Party hereto except (a) as set forth in Sections 6.01 , 9.01 , 9.11 , 9.12 , 9.13 and 9.14 , and (b) that nothing herein shall relieve any Party from liability for any breach of this Agreement prior to its termination.

Section 8.03 CDS Counterparty Withdrawal . If the Closing does not take place on or prior to August 15, 2008, a CDS Counterparty may withdraw from this Agreement and such CDS Counterparty shall have no obligations or rights hereunder or in connection with the Transactions (including under Sections 2.05(c) and 6.10(b) and notwithstanding any provision to the contrary in Section 9.08 or otherwise), by providing notice of such withdrawal to all Parties by August 20, 2008, and after such withdrawal, such CDS Counterparty will no longer be deemed to be a “CDS Counterparty” for purposes of this Agreement and any Ancillary Agreement.

ARTICLE IX

GENERAL PROVISIONS

Section 9.01 Expenses . Except as otherwise specified in this Agreement or any other written agreement, all costs and expenses, including fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the Transactions, shall be paid by the Party incurring such costs and expenses, whether or not the Closing shall have occurred.

Section 9.02 Notices . All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by an internationally recognized overnight courier service, by facsimile or electronic mail (upon electronic confirmation of delivery), or by registered or certified mail (postage prepaid, return receipt requested), to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 9.02 ):

(a) if to any of the SCA Parties:


Address:		c/o XL Capital Assurance Inc.
		1221 Avenue of the Americas
		New York, NY 10020-1001
Facsimile:		212.478.3579
Electronic Mail:		susan.comparato@scafg.com
Attention:		Susan Comparato, General Counsel

with a copy to:

Address:		Weil, Gotshal & Manges
		767 Fifth Avenue
		New York, NY 10153
Facsimile:		212.310.8007
Electronic Mail:		gary.holtzer@weil.com

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Attention:		Gary T. Holtzer

(b) if to any of the XL Parties:


Address:		c/o XL Capital Ltd
		XL House
		One Bermudiana Road
		Hamilton
		Bermuda, HM 11
Facsimile:		441.294.7307
Electronic Mail:		kirstin.gould@xlgroup.com
Attention:		Kirstin Gould, General Counsel

with a copy to:

Address:		Cadwalader, Wickersham & Taft LLP
		One World Financial Center
		New York, NY 10281
Facsimile:		212.504.6666
Electronic Mail:		louis.bevilacqua@cwt.com
Attention:		Louis J. Bevilacqua

(c) if to the CDS Counterparties, to the address, facsimile or electronic mail address listed on Schedule 9.02 hereto, which shall be kept on file by XL, and updated by XL from time to time (with copies of updates provided to the SCA Parties and Davis Polk & Wardwell at the address listed below) based on the execution and delivery of joinder agreements by additional CDS Counterparties in accordance with Section 9.04 below:


with a copy to:

Address:		Davis Polk & Wardwell
		450 Lexington Avenue
		New York, NY 10017
Facsimile:		212.450.3092
Electronic Mail:		donald.bernstein@dpw.com
Attention:		Donald S. Bernstein

Section 9.03 Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced under any Law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect for so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to either Party hereto. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an

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acceptable manner so that the Transactions are consummated as originally contemplated to the greatest extent possible.

Section 9.04 Joinder of CDS Counterparties and Additional SCA Parties . Any counterparty to a credit default swap agreement with XLCA or an Affiliate of XLCA or any portfolio trust that is an Affiliate of XLCA may become a Party to this Agreement prior to the Closing by executing a joinder agreement in the form attached hereto as Exhibit 1.01(c) . Upon execution and delivery of each joinder agreement pursuant to its terms, each party will be deemed to be a CDS Counterparty or an SCA Party (as applicable) for all purposes related hereto and shall be deemed, without limitation, to have made the releases set forth in Section 2.05(c) hereof (with respect to the CDS Counterparties) or in Section 2.05(a) hereof (with respect to the SCA Parties).

Section 9.05 Entire Agreement . This Agreement and the Ancillary Agreements constitute the entire agreement of the Parties with respect to the subject matter hereof and thereof and supersede all prior agreements and undertakings, both written and oral, between any of the Parties with respect to the subject matter hereof and thereof.

Section 9.06 Assignment . This Agreement may not be assigned by operation of Law or otherwise without the express written consent of all Parties (which consent may be granted or withheld in the sole discretion of each of the Parties) and any such assignment or attempted assignment without such consent shall be void.

Section 9.07 Amendment . This Agreement may not be amended, altered, supplemented or modified except (a) by an instrument in writing signed by, or on behalf of, all Parties, or (b) by a waiver in accordance with Section 9.08 ; provided , that, notwithstanding anything to the contrary in this Section 9.07 or in Section 9.08 below, the following sections and definitions set forth in this Agreement may not be amended, altered, supplemented, modified or waived without the unanimous consent of the CDS Counterparties: the definitions of “XLFA Redomestication,” “Minimum Consenting CDS Counterparty Restructuring Threshold” and “Required Consenting CDS Counterparties,” and Sections 2.05 , 2.06 , 2.07(b) , 2.10 , 6.03 , 6.04 , 6.05 , 6.06 , 6.07 , 6.10(b) , 6.10(d) , 6.12 , 6.13 , 6.14 , 6.16 , 6.18 , 6.20 , 6.21 , 6.23 , 9.07 and 9.08 .

Section 9.08 Waiver . Subject to the provisions in Section 9.07 above, which provide that, notwithstanding anything to the contrary in Section 9.07 or this Section 9.08 , the following sections and definitions set forth in this Agreement may not be amended, altered, supplemented, modified or waived without the unanimous consent of the CDS Counterparties: the definitions of “XLFA Redomestication,” “Minimum Consenting CDS Counterparty Restructuring Threshold” and “Required Consenting CDS Counterparties,” and Sections 2.05 , 2.06 , 2.07(b) , 2.10 , 6.03 , 6.04 , 6.05 , 6.06 , 6.07 , 6.10(b) , 6.10(d) , 6.12 , 6.13 , 6.14 , 6.16 , 6.18 , 6.20 , 6.21 , 6.23 , 9.07 and 9.08 , the SCA Parties, acting unanimously as a group, and the XL Parties, acting unanimously as a group, may (a) extend the time for the performance of any of the obligations that one or more members of another group owes to one or more of its members, (b) waive any right that one or more of its members may have due to inaccuracies in the representations and warranties made by any member of another group or contained in any Transaction Document or (c) waive compliance with any of the agreements of any member of another group, solely as they relate to the members of such waiving group, or conditions to the

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obligations of the members of such waiving group contained herein. Any such extension, waiver or amendment shall be valid only if set forth in an instrument in writing signed by all of the SCA Parties and XL Parties to be bound thereby. Any such extension, waiver or amendment will promptly be provided to all CDS Counterparties in writing and, if any CDS Counterparty objects to such extension, waiver or amendment, such CDS Counterparty will have five (5) Business Days from receipt of such extension, waiver or amendment to provide written notice to all other Parties that it intends to withdraw from this Agreement. If such CDS Counterparty provides such timely notice, it will be deemed to have withdrawn as a Party to this Agreement on the date that such waiver, extension or amendment becomes effective and the terms hereof shall have no further force or effect with regard to such CDS Counterparty; provided , that (i) any release made by any CDS Counterparty withdrawing as a party to this Agreement pursuant to this Section 9.08 and any release made by any SCA Party or any XL Party with respect to such withdrawing CDS Counterparty, in each case to the extent such releases shall have become effective prior to the time of such withdrawal, shall in each case remain in full force and effect after such withdrawal, and (ii) following such withdrawal, subject to the preceding clause (i) , such withdrawing CDS Counterparty shall cease to have any other obligations or rights hereunder or in connection with the Transactions (including under Sections 2.05(c) and 6.10(b)) , and after such withdrawal, such CDS Counterparty will no longer be deemed to be a “CDS Counterparty” for purposes of this Agreement or any Ancillary Agreement. If the CDS Counterparty does not provide such timely notice, it shall be deemed to have approved the waiver, extension or amendment. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition or as a waiver of any other term or condition of this Agreement. The failure of any Party hereto to assert any of its rights hereunder shall not constitute a waiver of any other rights. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.

Section 9.09 No Third-Party Beneficiaries . This Agreement shall be binding upon and inure solely to the benefit of the Parties and, except as provided in Section 2.05 , their respective successors and permitted assigns, and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit, remedy or right of action of any nature whatsoever, arising directly or indirectly out of, based upon, or in any way related to or in connection with this Agreement or the Ancillary Agreements.

Section 9.10 Rights and Remedies . Each Party acknowledges and agrees that each Party would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that any material breach of this Agreement by another Party could not be adequately compensated by monetary damages alone. Accordingly, in addition to any other right or remedy to which such Party may be entitled, at Law or in equity, it shall be entitled to enforce any provision of this Agreement by a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent breaches or threatened breaches of any of the provisions of this Agreement, without posting any bond or other undertaking. For the avoidance of doubt, any liability of any CDS Counterparty that may arise in connection with this Agreement shall neither be joint nor joint and several with any other CDS Counterparty.

Section 9.11 Indemnification . (a) The XL Parties shall jointly and severally indemnify and hold harmless each of the SCA Parties, and their respective Subsidiaries,

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Affiliates, officers, directors, employees, agents, successors and permitted assigns (collectively, “ SCA Indemnitees ”), for and against any and all liabilities, losses, damages, claims, costs, expenses, interest, awards, judgments and penalties (including attorneys’ and consultants’ fees and expenses) actually suffered or incurred (including any action, claim, suit or other proceeding brought or otherwise initiated by any of them) (“ Losses ”) by any such SCA Indemnitee arising out of or resulting from the breach of any provision of this Agreement prior to Closing by any of the XL Parties.

(b) The SCA Parties shall jointly and severally indemnify and hold harmless each of the XL Parties, and their respective Subsidiaries, Affiliates, officers, directors, employees, agents, successors and permitted assigns (collectively, “ XL Indemnitees ”), for and against any and all Losses incurred by any such XL Indemnitee arising out of or resulting from (i) the breach of any provision of this Agreement prior to Closing by any of the SCA Parties or (ii) any action taken pursuant to the written direction of the SCA Parties under Section 6.22 or prohibited to be taken pursuant to Section 6.22 .

Section 9.12 No Survival . None of the representations and warranties other than those contained in Sections 3.01 (other than as to enforceability for reasons other than fraud, ultra vires action, improper authorization, or failure to be duly organized, validly existing or in good standing in any applicable jurisdiction), 3.02 , 3.03 , 4.01 , 4.02 , 4.03 , 4.04 , 4.05 , 5.01 , 5.02 and 5.03 shall survive the Closing. The representations and warranties contained in Sections 3.01 (other than as to enforceability for reasons other than fraud, ultra vires action, improper authorization, or failure to be duly organized, validly existing or in good standing in any applicable jurisdiction), 3.02 , 3.03 , 4.01 , 4.02 , 4.03 , 4.04 , 4.05 , 5.01 , 5.02 and 5.03 shall survive for the statute of limitations for contracts of the nature of this Agreement.

Section 9.13 Several Liability of the CDS Counterparties . For the avoidance of doubt, the obligations of the CDS Counterparties under this Agreement shall be several and not joint and several.

Section 9.14 Governing Law and Jurisdiction . This Agreement shall be interpreted under and governed by the Laws of the State of New York without giving effect to conflicts of law provisions thereof. In the event that there is a dispute between or among the Parties arising under this Agreement, other than with respect to events arising under the 2001 Facultative Quota Share Commutation Agreement or the Excess of Loss Commutation Agreement, the Parties (i) agree that the exclusive forum to seek remedy shall be to institute a legal proceeding in the courts of the State of New York located in the City and County of New York, (ii) hereby expressly submit to the personal jurisdiction and venue of such courts for the purposes thereof and expressly waive any claim of lack of personal jurisdiction and improper venue and any claim that such courts are an inconvenient forum and (iii) agree that the prevailing Parties shall be entitled to recover their reasonable attorneys’ fees, costs and disbursements from the other Parties (in addition to any other relief to which the prevailing Parties may be entitled). Each Party hereby irrevocably consents to the service of process of any of the aforementioned courts in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the address provided to the Parties in accordance with Section 9.02, such service to become effective ten (10) days after such mailing.

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Section 9.15 Waiver of Jury Trial . Each of the Parties hereby waives to the fullest extent permitted by applicable Law any right it may have to a trial by jury with respect to any litigation directly or indirectly arising out of, under, or in connection with this Agreement or the Transactions. Each of the Parties hereby (i) certifies that no representative, agent or attorney of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver and (ii) acknowledges that it has been induced to enter into this Agreement and the Transactions, as applicable, by, among other things, the mutual waivers and certifications in this Section 9.15 .

Section 9.16 Fully Negotiated Agreement . Each Party has had the opportunity to negotiate the terms, consult with counsel, and modify the provisions of this Agreement and the Ancillary Agreements. Therefore, the terms of this Agreement and the Ancillary Agreements shall be considered and interpreted without any presumption, inference or rule requiring construction or interpretation of any provision of this Agreement against the interests of the drafter of the Agreement.

Section 9.17 Currency . Unless otherwise specified in this Agreement, all references to currency, monetary values and dollars set forth herein shall mean United States (U.S.) Dollars and all payments hereunder shall be made in United States Dollars.

Section 9.18 Counterparts . This Agreement may be executed and delivered in multiple counterparts, each of which, when so executed and delivered, shall be an original, but such counterparts shall together constitute but one and the same instrument and agreement. A facsimile or Portable Document Format copy of a signature shall have the same force and effect as an original signature.

[NO FURTHER TEXT ON THIS PAGE]

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IN WITNESS WHEREOF, the SCA Parties, XL Parties and CDS Counterparties have caused this Agreement to be executed as of the date first written above.


	XL CAPITAL LTD

	By:	/s/ Fiona Luck

		Name: Fiona Luck
		Title: Executive Vice President and Chief of Staff

	XL INSURANCE (BERMUDA) LTD

	By:	/s/ Fiona Luck

		Name: Fiona Luck
		Title: Executive Vice President and Chief of Staff

	XL REINSURANCE AMERICA INC.

	By:	/s/ Steven P. Agosta

		Name: Steven P. Agosta
		Title: Vice President, General Counsel and Secretary

	X.L. GLOBAL SERVICES, INC.

	By:	/s/ Kenneth P. Meagher

		Name: Kenneth P. Meagher
		Title: Assistant Secretary

[SIGNATURE PAGE – COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	XL SERVICES (BERMUDA) LTD

	By:	/s/ Fiona Luck

		Name: Fiona Luck
		Title: Deputy Chairman

	X.L. AMERICA, INC.

	By:	/s/ Richard G. McCarty

		Name: Richard G. McCarty
		Title: Senior Vice President, General Counsel and Secretary

	SECURITY CAPITAL ASSURANCE LTD

	By:	/s/ Claude LeBlanc

		Name: Claude LeBlanc
		Title: Executive Vice President

	XL FINANCIAL ASSURANCE LTD.

	By:	/s/ Thomas Currie

		Name: Thomas Currie
		Title: Senior Vice President

[SIGNATURE PAGE – COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	XL CAPITAL ASSURANCE INC.

	By:	/s/ Susan Comparato

		Name: Susan Comparato
		Title: Senior Vice President and General Counsel

	XL FINANCIAL ADMINISTRATIVE SERVICES INC.

	By:	/s/ Susan Comparato

		Name: Susan Comparato
		Title: Managing Director and Secretary

	SCA BERMUDA ADMINISTRATIVE LTD.

	By:	/s/ Thomas Currie

		Name: Thomas Currie
		Title: Senior Vice President

	XL CAPITAL ASSURANCE (U.K.) LIMITED

	By:	/s/ Fredrick B. Hnat

		Name: Fredrick B. Hnat
		Title: Managing Director and Chief Operating Officer

[SIGNATURE PAGE – COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]

EXHIBIT 1.01(a)

FORM OF 2001 FACULTATIVE QUOTA SHARE COMMUTATION AGREEMENT

Exhibit 1.01(a)

COMMUTATION AND RELEASE AGREEMENT

This Commutation and Release Agreement (the “ Agreement ”) dated as of ________, 2008, is made by and between XL Financial Assurance Ltd, a company domiciled in Bermuda (the “ Company ”) and XL Insurance (Bermuda) Ltd, formerly known as XL Insurance Ltd, a company also domiciled in Bermuda (the “ Reinsurer ”). The Reinsurer and the Company are hereinafter referred to collectively as the “ Parties .”

RECITALS

WHEREAS , the Parties previously entered into a Facultative Quota Share Reinsurance Treaty dated August 17, 2001, as amended, pursuant to which the Reinsurer agreed to reinsure certain liabilities of the Company (the “ Reinsurance Agreement ”); and

WHEREAS , the Parties are parties to that certain Master Commutation, Release and Restructuring Agreement, dated as of July __, 2008, by and among the Company, the Reinsurer, Security Capital Assurance Ltd and the other parties thereto (the “ Master Transaction Agreement ”), pursuant to which the Company and the Reinsurer have agreed to enter into this Agreement; and

WHEREAS , the Parties agree that it is in each of their best interests to freely and voluntarily enter into this Agreement and to fully and forever release and discharge each other from their respective existing and future liabilities and obligations, including contingent and uncertain liabilities, both known and unknown, under the Reinsurance Agreement and the individual risk cessions thereunder and to compromise, resolve and settle all amounts due, or which may become due, between each other arising out of, in respect of, or relating to the Reinsurance Agreement and/or the individual risk cessions thereunder; and

WHEREAS , Company and Reinsurer, or their affiliates, may be parties to agreements other than the Reinsurance Agreement, and it is the intent of the Parties that this Agreement will not have any effect upon such other agreements.

NOW, THEREFORE , in consideration of the covenants, conditions, promises and releases contained herein, and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

ARTICLE I
PAYMENT

(a) The Reinsurer shall pay to the Company the sum of Twenty Five Million Dollars ($25,000,000.00) (the “ Commutation Amount ”) via direct wire transfer, in immediately available funds, in accordance with the payment instructions set forth on Schedule A hereto on the Closing Date (as such term is defined in the Master Transaction Agreement). The date on which the Commutation Amount is paid and received shall be referred to hereinafter as the “ Effective Date .”

Exh. 1.01(a)-1

(b) The Company shall accept the Commutation Amount in full satisfaction of all of the Reinsurer’s liabilities and obligations under the Reinsurance Agreement and/or the individual risk cessions thereunder.

ARTICLE II
RELEASE

(a) Upon the Reinsurer’s payment of the Commutation Amount to the Company, the Company, on behalf of itself and its shareholders, parents, affiliates and subsidiaries, and their respective officers, directors, and employees, hereby irrevocably and unconditionally releases and forever discharges the Reinsurer, its parents, subsidiaries and affiliates, and their respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, and attorneys from any and all present and future actions, causes of action, suits, debts, liens, contracts, rights, agreements, obligations, promises, liabilities, claims, counterclaims, demands, damages, controversies, losses, costs and expenses (including attorneys’ fees and costs actually incurred) of any kind, character, description or nature whatsoever, known or unknown to either or both Parties, suspected or unsuspected, reported or unreported, fixed or contingent, which the Company now has, owns or holds or claims to have, own, or hold, or at any time heretofore had, owned, or held or claimed to have had, owned, or held, or may hereafter have, own, or hold or claim to have, own, or hold, arising out of conduct or matters occurring on, prior to or subsequent to the Effective Date, against the Reinsurer, arising directly or indirectly out of, based upon, or in any way related to or in connection with the Reinsurance Agreement and/or the individual risk cessions thereunder, whether grounded in law or equity, or sounding in tort or contract or otherwise; provided , however , that the provisions of this Article II(a) shall not discharge obligations of the Reinsurer, which have been undertaken or imposed by the express terms of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements).

(b) Contemporaneous with the payment of the Commutation Amount to the Company, the Reinsurer, on behalf of itself and its shareholders, parents, affiliates and subsidiaries, and their respective officers, directors and employees, hereby irrevocably and unconditionally releases and forever discharges the Company, its shareholders, parents, subsidiaries and affiliates, and their respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, and attorneys from any and all present and future actions, causes of action, suits, debts, liens, contracts, rights, agreements, obligations, promises, liabilities, claims, counterclaims, demands, damages, controversies, losses, costs and expenses (including attorneys’ fees and costs actually incurred) of any kind, character, description or nature whatsoever, known or unknown to either or both Parties, suspected or unsuspected, reported or unreported, fixed or contingent, which the Reinsurer now has, owns, holds or claims to have, own, or hold, or at any time heretofore had, owned, or held or claimed to have had, owned, or held, or may hereafter have, own, or hold or claim to have, own, or hold, arising out of conduct or matters occurring on, prior to or subsequent to the Effective Date, against the Company, arising directly or indirectly out of, based upon, or in any way related to or in connection with the Reinsurance Agreement and/or the individual risk cessions thereunder, whether grounded in law or equity or sounding in tort or contract or otherwise; provided , however , that the provisions of this Article II(b) shall not discharge obligations of the

Exh. 1.01(a)-2

Company, which have been undertaken or imposed by the express terms of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements).

(c) The Parties understand that it is possible that unknown losses or claims may exist, or that present or future losses or claims may be underestimated in amounts or severity. Furthermore, the Parties expressly accept and assume the risk that the factual or legal assumptions made by any Party in connection with this Agreement may be found hereafter to be different from the true facts or law, and the Parties agree that this Agreement shall be and shall remain in full force and effect notwithstanding such differences in facts or law. Each Party expressly takes all of the foregoing into account in determining the amount of consideration to be given and paid for the giving of this Agreement, and a portion of the said consideration, having been bargained for between the Parties with the knowledge of the possibility of such unknown losses and claims, is given in exchange for the full accord, satisfaction and discharge of all such losses and claims.

(d) Full payment of the Commutation Amount shall be in complete accord, satisfaction, settlement and commutation of any and all past, current and future liabilities and obligations that each Party owes or may owe to the other arising directly or indirectly out of or related to or in connection with the Reinsurance Agreement and/or the individual risk cessions thereunder and that upon payment of the Commutation Amount, the Reinsurance Agreement shall be terminated as of the Effective Date and neither Party shall have any further obligation or liability to the other Party under the Reinsurance Agreement and/or the individual risk cessions thereunder.

ARTICLE III
NON-RELIANCE

(a) This Agreement fully and finally resolves the rights, duties and obligations of the Company and the Reinsurer under the Reinsurance Agreement, and neither Party shall:


	(i) have any remedy in respect of any representation, warranty or undertaking of the other that is not specifically set forth in this Agreement, the Master Transaction Agreement, or the Ancillary Agreements commuting the reinsurance agreements listed in Part I of Schedule 2.01 of the Master Transaction Agreement, whether or not relied upon by the other Party; or

	(ii) seek to reopen or set aside this Agreement or the Reinsurance Agreement on any basis whatsoever, including, without limitation, that this Agreement or the Reinsurance Agreement is void or voidable due to a mistake or change in law or a unilateral or mutual mistake of fact in any way related to this Agreement or the Reinsurance Agreement.

Exh. 1.01(a)-3

directors, shareholders, employees, representatives, agents, attorneys or their respective heirs, administrators, predecessors, successors and assigns. Each Party acknowledges that it has carefully read, and that it understands the scope and effect of this Agreement and has had a full and fair opportunity to consult with, and seek the advice and recommendations of its attorneys, actuaries and other professional advisors prior to its execution of this Agreement.

(c) This Agreement and the negotiations and proceedings leading to this Agreement shall not form the basis of any claim by either Party against the other Party or against any officer, director, consultant, professional or shareholder of the other Party, except with respect to an action for enforcement of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements).

ARTICLE IV
EXCLUSIVE BENEFIT OF THE PARTIES AND BINDING EFFECT

The rights, duties and obligations set forth herein shall inure to the benefit of and be binding upon the Company and the Reinsurer as they are identified in this Agreement and their parents, subsidiaries and affiliates, and their respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, and attorneys and this Agreement is not intended to confer any rights or benefits upon persons or entities other than the foregoing parties.

ARTICLE V
COMPROMISE

This Agreement sets forth a compromise and shall never at any time for any purpose be considered as an admission of liability or responsibility on the part of any party hereto regarding any aspect of the Reinsurance Agreement. Neither this Agreement nor any of its terms shall be admissible in any action, arbitration, or proceeding other than one to enforce the terms of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements), including, but not limited to, the releases provided in Article II .

ARTICLE VI
FURTHER ASSURANCES

The Parties, without further consideration, shall execute and deliver such other documents and take such other action as may be necessary to effect this Agreement.

ARTICLE VII
MISCELLANEOUS

Exh. 1.01(a)-4

of competent jurisdiction or regulatory authority to be unenforceable, either Party, at its option, shall be entitled to rescind this Agreement, and the Reinsurer shall be entitled to repayment of the Commutation Amount immediately upon such rescission. Upon such rescission, the Reinsurance Agreement and all rights, obligations and liabilities of the Parties under the Reinsurance Agreement shall be reinstated as if this Agreement had never been executed. Notwithstanding the foregoing, the releases given pursuant to Article II shall remain in full force and effect as to the Parties’ officers, directors, agents, employees, shareholders, representatives, advisors and attorneys.

(b) This Agreement and the Master Transaction Agreement (including the Ancillary Agreements) set forth the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements or understanding between them pertaining to the subject matter hereof. A facsimile copy of a signature shall have the same force and effect as an original signature.

(c) This Agreement may not be amended, altered, supplemented or modified, except by written agreement signed by the Parties.

(d) This Agreement may be executed and delivered in multiple counterparts, each of which, when so executed and delivered, shall be an original, but such counterparts shall together constitute but one and the same instrument and agreement.

(e) For purposes of this Agreement, a “ Business Day ” is any day other than a Saturday, Sunday or a public holiday in Bermuda.

(f) This Agreement shall be governed by and construed in accordance with the laws of Bermuda without regard to principles of conflicts of law or choice of law and the Parties submit to the exclusive jurisdiction of the Supreme Court of Bermuda in respect of all disputes arising out of or in connection with this Agreement.

(g) All notices under this Agreement shall be in writing and shall be deemed to be duly given and received (i) upon delivery if delivered by certified mail; or (ii) on the next Business Day if sent by overnight courier (iii) on the date sent by facsimile if sent during the recipient’s normal business hours or, if sent by facsimile outside such hours, on the next Business Day; provided, that such notices are sent to a Party to its Address for Notices set forth on Schedule B hereto or to such other address as either Party may have furnished to the other in writing.

(h) For all purposes this Agreement shall be deemed to have been drafted jointly by both Parties.

(i) This Agreement is an agreement solely between the Company and the Reinsurer. No right of action against the Reinsurer shall accrue to any insured, policyholder, or other contracting party of the Company unless granted herein by virtue of this Agreement.

Exh. 1.01(a)-5

IN WITNESS WHEREOF, the Parties have executed this Agreement by their respective authorized officers as of the day and year first written below.


Dated:	XL FINANCIAL ASSURANCE LTD


	By:

		Name:
		Title:

Dated:	XL INSURANCE (BERMUDA) LTD
	FORMERLY KNOWN AS
	XL INSURANCE LTD

	By:

		Name:
		Title:

Exh. 1.01(a)-6

SCHEDULE A

WIRE TRANSFER INSTRUCTIONS

Transfer instructions for remitting funds to XL Financial Assurance Ltd

[Intentionally omitted]

Please send e-mail / fax containing details of the transfer to:

[Intentionally omitted]


Rebecca O’Connell (VP & Assistant Treasurer) at SCA
Phone:	(212) 478-3629
Fax:	(212) 478-3587
E-mail:	rebecca.oconnell@xlgroup.com

Exh. 1.01(a)-7

SCHEDULE B

ADDRESS FOR NOTICE


TO THE COMPANY:

	XL Financial Assurance Ltd
	A.S. Cooper Building
	26 Reid Street, 4th Floor
	Hamilton, Bermuda HM 11
	Attn: President
	Facsimile: 441-296-4351

	and

	XL Capital Assurance Inc.
	1221 Avenue of the Americas
	New York, New York 10022
	Attn: General Counsel
	Facsimile: 212-478-3579

TO THE REINSURER:

	XL Insurance (Bermuda) Ltd
	XL House
	One Bermudiana Road
	Hamilton HM 11
	Bermuda
	Attention: General Counsel
	Facsimile: 441-295-2840

Exh. 1.01(a)-8

EXHIBIT 1.01(b)

FORM OF ADVERSE DEVELOPMENT COVER COMMUTATION AGREEMENT

Exhibit 1.01(b)

COMMUTATION AND RELEASE AGREEMENT

This Commutation and Release Agreement (the “ Agreement ”) dated as of ________, 2008, is made by and among XL Capital Assurance Inc., a company domiciled in New York (“ XLCA ”), XL Financial Assurance Ltd, a company domiciled in Bermuda (“ XLFA ”), XL Reinsurance America Inc., a company also domiciled in New York (“ XLRA ”), and XL Insurance (Bermuda) Ltd, formerly known as XL Insurance Ltd, a company also domiciled in Bermuda (“ XLI ”). XLCA and XLFA are hereinafter referred to collectively as the “ SCA Companies ;” XLRA and XLI are hereinafter referred to collectively as the “ XL Companies ;” and the SCA Companies and the XL Companies are hereinafter referred to collectively as the “ Parties .”

RECITALS

WHEREAS , XLCA and XLRA previously entered into an Adverse Development Reinsurance Agreement effective as of August 4, 2006, pursuant to which XLRA agreed to reinsure certain liabilities of XLCA (the “ Reinsurance Agreement ”); and

WHEREAS, XLFA and XLI previously entered into an Indemnification Agreement, dated August 4, 2006, pursuant to which XLI agreed to indemnify XLFA in respect of future adverse development as respect certain of its liabilities (the “ Indemnification Agreement ,” the Reinsurance Agreement and the Indemnification Agreement are hereinafter referred to collectively as the “ Adverse Development Cover ”); and

WHEREAS , the Parties are parties to that certain Master Commutation, Release and Restructuring Agreement, dated as of July __, 2008, by and among the SCA Companies, the XL Companies, Security Capital Assurance Ltd and the other parties thereto (the “ Master Transaction Agreement ”), pursuant to which the Parties have agreed to enter into this Agreement; and

WHEREAS , the Parties agree that it is in each of their best interests to freely and voluntarily enter into this Agreement and to fully and forever release and discharge each other from their respective existing and future liabilities and obligations, including contingent and uncertain liabilities, both known and unknown, under the Adverse Development Cover and to compromise, resolve and settle all amounts due, or which may become due, between each other arising out of, in respect of, or relating to the Adverse Development Cover; and

WHEREAS , the Parties or their affiliates, may be parties to agreements other than the Adverse Development Cover, and it is the intent of the Parties that this Agreement will not have any effect upon such other agreements.

Exh. 1.01(b)-1

ARTICLE I
PAYMENT

(a) The XL Companies shall pay to the SCA Companies the sum of Sixty Five Million, Three Hundred Thousand Dollars ($65,300,000.00) (the “ Commutation Amount ”) via direct wire transfer, in immediately available funds, in accordance with the payment instructions set forth on Schedule A hereto on the Closing Date (as such term is defined in the Master Transaction Agreement) as follows: (i) XLI shall pay to XLFA the sum of Fifty Eight Million, Three Hundred Thousand Dollars ($58,300,000.00); and (ii) XLRA shall pay to XLCA the sum of Seven Million Dollars ($7,000,000.00). The date on which the Commutation Amount is paid and received shall be referred to hereinafter as the “ Effective Date .”

(b) The SCA Companies shall accept the Commutation Amount in full satisfaction of all of the XL Companies’ liabilities and obligations under the Adverse Development Cover.

ARTICLE II
RELEASE

(a) Upon the XL Companies’ payment of the Commutation Amount to the SCA Companies, the SCA Companies, on behalf of themselves and their shareholders, parents, affiliates and subsidiaries, and their respective officers, directors and employees, hereby irrevocably and unconditionally releases and forever discharges the XL Companies, their parents, subsidiaries and affiliates, and their respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, and attorneys from any and all present and future actions, causes of action, suits, debts, liens, contracts, rights, agreements, obligations, promises, liabilities, claims, counterclaims, demands, damages, controversies, losses, costs and expenses (including attorneys’ fees and costs actually incurred) of any kind, character, description or nature whatsoever, known or unknown to any or all of the Parties, suspected or unsuspected, reported or unreported, fixed or contingent, which the SCA Companies now have, own or hold or claim to have, own, or hold, or at any time heretofore had, owned, or held or claimed to have had, owned, or held, or may hereafter have, own, or hold or claim to have, own, or hold, arising out of conduct or matters occurring on, prior to or subsequent to the Effective Date, against the XL Companies, arising directly or indirectly out of, based upon, or in any way related to or in connection with the Adverse Development Cover, whether grounded in law or equity, or sounding in tort or contract or otherwise; provided , however , that the provisions of this Article II(a) shall not discharge obligations of the XL Companies, which have been undertaken or imposed by the express terms of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements).

(b) Contemporaneous with the payment of the Commutation Amount to the SCA Companies, the XL Companies, on behalf of themselves and their shareholders, parents, affiliates and subsidiaries, and their respective officers, directors and employees, hereby irrevocably and unconditionally releases and forever discharges the SCA Companies, their shareholders, parents, subsidiaries and affiliates, and their respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, and attorneys from any and all present and future actions, causes of action, suits, debts, liens, contracts, rights,

Exh. 1.01(b)-2

agreements, obligations, promises, liabilities, claims, counterclaims, demands, damages, controversies, losses, costs and expenses (including attorneys’ fees and costs actually incurred) of any kind, character, description or nature whatsoever, known or unknown to any or all of the Parties, suspected or unsuspected, reported or unreported, fixed or contingent, which the XL Companies now have, own, hold or claim to have, own, or hold, or at any time heretofore had, owned, or held or claimed to have had, owned, or held, or may hereafter have, own, or hold or claim to have, own, or hold, arising out of conduct or matters occurring on, prior to or subsequent to the Effective Date, against the SCA Companies, arising directly or indirectly out of, based upon, or in any way related to or in connection with the Adverse Development Cover, whether grounded in law or equity or sounding in tort or contract or otherwise; provided , however , that the provisions of this Article II(b) shall not discharge obligations of the SCA Companies, which have been undertaken or imposed by the express terms of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements).

(d) Full payment of the Commutation Amount shall be in complete accord, satisfaction, settlement and commutation of any and all past, current and future liabilities and obligations that each Party owes or may owe to the other arising directly or indirectly out of or related to or in connection with the Adverse Development Cover and that upon payment of the Commutation Amount, the Adverse Development Cover shall be terminated as of the Effective Date and no Party shall have any further obligation or liability to the other Party under the Adverse Development Cover.

ARTICLE III
NON-RELIANCE

(a) This Agreement fully and finally resolves the rights, duties and obligations of the Parties under the Adverse Development Cover, and no Party shall:


	(i) have any remedy in respect of any representation, warranty or undertaking of the other that is not specifically set forth in this Agreement, the Master Transaction Agreement, or the Ancillary Agreements commuting the reinsurance agreements listed in Part I of Schedule 2.01 of the Master Transaction Agreement, whether or not relied upon by the other Party; or

Exh. 1.01(b)-3


	(ii) seek to reopen or set aside this Agreement or the Adverse Development Cover on any basis whatsoever, including, without limitation, that this Agreement or the Adverse Development Cover are void or voidable due to a mistake or change in law or a unilateral or mutual mistake of fact in any way related to this Agreement or the Adverse Development Cover.

(b) The SCA Companies and the XL Companies have voluntarily entered into this Agreement based: (i) upon their own independent assessment of the relevant facts and their rights and obligations under the Adverse Development Cover and (ii) except as expressly set forth in Article III and Article IV of the Master Transaction Agreement, not upon any representations that were made or disclosures that were made by the other Party, their affiliates, officers, directors, shareholders, employees, representatives, agents, attorneys or their respective heirs, administrators, predecessors, successors and assigns. Each Party acknowledges that it has carefully read, and that it understands the scope and effect of this Agreement and has had a full and fair opportunity to consult with, and seek the advice and recommendations of its attorneys, actuaries and other professional advisors prior to its execution of this Agreement.

(c) This Agreement and the negotiations and proceedings leading to this Agreement shall not form the basis of any claim by a Party against another Party or against any officer, director, consultant, professional or shareholder of the another Party, except with respect to an action for enforcement of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements).

ARTICLE IV
EXCLUSIVE BENEFIT OF THE PARTIES AND BINDING EFFECT

The rights, duties and obligations set forth herein shall inure to the benefit of and be binding upon the SCA Companies and the XL Companies as they are identified in this Agreement and their parents, subsidiaries and affiliates, and their respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, and attorneys and this Agreement is not intended to confer any rights or benefits upon persons or entities other than the foregoing parties.

ARTICLE V
COMPROMISE

This Agreement sets forth a compromise and shall never at any time for any purpose be considered as an admission of liability or responsibility on the part of any party hereto regarding any aspect of the Adverse Development Cover. Neither this Agreement nor any of its terms shall be admissible in any action, arbitration, or proceeding other than one to enforce the terms of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements), including, but not limited to, the releases provided in Article II .

Exh. 1.01(b)-4

ARTICLE VI
FURTHER ASSURANCES

The Parties, without further consideration, shall execute and deliver such other documents and take such other action as may be necessary to effect this Agreement.

ARTICLE VII
MISCELLANEOUS

(a) Should any part, term or provision of this Agreement, except Article I or Article II , be declared or determined to be illegal or invalid pursuant to a final and unappealable order of a court of competent jurisdiction, the validity of the remaining parts, terms and provisions shall not be affected thereby and such illegal or invalid part, term or provision shall be deemed not to be part of this Agreement. If either Article I or Article II is determined by a court of competent jurisdiction or regulatory authority to be unenforceable, any Party, at its option, shall be entitled to rescind this Agreement, and the XL Companies shall be entitled to repayment of the Commutation Amount immediately upon such rescission. Upon such rescission, the Adverse Development Cover and all rights, obligations and liabilities of the Parties under the Adverse Development Cover shall be reinstated as if this Agreement had never been executed. Notwithstanding the foregoing, the releases given pursuant to Article II shall remain in full force and effect as to the Parties’ officers, directors, agents, employees, shareholders, representatives, advisors and attorneys.

(c) This Agreement may not be amended, altered, supplemented or modified, except by written agreement signed by the Parties.

(e) For purposes of this Agreement, a “ Business Day ” is any day other than a Saturday, Sunday or a public holiday in New York.

(f) This Agreement shall be governed by and construed in accordance with the laws of New York without regard to principles of conflicts of law or choice of law and the Parties submit to the exclusive jurisdiction of the Supreme Court of the State of New York in respect of all disputes arising out of or in connection with this Agreement.

Exh. 1.01(b)-5

recipient’s normal business hours or, if sent by facsimile outside such hours, on the next Business Day; provided, that such notices are sent to a Party to its Address for Notices set forth on Schedule B hereto or to such other address as either Party may have furnished to the other in writing.

(h) For all purposes this Agreement shall be deemed to have been drafted jointly by the Parties.

(i) This Agreement is an agreement solely between the SCA Companies and the XL Companies. No right of action against the XL Companies shall accrue to any insured, policyholder, or other contracting party of the SCA Companies unless granted herein by virtue of this Agreement.

Exh. 1.01(b)-6

IN WITNESS WHEREOF , the Parties have executed this Agreement by their respective authorized officers as of the day and year first written below.


Dated:	XL CAPITAL ASSURANCE INC.


	By:

		Name:
		Title:

Dated:	XL FINANCIAL ASSURANCE LTD


	By:

		Name:
		Title:

Dated:	XL REINSURANCE AMERICA INC.


	By:

		Name:
		Title:

Dated:	XL INSURANCE (BERMUDA) LTD
	FORMERLY KNOWN AS
	XL INSURANCE LTD

	By:

		Name:
		Title:

Exh. 1.01(b)-7

SCHEDULE A

WIRE TRANSFER INSTRUCTIONS

Transfer instructions for remitting funds to XL Capital Assurance Inc.

[Intentionally omitted]

Please send e-mail / fax containing details of the transfer to:

[Intentionally omitted]

Rebecca O’Connell (VP & Assistant Treasurer) at SCA
Phone: (212) 478-3629
Fax: (212) 478-3587
E-mail: rebecca.oconnell@xlgroup.com

Transfer instructions for remitting funds to XL Financial Assurance Ltd

[Intentionally omitted]

Please send e-mail / fax containing details of the transfer to:

[Intentionally omitted]

Rebecca O’Connell (VP & Assistant Treasurer) at SCA
Phone: (212) 478-3629
Fax: (212) 478-3587
E-mail: rebecca.oconnell@xlgroup.com

Exh. 1.01(b)-8

SCHEDULE B

ADDRESS FOR NOTICE


TO XLCA:

	XL Capital Assurance Inc.
	1221 Avenue of the Americas
	New York, New York 10022
	Attn: General Counsel
	Facsimile: 212-478-3579

TO XLFA:

	XL Financial Assurance Ltd
	A.S. Cooper Building
	26 Reid Street, 4th Floor
	Hamilton, Bermuda HM 11
	Attn: President
	Facsimile: 441-296-4351

	and

	XL Capital Assurance Inc.
	1221 Avenue of the Americas
	New York, New York 10022
	Attn: General Counsel
	Facsimile: 212-478-3579

TO XLRA:

	XL Reinsurance America Inc.
	Seaview House
	70 Seaview Avenue
	Stamford, CT 06902-6040
	Attention: General Counsel
	Facsimile: 203-964-5309

TO XLI:

	XL Insurance (Bermuda) Ltd
	XL House
	One Bermudiana Road
	Hamilton HM 11
	Bermuda
	Attention: General Counsel
	Facsimile: 441-295-2840

Exh. 1.01(b)-9

EXHIBIT 1.01(c)

FORM OF JOINDER AGREEMENT

Exhibit 1.01(c)

JOINDER AGREEMENT

JOINDER AGREEMENT (this “ Joinder Agreement ”), dated as of _____, 2008, is entered into pursuant to the Master Commutation, Release and Restructuring Agreement (as amended, supplemented or otherwise modified from time to time, the “ Master Agreement ”), dated as of July __, 2008, among XL CAPITAL LTD, an exempted limited company incorporated under the Laws of the Cayman Islands (“ XL ”), XL INSURANCE (BERMUDA) LTD, (formerly known as X.L. Insurance Ltd) a Bermuda exempted company (“ XLI ”), XL REINSURANCE AMERICA INC., a New York insurance corporation (“ XLRA ”), X.L. GLOBAL SERVICES, INC., a service company incorporated under the Laws of Delaware (“ XLGS ”), XL SERVICES (BERMUDA) LTD, a service company incorporated under the Laws of Bermuda (“ XLBS ”), X.L. AMERICA, INC., a company incorporated under the Laws of Delaware (“ XLA ”), SECURITY CAPITAL ASSURANCE LTD, a Bermuda exempted company (“ SCA ”), XL FINANCIAL ASSURANCE LTD., a Bermuda exempted company (“ XLFA ”), XL CAPITAL ASSURANCE INC., a New York insurance company (“ XLCA ”), XL FINANCIAL ADMINISTRATIVE SERVICES INC., a company incorporated under the Laws of Delaware (“ XLFAS ”), SCA BERMUDA ADMINISTRATIVE LTD., a company incorporated under the Laws of Bermuda (“ SCAB ”), XL CAPITAL ASSURANCE (U.K.) LIMITED, an insurance company regulated by the Financial Services Authority and incorporated under the Laws of England and Wales (“ XLCAUK ”), those portfolio trusts that may become a Party to the Agreement from time to time, and such counterparties to credit default swap agreements with Affiliates of XLCA that may become Party to the Agreement from time to time. Unless otherwise defined herein, capitalized terms used herein and defined in the Master Agreement and shall have the meanings given to them in the Master Agreement.

RECITALS:

WHEREAS, the party hereto wishes to enter into the Master Agreement;

NOW, THEREFORE, IT IS AGREED:

1. Joinder to the Master Agreement . The party hereto confirms that it has received a copy of the Master Agreement and such other documents and information as it has deemed appropriate to conduct its own analysis and make its own decision to enter into this Joinder Agreement and agrees to:

(a) join the Master Agreement as a [CDS Counterparty/portfolio trust Affiliate of XLCA that is an SCA Party] thereunder with the same force and effect as if originally named therein as a CDS Counterparty and, without limiting the generality of the foregoing, hereby expressly accepts and assumes all rights and obligations of a [CDS Counterparty/SCA Party] thereunder, including the releases entered into by such party pursuant to Section 2.05 of the Master Agreement;

(b) be bound by, and hereby confirms, all covenants, agreements, consents, submissions, appointments, benefits and acknowledgments attributable to a [CDS Counterparty/SCA Party] in the Master Agreement; and

Exh. 1.01(c)-1

2. Representations and Warranties . Each [CDS Counterparty/SCA Party] hereby represents and warrants that the representations and warranties with respect to it contained in, or made by it in, [Article V/III] of the Master Agreement, are true and correct in all material respects on the date hereof (after giving effect to this Joinder Agreement) as if made on and as of the date hereof (except that any applicable representation or warranty that by its terms is made as of an earlier date is true and correct as of such earlier date).

3. Effective Date . The effective date of this Joinder Agreement shall be the date hereof (the “ Effective Date ”). Upon execution, the party hereto shall promptly provide delivery of an executed copy of this Joinder Agreement to the XL Parties, the SCA Parties and Davis Polk & Wardwell as counsel to the CDS Counterparties along with all disclosure schedules and information required to be delivered pursuant to the Master Agreement. This Joinder Agreement shall become effective upon delivery to XL.

4. Governing Law . This Joinder Agreement shall be interpreted under and governed by the Laws of the State of New York, without giving effect to conflicts of law provisions thereof.

5. Signature Pages . A facsimile or Portable Document Format copy of a signature shall have the same force and effect as an original signature.

[SIGNATURE FOLLOWS IMMEDIATELY HEREAFTER]

Exh. 1.01(c)-2

IN WITNESS WHEREOF, the party hereto has caused this Joinder Agreement to be duly executed and delivered by its proper and duly authorized officers as of this [___] day of [_______], 2008.


	[CDS Counterparty/Portfolio Trust]

	By:

		Name:
		Title:

[Notice Information]

Exh. 1.01(c)-3

EXHIBIT 1.01(d)

FORM OF EXCESS OF LOSS COMMUTATION AGREEMENT

Exhibit 1.01(d)

COMMUTATION AND RELEASE AGREEMENT

This Commutation and Release Agreement (the “ Agreement ”) dated as of _____, 2008, is made by and between XL Financial Assurance Ltd, a company domiciled in Bermuda (the “ Company ”) and XL Insurance (Bermuda) Ltd, formerly known as XL Insurance Ltd, a company also domiciled in Bermuda ( the “ Reinsurer ”). The Reinsurer and the Company are hereinafter referred to collectively as the “ Parties .”

RECITALS

WHEREAS , the Parties previously entered into a reinsurance agreement entitled the Excess of Loss Reinsurance Agreement executed on October 3, 2001, as amended, pursuant to which the Reinsurer agreed to reinsure certain liabilities of the Company (the “ Reinsurance Agreement ”); and

WHEREAS , the vast majority of the Reinsurer’s exposure under the Reinsurance Agreement is attributable to a Facultative Quota Share Reinsurance Treaty dated as of October 6, 1999 as amended and restated by an Amended and Restated Facultative Quota Share Reinsurance Treaty dated as of June 22, 2001, as further amended and restated by a Second Amended and Restated Facultative Quota Share Reinsurance Treaty dated as of May 1, 2004, and as further amended and restated by a Third Amended and Restated Facultative Quota Share Reinsurance Treaty dated as of June 29, 2006 (the “ Quota Share ”) pursuant to which the Company reinsures certain liabilities of XL Capital Assurance Inc. (“ XLCA ”); and

WHEREAS , the Parties and XLCA are parties to that certain Master Commutation, Release and Restructuring Agreement, dated as of July __, 2008, by and among the Company, the Reinsurer, Security Capital Assurance Ltd and other parties thereto (the “ Master Transaction Agreement ”), pursuant to which (a) the Company and the Reinsurer have agreed to enter into this Agreement; and (b) XLCA and the Company have agreed to commute the Quota Share and fully and finally extinguish all of the parties’ rights and obligations under the Quota Share (the “ Quota Share Commutation ”); and

WHEREAS , the Reinsurer believes it is entitled to terminate the Reinsurance Agreement upon thirty (30) days notice and to seek reimbursement of the monies it previously paid under the Reinsurance Agreement based upon its belief that the Company used an improper “Threshold Amount” for purposes of calculating the “Liability Amount” under the Reinsurance Agreement, and the Company believes that the Reinsurer has no such entitlement and confirms its position that it had used the proper Threshold Amount for purposes of calculating the Liability Amount under the Reinsurance Agreement (the “ Dispute ”); and

WHEREAS , the Parties agree that it is in each of their best interests to freely and voluntarily enter into this Agreement and the Master Transaction Agreement and to settle the Dispute and to fully and forever release and discharge each other from their respective existing and future liabilities and obligations, including contingent and uncertain liabilities, both known and unknown, under the Reinsurance Agreement and to compromise, resolve and settle all amounts due, or which may become due, between each other arising out of, in respect of, or relating to the Reinsurance Agreement; and

Exh. 1.01(d)-1

WHEREAS , the Company has agreed that it will pay the Commutation Amount it receives under this Agreement as part of the consideration it pays to XLCA under the Quota Share Commutation;

WHEREAS , the Company and the Reinsurer, or their affiliates, may be parties to agreements other than the Reinsurance Agreement, and it is the intent of the Parties that this Agreement will not have any effect upon such other agreements.

ARTICLE I

PAYMENT

(a) The Reinsurer shall pay to the Company the sum of One Hundred Million Dollars ($100,000,000.00) (the “ Commutation Amount ”) via direct wire transfer, in immediately available funds, in accordance with the payment instructions set forth on Schedule A hereto on the Closing Date (as such term is defined in the Master Transaction Agreement). The date on which the Commutation Amount is paid and received shall be referred to hereinafter as the “ Effective Date .”

(b) The Company shall accept the Commutation Amount in full satisfaction of all of the Reinsurer’s liabilities and obligations under the Reinsurance Agreement.

ARTICLE II

RELEASE

(a) Upon the Reinsurer’s payment of the Commutation Amount to the Company, the Company, on behalf of itself and its shareholders, parents, affiliates and subsidiaries, and their respective officers, directors and employees, hereby irrevocably and unconditionally releases and forever discharges the Reinsurer, its parents, subsidiaries and affiliates, and their respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, and attorneys from any and all present and future actions, causes of action, suits, debts, liens, contracts, rights, agreements, obligations, promises, liabilities, claims, counterclaims, demands, damages, controversies, losses, costs and expenses (including attorneys’ fees and costs actually incurred) of any kind, character, description or nature whatsoever, known or unknown to either or both Parties, suspected or unsuspected, reported or unreported, fixed or contingent, which the Company now has, owns or holds or claims to have, own, or hold, or at any time heretofore had, owned, or held or claimed to have had, owned, or held, or may hereafter have, own, or hold or claim to have, own, or hold, arising out of conduct or matters occurring on, prior to or subsequent to the Effective Date, against the Reinsurer, arising directly or indirectly out of, based upon, or in any way related to or in connection with the Reinsurance Agreement, whether grounded in law or equity, or sounding in tort or contract or otherwise; provided , however , that the provisions of this Article II(a) shall not discharge

Exh. 1.01(d)-2

obligations of the Reinsurer, which have been undertaken or imposed by the express terms of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements).

(b) Contemporaneous with the payment of the Commutation Amount to the Company, the Reinsurer, on behalf of itself and its shareholders, parents, affiliates and subsidiaries, and their respective officers, directors and employees, hereby irrevocably and unconditionally releases and forever discharges the Company, its shareholders, parents, subsidiaries and affiliates, and their respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, and attorneys from any and all present and future actions, causes of action, suits, debts, liens, contracts, rights, agreements, obligations, promises, liabilities, claims, counterclaims, demands, damages, controversies, losses, costs and expenses (including attorneys’ fees and costs actually incurred) of any kind, character, description or nature whatsoever, known or unknown to either or both Parties, suspected or unsuspected, reported or unreported, fixed or contingent, which the Reinsurer now has, owns, holds or claims to have, own, or hold, or at any time heretofore had, owned, or held or claimed to have had, owned, or held, or may hereafter have, own, or hold or claim to have, own, or hold, arising out of conduct or matters occurring on, prior to or subsequent to the Effective Date, against the Company, arising directly or indirectly out of, based upon, or in any way related to or in connection with the Reinsurance Agreement, whether grounded in law or equity or sounding in tort or contract or otherwise; provided , however , that the provisions of this Article II(b) shall not discharge obligations of the Company, which have been undertaken or imposed by the express terms of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements).

(d) Full payment of the Commutation Amount shall be in complete accord, satisfaction, settlement and commutation of any and all past, current and future liabilities and obligations that each Party owes or may owe to the other arising directly or indirectly out of or related to or in connection with the Reinsurance Agreement and that upon payment of the Commutation Amount, the Reinsurance Agreement shall be terminated as of the Effective Date and neither Party shall have any further obligation or liability to the other Party under the Reinsurance Agreement.

Exh. 1.01(d)-3

ARTICLE III

NON-RELIANCE

(a) This Agreement fully and finally resolves the rights, duties and obligations of the Company and the Reinsurer under the Reinsurance Agreement, and neither Party shall:


	(i) have any remedy in respect of any representation, warranty or undertaking of the other that is not specifically set forth in this Agreement, the Master Transaction Agreement, or the Ancillary Agreements commuting the reinsurance agreements listed in Part I of Schedule 2.01 of the Master Transaction Agreement, whether or not relied upon by the other Party; or

	(ii) seek to reopen or set aside this Agreement or the Reinsurance Agreement on any basis whatsoever, including, without limitation, that this Agreement or the Reinsurance Agreement is void or voidable due to a mistake or change in law or a unilateral or mutual mistake of fact in any way related to this Agreement or the Reinsurance Agreement.

(b) The Company and the Reinsurer have voluntarily entered into this Agreement based: (i) upon their own independent assessment of the relevant facts and their rights and obligations under the Reinsurance Agreement and (ii) except as expressly set forth in Article III and Article IV of the Master Transaction Agreement, not upon any representations that were made or disclosures that were made by the other Party, their affiliates, officers, directors, shareholders, employees, representatives, agents, attorneys or their respective heirs, administrators, predecessors, successors and assigns. Each Party acknowledges that it has carefully read, and that it understands the scope and effect of this Agreement and has had a full and fair opportunity to consult with, and seek the advice and recommendations of its attorneys, actuaries and other professional advisors prior to its execution of this Agreement.

ARTICLE IV

EXCLUSIVE BENEFIT OF THE PARTIES AND BINDING EFFECT

Exh. 1.01(d)-4

ARTICLE V

COMPROMISE

ARTICLE VI

FURTHER ASSURANCES

The Parties, without further consideration, shall execute and deliver such other documents and take such other action as may be necessary to effect this Agreement.

ARTICLE VII

MISCELLANEOUS

(a) Should any part, term or provision of this Agreement, except Article I or Article II , be declared or determined to be illegal or invalid pursuant to a final and unappealable order of a court of competent jurisdiction, the validity of the remaining parts, terms and provisions shall not be affected thereby and such illegal or invalid part, term or provision shall be deemed not to be part of this Agreement. If either Article I or Article II is determined by a court of competent jurisdiction or regulatory authority to be unenforceable, either Party, at its option, shall be entitled to rescind this Agreement, and the Reinsurer shall be entitled to repayment of the Commutation Amount immediately upon such rescission. Upon such rescission, the Reinsurance Agreement and all rights, obligations and liabilities of the Parties under the Reinsurance Agreement shall be reinstated as if this Agreement had never been executed. Notwithstanding the foregoing, the releases given pursuant to Article II shall remain in full force and effect as to the Parties’ officers, directors, agents, employees, shareholders, representatives, advisors and attorneys.

(b) This Agreement and the Master Transaction Agreement (including the Ancillary Agreements thereto) set forth the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements or understanding between them pertaining to the subject matter hereof. A facsimile copy of a signature shall have the same force and effect as an original signature.

(c) This Agreement may not be amended, altered, supplemented or modified, except by written agreement signed by the Parties.

Exh. 1.01(d)-5

(e) For purposes of this Agreement, a “ Business Day ” is any day other than a Saturday, Sunday or a public holiday in Bermuda.

(h) For all purposes this Agreement shall be deemed to have been drafted jointly by the Parties.

Exh. 1.01(d)-6

IN WITNESS WHEREOF , the Parties have executed this Agreement by their respective authorized officers as of the day and year first written below.


Dated:	XL FINANCIAL ASSURANCE LTD


	By:

		Name:
		Title:

Dated:	XL INSURANCE (BERMUDA) LTD
	FORMERLY KNOWN AS XL
	INSURANCE LTD

	By:

		Name:
		Title:

Exh. 1.01(d)-7

SCHEDULE A

WIRE TRANSFER INSTRUCTIONS

Transfer instructions for remitting funds to XL Financial Assurance Ltd

[Intentionally omitted]

Please send e-mail / fax containing details of the transfer to:

[Intentionally omitted]

Rebecca O’Connell (VP & Assistant Treasurer) at SCA
Phone: (212) 478-3629
Fax: (212) 478-3587
E-mail: rebecca.oconnell@xlgroup.com

Exh. 1.01(d)-8

SCHEDULE B

ADDRESS FOR NOTICE


TO THE COMPANY:

	XL Financial Assurance Ltd
	A.S. Cooper Building
	26 Reid Street, 4th Floor
	Hamilton, Bermuda HM 11
	Attn: President
	Facsimile: 441-296-4351

	and

	XL Capital Assurance Inc.
	1221 Avenue of the Americas
	New York, New York 10022
	Attn: General Counsel
	Facsimile: 212-478-3579

TO THE REINSURER:

	XL Insurance (Bermuda) Ltd
	XL House
	One Bermudiana Road
	Hamilton HM 11
	Bermuda
	Attention: General Counsel
	Facsimile: 441-295-2840

Exh. 1.01(d)-9

EXHIBIT 1.01(e)

FORM OF FACULTATIVE MASTER CERTIFICATE COMMUTATION AGREEMENT

[Intentionally omitted—superseded by
Amendment No. 1 to Master Transaction Agreement]

Exhibit 1.01(e)

EXHIBIT 1.01(f)

FORM OF QUOTA SHARE TREATY COMMUTATION AGREEMENT

[Intentionally omitted—superseded by
Amendment No. 1 to Master Transaction Agreement]

Exhibit 1.01(f)

EXHIBIT 1.01(g)

FORM OF SUBSCRIPTION AGREEMENT

[Intentionally omitted—superseded by
Amendment No. 1 to Master Transaction Agreement]

Exhibit 1.01(g)

EXHIBIT 1.01(h)

FORM OF XL STOCK RESALE AND REGISTRATION RIGHTS AGREEMENT

[Intentionally omitted—superseded by the
Amended and Restated Registration Rights Agreement
dated as of August 5, 2008]

Exhibit 1.01(h)

EXHIBIT 1.01(i)

FORM OF SCA SHAREHOLDER ENTITY AGREEMENT

Exhibit 1.01(i)

SHAREHOLDER AGREEMENT

THIS SHAREHOLDER AGREEMENT (this “ Agreement ”) dated August [__], 2008, is entered into between [HSBC Private Bank, Bermuda Trust Company Limited] (the “ Trustee ”), a Bermuda exempted company as trustee of the special purpose trust (the “ Trust ”) established by the Declaration of Trust defined below and known as [name of trust] (the “ SCA Shareholder Entity ”), and Security Capital Assurance Ltd, a Bermuda exempted company (“ SCA ”).

WHEREAS, SCA has entered into the Master Commutation, Release and Restructuring Agreement dated as of July [__], 2008 (the “ Master Restructuring Agreement ”) among SCA, XL Capital Assurance Inc. (“ XLCA ”), XL Financial Assurance Ltd., XL Financial Administrative Services Inc., SCA Bermuda Administrative Ltd., XL Capital Assurance (U.K.) Limited and those Portfolio Trusts a party thereto, XL Capital Ltd., XL Insurance (Bermuda) Ltd. (“ XLI ”), XL Reinsurance America Inc., X.L. Global Services Inc., XL Services (Bermuda) Limited and X.L. America, Inc. and the consenting counterparties party thereto (the “ Consenting Counterparties ”);

WHEREAS, the parties to the Master Restructuring Agreement have agreed that 30,069,049 Common Shares (as hereinafter defined), which represent approximately 46% of the outstanding Common Shares and all of the Common Shares beneficially owned by XLI as of the date of this Agreement (the “ SCA Shares ”), shall be transferred to the SCA Shareholder Entity, which shall hold the SCA Shares in accordance with the terms of that certain Declaration of Trust dated as of the date hereof (the “ Declaration of Trust ”) establishing the SCA Shareholder Entity; and

WHEREAS, the parties to the Master Restructuring Agreement have agreed that in connection with the transfer of the SCA Shares to the SCA Shareholder Entity, certain rights afforded to XLI under the Bye-Laws (as hereinafter defined) and under that certain transition agreement entered into on August 4, 2006 between XLI, SCA and the other parties thereto shall be transferred to the SCA Shareholder Entity.

NOW, THEREFORE, in consideration of the covenants and agreements contained herein, the parties hereto agree as follows:

SECTION 1 . Definitions.

(a) “ Act ” means the Companies Act 1981 of Bermuda, as amended from time to time.

(b) “ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person. For purposes of this definition, the term “control” (including its correlative meanings, the terms “controlling”, “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. For purposes of this Agreement, no Consenting Counterparty shall be deemed to be an Affiliate of

Exh. 1.01(i)-1

the SCA Shareholder Entity and the SCA Shareholder Entity shall not be deemed to be an Affiliate of SCA or any of its Subsidiaries.

(c) “ Business Day ” means any day excluding Saturday, Sunday and any day on which banks in New York, New York or Hamilton, Bermuda have the option or are required by law or other governmental action to close.

(d) “ Bye-Laws ” means the Amended and Restated Bye-Laws of SCA, as amended from time to time.

(e) “ Common Shares ” means the common shares, $0.01 par value per common share, of SCA, and any share capital into which such common shares shall have been converted or any share capital resulting from a reclassification of such common shares.

(f) “ Finance and Risk Oversight Committee ” means the finance and risk oversight committee of the SCA Board.

(g) “ Independent ” means, with respect to any director or nominee for director, an individual who is both (i) “independent” (as defined in the corporate governance rules of the listing standards of the New York Stock Exchange) of (A) SCA and its subsidiaries and (B) each Consenting Counterparty and the SCA Shareholder Entity assuming for purposes of this clause (B) that such independence standard were applied to, and such individual were a director of, each such Consenting Counterparty and the SCA Shareholder Entity and (ii) not a director, officer or employee of the SCA Shareholder Entity or any Consenting Counterparty, or an officer or employee of SCA or any of its Affiliates.

(h) “ Material Subsidiary ” means at any time, (i) XLCA and (ii) any subsidiary of SCA which at such time is a “significant subsidiary” under Regulation S-X of the Securities Exchange Act of 1934, as amended.

(i) “ New York Stock Exchange ” means the New York Stock Exchange Inc.

(j) “ Person ” means an individual, corporation, partnership, association, trust, limited liability company or any other entity or organization, including a government or political subdivision or an agency, unit or instrumentality thereof.

(k) “ Representatives ” means with respect to any Person, such Person’s Affiliates and its and their respective officers, directors, employees, accountants, counsel, consultants, advisors, agents and representatives.

(l) “ SCA Board ” means the board of directors of SCA.

(m) “ SCA Board Nominee ” means an individual who was nominated for election by the SCA Board (and who is not an SCA Shareholder Entity Nominee).

(n) “ Voting Restriction Termination Event ” means the time at which the SCA Shareholder Entity’s and its Affiliates’ aggregate ownership of the then outstanding Common Shares is first equal to or less than 35%.

Exh. 1.01(i)-2

SECTION 2 . Corporate Governance.

(a) Voting of SCA Shares . The SCA Shareholder Entity will vote the SCA Shares at each annual or special meeting of stockholders of SCA at which directors are to be elected, or execute proxies or written consents, as the case may be, in favor of (i) each SCA Shareholder Entity Nominee then standing for election and (ii) with respect to each other open board seat then standing for election that is not required to be filled by an SCA Shareholder Entity Nominee pursuant to Section 2(b) below, an individual that is Independent or, at the SCA Shareholder Entity’s election, an SCA Board Nominee; provided that in exercising its discretion pursuant to the foregoing clause (ii), the SCA Shareholder Entity will vote the SCA Shares so that a majority of the SCA Board is at all times Independent; provided, however , that the SCA Shareholder Entity shall not vote in favor of any individual who, to the SCA Shareholder Entity’s knowledge (after reasonable inquiry), is either receiving or entitled to receive, directly or indirectly, any compensation or entitlement to indemnification, or is named or entitled to be named as a beneficiary under any D&O insurance policy, for service on the SCA Board, any SCA Board committees or any SCA subsidiary boards or committees from the Consenting Counterparties or the SCA Shareholder Entity.


	(b) SCA Shareholder Entity Nominees .

	(i) Until the occurrence of a Voting Restriction Termination Event, the SCA Shareholder Entity will have the right to nominate for the SCA Board (i) for so long as the SCA Board consists of nine or fewer directors, such number of nominees as would equal one nominee less than a majority of the directors and (ii) for so long as the SCA Board consists of ten or more directors, such number of nominees as would equal two nominees less than a majority of the directors (the “ SCA Shareholder Entity Nominees ”); provided that until the occurrence of a Voting Restriction Termination Event, the SCA Shareholder Entity shall at all times be entitled to nominate at least one nominee to the SCA Board. Such SCA Shareholder Entity Nominees will be allocated among the classes of the SCA Board as follows: (i) two to the “Class I” directors and (ii) one each to the “Class II” directors and “Class III” directors (or as substantially equivalent thereto if for any reason the SCA Board consists of more or fewer than nine directors), in each case, as such “classes” of directors are described in paragraph (3) of Section 8 of the Bye-Laws. For the avoidance of doubt, so long as the SCA Board consists of eleven directors, the SCA Shareholder Entity will have the right to nominate four of the eleven directors. If, for any reason, there is a vacancy in the SCA Board, which vacancy is of a director so nominated by the SCA Shareholder Entity, SCA shall replace that directorship as soon as practicable with a nominee selected by the SCA Shareholder Entity. Similarly, if there is a vacancy created by an increase in the number of directors, then such vacancy shall be filled in a manner consistent with the SCA Shareholder Entity’s rights set forth in this Section 2(b)(i). Moreover, if the size of the SCA Board is at any time reduced, the SCA Shareholder Entity shall cause such number of SCA Shareholder Entity Nominees, if any, in excess of those to which the SCA Shareholder Entity is entitled based on the reduced size of the SCA Board to resign from the SCA Board and any directorships they hold with subsidiaries of SCA. All SCA Shareholder Entity Nominees shall be Independent and shall be designated for nomination in accordance with Section 1.2.3 of Schedule B of the Declaration of Trust. SCA shall, subject to Section 2(b)(vi), take all action reasonably

Exh. 1.01(i)-3


	necessary to appoint the initial SCA Shareholder Entity Nominees to the SCA Board as promptly as practicable following the execution and delivery hereof.

	(ii) SCA shall include the SCA Shareholder Entity Nominees in each slate of directors proposed, recommended or nominated for election by SCA or the SCA Board, and will use the same efforts to cause the election of such nominees as it uses for the SCA Board Nominees in connection with that election (it being understood that for so long as the SCA Board shall remain classified under the Act, this Section 2(b)(ii) shall apply to only the SCA Shareholder Entity Nominees assigned to the appropriate “class” then up for election).

	(iii) SCA agrees that each SCA Shareholder Entity Nominee shall be entitled to receive compensation and indemnification from SCA and its subsidiaries, and to be covered by D&O insurance policies of SCA and its subsidiaries, on the same terms as the SCA Board Nominees who are Independent. The SCA Shareholder Entity agrees that no SCA Shareholder Entity Nominee shall receive, directly or indirectly, any compensation or entitlement to indemnification, or be named as a beneficiary under any D&O insurance policy, for service on the SCA Board, any SCA Board committees or any SCA subsidiary boards or committees from the Consenting Counterparties or the SCA Shareholder Entity.

	(iv) Notwithstanding any provision of SCA’s Corporate Governance Guidelines and any confidentiality undertaking by the SCA Shareholder Entity or any SCA Shareholder Entity Nominee to the contrary, the parties acknowledge and agree that each SCA Shareholder Entity Nominee (i) is hereby authorized to disclose information to the SCA Shareholder Entity and its Representatives, (ii) is under no obligation to communicate any information received from the SCA Shareholder Entity or any of its Representatives to the SCA Chairman or any other Person and (iii) is authorized to initiate communications, directly or indirectly, with the SCA Shareholder Entity and its Representatives without any requirement to first pre-clear such communications with the SCA Chairman or any other Person, in each case, to the extent such SCA Shareholder Entity Nominee determines in good faith that the taking or the failure to take any such actions will not be inconsistent with his or her fiduciary duties to SCA under applicable law. For the avoidance of doubt, the provisions of the immediately preceding sentence shall not apply to disclosures to or communications with the Consenting Counterparties or their Representatives. SCA shall, effective as of the date hereof, amend SCA’s Corporate Governance Guidelines to extent necessary so that SCA’s Corporate Governance Guidelines do not contain any provisions inconsistent with the second preceding sentence.

	(v) Until the occurrence of a Voting Restriction Termination Event, the SCA Shareholder Entity will not form or join a “group” within the meaning of Section 13(d)(3) of the Exchange Act with any other Person, including without limitation any of the Consenting Counterparties, for the purpose of seeking to elect more than the number of SCA Shareholder Entity Nominees to which it is then entitled under Section 2(b)(i); provided that, subject to Section 2(a), the foregoing shall in no way prohibit the SCA Shareholder Entity from voting any securities of SCA in its discretion (including in

Exh. 1.01(i)-4


	connection with any election contest) or otherwise independently exercising its rights as a stockholder of SCA.

	(vi) The SCA Shareholder Entity agrees not to nominate any individual that SCA’s Nominating & Governance Committee, after having the opportunity to conduct a reasonable inquiry, reasonably determines in the good faith discharge of its fiduciary duties (i) does not meet the requirements set forth in the penultimate sentence of Section 2(b)(i) or would be a party to or benefit from any arrangement that would violate the last sentence of Section 2(b)(iii) or (ii) does not meet the suitability criteria of the SCA Board, which criteria shall be consistently applied to individuals presented as SCA Shareholder Entity Nominees to the same extent as those presented as Independent SCA Board Nominees.

	(c) Committees; Subsidiary Boards .

	(i) Until the occurrence of the Voting Restriction Termination Event, (i) the SCA Shareholder Entity will have the right to designate one member of the SCA Compensation Committee and (ii) the Compensation Committee of the SCA Board shall consist of at least five members which number of members shall not be changed without the SCA Shareholder Entity’s prior consent (subject to any restrictions imposed by applicable law, rule or regulation).

	(ii) Until the occurrence of the Voting Restriction Termination Event, (i) SCA will maintain a Finance and Risk Oversight Committee whose charter shall be substantially in its current form (with such changes thereto as may be agreed by a majority of the members of the Finance and Risk Oversight Committee and the SCA Board), (ii) the Finance and Risk Oversight Committee shall consist of at five members which number of members shall not be changed without the SCA Shareholder Entity’s prior consent, and (iii) two of the members of such Committee shall be SCA Shareholder Entity Nominees.

	(iii) Other than the Audit Committee, a Compensation Committee, a Nominating & Governance Committee and a Finance and Risk Oversight Committee, SCA shall establish no other committees of the SCA Board without the prior written consent of at least a majority of the SCA Shareholder Entity Nominees then in office (which shall not unreasonably be withheld).

	(iv) Subject to applicable law (including the Act) and New York Stock Exchange regulations, until the occurrence of the Voting Restriction Termination Event, upon the request of the SCA Shareholder Entity, SCA and the SCA Board shall take all actions necessary so that the composition of the board of directors, general partner, managing member (or controlling committee thereof) or any other board or committee serving a similar function with respect to each of SCA’s Material Subsidiaries (each a “ Subsidiary Board ”) shall be proportionate to the composition requirements of the SCA Board such that the SCA Shareholder Entity shall have the same proportional representation (rounded to the nearest whole number of directors, but in no event less

Exh. 1.01(i)-5


	than one) on each such Subsidiary Board and committee thereof as it has on the SCA Board.

	(v) In each case where the SCA Shareholder Entity has the right to designate one or more members to any committee of the SCA Board, any Subsidiary Board or any committee thereof in accordance with this Section 2(c), the SCA Board shall select the SCA Shareholder Entity Nominee or SCA Shareholder Entity Nominees, as the case may be, to serve on such Subsidiary Board or committee in the same manner as Independent SCA Board Nominees are selected to serve on such Subsidiary Board or committee.

(d) Notice of SCA Board Meetings . In addition to any other notice required by the Act or the Bye-Laws, SCA shall give each SCA Shareholder Entity Nominee the same notice and information provided to any other member of the SCA Board with respect to each meeting of the SCA Board or any committee thereof (even if such SCA Shareholder Entity Nominee is not a member of such committee), at the same time such notice is first made available to any such other member of the SCA Board; provided that if such notice and information is given by means other than email, SCA shall, simultaneously with the giving of such notice and information by such other means, deliver such notice and information to each SCA Shareholder Entity Nominee by email to the email address of such SCA Shareholder Entity Nominee provided to SCA.

(e) Approval of Certain Matters . In addition to any other actions or approvals required under the Act or the Bye-Laws, each of SCA and the Shareholder Entity Nominee agree that until the occurrence of the Voting Restriction Termination Event, (i) the acquisition, sale, lease or transfer of all or substantially all of the assets of SCA, (ii) the discontinuance or redomestication of SCA out of Bermuda to another jurisdiction, (iii) mergers or amalgamations and (iv) the liquidation, dissolution or winding-up of SCA shall, in each case, require, as a condition to consummation thereof, the approval by the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the votes cast in accordance with the provisions of the Bye-Laws; provided that this Section 2(e) shall not apply to the approval of any of the Transactions (as such term is defined in the Master Restructuring Agreement).

SECTION 3 . Certain Additional Agreements.

(a) No Voting Reduction of SCA Shares . SCA hereby acknowledges and agrees that for purposes of Section 44 of the Bye-Laws, (x) clause (ii) of paragraph (1) of Section 44 of the Bye-Laws applies to the transfer of the SCA Shares by XLI to the SCA Shareholder Entity and, in accordance with such clause, no reduction in votes contemplated by Section 44 of the Bye-Laws shall occur with respect to the SCA Shares or any other Common Shares acquired by the SCA Shareholder Entity (or any Affiliate thereof) for so long as the SCA Shareholder Entity (or any Affiliate thereof) continues to hold such shares, (y) the Master Restructuring Agreement shall be deemed to constitute for all purposes of Section 44 of the Bye-Laws the notice required to be delivered by XLI to the SCA Board pursuant clause (ii) of paragraph (1) of Section 44 of the Bye-Laws in connection with the transfer of the SCA Shares and no other condition as to the applicability of such clause is required to be satisfied and (z) the SCA Shareholder Entity (and its Affiliates) are entitled to the full benefit of clause (ii) of paragraph (1) of Section 44 of the Bye-Laws (including as to the applicability of such benefit to Section 45 of the Bye-Laws).

Exh. 1.01(i)-6

(b) Applicability of Paragraph (2) of Bye-Law 44 . The SCA Shareholder Entity agrees that paragraph (2) of Section 44 of the Bye-Laws shall apply to the SCA Shareholder Entity on a mutatis mutandis basis as though the SCA Shareholder Entity were XL for purposes of such paragraph.

(c) Information Rights . Until the occurrence of the Voting Restriction Termination Event, SCA shall furnish or make available to the SCA Shareholder Entity, promptly after such information becomes available to SCA:


	(i) such annual budget, business plans and financial forecasts as are customarily provided to the SCA Board;

	(ii) following the end of each fiscal quarter and fiscal year of SCA, such consolidated financial statements and operations reports of SCA (including audit reports with respect to fiscal years) as are customarily provided to the SCA Board; and

	(iii) all information that is provided to members of the Finance and Risk Oversight Committee in their capacity as such.

(d) Access . Until the occurrence of the Voting Restriction Termination Event, SCA will, and will cause its subsidiaries, officers, directors and employees to, afford that SCA Shareholder Entity and its Representatives the opportunity to discuss SCA’s and its subsidiaries’ affairs, finances and accounts with SCA’s and its subsidiaries’ officers from time to time as the SCA Shareholder Entity may reasonably request, in each event, only to the extent necessary or reasonably appropriate to accomplish the reasonable purpose of the proposed inspection.

	(e) Confidentiality .

	(i) The SCA Shareholder Entity shall not, and shall not permit any of its Representatives to, disclose any information of a known confidential nature received from SCA or any of its subsidiaries in connection with the SCA Shareholder Entity’s investment in SCA (“ Confidential Information ”). The SCA Shareholder Entity may disclose Confidential Information to its Representatives so long as such Representatives are informed by the SCA Shareholder Entity of the confidential nature of such information and provided that in any event the SCA Shareholder Entity will be responsible for any breach of this Section 3(e) by its Representatives. For the avoidance of doubt, the SCA Shareholder Entity shall not disclose any Confidential Information to the Consenting Counterparties or any of their respective Representatives; provided that a Person that serves as an accountant, counsel, consultant, advisor, agent and/or other representative to both a Consenting Counterparty and the SCA Shareholder Entity shall not be deemed to be a Representative of such Consenting Counterparty if (A) such Person is not acting as a Representative of such Consenting Counterparty in connection with the transactions contemplated by the Master Restructuring Agreement and (B) internal information barriers customary for the applicable industry are established as may be reasonably necessary to prevent the unauthorized disclosure of Confidential Information between such Person and any Person serving as a Representative to such Consenting

Exh. 1.01(i)-7


	Counterparty with respect to the transactions contemplated by the Master Restructuring Agreement.

	(ii) “ Confidential Information ” shall not include information (A) that is or becomes generally known on a non-confidential basis from a source other than the SCA Shareholder Entity or its Representatives, (B) that has become available to the SCA Shareholder Entity on a non-confidential basis from a source that is not, to the SCA Shareholder Entity’s knowledge, under an obligation of confidentiality or (C) that has been developed by or on behalf of the SCA Shareholder Entity or any of its Representatives independently of any disclosure from SCA or its subsidiaries.

	(iii) If the SCA Shareholder Entity or any of its Representatives is legally requested or required under an order or subpoena issued by a court, administrative agency or arbitration panel, or to comply with regulatory or ratings agency requests or requirements (through oral examination, interrogatories, requests for information or documents, civil investigation demand or other legal, administrative or arbitration processes) to disclose any Confidential Information, such Person being so requested or required to disclose such Confidential Information shall use reasonable efforts to give SCA such request or requirement prompt written notice of the request, requirement, subpoena or order to permit (to the extent reasonable) SCA (if it so elects at its expense) to seek an appropriate protective order preventing or limiting disclosure or waive compliance with the provisions of this Section 3(e). If, in the absence of such protective order or waiver, the SCA Shareholder Entity or any of its Representatives is compelled to disclose Confidential Information, such Person may disclose such Confidential Information without liability hereunder.

	(iv) The SCA Shareholder Entity agrees that money damages would not be a sufficient remedy for any breach of this Section 3(e) and that, in addition to all other remedies, SCA shall be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach.

	(v) The SCA Shareholder Entity acknowledges that any information provided to the SCA Shareholder Entity or any of its Representatives by SCA pursuant to Section 3(c) or Section 3(d) may constitute material non-public information and that its possession of such information may subject the SCA Shareholder Entity to the restrictions imposed by federal and state securities laws on Persons in possession of material non-public information.

	(f) Constituent Documents .

	(i) SCA shall take or cause to be taken all lawful action necessary or appropriate to ensure that none of SCA’s Memorandum of Association, Bye-Laws, Corporate Governance Guidelines and any other similar documents of SCA and any of the corresponding constituent documents of SCA’s subsidiaries contain any provisions inconsistent with this Agreement or which would in any way nullify or impair the terms of this Agreement or the rights of the SCA Shareholder Entity hereunder.

Exh. 1.01(i)-8


	(ii) Until the occurrence of the Voting Restriction Termination Event, SCA shall not, without the prior written consent of the SCA Shareholder Entity, amend, alter or repeal its Memorandum of Association, Bye-Laws, Corporate Governance Guidelines and any other similar document of SCA in any manner adverse to the SCA Shareholder Entity.

SECTION 4 . Miscellaneous.

(a) Interpretation . In this Agreement, the SCA Shareholder Entity shall be deemed to be the Trust, the Trustee (or any trustee or trustees of the Trust) acting in its capacity as such trustee, in each case as the context may require to be most protective of the interests of SCA.

(b) Termination . This Agreement (except for the provisions of Sections 3(a) and 3(e)) shall terminate upon the occurrence of the Voting Restriction Termination Event at which time the SCA Shareholder Entity shall cause the SCA Shareholder Entity Nominees to resign from the SCA Board and all directorships they hold in subsidiaries of SCA.

(c) Amendment and Waiver . This Agreement may not be amended except by an instrument in writing signed on behalf of each of the SCA and the SCA Shareholder Entity. Any party hereto may waive any right of such party hereunder by an instrument in writing signed by such party and delivered to the other party. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

(d) Severability . If any provision of this Agreement shall be declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of this Agreement shall not be affected and shall remain in full force and effect.

(e) Entire Agreement . This Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, that may have related to the subject matter hereof in any way.

(f) Successors and Assigns . Neither this Agreement nor any right or obligation hereunder is assignable in whole or in part by any party without the prior written consent of the other party hereto; provided , that the SCA Shareholder Entity may assign any or all its rights under this Agreement to one or more of its Affiliates; provided , further , that no such assignment shall relieve the SCA Shareholder Entity of any of its obligations hereunder and all Common Shares held by any subsidiary or Affiliate of the SCA Shareholder Entity shall be deemed to be held by the SCA Shareholder Entity for all purposes under this Agreement.

(g) Counterparts; Execution by Facsimile Signature . This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. This Agreement may be executed by facsimile signature(s).

Exh. 1.01(i)-9

(h) Public Announcement . No party to this Agreement shall make, or cause to be made, any press release or public announcement or otherwise communicate with any news media in respect of this Agreement or the transactions contemplated hereby without the prior consent of the other party and the parties shall cooperate as to the timing of any such press release or public announcement; provided , however , that this provision does not apply to any disclosures required by law.

(i) Notices . All notices required or permitted hereunder shall be in writing and shall be deemed effectively given (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next Business Day or (iii) one Business Day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the addresses set forth below or such other address or facsimile number as a party may from time to time specify by notice to the other parties hereto:


	If to SCA:

		A.S. Cooper Building
		26 Reid Street, 4th Floor
		Hamilton HM 11
		Bermuda
		Attention: General Counsel
		Fax: (441) 296-4351

	with a copy (which shall not constitute notice) to:

		Weil, Gotshal & Manges LLP,
		767 Fifth Avenue
		New York, New York 10153
		Attention: Gary Holtzer
		Fax: (212) 310-8007

	If to the SCA Shareholder Entity:

		[ ___________________ ]
		[ ___________________ ]
		Attention: [ __________ ]
		Fax: [ _______________ ]

	with a copy (which shall not constitute notice) to:

		[ ___________________ ]
		[ ___________________ ]
		Attention: [ __________ ]
		Fax: [ _______________ ]

Exh. 1.01(i)-10


	(j) Governing Law; Consent to Jurisdiction .

	(i) This Agreement shall be governed in all respects by the laws of the State of New York, without regard to its conflicts of laws principles.

	(ii) Each of the parties hereto agrees that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in any Federal or state court located in the Borough of Manhattan in the City of New York, New York, and each of the parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and 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 in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 4(i) shall be deemed effective service of process on such party.

	(iii) Each of the parties hereto hereby irrevocably and unconditionally waives trial by jury in any legal Action or proceeding in relation to this Agreement and for any counterclaim therein.

(k) Headings . The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

(l) No Third Party Beneficiaries . This Agreement is solely for the benefit of the parties hereto and shall not be deemed to confer upon third parties (including stockholders or members of any party hereto) any remedy, claim, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.

(m) Specific Performance . Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond, and in addition to all other remedies that may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may then be available.

[signature page follows]

Exh. 1.01(i)-11

IN WITNESS WHEREOF, the parties hereto have executed this Shareholders Agreement as of the date first written above.


	SECURITY CAPITAL ASSURANCE LTD.

	By:

		Name:
		Title:

	[SCA SHAREHOLDER ENTITY]

	By:

		Name:
		Title:

Exh. 1.01(i)-12

EXHIBIT 1.01(j)

FORM OF SCA REGISTRATION RIGHTS AGREEMENT

Exhibit 1.01(j)

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT, dated as of August [__], 2008, by and between Security Capital Assurance Ltd., a Bermuda exempted company (the “ Company ” ), and [ HSBC Private Bank, Bermuda Trust Company Limited] (the “ Trustee ” ), a Bermuda exempted company as trustee of the special purpose trust (the “ Trust ” ) established by that certain Declaration of Trust dated as of the date hereof and known as [name of trust] (the “ SCA Shareholder Entity ” ).

WHEREAS, pursuant to that certain Master Commutation, Release and Restructuring Agreement, dated as of July [__], 2008, by and among the Company, XL Capital Assurance Ltd., XL Financial Assurance Ltd., XL Capital Ltd. and the other parties thereto (the “ Master Transaction Agreement ” ), among other things, the Company has agreed to provide the SCA Shareholder Entity certain rights as set forth herein.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and obligations hereinafter set forth (and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by the Company), the parties hereto hereby agree as follows:

ARTICLE I
DEFINITIONS

Section 1.1 Certain Defined Terms . As used herein, the following terms shall have the following meanings:

“ Action ” means any legal, administrative, regulatory or other suit, action, claim, audit, assessment, arbitration or other proceeding, investigation or inquiry.

“ Affiliate ” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with, such Person. For purposes of this definition, “control” (including its correlative meanings, “controlled by” and “under common control with”) when used with respect to any Person, means the possession, directly or indirectly, of the power to cause the direction of management and/or policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“ Agreement ” means this Registration Rights Agreement as it may be amended, supplemented, restated or modified from time to time.

“ Beneficial Ownership ” by a Person of any securities includes ownership by any Person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares (i) voting power which includes the power to vote, or to direct the voting of, such security; and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security; and shall otherwise be interpreted in accordance with the term “beneficial ownership” as defined in Rule 13d-3 adopted by the SEC under the Exchange Act. The term “ Beneficially Own ” shall have a correlative meaning.

Exh. 1.01(j)-1

“ Business Day ” means any day, other than a Saturday, Sunday or a day on which banking institutions in New York, New York are authorized or obligated to close.

“ Common Shares ” means the Common Shares, $0.01 par value per share, of the Company.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC from time to time thereunder.

“ Form S-3 ” means such form under the Securities Act as is in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

“ Governmental Entity ” shall mean any court, administrative agency or commission or other governmental authority or instrumentality, whether federal, state, local or foreign and any applicable industry self-regulatory organization.

“ Holders ” means the SCA Shareholder Entity and any Transferee of Registrable Securities that agrees to be bound by the terms of this Agreement pursuant to Section 3.6 hereof (and “ Holder ” means any of such Persons).

“ Holders’ Representative ” means the SCA Shareholder Entity or any or any other Holder designated by the SCA Shareholder Entity as the Holders’ Representative.

“ Issuer Free Writing Prospectus ” means an issuer free writing prospectus, as defined in Rule 433 under the Securities Act, relating to an offer of the Registrable Securities.

“ Law ” means any statute, law, code, ordinance, rule or regulation of any Governmental Entity.

“ Other Securities ” means Common Shares other than Registrable Securities.

“ Person ” means any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivisions thereof or any group (within the meaning of Section 13(d)(3) of the Exchange Act) comprised of two or more of the foregoing.

“ Prospectus ” means the prospectus included in any Registration Statement (including a prospectus that discloses information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A or Rule 430B promulgated under the Securities Act), as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, any Issuer Free Writing Prospectus related thereto, and all other amendments and supplements to such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus.

Exh. 1.01(j)-2

“ Registrable Securities ” means (a) all Common Shares held by the SCA Shareholder Entity as of the date of this Agreement, and (b) any securities issued directly or indirectly with respect to such shares described in clause (a) because of stock splits, stock dividends, reclassifications, recapitalizations, mergers, consolidations, or similar events. As to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such Registration Statement, or (ii) such securities shall have been disposed of pursuant to Rule 144, or (iii) following any transfer of such securities to a Transferee, such securities are eligible to be sold to the public without volume limitations pursuant to Rule 144, it being understood that in the event that such securities cease to be eligible to be sold to the public without volume limitations pursuant to Rule 144 as a result of any act or failure to act of the Company, then subject to clauses (i) and (ii) above such securities will again be Registrable Securities hereunder until such time as such securities are eligible to be sold to the public without volume limitations pursuant to Rule 144.

“ Registration Statement ” means any registration statement of the Company under the Securities Act which permits the public offering of any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“ Rule 144 ” means Rule 144 under the Securities Act (or any successor provision).

“ SEC ” means the United States Securities and Exchange Commission.

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC from time to time thereunder.

“ Selling Holder ” means each Holder of Registrable Securities included in a registration pursuant to Article II.

“ Shelf Registration Statement ” means a Registration Statement of the Company filed with the SEC on Form S-3 for an offering to be made on a continuous or delayed basis pursuant to Rule 415 under the Securities Act covering Registrable Securities. To the extent the Company is a well-known seasoned issuer (as defined in Rule 405 under the Securities Act), a “Shelf Registration Statement” shall be deemed to refer to an automatic shelf registration statement (as defined in Rule 405 under the Securities Act) on Form S-3.

A “ Subsidiary ” of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person.

“ Transferee ” means any of (i) the transferee of all or any portion of the Registrable Securities held by the SCA Shareholder Entity or (ii) the subsequent transferee of all or any

Exh. 1.01(j)-3

portion of the Registrable Securities held by any such transferee; provided , that no Transferee shall be entitled to any benefits of a Transferee hereunder unless such Transferee executes and delivers to the Company an instrument substantially in the form provided as Exhibit A attached hereto.

Section 1.2 Terms Generally . The definitions in Section 1.1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”, unless the context expressly provides otherwise. All references herein to Articles, Sections, paragraphs, subparagraphs, clauses or Exhibits shall be deemed references to Articles, Sections, paragraphs, subparagraphs or clauses of, or Exhibits to, this Agreement, unless the context requires otherwise. Unless otherwise expressly defined, terms defined in this Agreement have the same meanings when used in any Exhibit hereto. Unless otherwise specified, the words “this Agreement”, “herein”, “hereof”, “hereto” and “hereunder” and other words of similar import refer to this Agreement as a whole (including the Exhibits) and not to any particular provision of this Agreement. The term “or” is not exclusive. The word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and such phrase shall not mean simply “if”. Unless expressly stated otherwise, any Law defined or referred to herein means such Law as from time to time amended, modified or supplemented, including by succession of comparable successor Laws and references to all attachments thereto and instruments incorporated therein. References to a Person are also to its permitted successors and assigns. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

ARTICLE II
REGISTRATION RIGHTS

Section 2.1 Demand Registrations . (a) Subject to Section 2.1(h), at any time and from time to time, the Holders’ Representative shall have the right by delivering a written notice to the Company (a “ Demand Notice ”) to require the Company to, pursuant to the terms of this Agreement, register under and in accordance with the provisions of the Securities Act the number of Registrable Securities Beneficially Owned by Holders and requested by such Demand Notice to be so registered (a “ Demand Registration ” ); provided , however , that a Demand Notice may only be made if the amount of Registrable Securities requested to be registered is either (i) at least 20% of the aggregate number of Registrable Securities then held by all Holders or (ii) reasonably expected to generate aggregate gross proceeds on sale (prior to deducting underwriting discounts and commissions and offering expenses) of at least $10 million. A Demand Notice shall also specify the expected method or methods of disposition of the applicable Registrable Securities. Following receipt of a Demand Notice, the Company shall use its reasonable best efforts to file, as promptly as reasonably practicable, but not later than, 60 days with respect to any underwritten offering, or 30 days with respect to any other offering, after receipt by the Company of such Demand Notice (subject to paragraph (e) of this Section 2.1), a Registration Statement relating to the offer and sale of the Registrable Securities requested to be included therein by the Holders thereof in accordance with the methods of distribution elected by such Holders (a “ Demand Registration Statement ” ) and shall use its

Exh. 1.01(j)-4

reasonable best efforts to cause such Registration Statement to be declared effective under the Securities Act as promptly as practicable after the filing thereof.

(b) No securities shall be included under any Demand Registration Statement related to an underwritten offering without the written consent of the Holders’ Representative, except Registrable Securities requested to be included therein pursuant to Section 2.1(a). Subject to the preceding sentence, if any of the Registrable Securities to be registered pursuant to a Demand Registration are to be sold in a firm commitment underwritten offering, and the managing underwriter(s) of such underwritten offering advise the Holders in writing that it is their good faith opinion that the total number or dollar amount of Registrable Securities proposed to be sold in such offering, together with any Other Securities proposed to be included by holders thereof which are entitled to include securities in such Registration Statement, exceeds the total number or dollar amount of such securities that can be sold without having an adverse effect on the price, timing or distribution of the Registrable Securities to be so included together with all such Other Securities, then there shall be included in such firm commitment underwritten offering the number or dollar amount of Registrable Securities and such Other Securities that in the opinion of such managing underwriter(s) can be sold without so adversely affecting such offering, and such number of Registrable Securities and Other Securities shall be allocated for inclusion as follows:


	(i) first, the Registrable Securities for which inclusion in such demand offering was requested by the Holders, pro rata (if applicable), based on the number of Registrable Securities Beneficially Owned by each such Holder; and

	(ii) second, among any holders of Other Securities, pro rata , based on the number of Other Securities Beneficially Owned by each such holder.

(c) The Holders collectively shall be entitled to request no more than three Demand Registrations pursuant to this Section 2.1; provided , however , that (i) in no event shall the Company be required to effect more than one Demand Registration in any three-month period and (ii) subject to Section 2.1(h), in case the Company shall receive from the Holders’ Representative a Demand Notice requesting that the Company effect a registration on Form S-3 (provided that the Company is eligible to effect such registration on Form S-3 at such time), the Company shall be obligated to effect any such Demand Registration without regard to the number of Demand Registrations made.

(d) In the event of a Demand Registration, the Company shall use its reasonable best efforts to maintain the continuous effectiveness of the applicable Registration Statement for a period of at least 180 days after the effective date thereof or such shorter period in which all Registrable Securities included in such Registration Statement have actually been sold. For the avoidance of doubt, the foregoing sentence is not intended to limit the obligation of the Company to maintain the continuous effectiveness of the Short-Form Registration contemplated by Section 2.2 as required by Section 2.2.

(e) The Company shall be entitled to postpone (but not more than once in any six-month period), for a reasonable period of time, together with any postponement under Section 2.2(c), not in excess of 60 days (and not for periods exceeding, in the aggregate, 90 days

Exh. 1.01(j)-5

during any twelve-month period), the filing or initial effectiveness of, or suspend the use of, a Demand Registration Statement if the Company delivers to the Holders’ Representative a certificate signed by both the Chief Executive Officer and Chief Financial Officer of the Company certifying that, in their good faith judgment, such registration, offering or use would reasonably be expected to materially adversely affect or materially interfere with any bona fide and imminent material financing of the Company or any imminent material transaction under consideration by the Company or would require the disclosure of information that has not been, and is not otherwise required to be, disclosed to the public, the premature disclosure of which would materially adversely affect the Company. Such certificate shall contain, if requested by the Holders’ Representative (and subject to their entering into a customary confidentiality obligation as to such information), a reasonably detailed statement of the reasons for such postponement or suspension and an approximation of the anticipated delay. If the Company so postpones the filing of a Registration Statement, the Holders’ Representative will have the right to withdraw the request for registration by giving written notice to the Company within ten days of the anticipated termination date of the postponement period, as provided in the notice delivered to the Holders’ Representative and such withdrawn registration will not count as a Demand Registration.

(f) The Holders’ Representative shall have the right to notify the Company that it has determined that the Registration Statement relating to a Demand Registration be abandoned or withdrawn, in which event the Company shall promptly abandon or withdraw such Registration Statement.

(g) No request for registration will count for the purposes of the limitations in Section 2.1(c) if: (A) the Holders’ Representative determines in good faith to withdraw the proposed registration prior to the effectiveness of the Registration Statement relating to such request due to marketing conditions or regulatory reasons relating to the Company, (B) the Registration Statement relating to such request is not declared effective within 60 days of the date such Registration Statement is first filed with the SEC (other than solely by reason of the applicable Holders having refused to proceed), (C) the Registration Statement is not maintained effective for the period required pursuant to this Section 2.1(d), (D) prior to the sale of at least 90% of the Registrable Securities included in the applicable registration relating to such request, such registration is adversely affected by any stop order, injunction or other order or requirement of the SEC or other Governmental Entity or court, (E) more than 10% of the Registrable Securities requested by the Holders to be included in the registration are not so included pursuant to Section 2.1(b), or (F) the conditions to closing specified in any underwriting agreement or purchase agreement entered into in connection with the registration relating to such request are not satisfied (other than as a result of a material default or breach thereunder by the applicable Holders). Notwithstanding anything to the contrary, the Company will pay all expenses (in accordance with Section 2.9) in connection with any request for registration pursuant to this Agreement regardless of whether or not such request counts toward the limitation set forth above.

Exh. 1.01(j)-6

underwritten offerings and (iii) the Shelf Registration Statement is effective when the Holders’ Representative would otherwise make a request for registration under this Section 2.1, the Company shall not be required to separately register any Registrable Securities (including, for the avoidance of doubt, any request that the Company effect a registration on Form S-3 pursuant to clause (ii) of Section 2.1(c)) in response to such request, and such request shall be deemed to be a request that the Company cooperate in effecting a Takedown of the Registrable Securities pursuant to such Shelf Registration Statement. Subject to Section 2.2(e), the Company may also register Other Securities on any such Shelf Registration Statement.

Section 2.2 Shelf Registration . (a) As promptly as practicable (but no later than 60 days) after the Company becomes eligible to effect a registration on Form S-3 (and provided that the Company is eligible to effect such registration at such time), the Company shall file with the SEC a Shelf Registration Statement providing for the registration and sale of all of the Registrable Securities by the Holders and shall use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act as soon as reasonably practicable thereafter (provided that the Company is eligible to effect such registration at such time).

(b) Subject to the Company being eligible to do so under the Securities Act, the Company shall use its reasonable best efforts to keep such Shelf Registration Statement continuously effective under the Securities Act in order to permit the Prospectus forming a part thereof to be usable by Holders until the earlier of (i) all Common Shares held by all Holders are no longer Registrable Securities and (ii) the date as of which all Registrable Securities have been sold pursuant to the Shelf Registration Statement or another Registration Statement has been filed under the Securities Act (but in no event prior to the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder) (such period of effectiveness, the “ Shelf Period ”). Subject to Section 2.2(c), the Company shall not be deemed to have used its reasonable best efforts to keep the Shelf Registration Statement effective during the Shelf Period if the Company voluntarily takes any action or omits to take any action that would result in Holders of Registrable Securities covered thereby not being able to offer and sell any Registrable Securities pursuant to such Shelf Registration Statement during the Shelf Period, unless such action or omission is required by applicable Law.

(c) The Company shall be entitled to postpone (but not more than once in any six-month period), for a reasonable period of time, together with any postponement under Section 2.1(e), not in excess of 60 days (and not for periods exceeding, in the aggregate, 90 days during any twelve-month period), the filing or initial effectiveness of, or suspend the use of, a Shelf Registration Statement if the Company delivers to the Holders’ Representative a certificate signed by both the Chief Executive Officer and Chief Financial Officer of the Company certifying that, in their good faith judgment, such registration, offering or use would reasonably be expected to materially adversely affect or materially interfere with any bona fide material financing of the Company or any material transaction under consideration by the Company or would require the disclosure of information that has not been, and is not otherwise required to be, disclosed to the public, the premature disclosure of which would materially adversely affect the Company. Such certificate shall contain, if requested by the Holders’ Representative (and subject to their entering into a customary confidentiality obligation as to such information), a reasonably

Exh. 1.01(j)-7

detailed statement of the reasons for such postponement or suspension and an approximation of the anticipated delay.

(d) Upon a written request from any Holder (an “ Initiating Holder ”) to effect an offering under the Shelf Registration Statement (a “ Takedown ”), provided that the Company is eligible to utilize such Registration Statement at such time, the Company will, as soon as practicable, (x) deliver a written notice relating to the proposed Takedown to all other Holders and (y) promptly (and in any event not later than twenty days after receiving such Initiating Holder’s request) supplement the Prospectus included in the Shelf Registration Statement as would permit or facilitate the sale and distribution of all or such portion of such Initiating Holder’s Registrable Securities as are specified in such request together with the Registrable Securities requested to be included in such Takedown by any other Holders who notify the Company in writing within ten business days after receipt of such written notice from the Company. If the Company and/or the holders of any Other Securities request inclusion of Other Securities in a Takedown, such Other Securities shall be included in the Takedown if, and only if, inclusion of such Other Securities would not be reasonably likely to delay in any material respect the timely effectuation of the Takedown or the sale of Registrable Securities pursuant to the Takedown. In the case of a request for or effectuation of a Takedown, all references in this Agreement to the effective date of a Registration Statement shall be deemed to refer to the date of pricing of such Takedown and all references to registration shall be deemed to refer to the Takedown.

(e) If any of the Registrable Securities to be sold pursuant to a Shelf Registration Statement are to be sold in a firm commitment underwritten offering, and the managing underwriter(s) of such underwritten offering advise the Holders in writing that it is their good faith opinion that the total number or dollar amount of Registrable Securities proposed to be sold in such offering, together with any Other Securities proposed to be included by holders thereof which are entitled to include securities in such Registration Statement, exceeds the total number or dollar amount of such securities that can be sold without having an adverse effect on the price, timing or distribution of the Registrable Securities to be so included together with all such Other Securities, then there shall be included in such firm commitment underwritten offering the number or dollar amount of Registrable Securities and such Other Securities that in the opinion of such managing underwriter(s) can be sold without so adversely affecting such offering, and such number of Registrable Securities and Other Securities shall be allocated for inclusion as follows:


	(i) first, the Registrable Securities for which inclusion in such underwritten offering requested by the Holders, pro rata (if applicable), based on the number of Registrable Securities Beneficially Owned by each such Holder; and

	(ii) second, among any holders of Other Securities, pro rata , based on the number of Other Securities Beneficially Owned by each such holder of Other Securities.

Section 2.3 Piggyback Registrations . (a) If, other than pursuant to Section 2.1 or Section 2.2, the Company proposes or is required to file a registration statement under the Securities Act with respect to an offering of Common Shares, whether or not for sale for its own account (other than a registration statement (i) on Form S-4, Form S-8 or any successor forms

Exh. 1.01(j)-8

thereto, (ii) filed solely in connection with any employee benefit or dividend reinvestment plan, or (iii) so long as a Shelf Registration Statement is effective and available pursuant to Section 2.2 hereof, filed solely in connection with the issuance or resale of Common Shares issuable upon conversion, exercise or exchange of any securities of the Company or any of its Subsidiaries, where such convertible, exercisable or exchangeable securities were issued in, or as part of, a financing transaction), in a manner that would permit registration of Registrable Securities for sale to the public under the Securities Act, then the Company shall give prompt written notice of such proposed filing at least 30 days before the anticipated filing date (the “ Piggyback Notice ” ) to the Holders. The Piggyback Notice shall offer the Holders the opportunity to include in such registration statement the number of Registrable Securities as they may request (a “ Piggyback Registration ” ). Subject to Section 2.3(b) hereof, the Company shall include in each such Piggyback Registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after notice has been given to the Holders, to permit the distribution of such Registrable Securities in accordance with the methods of distribution elected by such Holders. The Holders shall be permitted to withdraw all or part of the Registrable Securities from a Piggyback Registration at any time at least two Business Days prior to the effective date of the Registration Statement relating to such Piggyback Registration. The Company shall use its reasonable best efforts to maintain the effectiveness of the Registration Statement for a Piggyback Registration for a period of at least 180 days after the effective date thereof or such shorter period in which all Registrable Securities included in such Registration Statement have actually been sold. No Piggyback Registration shall count towards registrations required under Section 2.1.

(b) If any of the securities to be registered pursuant to the registration giving rise to the Holders’ rights under this Section 2.3 are to be sold in an underwritten offering, the Holders shall be permitted to include all Registrable Securities requested to be included in such registration in such offering on the same terms and conditions as any Other Securities included therein; provided , however , that if such offering involves a firm commitment underwritten offering and the managing underwriter(s) of such underwritten offering advise the Company in writing that it is their good faith opinion that the total amount of Registrable Securities requested to be so included, together with all Other Securities that the Company and any other Persons having rights to participate in such registration intend to include in such offering, exceeds the total number or dollar amount of such securities that can be sold without having an adverse effect on the price, timing or distribution of the Registrable Securities to be so included together with all Other Securities, then there shall be included in such firm commitment underwritten offering the number or dollar amount of Registrable Securities and such Other Securities that in the opinion of such managing underwriter(s) can be sold without so adversely affecting such offering, and such number of Registrable Securities and Other Securities shall be allocated for inclusion as follows:


	(i) first, all Other Securities being sold by the Company for its own account or by any Person (other than a Holder) exercising a contractual right to demand registration;

	(ii) second, all Registrable Securities requested to be included by the Holders, pro rata (if applicable), based on the number of Registrable Securities Beneficially Owned by each such Holder; and

Exh. 1.01(j)-9


	(iii) third, among any other holders of Other Securities requesting such registration, pro rata , based on the number of Other Securities Beneficially Owned by each such holder of Other Securities.

Section 2.4 Registration Procedures . If and whenever the Company is required to use its reasonable best efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Article II, the Company shall effect such registration to permit the sale of such Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall cooperate in the sale of the securities and shall, as expeditiously as possible (to the extent applicable, in the case of a Takedown):

(a) Prepare and file with the SEC a Registration Statement or Registration Statements on such form which shall be available for the sale of the Registrable Securities by the Holders or the Company in accordance with the intended method or methods of distribution thereof, and use its reasonable best efforts to cause such Registration Statement to become effective and to remain effective as provided herein; provided , however , that before filing a Registration Statement or Prospectus or any amendments or supplements thereto (excluding documents that would be incorporated or deemed to be incorporated therein by reference), the Company shall furnish or otherwise make available to the Selling Holders, their counsel and the managing underwriter(s), if any, copies of all such documents proposed to be filed, which documents will be subject to the reasonable review and comment of such counsel, and such other documents reasonably requested by such counsel, including any comment letter from the SEC, and, if requested by such counsel, provide such counsel reasonable opportunity to participate in the preparation of such Registration Statement and each Prospectus included therein and such other opportunities to conduct a reasonable investigation within the meaning of the Securities Act, including reasonable access to the Company’s books and records, officers, accountants and other advisors. The Company shall not file any such Registration Statement or Prospectus or any amendments or supplements thereto (excluding such documents that, upon filing, would be incorporated or deemed to be incorporated by reference therein) with respect to any registration pursuant to Section 2.1, 2.2 or 2.3 to which any Holder (if such Registration Statement includes Registrable Securities of such Holder), its counsel, or the managing underwriter(s), if any, shall reasonably object, in writing, on a timely basis, unless, in the opinion of the Company, such filing is necessary to comply with applicable Law.

(b) Prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective during the period provided herein and comply in all material respects with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement, and cause the related Prospectus to be supplemented by any Prospectus supplement or Issuer Free Writing Prospectus as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of the securities covered by such Registration Statement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act.

(c) Notify each Selling Holder and the managing underwriter(s), if any, promptly, and (if requested by any such Person) confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement, Issuer Free Writing Prospectus or post-effective

Exh. 1.01(j)-10

amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other Governmental Entity for amendments or supplements to a Registration Statement or related Prospectus or Issuer Free Writing Prospectus or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time the representations and warranties of the Company contained in any agreement (including any underwriting agreement contemplated by Section 2.4(o) below) cease to be true and correct, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, and (vi) of the happening of any event that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference or any Issuer Free Writing Prospectus related thereto untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus, documents or Issuer Free Writing Prospectus so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of any Prospectus or Issuer Free Writing Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(d) Use its reasonable best efforts to avoid the issuance of any order suspending the effectiveness of a Registration Statement or any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, or, if issued, to obtain the withdrawal or lifting of any such order or suspension at the reasonably earliest practicable date.

(e) If requested by the managing underwriter(s), if any, or the Holders of a majority of the Registrable Securities being sold in connection with an underwritten offering, promptly include in a Prospectus supplement, post-effective amendment or Issuer Free Writing Prospectus such information as the managing underwriter(s), if any, or such Holders may reasonably request in order to permit the intended method of distribution of such securities and make all required filings of such Prospectus supplement, such post-effective amendment or Issuer Free Writing Prospectus as soon as practicable after the Company has received such request.

(f) Furnish or make available to each Selling Holder, and each managing underwriter, if any, without charge, such number of conformed copies of the Registration Statement and each post-effective amendment thereto, including financial statements (but excluding schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits, unless requested in writing by such Holder, counsel or managing underwriter(s)), and such other documents, as such Holders or such managing underwriter(s) may reasonably request, and upon request a copy of any and all transmittal letters or other correspondence to or received from, the SEC or any other Governmental Entity relating to such offering.

Exh. 1.01(j)-11

(g) Deliver to each Selling Holder, and the managing underwriter(s), if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of Prospectus and any Issuer Free Writing Prospectus related to any such Prospectuses) and each amendment or supplement thereto as such Persons may reasonably request in connection with the distribution of the Registrable Securities; and the Company, subject to Section 2.5(b), hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Selling Holders and the managing underwriter(s), if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any such amendment or supplement thereto.

(h) Prior to any public offering of Registrable Securities, use its reasonable best efforts to register or qualify or cooperate with the Selling Holders, the managing underwriter(s), if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or “Blue Sky” laws of such jurisdictions within the United States as any Selling Holder or managing underwriter(s) reasonably requests in writing and to keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and to take any other action that may be necessary or advisable to enable such Selling Holders to consummate the disposition of such Registrable Securities in such jurisdiction; provided , however , that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified, (ii) subject itself to material taxation in any such jurisdiction where it is not then so subject, or (iii) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject.

(i) Cooperate with the Selling Holders and the managing underwriter(s), if any, to facilitate the timely preparation and delivery of certificates (not bearing any legends) representing Registrable Securities to be sold after receiving written representations from each Selling Holder that the Registrable Securities represented by the certificates so delivered by such Selling Holder will be transferred in accordance with the Registration Statement, and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter(s), if any, or the Selling Holders may request at least two Business Days prior to any sale of Registrable Securities.

(j) Use its reasonable best efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other Governmental Entities within the United States, except as may be required solely as a consequence of the nature of such Selling Holder’s business, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals, as may be necessary to enable the seller or sellers thereof or the managing underwriter(s), if any, to consummate the disposition of such Registrable Securities.

(k) Upon the occurrence of any event contemplated by Section 2.4(c)(ii), (c)(iii), (c)(iv), (c)(v) or (c)(vi) above, prepare a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference or an Issuer Free Writing Prospectus related thereto, or file any other required document so that, as thereafter delivered to the Selling Holders,

Exh. 1.01(j)-12

such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(l) Prior to the effective date of the Registration Statement relating to the Registrable Securities, provide a CUSIP number for the Registrable Securities.

(m) Provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such Registration Statement from and after a date not later than the effective date of such Registration Statement.

(n) To the extent that the Common Shares are then listed on any national securities exchange, use reasonable best efforts to cause all Registrable Securities covered by such Registration Statement to be authorized to be listed on such national securities exchange, provided, however, that the Company shall have no obligation under this Section 2.3(n) if at the time of such registration the Company or Common Shares do not satisfy all criteria imposed by such national securities exchange to maintain such listing.

(o) Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other actions reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith or by the managing underwriter(s), if any, to expedite or facilitate the disposition of such Registrable Securities, and in connection therewith, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Selling Holders and the managing underwriter(s), if any, with respect to the business of the Company and its Subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers in underwritten offerings, and, if true, confirm the same if and when requested, (ii) use its reasonable best efforts to furnish to the Selling Holders of such Registrable Securities opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriter(s), if any, and counsels to the Selling Holders of the Registrable Securities), addressed to each Selling Holder of Registrable Securities and each of the managing underwriter(s), if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such counsel and managing underwriter(s), (iii) use its reasonable best efforts to obtain “comfort” letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any Subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement) who have certified the financial statements included in such Registration Statement, addressed to each Selling Holder of Registrable Securities (unless such accountants shall be prohibited from so addressing such letters by applicable standards of the accounting profession or such action is otherwise inconsistent with the then current practice in the accounting profession) and each of the managing underwriter(s), if any, such letters to be in customary form and covering matters of the type customarily covered in “comfort” letters in connection with underwritten offerings, (iv) if an underwriting agreement is entered into, the

Exh. 1.01(j)-13

same shall contain customary indemnification provisions and procedures, except as otherwise agreed by the Holders of a majority of the Registrable Securities being sold in connection therewith and the managing underwriter(s), if any, and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith, their counsel and the managing underwriter(s), if any, to evidence the continued validity of the representations and warranties made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required thereunder.

(p) Upon execution of a customary confidentiality agreement, make available for inspection by a representative of the Selling Holders, the managing underwriter(s), if any, and any attorneys or accountants retained by such Selling Holders or managing underwriter(s), at the offices where normally kept, during reasonable business hours, financial and other records, pertinent corporate documents and properties of the Company and its Subsidiaries, and cause the officers, directors and employees of the Company and its Subsidiaries to supply all information in each case reasonably requested by any such representative, managing underwriter(s), attorney or accountant in connection with such Registration Statement.

(q) Cause its officers to use their reasonable best efforts to support the marketing of the Registrable Securities covered by the Registration Statement (including, without limitation, by participation in “road shows” and appearing before rating agencies) taking into account the Company’s business needs.

(r) Otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC and any applicable national securities exchange, and make available to its security holders, as soon as reasonably practicable (but not more than 18 months) after the effective date of the registration statement, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act.

Section 2.5 Certain Additional Agreements .

(a) The Company may require each Selling Holder to furnish to the Company in writing such information required in connection with such registration regarding such Selling Holder and the distribution of such Registrable Securities as the Company may, from time to time, reasonably request in writing and the Company may exclude from such registration the Registrable Securities of any Selling Holder who fails to furnish such information within a reasonable time after receiving such request.

Exh. 1.01(j)-14

to be incorporated by reference in such Prospectus; provided, however, that (i) in no event shall such discontinuance exceed the time period set forth in Section 2.1(e) hereof, and (ii) the Company shall extend the time periods under Section 2.1 and Section 2.3 with respect to the length of time that the effectiveness of a Registration Statement must be maintained by the amount of time the Holder is required to discontinue disposition of such securities.

(c) The Company covenants and agrees that, so long as any Holder holds any Registrable Securities in respect of which any registration rights provided for in this Article II remain in effect, the Company will not, directly or indirectly, grant to any Person or agree to or otherwise become obligated in respect of rights of registration in the nature or substantially in the nature of those set forth in this Article II that would have priority over the Registrable Securities with respect to the inclusion of such securities in any registration by the Company (other than rights granted to a new registration rights holder after the date hereof to exercise a contractual right to demand registration that have terms no more favorable than the demand registration rights granted to the Holders in this Agreement), without the prior written consent of the Holders’ Representative. The Company has not entered into and will not enter into any agreement that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted prior to the date hereof to the holders of any of the Company’s other issued and outstanding securities under any such agreements.

(d) E ach Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it or an exemption therefrom in connection with sale of Registrable Securities pursuant to the Registration Statement.

Section 2.6 Indemnification .

Exh. 1.01(j)-15

document incident to any such registration, qualification, or compliance, or based on any omission (or alleged omission) to state therein (in the case of a final or preliminary Prospectus, in light of the circumstances under which they were made) a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or of the Exchange Act in connection with any such registration, qualification, or compliance; provided, that the Company will not be liable to a Selling Holder or underwriter, as the case may be, in any such case to the extent that any such Loss arises out of or is based on any untrue statement or omission by such Selling Holder or underwriter, as the case may be, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement (or in any preliminary or final Prospectus contained therein, any document incorporated by reference therein or Issuer Free Writing Prospectus related thereto), amendment of or supplement to any of the foregoing or other document in reliance upon and in conformity with written information furnished to the Company by such Selling Holder or underwriter specifically for inclusion in such document; and provided, further, that the Company will not be liable to any Person who participates as an underwriter in any underwritten offering or sale of Registrable Securities, or to any Person who is a Selling Holder in any non-underwritten offering or sale of Registrable Securities, or any other Person, if any, who controls such underwriter or Selling Holder within the meaning of the Securities Act, under the indemnity agreement in this Section 2.6 with respect to any preliminary Prospectus or the final Prospectus (including any amended or supplemented preliminary or final Prospectus), as the case may be, to the extent that any such loss, claim, damage or liability of such underwriter, Selling Holder or controlling Person results from the fact that such underwriter or Selling Holder sold Registrable Securities to a Person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final Prospectus as then amended or supplemented, whichever is most recent, if the Company has previously furnished copies thereof to such underwriter or Selling Holder and such final Prospectus, as then amended or supplemented, has corrected any such misstatement or omission. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Holder Indemnitee or any other Holder and shall survive the transfer of such securities. The foregoing indemnity agreement is in addition to any liability that the Company may otherwise have to each Holder Indemnitee.

Exh. 1.01(j)-16

state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a final or preliminary Prospectus, in light of the circumstances under which they were made) not misleading, in each case solely to the extent that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement (or in any preliminary or final Prospectus contained therein, any document incorporated by reference therein or Issuer Free Writing Prospectus related thereto), offering circular, or any amendment of or supplement to any of the foregoing or other document in reliance upon and in conformity with written information furnished to the Company by such Selling Holder expressly for inclusion in such document. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of its directors, officers or controlling Persons. The Company may require as a condition to its including Registrable Securities in any Registration Statement filed hereunder that the holder thereof acknowledge its agreement to be bound by the provisions of this Agreement (including Section 2.6) applicable to it.

(c) Conduct of Indemnification Proceedings . If any Person shall be entitled to indemnity hereunder (an “ indemnified party ” ), such indemnified party shall give prompt notice to the party from which such indemnity is sought (the “ indemnifying party ” ) of any claim or of the commencement of any Action with respect to which such indemnified party seeks indemnification or contribution pursuant hereto; provided, however, that the delay or failure to so notify the indemnifying party shall not relieve the indemnifying party from any obligation or liability except to the extent that the indemnifying party has been actually prejudiced by such delay or failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party promptly after the receipt of written notice from such indemnified party of such claim or Action, to assume, at the indemnifying party’s expense, the defense of any such Action, with counsel reasonably satisfactory to such indemnified party; provided, however, that an indemnified party shall have the right to employ separate counsel in any such Action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless: (i) the indemnifying party agrees to pay such fees and expenses; (ii) the indemnifying party fails reasonably promptly to assume, or in the event of a conflict of interest, as determined after receiving written advice from outside counsel, cannot assume, the defense of such Action or fails to employ counsel reasonably satisfactory to such indemnified party, in which case the indemnified party shall also have the right to employ counsel and to assume the defense of such Action; or (iii) in the indemnified party’s reasonable judgment, after receiving written advice from outside counsel, a conflict of interest between such indemnified and indemnifying parties may exist in respect of such Action; provided, further, however, that the indemnifying party shall not, in connection with any one such Action or separate but substantially similar or related Actions in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not reasonable. Whether or not such defense is assumed by the indemnifying party, such indemnified party will not be subject to any liability for any settlement made without its written consent (but such consent will not be unreasonably withheld or delayed). No indemnifying party will be subject to any liability for any settlement made without its written consent (but such consent will not be unreasonably withheld or delayed). The indemnifying party shall not consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by all claimants or plaintiffs to such

Exh. 1.01(j)-17

indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such claim or litigation.

(d) Contribution .


	(i) If the indemnification provided for in this Section 2.6 is unavailable to an indemnified party in respect of any Losses (other than in accordance with its terms), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission.

	(ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 2.6(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph.

	(iii) No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

(e) Limitation on Holder Liability . Notwithstanding anything to the contrary contained in this Agreement, an indemnifying party that is a Holder shall not be required to indemnify or contribute any amount in excess of the amount by which the net proceeds received by such Holder from the sale of the Registrable Securities sold by such Holder in the applicable offering exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reason of the applicable untrue or alleged untrue statement or omission or alleged omission.

Section 2.7 Rule 144; Rule 144A . The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Holder, make publicly available other information so long as necessary to permit sales pursuant to Rule 144 or 144A under the Securities Act), and it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 or 144A or Regulation S under the Securities Act, as such Rules may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder, the

Exh. 1.01(j)-18

Company will deliver to such Holder a written statement as to whether it has complied with such requirements and, if not, the specifics thereof.

Section 2.8 Underwritten Registrations . (a) If any offering of Registrable Securities is an underwritten offering, the Holders’ Representative shall have the right to select the investment banker or investment bankers and managers to administer the offering, subject to approval by the Company, not to be unreasonably withheld or delayed. The Company shall have the right to select the investment banker or investment bankers and managers to administer any incidental or piggyback registration.

(b) No Person may participate in any underwritten registration hereunder unless such Person (i) agrees to sell the Registrable Securities or Other Securities it desires to have covered by the registration on the basis provided in any underwriting arrangements in customary form (including pursuant to the terms of any over-allotment or “green shoe” option requested by the managing underwriter, provided that no such Person will be required to sell more than the number of Registrable Securities that such Person has requested the Company to include in any registration), and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements, provided that such Person (other than the Company) shall not be required to make any representations or warranties other than those related to title and ownership of shares and as to the accuracy and completeness of statements made in a Registration Statement, Prospectus or other document in reliance upon and in conformity with written information furnished to the Company or the managing underwriter(s) by such Person and, provided further , that such Person’s (other than the Company’s) liability in respect of such representations and warranties shall not exceed such Person’s net proceeds from the offering.

Section 2.9 Registration Expenses . The Company shall pay all reasonable documented expenses incident to the Company’s performance of or compliance with its obligations under this Article II, including, without limitation, (i) all registration and filing fees (including fees and expenses (A) with respect to filings required to be made with the SEC, all applicable securities exchanges and/or the Financial Industry Regulatory Authority and (B) of compliance with securities or Blue Sky laws including any fees and disbursements of counsel for the underwriter(s) in connection with Blue Sky qualifications of the Registrable Securities pursuant to Section 2.4(h)), (ii) printing expenses (including expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing Prospectuses if the printing of Prospectuses is requested by the managing underwriter(s), if any, or by the Holders of a majority of the Registrable Securities included in any Registration Statement), (iii) messenger, telephone and delivery expenses of the Company, (iv) fees and disbursements of counsel for the Company, (v) expenses of the Company incurred in connection with any road show, and (vi) fees and disbursements of all independent certified public accountants (including, without limitation, the expenses of any “comfort” letters required by this Agreement) and any other Persons, including special experts retained by the Company. In addition, the Company shall bear all of its internal expenses (including all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange on which similar securities issued by the Company are then listed and rating agency fees and the fees and expenses of any Person, including special experts,

Exh. 1.01(j)-19

retained by the Company. In addition, the Company shall pay the reasonable documented fees and disbursements of one firm of counsel (and, if needed, one firm of local counsel) for the SCA Shareholder Entity (but no Transferee or any other Person) in connection with registrations under Article II, but the Company shall not be obligated to pay any underwriting discounts attributable to sales of Registrable Securities by any Holder including the SCA Shareholder Entity.

Section 2.10 Securities Held by the Company or its Subsidiaries . Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, in the event that the Company or any of its Subsidiaries holds Registrable Securities, such Registrable Securities shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

ARTICLE III
MISCELLANEOUS

Section 3.1 Conflicting Agreements . Each party represents and warrants that it has not granted and is not a party to any proxy, voting trust or other agreement that is inconsistent with or conflicts with any provision of this Agreement.

Section 3.2 Termination . This Agreement shall terminate at such time as there are no Registrable Securities, except for the provisions of Sections 2.6, 2.7, 2.9 and this Article III, which shall survive such termination.

Section 3.3 Amendment and Waiver . This Agreement may not be amended except by an instrument in writing signed on behalf of each of the Company and the SCA Shareholder Entity (or, in the case of an amendment at any time when the SCA Shareholder Entity is not the sole Holder, signed on behalf of each of (i) the Company and (ii) the Holders of a majority of the aggregate number of Registrable Securities then held by all Holders). Any party hereto may waive any right of such party hereunder by an instrument in writing signed by such party and delivered to the other parties (or, in the case of a waiver of any rights of the Holders at any time when the SCA Shareholder Entity is not the sole Holder, by an instrument in writing signed by the Holders of a majority of the aggregate number of Registrable Securities then held by all Holders and delivered to the Company and the Holders’ Representative). The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

Section 3.4 Severability . If any provision of this Agreement shall be declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of this Agreement shall not be affected and shall remain in full force and effect.

Section 3.5 Entire Agreement . Except as otherwise expressly set forth herein, this Agreement and the Master Transaction Agreement, together with the several agreements and other documents and instruments referred to herein or therein or annexed hereto or thereto, embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or

Exh. 1.01(j)-20

representations by or among the parties, written or oral, that may have related to the subject matter hereof in any way.

Section 3.6 Successors and Assigns . Neither this Agreement nor any right or obligation hereunder is assignable in whole or in part by any party without the prior written consent of the other party hereto; provided that the SCA Shareholder Entity may transfer its rights and obligations hereunder (in whole or in part) to any Transferee (and any Transferee may transfer such rights and obligations to any subsequent Transferee) without the prior written consent of the Company. Any such assignment shall be effective upon receipt by the Company of (x) written notice from the transferring Holder stating the name and address of any Transferee and identifying the number of shares of Registrable Securities being acquired by the Transferee and with respect to which the rights under this Agreement are being transferred and the nature of the rights so transferred and (y) a written agreement in substantially the form attached as Exhibit A hereto from such Transferee to be bound by the applicable terms of this Agreement.

Section 3.7 Counterparts; Execution by Facsimile Signature . This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. This Agreement may be executed by facsimile signature(s).

Section 3.8 Remedies . (a) Each party hereto acknowledges that monetary damages would not be an adequate remedy in the event that any of the covenants or agreements in this Agreement is not performed in accordance with its terms, and it is therefore agreed that, in addition to and without limiting any other remedy or right it may have, the non-breaching party will have the right to an injunction, temporary restraining order or other equitable relief in any court of competent jurisdiction enjoining any such breach or threatened breach and enforcing specifically the terms and provisions hereof. Each party hereto agrees to waive any requirement for the securing or posting of any bond in connection with such remedy.

(b) All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party.

Section 3.9 Notices . All notices required or permitted hereunder shall be in writing and shall be deemed effectively given (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next Business Day or (iii) one Business Day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the addresses set forth below or such other address or facsimile number as a party may from time to time specify by notice to the other parties hereto:

If to the Company: Security Capital Assurance Ltd., 1221 Avenue of the Americas, New York NY 10020-1001; Attention: General Counsel; Fax: (212) 478-3587; and with a copy (which shall not constitute notice) to: Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153; Attention: Joseph Verdesca; Fax: (212) 310-8007.

Exh. 1.01(j)-21

If to the SCA Shareholder Entity: __________, [insert address]; Attention: __________; Fax: (___) ___-_____; and with a copy (which shall not constitute notice) to: [insert law firm and address]; Attention: __________; Fax: (___) ____-_____.

Section 3.10 Governing Law; Consent to Jurisdiction . (a) This Agreement shall be governed in all respects by the laws of the State of New York, without regard to its conflicts of laws principles.

(b) Each of the parties hereto (i) consents to submit itself to the personal jurisdiction of any Federal or state court located in the Borough of Manhattan in the City of New York, New York in the event any dispute arises out of this Agreement, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (iii) agrees that it will not bring any Action relating to this Agreement in any court other than a Federal or state court located in the Borough of Manhattan in the City of New York, New York.

(c) Each of the parties hereto hereby irrevocably and unconditionally waives trial by jury in any legal Action or proceeding in relation to this Agreement and for any counterclaim therein.

Section 3.11 Interpretation . In this Agreement, the SCA Shareholder Entity shall be deemed to be the Trust, the Trustee (or any trustee or trustees of the Trust) acting in its capacity as such trustee, in each case as the context may require to be most protective of the interests of the Company.

[signature page follows]

Exh. 1.01(j)-22

IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first written above.


	SECURITY CAPITAL ASSURANCE LTD.

	By:

	Name:
	Title:

	[SCA SHAREHOLDER ENTITY]

	By:

	Name:
	Title:

Exh. 1.01(j)-23

EXHIBIT A

JOINDER

Reference is made to the Registration Rights Agreement dated as of [________], 2008 (as amended from time to time, the “ Registration Rights Agreement ”) among Security Capital Assurance Ltd., a Bermuda exempted company, ______________ [a Bermuda exempted company [limited by guarantee]], and each other person who shall have become a party to the Registration Rights Agreement in accordance with the terms thereof.

By execution of this Joinder, the undersigned agrees to become a party to the Registration Rights Agreement and to be bound by the terms, conditions, restrictions and provisions thereof as a “ Holder ” thereunder, entitled to all of the rights available thereto and subject to all of the burdens imposed thereon.


Name:

Address for Notices:		With Copies to:

Signature:


Date:

Exh. 1.01(j)-24

EXHIBIT 1.01(k)

FORM OF TRANSITION AGREEMENT AMENDMENT

Exhibit 1.01(k)

AMENDMENT NO. 2 TO TRANSITION AGREEMENT

AMENDMENT NO. 2 dated as of [______], 2008 (this “ Amendment No. 2 ”) among XL Capital Ltd., a Cayman Islands company (“ XL Capital ”), XL Insurance (Bermuda) Ltd., a Bermuda company (“ XLI ”), X.L. America, Inc., a Delaware corporation (“ XLA ”), and Security Capital Assurance Ltd., a Bermuda company (“ SCA ” and collectively with XL Capital, XLI, and XLA, the “ Parties ”).

WHEREAS, on August 4, 2006, the Parties entered into a certain transition agreement, as amended on May 3, 2007 (the “ Transition Agreement ”); and

WHEREAS, the Parties have entered into that certain Master Commutation, Release and Restructuring Agreement dated as of July __, 2008 (the “ Master Restructuring Agreement ”) among SCA, XL Capital Assurance Inc., XL Financial Assurance Ltd., XL Financial Administrative Services Inc., SCA Bermuda Administrative Ltd., XL Capital Assurance (U.K.) Limited and those Portfolio Trusts a party thereto, XL Capital, XLI, XL Reinsurance America Inc., X.L. Global Services Inc., XL Services (Bermuda) Limited and XLA and the consenting counterparties party thereto, pursuant to which the Parties have agreed to amend the Transition Agreement.

NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein and in the Master Restructuring Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows:

Section 1. Definitions . Capitalized terms not otherwise defined in this Amendment No. 1 shall have the meanings ascribed to them in the Transition Agreement.

Section 2. Amendments. Articles III, VII, and IX of the Transition Agreement are hereby amended as follows:

2.1 The second and third paragraphs of Section 3.3 shall be stricken and deleted in their entirety, including any other references to such paragraphs of such section as it appears in the Transition Agreement.

2.2 Section 7.1 of the Transition Agreement shall be stricken and deleted in its entirety, including any other references to such section as it appears in the Transition Agreement.

2.3 The second sentence of Section 7.5(b) and the second sentence of Section 7.5(c) of the Transition Agreement shall be stricken and deleted in their entirety, including any other references to such sections as it appears in the Transition Agreement.

2.4 Section 7.7 of the Transition Agreement shall be stricken and deleted in its entirety, including any other references to such section as it appears in the Transition Agreement.

2.5 Section 7.8 of the Transition Agreement shall be stricken and deleted in its entirety, including any other references to such section as it appears in the Transition Agreement.

Exh. 1.01(k)-1

2.6 Section 9.12 of the Transition Agreement shall be stricken and deleted in its entirety, including any other references to such section as it appears in the Transition Agreement.

Section 3. Voting Restriction Termination Event . The Parties hereby acknowledge and agree that upon transfer of all of the SCA common shares owned by the XL Group to the SCA Shareholder Entity (as defined in the Master Restructuring Agreement) or upon deposit of certificates evidencing all of the SCA common shares owned by the XL Group with the Escrow Agent (as defined in the Master Restructuring Agreement) pursuant to the terms of the Master Restructuring Agreement, a Voting Restriction Termination Event will be deemed to occur.

Section 4. Miscellaneous .

4.1 Except as provided herein, the Transition Agreement shall remain unchanged and in full force and effect.

4.2 This Amendment No. 2 may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one and the same amendatory instrument. This Amendment No. 2 may be executed by facsimile signature(s).

4.3 This Amendment No. 2 shall be governed by, and construed in accordance with, the laws of the state of New York, without regard to its conflict of laws principles. The Parties consent to the non-exclusive jurisdiction of the courts of New York.

4.4 The Parties hereby forever waive and release each other and their respective subsidiaries, affiliates, predecessors, and successors in interest, and all of their current, past, and future officers, directors, partners, principals, agents, insurers, servants, employees, representatives, attorneys, and advisors, acting in their capacities as such, from any and all claims, liabilities, causes of action, demands, and damages of whatever kind or nature and whether known or unknown arising under the Transition Agreement prior to the Closing Date (as defined in the Master Restructuring Agreement).

[Signature Page to Follow]

Exh. 1.01(k)-2

IN WITNESS HEREOF, the Parties have caused this Amendment No. 2 to the Transition Agreement to be duly executed and delivered as of the day and year first written above.


	XL Capital Ltd.

	By:

	Name:
	Title:

	XL Insurance (Bermuda) Ltd.

	By:

	Name:
	Title:

	X.L. America, Inc.

	By:

	Name:
	Title:

	Security Capital Assurance Ltd.

	By:

	Name:
	Title:

Exh. 1.01(k)-3

EXHIBIT 2.06

CUSTOMARY SECURITIES LAW REPRESENTATIONS

Exhibit 2.06

CUSTOMARY SECURITIES LAW REPRESENTATIONS

Capitalized terms used, but not otherwise defined herein, have the same meaning as defined in the Agreement to which this document is attached as Exhibit 2.06 .

The SCA Shareholder Entity represents, warrants and agrees as follows:

(a) Investment Purpose . The SCA Shareholder Entity is obtaining the XL Owned SCA Common Shares for investment purposes only and not with a view to or for distributing or reselling such XL Owned SCA Common Shares or any part thereof, without prejudice, however, to its right, subject to any transfer restrictions, to sell or otherwise dispose of all or any part of the XL Owned SCA Common Shares pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities or “blue sky” laws.

(b) Compliance with Securities Act . The SCA Shareholder Entity agrees that any sale of the XL Owned SCA Common Shares shall be made in compliance with the registration requirements of the Securities Act or any applicable exemption therefrom.

(c) Reliance on Exemptions . The SCA Shareholder Entity understands that the XL Owned SCA Common Shares are being offered and issued to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities or “blue sky” laws, and, assuming that the transfer of the XL Owned SCA Common Shares to the SCA Shareholder Entity in accordance with the terms of the Agreement is made in compliance with the Securities Act, the SCA Shareholder Entity agrees that any subsequent sale of the XL Owned SCA Common Shares by it will not cause such transfer by the XL Parties to violate the provisions of the Securities Act.

(d) Authorization; Enforceability . This Agreement has been duly and validly authorized by the SCA Shareholder Entity. This Agreement has been duly executed and delivered on behalf of the SCA Shareholder Entity, and constitutes the valid and binding agreement of the SCA Shareholder Entity enforceable in accordance with their terms, subject, in each case, to applicable bankruptcy, insolvency, reorganization or similar laws affecting generally the enforcement of creditors’ rights and subject to a court’s discretionary authority with respect to the granting of specific performance or other equitable remedies.

(e) No Conflicts . The execution and performance of this Agreement does not conflict with any agreement to which the SCA Shareholder Entity is a party or is bound thereby, any court order or judgment addressed to the SCA Shareholder Entity, or the constituent documents of the SCA Shareholder Entity.

(f) Interpretation . Any reference to the “SCA Shareholder Entity” for purposes of this letter shall be deemed to be the relevant trust and/or the trustee(s) thereof acting in its(their) capacities as such trustee(s), in each case as the context may require to be most protective of the XL Parties, including for purposes of such trustee(s)’ representations and warranties as to their power and authority as trustee(s) and the non-contravention of the trust’s governing instruments.

Exh. 2.06-1

EXHIBIT 6.18

FORM OF SCA SHAREHOLDER ENTITY TRUST AGREEMENT

Exhibit 6.18

DATED [___________], 2008

* Subject to further review and comment by the parties, including by the trustee and its counsel

[_____________]

[Draft 30/07/2008]

DEED CONSTITUTING

The [__________] Purpose Trust

THIS DECLARATION OF TRUST dated [__________] 2008 is made BY [____________], a company incorporated under the laws of Bermuda whose registered office is at [___________], Bermuda (“the First Trustee”).

BACKGROUND


(A)	The First Trustee wishes to create a purpose trust within the meaning of the Trusts (Special Provisions) Act 1989, in the terms set out below and wishes to declare that it holds the Trust Fund upon the trusts and subject to the powers and provisions set out below.

(B)	Further money investments or other property may be paid or transferred to the Trustees to hold on the trusts set out below.

(C)	Simultaneously with the execution of this deed, the Company (as defined below) has entered into a deed of covenant and indemnity in favour of the First Trustee in the form set out in Schedule D.

OPERATIVE PROVISIONS


1.	NAME

	This Trust shall be known as [__________] or by such other title as the Trustees may from time to time determine in writing.

2.	DEFINITIONS AND CONSTRUCTION

	In this Trust where the context admits the following definitions and rules of construction shall apply:

	2.1	“affiliate” means, with respect to any person, any other person directly or indirectly Controlling, Controlled by or under common Control with such person, provided that none of the SCA Parties shall be deemed to be an affiliate of any XL Party. “Control,” “Controlled,” or “Controlling,” with respect to the relationship between or among two or more persons, means the possession, directly or indirectly, or as trustee, personal representative or executor, of the power to direct or cause the direction of the affairs or management of a person, whether through the ownership of voting securities, as trustee, as personal representative or executor, by contract, by credit arrangement or otherwise.

	2.2	“assets” shall be construed according to the widest generality and any reference in this Trust to any asset other than money shall include the proceeds of sale of that asset.

Exh. 6.18-1


	2.3	“charitable purposes” means purposes and objects recognised as charitable by the Governing Law.

	2.4	“charity” means any trust, foundation, institution, corporation or unincorporated body in any part of the world established exclusively for charitable purposes.

	2.5	“the Company” shall mean Security Capital Assurance Ltd, a Bermuda exempted company.

	2.6	“the Consenting Counterparties” means such counterparties to credit default swap agreements with affiliates of XLCA that may become party to the Master Restructuring Agreement from time to time in accordance with the terms thereof.

	2.7	“the Consenting Counterparty Restructuring Agreement” means that certain agreement entered into after the date hereof among the SCA Parties and Consenting Counterparties representing not less than the Minimum Consenting CDS Counterparty Restructuring Threshold (as such term is defined in the Master Restructuring Agreement) to give effect to the CDS Counterparty Restructuring (as such term is defined in the Master Restructuring Agreement).

	2.8	“the Consenting Counterparties Enforcer” means the Consenting Counterparties or the Consenting Counterparties Enforcer for the time being of this Trust as appointed in accordance with the provisions of Schedule C.

	2.9	“corporation” or “corporate body” means any body, public or private, incorporated anywhere in the world and includes any company or corporation whether limited by shares or by guarantee and any other legal entity or organisation, such as without limitation, a limited partnership, a general partnership, limited liability company or a limited duration company.

	2.10	“the Enforcers” shall be the persons named in Schedule C or such additional or other person or persons who is or are for the time being occupying the office of Enforcers pursuant to the provisions of Schedule C.

	2.11	“the Governing Law” means, subject to any change effected by clause 9, the law of Bermuda which law shall govern all matters of validity, construction, effect and administration of this Trust.

	2.12	“the Master Restructuring Agreement” means the Master Commutation, Release and Restructuring Agreement dated as of July [ ], 2008 among the Company, XLCA, XLI, the Consenting Counterparties and the other parties thereto, as amended, supplemented or otherwise modified from time to time.

	2.13	“person” means any individual or corporation and shall be taken to include any charity (whether or not incorporated) and any non-charitable unincorporated body.

Exh. 6.18-2


2.14	“proceeds” means all assets received upon the sale or other any disposition of an asset comprised in the Trust Fund other than new additional or changed number of the Shares of the Company received in a transaction described in Clause 7.2.

2.15	“the Purposes” means those purposes set out in Clause 3.

2.16	“SCA Registration Rights Agreement” means the Registration Rights Agreement dated as of the date hereof between the Company and the First Trustee, as amended, supplemented or otherwise modified from time to time.

2.17	“the Restructuring Effective Time” shall mean such time that the Consenting Counterparty Restructuring Agreement shall first become effective.

2.18	“securities” includes shares, stocks, bonds, notes, debentures and debenture stock and any interest of a member in a corporation (and any options or warrants in respect of any of them) and includes securities payable to bearer and otherwise transferable by delivery, with or without endorsement.

2.19	“SCA Parties” has the meaning set forth in the Master Restructuring Agreement.

2.20	“SCA Shareholder Agreement” means the Shareholder Agreement [dated as of the date hereof] between the Company and the Trustees, as amended, supplemented or otherwise modified from time to time.

2.21	“the Shares” means the [ ] common shares of the Company which represent approximately [46]% of the outstanding common shares of the Company and all of the common shares of the Company beneficially owned by XLI immediately prior to the transfer of such common shares to this Trust in accordance with the terms of the Master Restructuring Agreement.

2.22	“taxes” means any tax, duty or other fiscal imposition arising anywhere in the world.

2.23	“the Termination Date” means the earliest to occur of:

	2.23.1	the expiration of the period of five years commencing at the date of this Trust (which period shall be the applicable perpetuity period) if the Restructuring Effective Time shall not have occurred prior to such time;

	2.23.2	the Trustees’ distribution of all proceeds from the sale or other disposition of all assets comprised in the Trust Fund to the relevant parties in accordance with the provisions of Clause 5.1; and

	2.23.3	from and after the Restructuring Effective Time, in accordance with the terms of the Consenting Counterparty Restructuring Agreement.

2.24	“this Trust” means the trust created by this deed.

Exh. 6.18-3


	2.25	“trust corporation” has the meaning, if any, given to that term under the Governing Law.

	2.26	“the Trustees” means the First Trustee or the trustee or trustees for the time being of this Trust.

	2.27	“the Trust Fund” means:-

		2.27.1	the Shares;

		2.27.2	all assets paid or transferred to, or so as to be under the control of the Trustees as additions to the Trust Fund;

		2.27.3	all accumulations (if any) of income added to the Trust Fund; and

		2.27.4	the assets from time to time representing the above.

	2.28	“XLCA” means XL Capital Assurance Inc., a New York insurance company.

	2.29	The “XLCA Enforcer” means XLCA or the XLCA Enforcer for the time being of this Trust as appointed in accordance with the provisions of Schedule C.

	2.30	“XLI” means XL Insurance (Bermuda) Ltd (formerly known as X.L. Insurance Ltd), a Bermuda exempted company.

	2.31	“XL Party” has the meaning set forth in the Master Restructuring Agreement.

	2.32	Words denoting the singular shall include the plural and vice versa.

	2.33	Words denoting any gender shall include both the other genders.

	2.34	References to any statutory provision shall include any statutory modification or re-enactment of such provision.

	2.35	Clause headings are included for reference and shall not affect the interpretation of this deed.

3.	PURPOSES

	3.1	Subject to the provisions of Clause 4 and Clause 5, the Trustees shall hold the Trust Fund and the income of the Trust Fund on trust to pay or apply all or any part or parts of the Trust Fund and the income of the Trust Fund, at such time or times and in such manner, for or towards or in furtherance of the following purposes as the Trustees may in their discretion think fit.

Exh. 6.18-4


	3.2	The purposes of this Trust are:-

		3.2.1	To subscribe for or otherwise acquire, whether by purchase or receipt of a contribution or gift, ownership or effective control of the Shares and to take such actions as are necessary or appropriate, consistent with the terms of this Trust as determined in the Trustees’ discretion exercised in good faith, to maximise the value of the Trust Fund for;

			(a)	XLCA prior to the Restructuring Effective Time; and

			(b)	the Consenting Counterparties in accordance with the Consenting Counterparty Restructuring Agreement from and after the Restructuring Effective Time.

		3.2.2	Without limiting the foregoing to engage in the following activities:

			(a)	to own, hold, manage and/or dispose of the Trust Fund in accordance with the terms of this Trust;

			(b)	to pay any dividends or distributions arising from the Trust Fund and any proceeds of any sale or other disposition of any or all of the Trust Fund to (a) prior to the Restructuring Effective Time, XLCA, which dividends, distribution or payment to XLCA shall be treated as “SCA Share Sale Proceeds” for purposes of Section 6.12 of the Master Restructuring Agreement, or (b) from and after the Restructuring Effective Time, as set forth in the Consenting Counterparty Restructuring Agreement; and

			(c)	to perform or cause to be performed all of the other obligations of the Trustees under this Trust.

		3.2.3	To exercise the Trustees’ rights as shareholder of the Company and provide such support and assistance as considered advisable by the Trustees in accordance with Clause 1.2.3 of Schedule B and Clause 1.2.4 of Schedule B but otherwise in their absolute discretion and any other actions that in the sole judgement and absolute discretion of the Trustees are necessary, advisable or desirable to accomplish the foregoing or are incidental thereto.

		3.2.4	To exercise the voting rights attaching to the Shares as may be appropriate to carry out the purposes of this Trust.

4.	PAYMENT OF DIVIDENDS AND ACCUMULATION OF INCOME

	4.1	If the Company pays or issues dividends or makes other distributions relating to the Trust Fund or if any other income arises from the Trust Fund, the Trustees shall accept and receive such dividends, distributions and other income. Upon receipt of any such dividends, distributions or other income and subject to the provisions of

Exh. 6.18-5


		Clause 4.2, such dividends, distributions and other income shall be distributed promptly:

		4.1.1	prior to the Restructuring Effective Time, to XLCA, which payment or distribution to XLCA shall be treated as “SCA Share Sale Proceeds” for purposes of Section 6.12 of the Master Restructuring Agreement; and

		4.1.2	from and after the Restructuring Effective Time, pursuant to the terms of the Consenting Counterparty Restructuring Agreement.

	4.2	If the dividend, distribution or other income is in securities, such securities shall be held in accordance with the terms of this Trust.

5.	PROCEEDS OF DISPOSITION

	5.1	The proceeds of any sale or other disposition of all or any assets comprised in the Trust Fund shall be paid promptly and in no event later than two business days after such sale, together with any interest earned thereon:

		5.1.1	prior to the Restructuring Effective Time, to XLCA, which payment or distribution to XLCA shall be treated as “SCA Share Sale Proceeds” for purposes of Section 6.12 of the Master Restructuring Agreement; and

		5.1.2	from and after the Restructuring Effective Time, pursuant to the terms of the Consenting Counterparty Restructuring Agreement.

	5.2	Together with the proceeds of any disposition as described in Clause 5.1, the Trustees shall deliver a notice setting forth the calculation thereof to XLCA and the Consenting Counterparties.

6.	TERMINATION PROVISIONS

	On the Termination Date the Trustees shall cease the application of the capital and income of the Trust Fund towards the Purposes and:

	6.1	Upon termination of this Trust in accordance with Clause 2.23.1 the Trustees shall deliver to XLCA a certificate or certificates for the Shares, properly endorsed for transfer and any other property constituting the Trust Fund.

	6.2	Upon termination of the Trust in accordance with Clause 2.23.3, the Trustees shall deliver a certificate or certificates for the Shares, properly endorsed for transfer and any other property constituting the Trust Fund in accordance with the provisions of the Consenting Counterparty Restructuring Agreement.

Exh. 6.18-6


7.	BUSINESS COMBINATIONS AND RECAPITALISATIONS

	7.1	Any merger, consolidation, reorganisation or dissolution of the Company or the sale of all or substantially all of the assets of the Company pursuant to which common shares or other voting securities of another corporation are to be issued in payment or exchange for or upon conversion of the Shares shall constitute a disposition of the Shares which shall be subject to the provisions of Clause 5.

	7.2	In the event of an increase in the amount of outstanding common shares of the Company by virtue of a stock split or the decrease in the number of common shares of the Company because of a contraction of shares or a change in the number of outstanding shares as a result of some other capitalisation in which the Company receives no consideration for the issuance of the additional or reduced amount of common shares, the new additional or changed number of the Shares shall be held by the Trustees.

8.	ADMINISTRATION AND MANAGEMENT

	8.1	Subject to the provisions of Clause 1.2.3 of Schedule B and Clause 1.2.4 of Schedule B the Trustees shall conduct the affairs of this Trust in such manner as they may consider appropriate, and they shall make such arrangements in relation to the administration of this Trust as they consider advisable to further the purposes of this Trust.

	8.2	The Trustees shall in addition and without prejudice to all other powers at law have the powers and immunities set out in the Schedule to section 17 of The Trusts (Special Provisions) Act 1989 (except those contained in Clauses 3(b) and 4(6) thereof) which shall be incorporated herein by reference to form Clause 1 of Schedule A hereto and renumbered to follow sequentially without the incorporation of the above mentioned excepted clauses provided that all references to a beneficiary or beneficiaries in such Schedule shall be deemed to refer to the purposes of this Trust and additionally the Trustees shall have the powers and provisions set out in Clause 2 of Schedule A provided that the Trustees shall not exercise any of their powers other than in furtherance of the purposes of this Trust.

	8.3	In the event that there is any conflict between any one or more of the provisions comprised in or incorporated into Schedule A hereto (“the servient provisions”) and any provision or provisions of this Trust other than those comprised in or incorporated into Schedule A hereto (“the dominant provisions”), the dominant provisions shall prevail.

9.	POWER TO CHANGE GOVERNING LAW AND FORUM

	9.1	The Trustees may at any time or times before the Termination Date declare by writing (with the written consent of the Enforcers) that from the date of the declaration (and subject to any future declaration in exercise of this power) the

Exh. 6.18-7


		Governing Law shall be changed to the law of some other jurisdiction, state or territory in any part of the world.

	9.2	So often as any declaration shall be made the Trustees may make such consequential alterations or additions in or to the trusts, powers and provisions of this Trust as the Trustees may consider necessary or desirable to ensure that the trusts, powers and provisions of this Trust shall (mutatis mutandis) be as valid and effective under the new Governing Law as they are under the original Governing Law of this Trust.

	9.3	Subject to the power to change the forum for the administration of this Trust contained below, the forum for the administration of this Trust shall be the courts of the Governing Law.

	9.4	The Trustees may at any time or times declare by writing (with the written consent of the Enforcers) that from the date of the declaration (and subject to any future declaration in exercise of this power) the forum for the administration of this Trust shall be the courts of any jurisdiction in the world, whether or not such courts are of the jurisdiction which is for the time being the Governing Law of this Trust.

	9.5	The Trustees may carry on the general administration of this Trust in any jurisdiction in the world, whether or not the jurisdiction is for the time being the Governing Law of this Trust or the courts of the jurisdiction are for the time being the forum for the administration of these trusts and whether or not the Trustees or any of them are for the time being resident and/or domiciled in, or incorporated in and/or carrying on business in, or otherwise connected with, the jurisdiction.

10.	IRREVOCABLE TRUST AND POWER TO VARY

	This Trust is irrevocable provided however that, subject to the provisions of Clause 11, the Trustees may in writing (but only with the written consent of the Enforcers) vary, add to, alter or amend any or all of the provisions of this Trust (including, without limitation, the purposes in clause 3) as the Trustees in their absolute discretion think fit.

11.	BENEFICIAL OWNERSHIP AND PROHIBITED TRANSFERS OR SALES

	11.1	Notwithstanding any provision of this Trust to the contrary the Trustees shall be obligated at all times prior to the Termination Date to retain beneficial ownership of the Shares until they are sold or otherwise disposed of in accordance with the terms of this Trust.

	11.2	Notwithstanding any provision of this Trust to the contrary, the Trustees may not, under any circumstances, transfer any of the Shares to any SCA party, any Consenting Counterparty or any of their respective affiliates prior to the Termination Date.

Exh. 6.18-8


	11.3	Notwithstanding any provision of this Trust to the contrary no sale or other disposition of the Shares may be made prior to October 15, 2008, except as set forth in the Consenting Counterparty Restructuring Agreement.

IN WITNESS whereof the First Trustee has executed and delivered this instrument as its deed on the date shown on page one.

Exh. 6.18-9

SCHEDULE A

In furtherance of the Purposes and subject to Clause 8.2 and Clause 8.3 above but not further or otherwise the Trustees shall have the following additional powers:-


1.	Incorporation by Reference

	Further administrative powers incorporated by reference to the Trusts (Special Provisions) Act 1989, as amended.

2.	Further Powers

	2.1	to construct, maintain, improve or alter any buildings or works (so far as necessary for carrying out the purposes of the this Trust) on land comprised in the Trust Fund;

	2.2	to sell, lease, demise, let, license and generally manage and deal with any land or buildings or interest therein in such manner as the Trustees shall think fit;

	2.3	to borrow money subject to such consents as may be required by law on such terms as to interest repayment or otherwise as the Trustees may think fit without security or (subject as aforesaid) upon the security of the whole or any part or parts of the Trust Fund and to use such money so borrowed for any purpose for which capital of the Trust Fund may be used;

	2.4	to seek the advice of any person who is in the opinion of the Trustees qualified to advise on the management of any land comprised in the Trust Fund or the making and changing of investments of this Trust;

	2.5	to employ any person firm or company not being a Trustee to manage or assist in managing the Trust Fund upon such reasonable terms as the Trustees think fit and to pay a secretary and other such officials or staff not being a trustee as the Trustees may in their discretion from time to time determine and to enter into agreements and to fix such reasonable salaries as the Trustees may deem proper and to enter into any service agreements which they shall consider to be necessary including the power to determine any such employment upon such terms as the Trustees may decide and to make all reasonable and necessary provisions for the payment of pensions and superannuation to or on behalf of employees and their widows or widowers and dependants;

	2.6	to apply capital or income in insuring any buildings or other property to their full value;

	2.7	when making grants of any funds to any charities to accept as a good discharge in respect of any such funds the receipt of the treasurer or secretary or other authorized officer for the time being of such charities;

Exh. 6.18-10


	2.8	in respect of any property subject to the trust hereof to vest the same in any corporation or any other person or persons (whether or not being one or more of the Trustees) as nominee or nominees for the Trustees;

	2.9	to make contributions as they may think fit or otherwise to assist (and whether out of capital or income) towards the purposes of this Trust;

	2.10	to pay and discharge any rent rates taxes costs of insurance improvements repairs or other outgoings payable from time to time in respect of any property held subject to these trusts and to pay and discharge all expenses incurred in the exercise of any powers conferred upon the Trustees by, or in conformity with, the provisions of this deed or by any transfer to the Trustees upon these trusts of any freehold leasehold or other property any legal or other administrative expenses payable from time to time in connection with these trusts or with any property held on such trusts;

	2.11	to invest any moneys for the time being comprised in the Trust Fund and also in the hands of the Trustees and for the time being unapplied in the names or under the control of the Trustees in or upon any investments authorised by this deed with power to vary or transpose investments for or into others of any nature so authorised;

	2.12	to do all such lawful acts or things as shall further the attainment of the purposes of this Trust and so far as may be necessary to do such acts or things in collaboration with any person.

Exh. 6.18-11

SCHEDULE B

Rights and Immunities of the Trustees


1.	Width of discretions

	1.1	Every power by this Trust or by law conferred on the Trustees shall confer an absolute discretion.

	1.2	In amplification of the foregoing;

		1.2.1	subject to the provisions of Clause 11.3 above, the Trustees shall have the exclusive power and authority in their sole discretion, exercised in good faith in accordance with the Purposes, to sell (and to determine the terms and conditions of such a sale), all or a portion of the Shares in one or more private or public transactions in accordance with the applicable laws, whether in whole or in part;

		1.2.2	subject to the provisions of Clause 1.2.3 of this Schedule, the Trustees shall have the exclusive right and obligation to vote the Shares and at all times prior to the Termination Date the Trustees shall have full power and authority, and are empowered to vote (or give written consent in person or by proxy, at all meetings of shareholders of the Company), the Shares as they in their sole judgement, believe to be in accordance with the Purposes and to do any and all other things and take any and all other actions as fully as any shareholder of the Company might do if personally present at a meeting of the shareholders of the Company or otherwise, all to the fullest extent permitted by law;

		1.2.3	if at any time the Trustees shall have the right pursuant to the SCA Shareholder Agreement to nominate one or more nominees to the Company’s board of directors, the Trustees shall nominate such person or persons in accordance with the procedures set forth on Schedule E;

		1.2.4	the Trustees shall not amend or modify the SCA Shareholder Agreement or the Registration Rights Agreement without the prior written consent of the Enforcers; and

		1.2.5	subject to the above the Trustees shall have the exclusive power and authority in their sole discretion exercised in good faith in accordance with the Purposes, to exercise, direct and enforce any and all rights that the Trustees may have under the SCA Shareholder Agreement (including the determination as to whether to assert any claim, commence any action or settle, dismiss or continue the prosecution of any such action).

	1.3	The Trustees may exercise any power by this Trust or by law conferred by majority. Any trustee who is not a member of such majority (including a dissenting

Exh. 6.18-12


		trustee) shall be obliged to join in any deed or writing made, or act to be done, in the name of the Trustees pursuant to a majority decision of the Trustees if requested by the majority of the Trustees to do so.

2.	Release or restriction of powers

	The Trustees may release or restrict the future exercise of any power by this Trust or by law conferred on the Trustees notwithstanding the fiduciary nature of such power. Any release or restriction shall bind any future trustee unless the contrary is expressly stated.

3.	Indemnity

	3.1	Each Trustee shall be entitled to a full indemnity out of the capital and/or income of the Trust Fund in respect of any costs, expenses or any other liabilities of whatsoever nature (including any taxes and associated penalties and interest for which they are personally liable and any liability which may be payable to an Outgoing Trustee (as defined below)) incurred by the trustee in or about the professed execution of the trusts and powers of this Trust, but not in respect of any costs, expenses or any other liabilities incurred by any trustee in acting or omitting to act in a manner in which the trustee is not entitled to the protection of the exclusion of liability provisions contained in this Trust.

	3.2	Any of the Trustees (including an Outgoing Trustee as defined below) shall be entitled to assert a lien over any of the capital and/or income of the Trust Fund in order to secure his right of indemnity or, at his election, to release any capital and/or income of the Trust Fund subject to the recipient and/or the continuing trustee (as the case may be) granting to the trustee (and the trustee’s successors and assigns) a charge over the released assets securing the right of indemnity and/or an express indemnity.

	3.3	Without prejudice to the entitlement of a retiring or removed trustee to request that the trustee be granted an express indemnity on retirement or removal, the rights of indemnity conferred by this Trust shall endure following the retirement or removal, death or (as the case may be) liquidation of a trustee (an “Outgoing Trustee”) to the intent that an Outgoing Trustee and his personal representatives or (as the case may be) its liquidator shall be entitled to assert the same rights of indemnity in respect of costs, expenses or other liabilities of whatsoever nature (including any taxes for which the Outgoing Trustee is personally liable) as the Outgoing Trustee would have been entitled to assert had the Outgoing Trustee remained in office as a trustee of this Trust at the time when the right of indemnity is asserted.

4.	Exclusion of liability

	4.1	In the professed execution of the trusts and powers of this Trust, no trustee or member or officer or employee of any corporation which is a trustee of this Trust shall be liable for any loss to the Trust Fund or the income of the Trust Fund arising

Exh. 6.18-13


		by reason of any improper investment made or retained in good faith, or for the negligence or fraud of any agent, nominee, delegate or sub-delegate appointed by or with the authority of the Trustees or any of them (notwithstanding that the appointment of the agent, nominee, delegate or sub-delegate was not strictly necessary or expedient), or by reason of any mistake or omission made in good faith by any trustee, or by reason of any other matter or thing whatsoever undertaken in good faith, except:

		4.1.1	deliberate fraud or other deliberate wrongdoing;

		4.1.2	wilful misconduct or wilful neglect; and

		4.1.3	in the case of a professional trustee or a corporate trustee in business as a trustee, reckless misconduct on the part of the particular trustee who it is sought to make liable.

	4.2	Without prejudice to the generality of the foregoing:

		4.2.1	in any case where the Trustees have appointed and reasonably relied in good faith on a person or persons to manage investments, the Trustees shall not be liable for any loss arising out of the failure of the investment policy implemented by or at the direction of that person or those persons; and

		4.2.2	the exclusion of liability provided for above shall extend to any matter or thing arising out of any trustee, or any member or officer or employee of a corporate trustee, acting in good faith as a member or officer or employee of any corporation incorporated or acquired pursuant to the powers of the Trustees.

5.	Supervision of officers of corporations

	The Trustees shall not be bound or required to interfere in the management or conduct of the business of any corporation and may waive any requirement for the appointment of auditors or for the preparation of accounts even though the Trustees control the whole or the majority of the securities of such corporation (or of its parent corporation). So long as the Trustees shall have no notice of any act of dishonesty or misappropriation of assets or other deliberate misconduct on the part of the officers or employees having the management of any corporation, the Trustees shall be at liberty to leave the conduct of its business (including the payment or non-payment of dividends) wholly to its officers or employees.

Exh. 6.18-14


6.	Charging clauses

	6.1	Any of the Trustees who shall be an individual engaged in any profession or business either alone or in partnership:

		6.1.1	may be appointed to act as a trustee on a like charging basis to that provided for in relation to corporate trustees below; and

		6.1.2	subject to that, shall be entitled to charge and be paid all professional or other proper charges for business done or time spent or services rendered by the trustee or his firm in connection with this Trust, whether or not within the usual scope of his or his firm’s profession or business and including acts which a trustee not being in any profession or business could have done personally.

	6.2	Any of the Trustees which shall be a trust corporation or other corporate trustee shall be entitled to charge and be paid the fees for its services as may be agreed at the time of its appointment by the Enforcers and the terms and conditions relating to fees may include provision for the subsequent variation of the fees from time to time with the agreement of the Enforcers. In the absence of an agreement, any trust corporation or corporate trustee shall be entitled to charge and be paid fees for its services in accordance with its usual scale or schedule of fees from time to time in effect.

7.	Incidental profits

	7.1	Any trustee or any member or officer or employee of any corporate trustee of this Trust may act as an officer or employee of any corporation (or of any subsidiary of such corporation) the securities of which are comprised in the Trust Fund and may retain any remuneration or other benefits received by virtue of the office or employment notwithstanding that any votes or other rights attaching to the securities have been instrumental in procuring or maintaining that person in the remunerated office or employment.

	7.2	Any trustee or any member or officer or employee of any corporate trustee of this Trust or any corporation in the same group of corporations as any corporate trustee of this Trust shall be entitled to retain any brokerage or commission paid by any broker, agent or insurance office to that person (or his firm) in connection with the acquisition or dealing with any assets or the effecting of, or payment of, any premium on any policy subject or intended to become subject to this Trust.

	7.3	Any trustee or any firm or corporation of which a trustee is a member or officer or employee or any corporation in the same group of corporations as any corporate trustee of this Trust which carries on the business of banking or providing investment services may act as banker or investment adviser (as the case may be) to this Trust on the same terms as are offered to any ordinary customer without being liable to account for any profits arising therefrom.

Exh. 6.18-15


8.	Conflicts of interest

	Any of the Trustees may join in exercising any of the powers by this Trust or by law conferred on the Trustees (whether of a beneficial or administrative nature) notwithstanding that he may have some other interest (either personally or in some other fiduciary capacity) in the manner or result of exercising the power.

Appointment and Retirement of the Trustees

9.	Persons who may serve as trustees

	9.1	Any individual or corporation may be appointed and serve as a trustee notwithstanding that the individual or corporation is resident and/or domiciled, or incorporated and/or carrying on business, outside the jurisdiction of the Governing Law and that as a result of the appointment (and any retirement occurring in connection with the appointment) all, or a majority, of the Trustees are resident and/or domiciled, or incorporated and/or carrying on business, outside the jurisdiction of the Governing Law and carrying on the administration of this Trust outside the jurisdiction of the Governing Law and notwithstanding that all or any of the assets subject to the trusts of this Trust are situated in the jurisdiction of the Governing Law.

	9.2	The power of appointing new trustees shall not be exercisable solely by virtue of a trustee remaining outside the jurisdiction of the Governing Law for any period.

10.	Number of trustees

	Subject to any express provision of this Trust to the contrary and without prejudice to any restriction under the Governing Law on the number of trustees necessary to give a receipt for capital money or otherwise, a single trustee (whether or not being a trust corporation) may act for all the purposes of this Trust.

11.	Power of appointment and removal of new trustees

	The power of appointing new trustees and the power to remove trustees of this Trust shall be exercisable by writing and shall be vested in the Enforcers.

12.	Retirement of trustees

	12.1	Any trustee may retire from the office of trustee either forthwith or at some specified future date or event by writing (which may be in counterparts) to which the trustee retiring and the other trustees of this Trust are party and written notice and a copy of which shall be given to the Enforcers.

Exh. 6.18-16


	12.2	No retirement shall take effect unless following the retirement there will be at least one trustee (or the greater number of trustees as may be required by any mandatory provision of the Governing Law) remaining in office.

Separate Bodies Of Trustees

13.	Appointment of separate bodies of trustees

	13.1	A separate person or body of persons may be appointed to act as the Trustees in relation to any specified share or part of the Trust Fund and the income of the Trust Fund.

	13.2	If and so long as one or more shares or parts of the Trust Fund and the income of the Trust Fund have a separate person or body of persons acting as the Trustees in relation to such assets, the provisions of this schedule shall apply to each such person or body of persons as if references to the share or part of the Trust Fund and the income of the Trust Fund in question were substituted for references to the Trust Fund and the income of the Trust Fund.

Exh. 6.18-17

SCHEDULE C


1.	Initial Enforcers and Unanimity

	1.1	Subject to the provisions of Clauses 2, 3, 5 and 6 of this Schedule, the Enforcers shall be XLCA and the Consenting Counterparties (together “the First Enforcers”).

	1.2	All actions of the Enforcers shall only be effective if they are the result of a unanimous decision of the XLCA Enforcer and the Consenting Counterparties Enforcer.

2.	Appointment and Resignation of the XLCA Enforcer

	2.1	The XLCA Enforcer shall have the power, by writing:-

		2.1.1	to add to the number of persons then serving as the XLCA Enforcer;

		2.1.2	to appoint a person or persons to serve as the XLCA Enforcer in the event all other persons cease to serve as the XLCA Enforcer and that appointment may be made irrevocably or may be made so as to be revocable up until the time it takes effect; and

		2.1.3	to make provisions concerning how any two or more persons entitled to exercise the powers of the XLCA Enforcer at a given time shall exercise those powers.

	2.2	Any person other than XLCA appointed to serve as the XLCA Enforcer shall accept that appointment in writing. Copies of any appointment and acceptance shall be supplied to the Trustees and all other Enforcers in office at that time as soon as is practicable.

3.	Persons who may serve as XLCA Enforcers

	Any individual or corporation may be appointed and serve as an XLCA Enforcer notwithstanding that the individual or corporation is resident and/or domiciled, or incorporated and/or carrying on business, outside the jurisdiction of the Governing Law.

4.	XLCA Enforcers acting together

	Subject to the exercise of the power contained in Clause 2.1.3 of this Schedule, in any case where there are two or more persons entitled to exercise the powers of the XLCA Enforcer at a given time, the powers shall be exercisable by majority.

Exh. 6.18-18


5.	Resignation of the XLCA Enforcer

	5.1	Subject to the provisions of Clause 5.2 of this Schedule, any person serving as an XLCA Enforcer or appointed to be an XLCA Enforcer:

		5.1.1	may resign by writing to that effect which may be signed in advance of assuming office as an XLCA Enforcer;

		5.1.2	shall, as soon as is practicable, supply the Trustees and all other Enforcers in office at that time with a copy of the resignation;

		5.1.3	shall, in the case of any prospective resignation, as soon as is practicable supply the Trustees and all other Enforcers in office at that time with a copy of the resignation.

	5.2	No XLCA Enforcer may resign if as a consequence there would be no XLCA Enforcer.

6.	The Consenting Counterparties Enforcer

	The provisions of Clauses 2 to 5 of this Schedule shall apply to the Consenting Counterparties Enforcer as if those clauses had been repeated verbatim herein provided that all references to the XLCA Enforcer or the XLCA Enforcers shall be deemed to refer to the Consenting Counterparties Enforcer or the Consenting Counterparties Enforcers respectively.

Rights and Immunities of the Enforcer

7.	Width of discretions

	Every power conferred on the Enforcers shall confer an absolute and non-fiduciary discretion and no person shall be entitled to compel control or otherwise interfere with the exercise by the Enforcers of any such power.

8.	Statutory Power to Enforce

	The Enforcers, XLCA and any person appointed by a majority of the Consenting Counterparties are each appointed by this Trust as a person entitled to make application to the Supreme Court for an order relating to the enforcement of this Trust in accordance with the provisions of Section 12B of the Trusts (Special Provisions) Act 1989.

9.	Release or restriction of powers

	9.1	The Enforcers may by writing release or restrict the future exercise of any power conferred on the Enforcer. Any release or restriction shall bind any persons appointed in the future to be Enforcers unless the contrary is expressly stated.

Exh. 6.18-19


	9.2	The Enforcers shall, as soon as is practicable, supply the Trustees with any release or restriction of power.

10.	Indemnity

	Each Enforcer other than the First Enforcers and any of their respective affiliates shall be entitled to a full indemnity out of the Trust Fund and/or the income of the Trust Fund in respect of any costs, expenses or any other liabilities of whatsoever nature incurred in or about the professed execution of powers under this Trust, but not in respect of any costs, expenses or any other liabilities incurred by any such Enforcer in acting or omitting to act in a manner in which that person is not entitled to the protection of the exclusion of liability provisions contained in this Trust.

11.	Exclusion of liability

	In the professed execution of powers under this Trust no Enforcer or member or officer or employee of any corporation which is an Enforcer of this Trust shall be liable for any loss to the Trust Fund or the income of the Trust Fund arising by reason of any mistake or omission made in good faith by any such Enforcer or by reason of any other matter or thing whatsoever undertaken in good faith except:

	11.1	deliberate fraud or other deliberate wrongdoing; and

	11.2	in the case of a professional Enforcer or a corporation in business as an Enforcer, reckless misconduct on the part of the particular Enforcer who it is sought to make liable.

12.	Charging clauses

	12.1	Any Enforcer other than the First Enforcers and any of their respective affiliates who shall be an individual engaged in any profession or business either alone or in partnership:

		12.1.1	may be appointed to act as an Enforcer on a like charging basis to that provided for in relation to corporate Enforcers below; and

		12.1.2	subject to that, shall be entitled to charge and be paid all professional or other proper charges for business done or time spent or services rendered by the Enforcer or his firm in connection with this Trust, whether or not within the usual scope of his or his firm’s profession or business and including acts which an Enforcer not being in any profession or business could have done personally.

	12.2	Any corporation which is an Enforcer shall be entitled to charge and be paid the fees for its services as may be agreed at the time of its appointment by the Trustees. The terms and conditions relating to its appointment may include provision for the subsequent variation of such fees from time to time with the agreement of the

Exh. 6.18-20


		Trustees as may be specified in those terms and conditions for the purpose of approving any variation. In the absence of agreement, it shall be entitled to charge and be paid fees for its services in accordance with its usual scale or schedule of fees from time to time in effect.

13.	Incidental profits

	13.1	Any Enforcer or any member or officer or employee of any corporate Enforcer of this Trust may act as an officer or employee of any corporation (or of any subsidiary of such corporation) the securities of which are comprised in the Trust Fund and may retain any remuneration or other benefit which is received by virtue of such office or employment notwithstanding that any votes or other rights attaching to the securities have been instrumental in procuring or maintaining that person in such remunerated office or employment.

	13.2	Any Enforcer or any member or officer or employee of any corporate Enforcer of this Trust or any corporation in the same group of corporations as any corporate Enforcer of this Trust shall be entitled to retain any brokerage or commission paid by any broker, agent or insurance office to that person (or his firm) in connection with the acquisition or dealing with any assets or the effecting of, or payment of, any premium on any policy subject or intended to become subject to this Trust.

	13.3	Any Enforcer or any firm or corporation of which an Enforcer is a member or officer or employee or any corporation in the same group of corporations as any corporate Enforcer of this Trust which carries on the business of banking or providing investment services may act as banker or investment adviser (as the case may be) to this Trust on the same terms as are offered to any ordinary customer without being liable to account for any profits arising therefrom.

14.	Conflicts of interest

	Any Enforcer may join in exercising any of the powers by this Trust or by law conferred on the Enforcers notwithstanding that he or it may have some other interest (either personally or in some fiduciary capacity) in the manner or result of exercising the power.

All Incidental Powers

15.	All incidental powers

	15.1	The Enforcers shall have and be entitled to exercise all powers otherwise enjoyed by an absolute beneficial owner which the Enforcers consider necessary or expedient in order to carry out the functions of the office of the Enforcers under this Trust including (without prejudice to the generality of the foregoing) similar powers to those conferred on the Trustees by Schedule A concerning agents and disputes.

Exh. 6.18-21


	15.2	The provisions in Schedule A concerning confidentiality shall apply to the Enforcers as if references to the Enforcers had been substituted for references to the Trustees therein.

Exh. 6.18-22

SCHEDULE D

Form of Covenant and Indemnity

THIS DEED OF COVENANT AND INDEMNITY dated [__________], 2008 (“the Commencement Date”) is made by [_______________] (“the Company”) in favour of [______________], a Bermuda exempted company (“the Trustee”).

BACKGROUND


(A)	This deed is supplemental to a trust (“the Trust”) established by a Declaration of Trust made by the Trustee of even date herewith (the “Trust Deed”) and known as The [ ] Purpose Trust.

(B)	The Trustee is the present trustee of the Trust.

(C)	The Company has agreed to covenant with and indemnify the Trustee, its successors in title, the officers and employees of the Trustee and the officers and employees of its successors in title (together “the Covenantees”) in the terms set out below.

OPERATIVE PROVISIONS

1.	DEFINITIONS

	In this Deed, where the context admits, the following definitions shall apply and subject thereto the definitions and rules of construction contained in the Trust shall apply:

	1.1	“The Agreed Fee” means [a single payment/monthly payments of/quarterly payments of/annual payments of] US$[ ].

	1.2	“Excepted Liabilities” means any loss to any of the Covenantees, the Trust Fund or the income of the Trust Fund arising by reason of any act or omission of any Covenantee that amounts to

		1.2.1	deliberate fraud or deliberate wrongdoing;

		1.2.2	wilful misconduct or wilful neglect; or

		1.2.3	in the case of a professional trustee or a corporate trustee in business as a trustee, reckless misconduct on the part of the particular trustee who it is sought to make liable.

	1.3	“The Liabilities” means all liabilities, actions, proceedings, claims, demands, taxes and duties and all associated interest, penalties and costs, and all other costs and expenses whatever (including but not limited to costs and expenses incurred by or

Exh. 6.18-23


		payable by the Covenantees or any of them in connection with the Trustee’s role as trustee of the Trust) other than Excepted Liabilities.

2.	COVENANT AND INDEMNITY

	The Company hereby covenants with the Covenantees:

	2.1	To pay the Agreed Fee to the Trustee [on the Commencement Date in consideration of the Trustee providing the service of acting as trustee of the Trust for the period beginning with the Commencement Date and ending on the Termination Date/on the Commencement date and monthly/quarterly/annually thereafter in advance for the period commencing on the date when payment is due and ending one month/one quarter/one year after that date].

	2.2	At all times fully and effectually to indemnify the Covenantees in respect of any Liabilities which are not otherwise paid to the Covenantees from the property of the Trust pursuant to the provisions of the Trust Deed..

3.	GOVERNING LAW

	This Deed shall be governed by the law of Bermuda and the Company submits to the exclusive jurisdiction of the Courts of Bermuda.

Exh. 6.18-24

IN WITNESS whereof the Company has executed and delivered this instrument as its deed on the date shown above.

THE COMMON SEAL OF THE COMPANY ) was hereunto affixed in the presence of: )



		Director


		Director/Officer

The COMMON SEAL of	)

[ ]	)

was hereunto affixed in the presence of	)
		Director


		Director / Officer

Exh. 6.18-25

SCHEDULE E

SCA Shareholder Entity Nominee Nomination Procedures

If at any time the Trustees shall have the right pursuant to the SCA Shareholder Agreement to nominate one or more SCA Shareholder Entity Nominees (as such term is defined in the SCA Shareholder Agreement) to the Company’s board of directors, the Trustees shall nominate such person or persons in accordance with the following procedures:


1.	With respect to each open board seat for which the Trustees shall have the right to nominate an SCA Shareholder Entity Nominee, the XLCA Enforcer and the Consenting Counterparties Enforcer or their respective designees shall each have the right to submit the names of up to two individuals as candidates to fill such board seat (each, a “Proposed Nominee”).

2.	The XLCA Enforcer and the Consenting Counterparties Enforcer shall upon the Trustees request, jointly submit within a reasonable period of time requested by the Trustees a single consolidated list of their respective Proposed Nominees. The consolidated list shall be a “blind” written submission containing no information regarding which Enforcer has submitted a particular name.

3.	Each written submission with respect to a Proposed Nominee:

	(a)	shall set forth the following information:

		(i)	the name, age, business address and residence address of such Proposed Nominee;

		(ii)	the principal occupation or employment of such Proposed Nominee, and such other biographical information regarding the Proposed Nominee as the submitting enforcer deems relevant;

		(iii)	the number of shares of capital stock of the Company or any Consenting Counterparty which are owned of record and beneficially by such Proposed Nominee; and

	(b)	shall include a completed and signed written director questionnaire (in the form provided by the Secretary of the Company) with respect to the background, independence and qualification of such Proposed Nominee.

4.	The Enforcers shall, upon the Trustees request, endeavor to provide the Trustees with such other information reasonably requested by the Trustees with respect to any Proposed Nominee, which information shall be made available to the Trustees in the same “blind” manner as the initial written submissions are submitted to the Trustees.

5.	With respect to each open board seat for which the Trustees shall have the right to nominate an SCA Shareholder Entity Nominee, the Trustees shall then choose among the

Exh. 6.18-26


	Proposed Nominees the person the Trustees deem, in their sole and absolute discretion, to be the most qualified director of the Company.

6.	The Trustees shall submit the name of each Proposed Nominee selected in accordance with paragraph 5 above to the Company’s Nominating & Corporate Governance Committee in accordance with Section 2(b)(vi) of the SCA Shareholder Agreement, but only to the extent such Proposed Nominee first executes a written representation and agreement (in the form provided by the Secretary of the Company) stating that he or she (A) meets the criteria set forth in the definition of “Independent” in the SCA Shareholder Agreement and (B) is not and will not become a party to any agreement, arrangement or understanding that would violate the last sentence of Section 2(b)(iii) of the SCA Shareholder Agreement. [Confirmation from the Consenting Counterparties Enforcer under discussion]

7.	If the Company’s Nominating & Corporate Governance Committee does not object to the Proposed Nominee submitted to such committee solely on the basis provided for in Section 2(b)(vi) of the SCA Shareholder Agreement within 10 business days after submission of such Proposed Nominee’s name to such committee, such Proposed Nominee shall become an SCA Shareholder Entity Nominee in accordance with the SCA Shareholder Agreement. If the Company’s Nominating & Corporate Governance Committee objects to the Proposed Nominee, the Trustees may select another Proposed Nominee from the submitted list of Proposed Nominees or, at its option, request that the Enforcers submit additional names for consideration in accordance with the procedures described above.

8.	In performing the Trustees’ duties hereunder, the Trustees shall be entitled to rely upon any document submitted in connection with the written submissions described above including the completed and signed written director questionnaires and the signed written representation and agreements, and the Trustees shall not be required to investigate the truth or accuracy of any statement contained in any such document.

9.	The Trustees shall not be liable for any error of judgment, or any action taken, in selecting the SCA Shareholder Entity Nominees so long as the SCA Shareholder Entity Nominees are selected by the Trustees from among the Proposed Nominees in good faith.

Exh. 6.18-27

SCHEDULE 1.01(a)

MLI ABS CDO CREDIT DEFAULT SWAP AGREEMENTS


1.	West Trade Funding CDO II Ltd., executed on January 25, 2007, between MLI and Portfolio CDS Trust 138;

2.	Silver Marlin CDO I Ltd., executed on April 11, 2007, between MLI and Portfolio CDS Trust 153;

3.	Tazlina Funding CDO II, Ltd., executed on June 4, 2007, between MLI and Portfolio CDS Trust 164;

4.	West Trade Funding CDO III Ltd., executed on June 4, 2007, between MLI and Portfolio CDS Trust 165;

5.	Jupiter High-Grade CDO VI, Ltd., executed on June 15, 2007, between MLI and Portfolio CDS Trust 170;

6.	Robeco High Grade CDO I, Ltd., executed on June 29, 2007, between MLI and Portfolio CDS Trust 172;

7.	Biltmore CDO 2007-1, Ltd., executed on August 10, 2007, between MLI and Portfolio CDS Trust 186; and

8.	Ipswich Street CDO Ltd., executed on December 14, 2006, between MLI and Portfolio CDS Trust 129.

Sch. 1.01(a)-1

SCHEDULE 1.01(b)

OTHER TERMINATED AGREEMENTS

Part I


1.	Indemnification Agreement, dated August 4, 2006, between XLCA and XLA;

2.	Master Services Agreement, dated August 4, 2006, between XLA and XLFAS;

3.	Master Services Agreement, dated August 4, 2006, between XL and SCAB;

4.	Master Services Agreement, dated August 4, 2006, between XLGS and XLFAS; and

5.	Master Services Agreement, dated August 4, 2006, between XLBS and SCAB.

Part II

1.	Master Services Agreement, dated July 1, 2006, between XLCAUK, in respect of its Spanish Branch and XL Services UK Limited, in respect of its Spanish Branch;

2.	Master Services Agreement, dated August 4, 2006, between XLCAUK and XL Services UK Limited; and

3.	General Services Agreement, dated as of October 22, 2004, between XLCA and XL Financial Products Ltd., a company formed under the laws of England.

Sch. 1.01(b)-1

SCHEDULE 1.01(c)

KNOWLEDGE OF SCA

Paul Giordano: President and Chief Executive Officer, SCA

Elizabeth Keys: Senior Vice President and Chief Financial Officer, SCA

Claude LeBlanc: Executive Vice President, Corporate Development and Strategy, SCA

Susan Comparato: General Counsel, SCA; Senior Vice President, General Counsel, XLCA

Edward Hubbard: President and Chief Operating Officer, XLCA

Michael Rego: Executive Vice President and Chief Operating Officer, XLFA

Sch. 1.01(c)-1

SCHEDULE 1.01(d)

TERMS OF ESCROW AGREEMENT


•	Certificates evidencing all of the XL Owned SCA Common Shares free and clear of any Liens, together with a stock power duly endorsed in blank will be deposited with the Escrow Agent and held by the Escrow Agent until release in accordance with the Escrow Agreement.

•	If the Escrow Agent receives a certificate signed by the Secretaries of SCA and XLCA stating that the SCA Shareholder Entity Formation Conditions have been satisfied and directing the Escrow Agent to deliver the XL Owned SCA Common Shares (together with the related certificates and stock powers) to the SCA Shareholder Entity, then the Escrow Agent shall immediately deliver all of the XL Owned SCA Common Shares (together with the related certificates and stock powers) to the SCA Shareholder Entity.

•	The Escrow Agreement will be otherwise drafted to meet applicable regulatory requirements.

Sch. 1.01(d)-1

SCHEDULE 2.01

COMMUTED REINSURANCE AGREEMENTS

[Intentionally omitted—superseded by
Amendment No. 1 to Master Transaction Agreement]

Schedule 2.01

SCHEDULE 2.04

REINSURANCE AGREEMENTS WITH THIRD PARTIES
THAT MAY BE COMMUTED

Master Facultative Retrocession Agreement, effective as of September 15, 2003, between XLFA and RAM Reinsurance Company Limited; and Amended and Restated Variable Comprehensive Automatic Treaty, effective as of January 1, 2006, between XLFA and RAM Reinsurance Company Ltd.

Master Facultative Retrocession Agreement, effective as of December 1, 2004, between XLFA and BluePoint Re, Limited; and Variable Comprehensive Automatic Treaty Retrocession Agreement, effective as of January 1, 2006, between XLFA and BluePoint Re.

Master Facultative Retrocession Agreement, effective as of January 1, 2003, between XLFA and ACE Capital Re International Ltd.

Variable Comprehensive Automatic Treaty Retrocession Agreement, effective as of January 1, 2007, between XLFA and Assured Guaranty Re Ltd.

Master Facultative Retrocession Agreement, effective as of December 19, 2000, between XLFA and Radian Reinsurance Inc.

Master Facultative Retrocession Agreement, effective as of October 25, 2002, between XLFA and CDC IXIS Financial Guaranty North America, Inc.

Master Facultative Retrocession Agreement, effective as of May 1, 2003, between XLFA and AMBAC Assurance Corporation.

Master Facultative Retrocession Agreement, effective as of June 1, 2001, between XLFA and Partner Reinsurance Company, Ltd., Zurich Branch.

Sch. 2.04-1

SCHEDULE 2.05

SCHEDULE 2.05 AGREEMENTS


1.	Facultative Quota Share Reinsurance Treaty, dated December 31, 1999, as amended, between XLFA and XLI, which was terminated by agreement of the parties, dated July 20, 2006.

2.	Underwriting Agreement, dated July 28, 2006, between XLI, SCA and the Underwriters (as defined therein).

3.	Underwriting Agreement, dated May 15, 2007, between XLI, SCA and the Underwriters (as defined therein).

4.	General Services Agreement, dated as of August 4, 2006, between XLFAS and XLI (surveillance).

5.	The following agreements relating to third-party payment undertaking agreements entered into by certain Affiliate(s) of XL:

	(a)	Fixed and Floating Charge Agreement, dated December 31, 2001, between XLI and XLFA.

	(b)	Reimbursement Agreement, dated December 31, 2001, between XLI and XLFA.

	(c)	Fixed and Floating Charge Agreement, dated September 30, 2002, between XLI and XLFA.

	(d)	Reimbursement Agreement, dated September 30, 2002, between XLI and XLFA.

	(e)	Fixed and Floating Charge Agreement, dated December 18, 2003, between XLI and XLFA.

	(f)	Reimbursement Agreement, dated December 18, 2003, between XLI and XLFA.

6.	The following agreements relating to third-party guaranteed investment contracts entered into by certain Affiliate(s) of XL:

	(a)	Securities Account Control Agreement, dated July 20, 2006, among XL Asset Funding Company I LLC, XLCA and Mellon Bank, N.A.

	(b)	Insurance and Indemnity Agreement, dated October 13, 2006, among XLCA, XL Asset Funding Company I LLC, and XL Life and Annuity Holding Company.

	(c)	Premium Letter Agreement, dated October 13, 2006, among XLCA, XL Asset Funding Company I LLC, and XL Life and Annuity Holding Company.

Sch. 2.05-1


	(d)	Collateral Pledge, Security and Management Agreement, dated October 13, 2006, between XLCA, XL Asset Funding Company I LLC, XL Life and Annuity Holding Company, and Mellon Bank, N.A.

	(e)	Omnibus Amendment Agreement, dated November 30, 2007, between XLCA, XL Asset Funding Company I LLC, and XL Life and Annuity Holding Company.

	(f)	UCC Financing Statement, dated October 13, 2006 between XL Asset Funding Company I LLC (as debtor) and XLCA (as secured party).

7.	Transition Agreement, dated August 4, 2006, among XL, XLI, XLA and SCA, as amended on May 3, 2007, and as further amended as of the Closing Date.

8.	The following agreements relating to total return swaps:

	(a)	Detroit Metropolitan Wayne County Airport

		(i)	Insurance and Indemnity Agreement between XLCA and XL Asset Funding Company I LLC, dated October 12, 2005.

		(ii)	Premium letter between XLCA and XL Asset Funding Company I LLC, dated October 12, 2005.

		(iii)	Letter of Agreement between XLCA and XL Asset Funding Company I LLC for Economic Risk of Loss, dated October 18, 2005.

	(b)	Raleigh-Durham, NC Airport

		(i)	Insurance and Indemnity Agreement between XLCA and XL Asset Funding Company I LLC, dated October 12, 2005.

		(ii)	Premium letter between XLCA and XL Asset Funding Company I LLC, dated October 12, 2005.

		(iii)	Letter of Agreement between XLCA and XL Asset Funding Company I LLC for Economic Risk of Loss, dated October 18, 2005.

	(c)	Metropolitan Washington Airports Authority

		(i)	Insurance and Indemnity Agreement between XLCA and XL Asset Funding Company I LLC, dated October 12, 2005.

		(ii)	Premium letter between XLCA and XL Asset Funding Company I LLC, dated October 12, 2005.

		(iii)	Letter of Agreement between XLCA and XL Asset Funding Company I LLC for Economic Risk of Loss, dated October 18, 2005.

Sch. 2.05-2


(d)	San Diego County Regional Airport Authority

	(i)	Insurance and Indemnity Agreement between XLCA and XL Asset Funding Company I LLC, dated December 6, 2005.

	(ii)	Premium letter between XLCA and XL Asset Funding Company I LLC, dated December 6, 2005.

	(iii)	Letter of Agreement between XLCA and XL Asset Funding Company I LLC for Economic Risk of Loss, dated December 6, 2005.

(e)	City of Chicago - Chicago Midway Airport

	(i)	Insurance and Indemnity Agreement between XLCA and XL Asset Funding Company I LLC, dated December 6, 2005.

	(ii)	Premium letter between XLCA and XL Asset Funding Company I LLC, dated December 6, 2005.

	(iii)	Letter of Agreement between XLCA and XL Asset Funding Company I LLC for Economic Risk of Loss, dated December 6, 2005.

(f)	City of Chicago - Chicago O’Hare International Airport

	(i)	Insurance and Indemnity Agreement between XLCA and XL Asset Funding Company I LLC, dated December 6, 2005.

	(ii)	Premium letter between XLCA and XL Asset Funding Company I LLC, dated December 6, 2005.

	(iii)	Letter of Agreement between XLCA and XL Asset Funding Company I LLC for Economic Risk of Loss, dated December 6, 2005.

(g)	Dallas Fort Worth International Airport

	(i)	Insurance and Indemnity Agreement between XLCA and XL Asset Funding Company I LLC, dated January 13, 2006.

	(ii)	Premium letter between XLCA and XL Asset Funding Company I LLC, dated January 13, 2006.

	(iii)	Letter of Agreement between XLCA and XL Asset Funding Company I LLC for Economic Risk of Loss, dated January 13, 2006.

(h)	Milwaukee County Wisconsin

	(i)	Insurance and Indemnity Agreement between XLCA and XL Asset Funding Company I LLC, dated January 13, 2006.

Sch. 2.05-3


	(ii)	Premium letter between XLCA and XL Asset Funding Company I LLC, dated January 13, 2006.

	(iii)	Letter of Agreement between XLCA and XL Asset Funding Company I LLC for Economic Risk of Loss, dated January 13, 2006.

(i)	State of Alaska International Airports System

	(i)	Insurance and Indemnity Agreement between XLCA and XL Asset Funding Company I LLC, dated January 13, 2006.

	(ii)	Premium letter between XLCA and XL Asset Funding Company I LLC, dated January 13, 2006.

	(iii)	Letter of Agreement between XLCA and XL Asset Funding Company I LLC for Economic Risk of Loss, dated January 13, 2006.

(j)	Rhode Island Economic Development Corp Airport

	(i)	Insurance and Indemnity Agreement between XLCA and XL Asset Funding Company I LLC, dated January 13, 2006.

	(ii)	Premium letter between XLCA and XL Asset Funding Company I LLC, dated January 13, 2006.

	(iii)	Letter of Agreement between XLCA and XL Asset Funding Company I LLC for Economic Risk of Loss, dated January 13, 2006.

Sch. 2.05-4

SCHEDULE 2.06(a)

SCA PARTIES RECEIVING A PORTION OF THE CASH CONSIDERATION AMOUNT

[Intentionally omitted—superseded by
Amendment No. 1 to Master Transaction Agreement]

Sch. 2.06(a)-1

SCHEDULE 2.06(b)

SCA PARTIES RECEIVING A PORTION OF THE STOCK CONSIDERATION

[Intentionally omitted—superseded by
Amendment No. 1 to Master Transaction Agreement]

Sch. 2.06(b)-1

SCHEDULE 9.02

ADDRESSES FOR THE CDS COUNTERPARTIES


Australia and New Zealand Banking Group Limited
		Address:	40 Bank Street, Canary Wharf
			London El4 5EJ
		Phone:	+44-20-3229-2816
		Fax:	+44-20-3229-2378
		Email:	bill.holmes@anz.com
		Attention:	William Holmes, Credit Executive

	With a copy to:

		Address:	Australia and New Zealand Banking Group Limited
			1177 Avenue of the Americas
			New York, NY 10036
		Phone:	(212) 801-9769
		Fax:	(212) 536-9299
		Email:	wendy.tso@anz.com
		Attention:	Wendy Tso, Vice President

Bank of America, N.A.
		Address:	901 Main Street, 66th Floor
			Dallas, TX 75202
		Fax:	(214) 290-8314
		Attention:	John W. Woodiel, Senior Vice President

Barclays Bank PLC
		Address:	200 Park Avenue
			New York, NY 10166
		Email:	mark.manski@barcap.com
		Attention:	Mark Manski

Calyon
		Address:	1301 Avenue of the Americas
			New York, NY 10019
		Fax:	(212) 261-3431
		Email:	david.perl@us.calyon.com
			vanessche@us.calyon.com
		Attention:	Capital Markets Legal – David Perl
			DAS – John-Charles van Essche

Sch. 9.02-1


	With a copy to:

		Address:	Calyon London Branch, Head of Legal
			5 Appold Street
			London EC2A 2DA
		Fax:	+44 20 7214 6670

Canadian Imperial Bank of Commerce
		Address:	199 Bay Street, Commerce Court West, 6th floor
			Toronto, Ontario, M5L 1A2, Canada
		Fax:	(416) 214-8749
		Attention:	Frank deVries, Vice-President

	With a copy to:

		Address:	199 Bay Street, Commerce Court West, 11th floor
			Toronto, Ontario, M5L 1A2, Canada
		Fax:	(416) 304-4573
		Attention:	Frank Vivacqua, Assistant General Counsel

Deutsche Bank AG London Branch
		Address:	60 Wall Street, 11th Floor
			New York, NY 10005
		Fax:	(212) 797-5695
		Attention:	Keith Braun, Managing Director, Workout

	With a copy to:

		Fax:	(732) 578-5271
		Attention:	Robert Lee, Director, Legal

Dexia Bank Belgium SA
		Address:	44 boulevard Pacheco
			1000 Brussels
		Email:	Geert.Gielens@dexia.com
		Attention:	Geert Gielens

	With a copy to:

		Address:	Legal Department - Securities & Financial Markets
		Fax:	+32 2 222 2568
		Email:	Heidi.Wynants@dexia.com
			Bernhard.Ardaen@dexia.com
		Attention:	Heidi Wynants
			Bernhard Ardaen

Sch. 9.02-2


Dresdner Bank AG, London Branch
		Address:	30 Gresham Street
			London EC2P 2XY, England
		Fax:	+44 870 889 6904
		Attention:	Transaction Legal Team

	With a copy to:

		Fax:	(212) 969-7944
		Attention:	Ivor Wolk

Hypo Public Finance Bank AG
		Address:	3 Harbourmaster Place, IFSC
			Dublin 1, Ireland
		Fax:	+353 1 611 6183
		Attention:	Heather Nesbitt

	With a copy to:

		Fax:	(212) 905-4700
		Attention:	Nancy Henderson, NY, USA

	and:

		Fax:	+49 89 20 30 07 772
		Attention:	Tom Glynn, Munich, Germany

Lehman Brothers Inc.
		Address:	745 Seventh Avenue, 8th Floor
			New York, NY 10019
		Fax:	(646) 758-2211
		Attention:	Daniel J. Sullivan

Natixis
		Address:	810 Seventh Avenue
			New York, New York 10019
		Fax:	(212) 299-0030
		Attention:	Joshua Laterman

	With a copy to:

		Fax:	(212) 299-0030
		Attention:	Jeremy Newel1

Sch. 9.02-3


Nomura International plc
		Address:	1 St Martin’s le-Grand
			London EC1A 4NP, England
		Fax:	+44 207 521 2391
		Attention:	Matthew Wadhams/Robert Eveleigh, Transaction Legal Derivatives

	With a copy to:

		Address:	Shearman & Sterling LLP
		Fax:	(212) 848-7179
		Attention:	Douglas Bartner

Royal Bank of Canada
		Address:	200 Royal Bank Plaza
			200 Bay St., 2nd Floor, Toronto
			Ontario, Canada M5J 2W7
		Fax:	(416) 842-4334
		Email:	matthew.gilchrist@rbccm.com
		Attention:	Matthew Gilchrist

The Royal Bank of Scotland
		Address:	The Royal Bank of Scotland plc
			c/o Greenwich Capital Markets, Inc.
			600 Steamboat Road
			Greenwich, CT 06830
		Fax:	(203) 422-4096
		Attention:	Legal Department (Andrew Kwok)

Société Générale
		Address:	1221 Avenue of the Americas
			New York, New York 10020
		Fax:	(212) 278-7614
		Attention:	Edith Hornick

	With a copy to:

		Address:	Luskin, Stern & Eisler LLP
		Fax:	(212) 293-2705
		Attention:	Richard Stern

UBS AG, London branch
		Address:	677 Washington Boulevard
			Stamford, Connecticut 06901
		Fax:	(203) 719-0680
		Attention:	Bryan Murtagh

Sch. 9.02-4


	With a copy to:

		Address:	1285 Avenue of the Americas, 11th Floor
			New York, NY 10019-6031
		Fax:	(212) 713-1153
		Attention:	Jamie Tramontana

	and:

		Address:	Pillsbury Winthrop Shaw Pittman LLP
			1540 Broadway
			New York, NY 10036-4039
		Fax:	(212) 858-1500
		Attention:	Rick B. Antonoff

Wachovia Bank, National Association
		Fax:	(267) 321-6903
		Attention:	Helen Wessling

	With a copy to:

		Fax:	(704) 374-4881
		Attention:	Gene Wood

	and:

		Fax:	(704) 383-1383
		Attention::	Doug Mundell

Sch. 9.02-5

SCA PARTIES’ DISCLOSURE SCHEDULE

This document (the “ SCA Parties’ Disclosure Schedule ”) has been delivered by the SCA Parties to the XL Parties and the CDS Counterparties concurrently with the execution of the Master Commutation, Release and Restructuring Agreement (the “ Agreement ”), dated as of July 28, 2008, by and among the XL Parties, the SCA Parties and the CDS Counterparties. Capitalized terms used, but not otherwise defined, in the SCA Parties’ Disclosure Schedule shall have the meanings set forth in the Agreement.

Any matter that is disclosed in any section of the SCA Parties’ Disclosure Schedule will be deemed to be a disclosure for all purposes of the Agreement to the extent that the relevance of such matter to other sections of the Agreement is reasonably apparent.

The disclosure of any matter in any section of the SCA Parties’ Disclosure Schedule will expressly not be deemed to constitute an admission by any Party to the Agreement, or to otherwise imply, that any such matter is material for the purposes of the Agreement or otherwise, or that any such matter is required to be disclosed pursuant to the Agreement or otherwise.

The heading and title references in the SCA Parties’ Disclosure Schedule are for convenience purposes only, do not constitute a part of the SCA Parties’ Disclosure Schedule and shall not be deemed to limit or affect anything contained herein.

SCA PARTIES’ DISCLOSURE SCHEDULE

SECTION 3.02

CONFLICTS

Financial Guaranty Facultative Reinsurance Agreement, effective October 24, 2007, between MBIA Insurance Corporation, Armonk, New York, and XLCA.

Comprehensive Automatic Treaty Reinsurance Agreement, effective July 1, 2003, as amended by Amendment No. 1 to the Comprehensive Automatic Treaty Reinsurance Agreement, effective July 1, 2003, between MBIA Insurance Corporation, Armonk, New York; and/or MBIA Assurance S.A., Paris France; and/or any other monoline insurance or reinsurance company subsidiary of MBIA Inc. listed in Exhibit 1 attached thereto and XLFA.

Facultative Reinsurance Agreement, dated as of December 1, 2006, between Financial Guaranty Insurance Company and XLFA.

Financial Guaranty Master Facultative Reinsurance Agreement, effective January 1, 2005, between MBIA Insurance Corporation, Armonk, New York; and/or MBIA Assurance S.A., Paris, France; and/or MBIA UK Insurance Limited, London, England; and/or any other insurance or reinsurance company subsidiary of MBIA Inc. listed in Exhibit 1 attached thereto and XLFA.

Credit Agreement, dated as of August 1, 2006, among SCA, XLCA, XLFA, the various lenders from time to time party thereto and Citibank, N.A., as administrative agent (as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof).

Section 3.02-1

SECTION 3.03

GOVERNMENTAL CONSENTS AND APPROVALS

Approval of the New York Insurance Department

Approval of the Bermuda Monetary Authority

Approval of the United Kingdom Financial Services Authority

Approval of the Delaware Insurance Department

Section 3.03-1

SECTION 3.05

COMPLIANCE WITH LAWS

An Undertaking of XLFA, dated as of April 11, 2008, addressed to the Bermuda Monetary Authority.

A letter, dated as of May 20, 2008, from XLCAUK to Financial Services Authority, Re: XL Capital Assurance (U.K.) Limited.

Section 3.05-1

XL PARTIES’ DISCLOSURE SCHEDULE

This document (the “ XL Parties’ Disclosure Schedule ”) has been delivered by the XL Parties to the SCA Parties and the CDS Counterparties concurrently with the execution of the Master Commutation, Release and Restructuring Agreement (the “ Agreement ”), dated as of July 28, 2008, by and among the XL Parties, the SCA Parties and the CDS Counterparties. Capitalized terms used, but not otherwise defined, in the XL Parties’ Disclosure Schedule shall have the meanings set forth in the Agreement.

Any matter that is disclosed in any section of the XL Parties’ Disclosure Schedule will be deemed to be a disclosure for all purposes of the Agreement to the extent that the relevance of such matter to other sections of the Agreement is reasonably apparent.

The disclosure of any matter in any section of the XL Parties’ Disclosure Schedule will expressly not be deemed to constitute an admission by any Party to the Agreement, or to otherwise imply, that any such matter is material for the purposes of the Agreement or otherwise, or that any such matter is required to be disclosed pursuant to the Agreement or otherwise.

The heading and title references in the XL Parties’ Disclosure Schedule are for convenience purposes only, do not constitute a part of the XL Parties’ Disclosure Schedule and shall not be deemed to limit or affect anything contained herein.

XL PARTIES’ DISCLOSURE SCHEDULE

SECTION 4.02

CONFLICTS


1.	Credit Agreement among XL, XLA, XLI, and XL RE LTD (collectively, the “ Account Parties ”); JPMORGAN CHASE BANK, N.A., as administrative agent (in such capacity, the “ Administrative Agent ”); and the Lenders party thereto, with respect to the Credit Agreement, dated as of June 21, 2007, (as may be amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”) entered into among the Account Parties, the Administrative Agent and the other institutions from time to time party thereto as Lenders.

2.	Credit Agreement among XL, XLA, XLI, and XL RE LTD (collectively, the “ Obligors ”); JPMORGAN CHASE BANK, N.A. (as successor to Bear Stearns Corporate Lending Inc.), as administrative agent (in such capacity, the “ Administrative Agent ”); and the Lenders party thereto, with respect to the Credit Agreement, dated as of August 3, 2005, (as may be amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”) entered into among the Obligors, the Administrative Agent and the other institutions from time to time party thereto as Lenders.

3.	Five-Year Credit Agreement among XL, XLA, XLI, and XL RE LTD (collectively, the “ Account Parties ”); JPMORGAN CHASE BANK, N.A., as administrative agent (in such capacity, the “ Administrative Agent ”); and the Lenders party thereto, with respect to the Credit Agreement, dated as of June 22, 2005, (as may be amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”) entered into among the Account Parties, the Administrative Agent and the other institutions from time to time party thereto as Lenders.

4.	Letter of Credit Facility among XL (the “ Account Party ”), the Guarantors (collectively, with the Account Party, the “ Obligors ”), and CITIBANK INTERNATIONAL PLC, as agent and trustee for the Lenders (in such capacity, the “ Agent ”), with respect to the Letter of Credit Facility and Reimbursement Agreement, dated November 14, 2007, (as may be amended, supplemented or otherwise modified from time to time, the “ Facility Agreement ”) entered into among the Obligors, the Agent and the other institutions from time to time party thereto as Lenders.

5.	Note Purchase Agreement, dated April 12, 2001, among XL, XLA, XLI, XL RE LTD, and each of the Purchasers named therein.

Section 4.02-1

SECTION 4.03

GOVERNMENTAL CONSENTS AND APPROVALS

Approval of the New York State Insurance Department

Section 4.03-1

SECTION 4.04(a)

XL CAPITALIZATION

XL has authorized 999,990,000 Ordinary Shares. As of July 25, 2008, there were 179,059,101 outstanding Class A Ordinary Shares, $0.01 par value per share.

XL has outstanding options to purchase 12,027,578 Class A Ordinary Shares, $0.01 par value per share.

1,000,000 Series E Preference Ordinary Shares are issued and outstanding.

Section 4.04(a)-1

AMENDMENT NO. 1 TO MASTER COMMUTATION, RELEASE AND
RESTRUCTURING AGREEMENT

Dated as of August 1, 2008

AMENDMENT NO. 1 TO MASTER COMMUTATION, RELEASE AND
RESTRUCTURING AGREEMENT

AMENDMENT NO. 1 dated as of August 1, 2008 (this “ Amendment No. 1 ”) among XL CAPITAL LTD, an exempted limited company incorporated under the Laws of Cayman Islands, XL INSURANCE (BERMUDA) LTD (formerly known as X.L. Insurance Ltd), a Bermuda exempted company, XL REINSURANCE AMERICA INC., a New York insurance corporation, X.L. GLOBAL SERVICES, INC., a service company incorporated under the Laws of Delaware, XL SERVICES (BERMUDA) LTD, a service company incorporated under the Laws of Bermuda, X.L. AMERICA, INC., a company incorporated under the Laws of Delaware, SECURITY CAPITAL ASSURANCE LTD, a Bermuda exempted company, XL FINANCIAL ASSURANCE LTD., a Bermuda exempted company, XL CAPITAL ASSURANCE INC., a New York insurance company, XL FINANCIAL ADMINISTRATIVE SERVICES INC., a company incorporated under the Laws of Delaware, SCA BERMUDA ADMINISTRATIVE LTD., a company incorporated under the Laws of Bermuda, XL CAPITAL ASSURANCE (U.K.) LIMITED, an insurance company regulated by the Financial Services Authority and incorporated under the Laws of England and Wales, and those portfolio trusts that are Affiliates of XLCA and become a Party to the Master Agreement from time to time pursuant to the execution of a joinder agreement.

WHEREAS, on July 28, 2008, the parties hereto (the “ Parties ”) entered into a certain Master Commutation, Release and Restructuring Agreement (the “ Master Agreement ”);

WHEREAS, the Parties wish to reallocate the Stock Consideration and the Cash Consideration Amount pursuant to Schedule 2.01 ; and

WHEREAS, the Parties wish to take such actions necessary to give effect to such reallocation;

NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein and in the Master Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows:

Section 1. Definitions. Capitalized terms not otherwise defined in this Amendment No. 1 shall have the meanings ascribed to them in the Master Agreement.

Section 2. Amendments. Articles I and II, Exhibits 1.01(e) , 1.01(f) , 1.01(g) , and 1.01(h) and Schedules 2.01 , 2.06(a) and 2.06(b) of the Master Agreement are hereby amended as follows:

2.1 The definition of “ Subscription Agreement ” in Section 1.01 of the Master Agreement will be stricken and deleted in its entirety and replaced with the following text:


	“ Subscription Agreements ” means the subscription agreement to be executed by XLFA and XL and delivered at the Closing, in the form of Exhibit 1.01(g-1) , and the subscription agreement to be executed by


	XLCA and XL and delivered at the Closing in the form of Exhibit 1.01(g-2) .

2.2 Section 2.08(ii) of the Master Agreement will be stricken and deleted in its entirety and replaced with the following text:


	the Subscription Agreements executed by each SCA Party which is a party thereto;

2.3 Section 2.09(iii) of the Master Agreement will be stricken and deleted in its entirety and replaced with the following text:


	the Subscription Agreements executed by each XL Party which is a party thereto;

2.4 The contents of Exhibit 1.01(e) to the Master Agreement shall be stricken and deleted in their entirety and replaced with the contents of Exhibit 1.01(e-1) attached hereto.

2.5 The contents of Exhibit 1.01(f) to the Master Agreement shall be stricken and deleted in their entirety and replaced with the contents of Exhibit 1.01(f-1) attached hereto.

2.6 The contents of Exhibit 1.01(g) to the Master Agreement shall be stricken and deleted in their entirety and replaced with the contents of Exhibits 1.01(g-1) attached hereto.

2.7 The contents of Exhibit 1.01(g-2) attached hereto will be added as Exhibit 1.01(g-2) to the Master Agreement.

2.8 The contents of Exhibit 1.01(h) to the Master Agreement shall be stricken and deleted in their entirety and replaced with Exhibits 1.01(h-1) attached hereto.

2.9 The contents of Schedule 2.01 to the Master Agreement shall be stricken and deleted in their entirety and replaced with the contents of Schedule 2.01-1 attached hereto.

2.10 The contents of Schedule 2.06(a) to the Master Agreement shall be stricken and deleted in their entirety and replaced with the contents of Schedule 2.06(a)-1 attached hereto.

2.11 The contents of Schedule 2.06(b) to the Master Agreement shall be stricken and deleted in their entirety and replaced with the contents of Schedule 2.06(b)-1 attached hereto.

Section 3. Miscellaneous .

3.1 This Amendment No. 1 may be executed and delivered in multiple counterparts, each of which, when so executed and delivered, shall be an original, but such counterparts shall together constitute but one and the same instrument and agreement. A facsimile or Portable Document Format copy of a signature shall have the same force and effect as an original signature.

-2-

3.2 This Amendment No. 1 is to be interpreted under and governed by the Laws of the State of New York without giving effect to conflicts of law provisions thereof. In the event that there is a dispute between or among the Parties arising under this Amendment No. 1, the Parties (i) agree that the exclusive forum to seek remedy shall be to institute a legal proceeding in the courts of the State of New York located in the City and County of New York, (ii) hereby expressly submit to the personal jurisdiction and venue of such courts for the purposes thereof and expressly waive any claim of lack of personal jurisdiction and improper venue and any claim that such courts are an inconvenient forum and (iii) agree that the prevailing Parties shall be entitled to recover their reasonable attorneys’ fees, costs and disbursements from the other Parties (in addition to any other relief to which the prevailing Parties may be entitled). Each Party hereby irrevo cably consents to the service of process of any of the aforementioned courts in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the address provided to the Parties in accordance with Section 9.02, of the Master Agreement, such service to become effective ten (10) days after such mailing.

3.3 Each of the Parties hereby waives to the fullest extent permitted by applicable Law any right it may have to a trial by jury with respect to any litigation directly or indirectly arising out of, under, or in connection with this Amendment No. 1. Each of the Parties hereby (i) certifies that no representative, agent or attorney of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver and (ii) acknowledges that it has been induced to enter into this Amendment No. 1 by, among other things, the mutual waivers and certifications in this Section 3.3 .

3.4 Each Party has had the opportunity to negotiate the terms, consult with counsel, and modify the provisions of this Amendment No. 1. Therefore, the terms of this Amendment No. 1 will be considered and interpreted without any presumption, inference or rule requiring construction or interpretation of any provision of this Amendment No. 1 against the interests of the drafter of this Amendment No. 1.

[Signature Page to Follow]

-3-

IN WITNESS HEREOF, the Parties have caused this Amendment No. 1 to be duly executed and delivered as of the day and year first written above.


	XL CAPITAL LTD

	By:	/s/ Fiona Luck

		Name: Fiona Luck
		Title: Executive Vice President and Chief of Staff

[AMENDMENT NO. 1 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	XL INSURANCE (BERMUDA) LTD

	By:	/s/ Fiona Luck

		Name: Fiona Luck
		Title: Director

[AMENDMENT NO. 1 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	XL REINSURANCE AMERICA INC.

	By:	/s/ Steven P. Agosta

		Name: Steven P. Agosta
		Title: Vice President, General Counsel and Secretary

[AMENDMENT NO. 1 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	X.L. GLOBAL SERVICES, INC.

	By:	/s/ Kenneth P. Meagher

		Name: Kenneth P. Meagher
		Title: Assistant Secretary

[AMENDMENT NO. 1 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	XL SERVICES (BERMUDA) LTD

	By:	/s/ Fiona Luck

		Name: Fiona Luck
		Title: Deputy Chairman

[AMENDMENT NO. 1 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	X.L. AMERICA, INC.

	By:	/s/ Richard G. McCarty

		Name: Richard G. McCarty
		Title: Senior Vice President, General Counsel and Secretary

[AMENDMENT NO. 1 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	SECURITY CAPITAL ASSURANCE LTD

	By:	/s/ Claude Le Blanc

		Name: Claude Le Blanc
		Title: EVP

[AMENDMENT NO. 1 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	XL FINANCIAL ASSURANCE LTD.

	By:	/s/ Tom Cume

		Name: Tom Cume
		Title: SVP

[AMENDMENT NO. 1 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	XL CAPITAL ASSURANCE INC.

	By:	/s/ Susan Comparato

		Name: Susan Comparato
		Title: SVP & General Counsel

[AMENDMENT NO. 1 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	XL FINANCIAL ADMINISTRATIVE SERVICES INC.

	By:	/s/ Susan Comparato

		Name: Susan Comparato
		Title: Managing Director & Secretary

[AMENDMENT NO. 1 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	SCA BERMUDA ADMINISTRATIVE LTD.

	By:	/s/ Tom Cume

		Name: Tom Cume
		Title: SVP

[AMENDMENT NO. 1 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


XL CAPITAL ASSURANCE (U.K.) LIMITED

By:	/s/ Fredrick B. Hnat

	Name:	Fredrick B. Hnat
	Title:	Managing Director & Chief Operating Officer

[AMENDMENT NO. 1 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]

EXHIBIT 1.01(e-1)

FORM OF FACULTATIVE MASTER CERTIFICATE COMMUTATION AGREEMENT

Exhibit 1.01(e-1)

COMMUTATION AND RELEASE AGREEMENT

This Commutation and Release Agreement (the “ Agreement ”) dated as of August 5, 2008, is made by and between Syncora Guarantee Inc. (formerly known as XL Capital Assurance Inc.), a company domiciled in New York (the “ Company ”) and XL Reinsurance America Inc., a company also domiciled in New York (the “ Reinsurer ”). The Reinsurer and the Company are hereinafter referred to collectively as the “ Parties .”

RECITALS

WHEREAS , the Parties previously entered into a Facultative Master Certificate effective as of November 1, 2002, which was amended and restated pursuant to the First Amended and Restated Facultative Master Certificate, effective as of August 4, 2006, and which was further amended and restated pursuant to the Second Amended and Restated Facultative Master Certificate, effective as of March 1, 2007, pursuant to which the Reinsurer agreed to reinsure certain liabilities of the Company (together, the “ Reinsurance Agreement ”); and

WHEREAS , the Parties are parties to that certain Master Commutation, Release and Restructuring Agreement, dated as of July 28, 2008, by and among the Company, the Reinsurer, Security Capital Assurance Ltd and the other parties thereto (the “ Master Transaction Agreement ”), pursuant to which the Company and the Reinsurer have agreed to enter into this Agreement; and

ARTICLE I

PAYMENT

(a) XL Capital Ltd shall, on behalf of the Reinsurer, issue to the Company Five Million, Seven Hundred and Seventy-Six Thousand, Six Hundred and Twenty-One (5,776,621) of Class A Ordinary Shares of XL Capital Ltd (the “ Commutation Amount ”) on the

Exh. 1.01(e-1)-1

Closing Date (as such term is defined in the Master Transaction Agreement). The date on which the Commutation Amount is paid and received shall be referred to hereinafter as the “ Effective Date. ”

ARTICLE II

RELEASE

Exh. 1.01(e-1)-2

Date, against the Company, arising directly or indirectly out of, based upon, or in any way related to or in connection with the Reinsurance Agreement and/or the individual risk cessions thereunder, whether grounded in law or equity or sounding in tort or contract or otherwise; provided , however , that the provisions of this Article II(b) shall not discharge obligations of the Company, which have been undertaken or imposed by the express terms of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements).

ARTICLE III

NON-RELIANCE

(a) This Agreement fully and finally resolves the rights, duties and obligations of the Company and the Reinsurer under the Reinsurance Agreement, and neither Party shall:


	(i) have any remedy in respect of any representation, warranty or undertaking of the other that is not specifically set forth in this Agreement, the Master Transaction Agreement, or the Ancillary Agreements commuting the reinsurance agreements listed in Part I of Schedule 2.01 of the Master Transaction Agreement, whether or not relied upon by the other Party; or

	(ii) seek to reopen or set aside this Agreement or the Reinsurance Agreement on any basis whatsoever, including, without limitation, that this Agreement or the Reinsurance Agreement is void or voidable due to a mistake or change in law or a unilateral or mutual mistake of fact in any way related to this Agreement or the Reinsurance Agreement.

Exh. 1.01(e-1)-3

ARTICLE IV

EXCLUSIVE BENEFIT OF THE PARTIES AND BINDING EFFECT

ARTICLE V

COMPROMISE

ARTICLE VI

FURTHER ASSURANCES

The Parties, without further consideration, shall execute and deliver such other documents and take such other action as may be necessary to effect this Agreement.

Exh. 1.01(e-1)-4

ARTICLE VII

MISCELLANEOUS

(a) Should any part, term or provision of this Agreement, except Article I or Article II , be declared or determined to be illegal or invalid pursuant to a final and unappealable order of a court of competent jurisdiction, the validity of the remaining parts, terms and provisions shall not be affected thereby and such illegal or invalid part, term or provision shall be deemed not to be part of this Agreement. If either Article I or Article II is determined by a court of competent jurisdiction or regulatory authority to be unenforceable, either Party, at its option, shall be entitled to rescind this Agreement, and the Reinsurer shall be entitled to repayment of the Commutation Amount immediately upon such rescission. Upon such rescission, the Reinsurance Agreement and all rights, obligations and liabilities of the Parties under the Reinsurance Agreement shall be reinstated as if this Agreement had never been executed. Notwithstanding the foregoing, the releases given pursuant to Article II shall remain in full force and effect as to the Parties’ officers, directors, agents, employees, shareholders, representatives, advisors and attorneys.

(c) This Agreement may not be amended, altered, supplemented or modified, except by written agreement signed by the Parties.

(e) For purposes of this Agreement, a “ Business Day ” is any day other than a Saturday, Sunday or a public holiday in New York.

Exh. 1.01(e-1)-5

(h) For all purposes this Agreement shall be deemed to have been drafted jointly by the Parties.

[ Signature Page to follow ]

Exh. 1.01(e-1)-6

IN WITNESS WHEREOF , the Parties have executed this Agreement by their respective authorized officers as of the day and year first written below.


Dated:	SYNCORA GUARANTEE INC.
	FORMERLY KNOWN AS
	XL CAPITAL ASSURANCE INC.

	By:

		Name:
		Title:

[SIGNATURE PAGE – FACULTATIVE MASTER CERTIFICATE COMMUTATION AGREEMENT]


Dated:	XL REINSURANCE AMERICA INC.

	By:

		Name:
		Title:

[SIGNATURE PAGE – FACULTATIVE MASTER CERTIFICATE COMMUTATION AGREEMENT]

SCHEDULE A

WIRE TRANSFER INSTRUCTIONS

Transfer instructions for remitting funds to Syncora Guarantee Inc. (formerly known as XL Capital Assurance Inc.)

[Intentionally omitted]

Please send e-mail / fax containing details of the transfer to:

[Intentionally omitted]

Rebecca O’Connell (VP & Assistant Treasurer) at SCA
Phone: (212) 478-3629
Fax: (212) 478-3587
E-mail: rebecca.oconnell@scafg.com

SCHEDULE B

ADDRESS FOR NOTICE

TO THE COMPANY:

Syncora Guarantee Inc.
1221 Avenue of the Americas
New York, New York 10022
Attn: General Counsel
Facsimile: 212-478-3579

TO THE REINSURER:

XL Reinsurance America Inc.
Seaview House
70 Seaview Avenue
Stamford, CT 06902-6040
Attention: General Counsel
Facsimile: 203-964-5309

EXHIBIT 1.01(f-1)

FORM OF QUOTA SHARE TREATY COMMUTATION AGREEMENT

Exhibit 1.01(f-1)

COMMUTATION AND RELEASE AGREEMENT

This Commutation and Release Agreement (the “ Agreement ”) dated as of August 5, 2008, is made by and between Syncora Guarantee Inc., a company domiciled in New York formerly known as XL Capital Assurance Inc. (the “ Company ”), and Syncora Guarantee Re Ltd., a company organized in Delaware, formerly domiciled in Bermuda and known as XL Financial Assurance Ltd (the “ Reinsurer ”). The Reinsurer and the Company are hereinafter referred to collectively as the “ Parties .”

RECITALS

WHEREAS , the Parties previously entered into a Facultative Quota Share Reinsurance Treaty dated as of October 6, 1999 as amended and restated by an Amended and Restated Facultative Quota Share Reinsurance Treaty dated as of June 22, 2001, as further amended and restated by a Second Amended and Restated Facultative Quota Share Reinsurance Treaty dated as of May 1, 2004, and as further amended and restated by a Third Amended and Restated Facultative Quota Share Reinsurance Treaty dated as of June 29, 2006 (together, the “ Reinsurance Agreement ”); and

WHEREAS , XL Insurance (Bermuda) Ltd, formerly known as XL Insurance Ltd, a company domiciled in Bermuda (“ XLIB ”) guarantees the obligations of the Reinsurer to the Company under the Second Amended and Restated Facultative Quota Share Reinsurance Treaty;

WHEREAS , XLIB reinsures the Reinsurer pursuant to an Excess of Loss Reinsurance Agreement executed on October 3, 2001 (the “ Excess of Loss Reinsurance Agreement ”) that covers certain business assumed by the Reinsurer under the Reinsurance Agreement; and

WHEREAS , the Parties and XLIB are parties to that certain Master Commutation, Release and Restructuring Agreement, dated as of July 28, 2008, by and among the Company, the Reinsurer, Security Capital Assurance Ltd and other parties thereto (the “ Master Transaction Agreement ”), pursuant to which (a) the Company and the Reinsurer have agreed to enter into this Agreement; and (b) XLIB and the Reinsurer have agreed to commute the Excess of Loss Reinsurance Agreement and fully and finally extinguish all of the parties’ rights and obligations under the Excess of Loss Reinsurance Agreement (the “ Excess of Loss Commutation ”);

WHEREAS , XL Capital Ltd (“ XL Capital ”) is the ultimate parent of XLIB;

WHEREAS , XLIB has agreed pursuant to the Master Transaction Agreement to pay the sum of One Billion, Five Hundred and Eighty-Four Million, Seven Hundred Thousand Dollars ($1,584,700,000.00) to the Reinsurer and XL Capital has agreed to issue and transfer to the Reinsurer 2,223,379 of its Class A Ordinary Shares (together, the “ XL Consideration ”) on the express condition that the Company and the Reinsurer commute the Reinsurance Agreement and the individual risk cessions thereunder and fully and finally extinguish the parties’ rights and obligations under the Reinsurance Agreement and/or the individual risk cessions thereunder; and

Exh. 1.01(f-1)-1

WHEREAS , the Reinsurer has agreed that it will pay the Commutation Amount (as that term is defined in the Excess of Loss Commutation) it received under the Excess of Loss Commutation as part of the consideration it pays to the Company under this Agreement;

NOW, THEREFORE , in consideration of the covenants, conditions, promises and releases contained herein, and for other valuable consideration including but not limited to the XL Consideration that XLIB and XL Capital agreed to pay on the express condition that Company and Reinsurer commute the Reinsurance Agreement and the individual risk cessions thereunder, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

ARTICLE I
PAYMENT

(a) The Reinsurer shall on the Closing Date (as such term is defined in the Master Transaction Agreement): transfer to the Company the following, having an aggregate value of Three Billion, Nine Hundred and Twenty-Six Million Dollars ($3,926,000,000.00) (i) the XL Capital shares it received as part of the XL Consideration, valued at market value as of market close on the immediately preceding trading day, (ii) withdrawal by the Company and retention for its own account of all assets from the trust account established pursuant to the Reinsurance Agreement, such assets to be valued at market value as of market close on August 1, 2008, and (iii) the balance in cash via direct wire transfer, in immediately available funds, in accordance with the payment instructions set forth on Schedule A hereto (collectively, the “ Commutation Amount ”). The date on which the Commutation Amount is paid and received shall be referred to hereinafter as the “ Effective Date .”

ARTICLE II
RELEASE

(a) Upon the Reinsurer’s payment of the Commutation Amount to the Company, the Company, on behalf of itself and its shareholders, parents, affiliates and

Exh. 1.01(f-1)-2

subsidiaries, and their respective officers, directors, and employees, hereby irrevocably and unconditionally releases and forever discharges the Reinsurer, its parents, subsidiaries and affiliates, and their respective predecessors, successors, assigns, officers, directors, agents, employees, shareholders, representatives, and attorneys from any and all present and future actions, causes of action, suits, debts, liens, contracts, rights, agreements, obligations, promises, liabilities, claims, counterclaims, demands, damages, controversies, losses, costs and expenses (including attorneys’ fees and costs actually incurred) of any kind, character, description or nature whatsoever, known or unknown to either or both Parties, suspected or unsuspected, reported or unreported, fixed or contingent, which the Company now has, owns or holds or claims to have, own, or hold, or at any time heretofore had, owned, or held or claimed to have had, owned, or held, or may hereafter have, own, or hold or claim to have, own, or hold, arising out of conduct or matters occurring on, prior to or subsequent to the Effective Date, against the Reinsurer, arising directly or indirectly out of, based upon, or in any way related to or in connection with the Reinsurance Agreement and/or the individual risk cessions thereunder, whether grounded in law or equity, or sounding in tort or contract or otherwise; provided , however , that the provisions of this Article II(a) shall not discharge obligations of the Reinsurer, which have been undertaken or imposed by the express terms of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements).

Exh. 1.01(f-1)-3

given and paid for the giving of this Agreement, and a portion of the said consideration, having been bargained for between the Parties with the knowledge of the possibility of such unknown losses and claims, is given in exchange for the full accord, satisfaction and discharge of all such losses and claims.

ARTICLE III
NON-RELIANCE

(a) This Agreement fully and finally resolves the rights, duties and obligations of the Company and the Reinsurer under the Reinsurance Agreement, and neither Party shall:


	(i) have any remedy in respect of any representation, warranty or undertaking of the other that is not specifically set forth in this Agreement, the Master Transaction Agreement, or the Ancillary Agreements commuting the reinsurance agreements listed in Part I of Schedule 2.01 of the Master Transaction Agreement, whether or not relied upon by the other Party; or

	(ii) seek to reopen or set aside this Agreement or the Reinsurance Agreement on any basis whatsoever, including, without limitation, that this Agreement or the Reinsurance Agreement is void or voidable due to a mistake or change in law or a unilateral or mutual mistake of fact in any way related to this Agreement or the Reinsurance Agreement.

Exh. 1.01(f-1)-4

respect to an action for enforcement of this Agreement or the Master Transaction Agreement (including the Ancillary Agreements).

ARTICLE IV
COMPROMISE

ARTICLE V
FURTHER ASSURANCES

The Parties, without further consideration, shall execute and deliver such other documents and take such other action as may be necessary to effect this Agreement.

ARTICLE VI
MISCELLANEOUS

(a) This Agreement and the Master Transaction Agreement (including the Ancillary Agreements) set forth the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements or understanding between them pertaining to the subject matter hereof. A facsimile copy of a signature shall have the same force and effect as an original signature.

(b) This Agreement may not be amended, altered, supplemented or modified, except by written agreement signed by the Parties.

(c) This Agreement may be executed and delivered in multiple counterparts, each of which, when so executed and delivered, shall be an original, but such counterparts shall together constitute but one and the same instrument and agreement.

(d) For purposes of this Agreement, a “ Business Day ” is any day other than a Saturday, Sunday or a public holiday in New York.

(e) This Agreement shall be governed by and construed in accordance with the laws of New York without regard to principles of conflicts of law or choice of law and the Parties submit to the exclusive jurisdiction of the Supreme Court of the State of New York in respect of all disputes arising out of or in connection with this Agreement.

(f) All notices under this Agreement shall be in writing and shall be deemed to be duly given and received (i) upon delivery if delivered by certified mail; or (ii) on the next Business Day if sent by overnight courier (iii) on the date sent by facsimile if sent during the recipient’s normal business hours or, if sent by facsimile outside such hours, on the next

Exh. 1.01(f-1)-5

Business Day; provided, that such notices are sent to a Party to its Address for Notices set forth on Schedule B hereto or to such other address as either Party may have furnished to the other in writing.

(g) For all purposes this Agreement shall be deemed to have been drafted jointly by the Parties.

(h) This Agreement is an agreement solely between the Company and the Reinsurer. No right of action against the Reinsurer shall accrue to any insured or policyholder of the Company.

[ Signature Page to follow ]

Exh. 1.01(f-1)-6

IN WITNESS WHEREOF , the Parties have executed this Agreement by their respective authorized officers as of the day and year first written below.


Dated:			SYNCORA GUARANTEE INC.
			FORMERLY KNOWN AS
			XL CAPITAL ASSURANCE INC.


	By:

		Name:
		Title:

[SIGNATURE PAGE – QUOTA SHARE TREATY COMMUTATION AGREEMENT]


Dated:			SYNCORA GUARANTEE RE LTD.
			FORMERLY KNOWN AS
			XL FINANCIAL ASSURANCE LTD


	By:

		Name:
		Title:

[SIGNATURE PAGE – QUOTA SHARE TREATY COMMUTATION AGREEMENT]

SCHEDULE A

WIRE TRANSFER INSTRUCTIONS

Transfer instructions for remitting funds to Syncora Guarantee Inc. (formerly known as XL Capital Assurance Inc.)

[Intentionally omitted]

Please send e-mail / fax containing details of the transfer to:

[Intentionally omitted]

Rebecca O’Connell (VP & Assistant Treasurer) at SCA
Phone: (212) 478-3629
Fax: (212) 478-3587
E-mail: rebecca.oconnell@scafg.com

SCHEDULE B

ADDRESS FOR NOTICE

TO THE COMPANY:

Syncora Guarantee Inc.
1221 Avenue of the Americas
New York, New York 10022
Attn: General Counsel
Facsimile: 212-478-3579

TO THE REINSURER:

Syncora Guarantee Re Ltd.
A.S. Cooper Building
26 Reid Street, 4th Floor
Hamilton, Bermuda HM 11
Attn: President
Facsimile: 441-296-4351

EXHIBIT 1.01(g-1)

FORM OF XLFA SUBSCRIPTION AGREEMENT

Exhibit 1.01(g-1)

XL CAPITAL LTD

SUBSCRIPTION AGREEMENT

This SUBSCRIPTION AGREEMENT (this “ Agreement ”), dated as of August 5, 2008, by and between XL Capital Ltd, a Cayman Islands exempted limited company (the “ Company ”), and Syncora Guarantee Re Ltd. (formerly known as XL Financial Assurance Ltd), a Bermuda exempted company (the “ Subscriber ”).

WHEREAS, the Company and the Subscriber are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “ Securities Act ”);

WHEREAS, this Agreement is being entered into for the purpose of setting forth the terms, conditions and agreements between the Company and the Subscriber in connection with the Company’s issuance to the Subscriber of 2,223,379 shares (the “ Shares ”) of its Class A Ordinary Shares, par value $0.01 per share (“ Common Stock ”), pursuant to the Master Commutation, Release and Restructuring Agreement dated as of July 28, 2008 among the Company, Security Capital Assurance Ltd, XL Financial Assurance Ltd, XL Capital Assurance Inc. and the other parties thereto (the “ Master Agreement ”); and

WHEREAS, on the Closing Date (as defined below), the parties hereto and Syncora Guarantee Inc. (formerly known as XL Capital Assurance Inc.) will execute and deliver a Registration Rights Agreement (the “ Registration Rights Agreement ”), substantially in the form attached hereto as Exhibit A , pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained and intending to be legally bound, the Company and the Subscriber hereby agree as follows:

1. SUBSCRIPTION FOR SHARES; CLOSING .

(a) Subject to the terms and conditions herein and in reliance upon the respective representations, warranties and covenants contained herein, the Subscriber hereby subscribes for the Shares and the Company hereby agrees to issue the Shares as consideration for the Subscriber and certain of its affiliates entering into the Master Agreement and related transactions contemplated thereby, as set forth therein.

(b) The issuance of the Shares shall be effected on the Closing Date (defined below) by the Company executing and delivering to the Subscriber, duly registered in its name, a duly executed stock certificate evidencing the Shares being purchased by it. The closing of the purchase and sale of the Shares pursuant to this Section 1(b) will take place at the time and location set forth for the closing in Section 2.07 of the Master Agreement or at such other time

Exh. 1.01(g-1)-1

and location as the Company and the Subscriber shall otherwise mutually agree (the “ Closing Date ”).

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY .

The Company represents and warrants, as of the date hereof and as of the Closing Date, that:

(a) Incorporation and Good Standing . The Company is duly organized, validly existing and in good standing under the laws of the Cayman Islands and has all requisite power and authority to carry on its business as now conducted and as proposed to be conducted.

(b) Authorization . The board of directors of the Company (the “ Board ”) has authorized the execution, delivery and performance of this Agreement and the transactions contemplated hereby and the Company has the requisite power, authority and legal capacity to execute, deliver and perform this Agreement and the transactions contemplated hereby. No other corporate action is necessary to authorize such execution, delivery and performance, and upon such execution and delivery by the Company, this Agreement shall constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms except as enforceability may be (i) limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditor’s rights, or (ii) subject to general principles of equity. The Board has authorized the issuance and delivery of the Shares in accordance with this Agreement.

(c) Authorization of Shares . The Shares to be issued and sold by the Company pursuant to this Agreement, when issued and paid for in accordance with the provisions hereof, will be duly authorized, validly issued, fully paid and nonassessable shares of Common Stock free and clear of all liens and the issuance of the Shares will not be subject to any preemptive or similar rights.

(d) Non-Contravention . Except as set forth on Schedule 2(d) and except with respect to any filings made in connection with exemptions from registration under state or federal securities laws, the creation, authorization, issuance, offer and sale of the Shares do not require any consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of the Company or the vote, consent or approval in any manner of the holders of any security of the Company as a condition to the execution and delivery of this Agreement or the creation, authorization, issuance, offer and sale of the Shares. Except as set forth on Schedule 2(d), the execution and delivery by the Company of this Agreement and the performance by the Company of its obligations hereunder will not violate (i) the terms and conditions of the Memorandum and Articles of Association of the Company, or any material agreement to which the Company is a party or by which it is bound or (ii) subject to the accuracy of the Subscriber’s representations and warranties contained in Section 3 hereof, any federal or state securities law.

(e) No General Solicitation . The Company has not engaged in a general solicitation of the public for sale of the Shares in violation of the Securities Act, and the offering and sale of the Shares are exempt from registration under the Securities Act.

Exh. 1.01(g-1)-2

(f) Capitalization . As of December 31, 2007, the Company had the authorized capitalization as set forth in the Company’s Annual Report on Form 10-K for its most recent fiscal year, and all of the issued shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and non-assessable, and were issued in compliance with federal and state securities laws and not in violation of any preemptive right, resale right, right of first refusal or similar right. All of the Company’s options, warrants and other rights to purchase or exchange any securities for shares of the Company’s capital stock have been duly authorized and validly issued and were issued in compliance with federal and state securities laws. The Company has not, in the twelve months preceding the date hereof, received notice (written or oral) from the NYSE to the effect that the Company is not in compliance with its listing or maintenance requirements.

(g) No Integration . There has been no sale, offer for sale, solicitation of an offer to buy or negotiation by the Company or any of its subsidiaries in respect of any security that would be integrated with the Shares issued pursuant to this Agreement in a manner that would require the registration of the Shares under the Securities Act.

(h) Listing . The Common Stock is registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 and prior to the Closing Date, the Shares will be approved for listing on the NYSE, subject to official notice of issuance.

(i) No Registration . Assuming the accuracy of the representations and warranties of the Subscriber contained in Section 3 and its compliance with the agreements set forth herein, it is not necessary, in connection with the issuance and sale of the Shares to the Subscriber in the manner contemplated by this Agreement, to register the Shares under the Securities Act.

3. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER .

The Subscriber represents and warrants, as of the date hereof and as of the Closing Date, that:

(a) Investment Purpose . The Subscriber is obtaining the Shares for investment purposes only and not with a view to or for distributing or reselling such Shares or any part thereof, without prejudice, however, to the Subscriber’s right, subject to the provisions of this Agreement (including, without limitation, Section 5 ), to sell or otherwise dispose of all or any part of the Shares pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities or “blue sky” laws. The Subscriber understands that it may bear the economic risk of this investment indefinitely.

(b) Institutional Accredited Investor Status . The Subscriber was at the time it was first offered the Shares, and at the date hereof is, an institutional “accredited investor” as defined in Rule 501(a) under the Securities Act.

(c) Reliance on Exemptions . The Subscriber understands that the Shares are being offered and issued to it in reliance upon specific exemptions from the registration

Exh. 1.01(g-1)-3

requirements of United States federal and state securities or “blue sky” laws, including Section 4(2) of the Securities Act and that the Company is relying upon the truth and accuracy of, and the Subscriber’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Subscriber set forth herein in order to determine the availability of such exemptions and the eligibility of the Subscriber to acquire the Shares.

(d) Knowledge . The Subscriber has, either alone or together with its representatives, such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the ownership of the Shares, and has so evaluated the merits and risks of such investment. The Subscriber understands that ownership of the Shares involves a high degree of risk, is able to bear the economic risk of ownership of the Shares and, at the present time, is able to afford a complete loss with respect to such ownership.

(e) Access to Information . The Subscriber acknowledges that it has access to and has reviewed the Company’s disclosures about its Common Stock made in its filings with the SEC including the Company’s Annual Report on Form 10-K for its latest fiscal year, the Company’s Quarterly Report on Form 10-Q for its latest fiscal quarter, and any Current Report on Form 8-K filed by the Company since the date of such Quarterly Report on Form 10-Q and has access to information about the Company and its subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects contained in the Company’s public filings with the SEC, and acknowledges that such information is sufficient to enable it to evaluate its investment.

(f) No Reliance . In connection with its acceptance of the Shares, the Subscriber has not relied upon any representations made by, or other information (whether oral or written) furnished by or on behalf of, the Company other than as set forth in this Agreement, the Master Agreement or any Ancillary Agreements (as defined in the Master Agreement).

(g) No General Solicitation . The Subscriber acknowledges that the Shares were offered and will be issued to the Subscriber without any general solicitation or general advertising, including, but not limited to, any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

(h) No Advice Provided . The Subscriber understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Subscriber in connection with the issuance of the Shares constitutes legal, tax or investment advice. The Subscriber has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its receipt of the Shares.

(i) Authorization; Enforceability . This Agreement has been duly and validly authorized by the Subscriber. This Agreement has been duly executed and delivered on behalf of the Subscriber, and constitutes the valid and binding agreement of the Subscriber enforceable in accordance with their terms, subject, in each case, to applicable bankruptcy, insolvency, reorganization or similar laws affecting generally the enforcement of creditors’ rights and subject

Exh. 1.01(g-1)-4

to a court’s discretionary authority with respect to the granting of specific performance or other equitable remedies.

(j) No Conflicts . The execution and performance of this Agreement does not conflict with any agreement to which the Subscriber is a party or is bound thereby, any court order or judgment addressed to the Subscriber, or the constituent documents of the Subscriber.

4. TRANSFER RESTRICTIONS

(a) Restrictions . The Subscriber recognizes and agrees that (i) the Shares will be subject to a Holding Period (as defined in the Registration Rights Agreement) and other restrictions on transferability pursuant to this Agreement and the Registration Rights Agreement and (ii) as a result of the foregoing, the marketability of the Shares will be severely limited. The Subscriber agrees that it will not Transfer (as such term is defined in the Registration Rights Agreement) the Shares in any manner that will violate such restrictions under this Agreement, the Registration Rights Agreement, the Securities Act or any state securities laws, the rules and regulations of the SEC or any other state or municipality having jurisdiction thereof.

(b) Legends . The Subscriber understands and agrees that the Shares will bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against the transfer of the certificates for the Shares):

THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND WITHOUT A VIEW TO DISTRIBUTION AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ ACT ”), OR UNDER STATE SECURITIES LAWS. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS SECURITY OR ANY INTEREST OR PARTICIPATION THEREIN MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS AND, IN THE CASE OF CLAUSE (B), IF REQUESTED BY THE ISSUER, UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS. THIS SECURITY IS ALSO SUBJECT TO SIGNIFICANT RESTRICTIONS ON TRANSFER (WHICH INCLUDES A RIGHT OF FIRST OFFER) PURSUANT TO THE TERMS OF A REGISTRATION RIGHTS AGREEMENT AMONG THE ISSUER, THE HOLDER AND SYNCORA GUARANTEE INC. (FORMERLY KNOWN AS XL CAPITAL ASSURANCE INC.) DATED AUGUST 5, 2008 AND MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH SUCH AGREEMENT.

5. MISCELLANEOUS

(a) Headings . The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof.

Exh. 1.01(g-1)-5

(b) Notices . All communications under this Agreement shall be in writing and shall be delivered by hand or facsimile or mailed by overnight courier or by registered mail or certified mail, postage prepaid:


	(i) if to the Company, XL Capital Ltd, One Bermudiana Road, Hamilton HM 11, Bermuda, Attention: General Counsel, Fax: 441-295-2840 or at such other address or facsimile number as may have been furnished in writing.

	(ii) if to the Subscriber, c/o Syncora Guarantee Inc., 1221 Avenue of the Americas, New York, New York 10020-1001, Fax: 212-478-3579; Attention: Susan Comparato, General Counsel; or at such other address or facsimile number as may have been furnished in writing.

Any notice so addressed shall be deemed to be given: if delivered by hand or facsimile, on the date of such delivery, if a business day and delivered during regular business hours, otherwise the first business day thereafter; if mailed by courier, on the first business day following the date of such mailing; and if mailed by registered or certified mail, on the third business day after the date of such mailing.

(c) Survival . All representations, warranties and covenants made by the Subscriber and the Company herein shall be considered to have been relied upon by the Company or the Subscriber, as the case may be, and shall survive all deliveries to you of the Shares, or regardless of any investigation made by the Company or the Subscriber, as the case may be, or on the Company’s or the Subscriber’s behalf.

(d) Assignment; No Third Party Beneficiaries . This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. It is understood that the Subscriber may assign this Agreement or any of their rights or obligations hereunder to any affiliate, provided , however , that any assignment of the obligations under this Agreement shall not release the assignor from any of its obligations under this Agreement. Nothing in this Agreement shall confer upon any person not a party to this Agreement any rights or remedies of any nature or kind whatsoever under or by reason of this Agreement.

(e) Entire Agreement . This Agreement, the Master Agreement and the Registration Rights Agreement constitute the entire understandings of the parties hereto and supersede all prior agreements or understandings with respect to the subject matter hereof among such parties. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with (and only with) the written consent of each of the parties hereto.

(f) Severability . In the event that any part or parts of this Agreement shall be held illegal or unenforceable by any court or administrative body of competent jurisdiction, such determination shall not effect the remaining provisions of this Agreement which shall remain in full force and effect.

(g) Counterparts . This Agreement may be executed in any number of counterparts (including by facsimile), each of which shall be deemed an original and all of which together shall be considered one and the same agreement.

Exh. 1.01(g-1)-6

(h) Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State.

(i) Jurisdiction . The parties to this Agreement irrevocably submit to the non-exclusive jurisdiction of any New York State or federal court sitting in the Borough of Manhattan, The City of New York, over any suit, action or proceeding arising out of or relating to this Agreement. To the fullest extent permitted by applicable law, the parties to this Agreement irrevocably waive and agree not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

(j) Specific Performance . The Company and the Subscriber hereby declare that it is impossible to measure in money the damages which will accrue to the parties hereto by reason of the failure of any party hereto to perform any of its obligations set forth in this Agreement. Therefore, the Company and the Subscriber shall have the right to specific performance of such obligations, and if any party hereto shall institute any action or proceeding to enforce the provisions hereof, the Company and the Subscriber hereby waive the claim or defense that the party instituting such action or proceeding has an adequate remedy at law.

[Signature Page to Follow]

Exh. 1.01(g-1)-7

IN WITNESS WHEREOF, the Subscriber and the Company have caused this Agreement to be duly executed as of the date first written above.


	SYNCORA GUARANTEE RE LTD.
	FORMERLY KNOWN AS
	XL FINANCIAL ASSURANCE LTD

	By:

		Name:
		Title:

[SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT]


Accepted and Agreed
as of the date first written above:

XL CAPITAL LTD

By:

	Name:
	Title:

[SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT]

Schedule 2(d) – Non-Contravention

1. Credit Agreement among XL CAPITAL LTD, X.L. AMERICA, INC., XL INSURANCE (BERMUDA) LTD, XL RE LTD (together with XL, XLA and XLI, the “ Account Parties ”), JPMORGAN CHASE BANK, N.A., as administrative agent (in such capacity, the “ Administrative Agent ”), and the Lenders party thereto, with respect to the Credit Agreement, dated as of June 21, 2007, (as may be amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”) entered into among the Account Parties, the Administrative Agent and the other institutions from time to time party thereto as Lenders.

2. Credit Agreement among XL CAPITAL LTD (“ XL ”), X.L. AMERICA, INC. (“ XLA ”), XL INSURANCE (BERMUDA) LTD (“ XLI ”), XL RE LTD (together with XL, XLA and XLI, the “ Obligors ”), JPMORGAN CHASE BANK, N.A. (as successor to Bear Stearns Corporate Lending Inc.), as administrative agent (in such capacity, the “ Administrative Agent ”) and the Lenders party thereto, with respect to the Credit Agreement, dated as of August 3, 2005, (as may be amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”) entered into among the Obligors, the Administrative Agent and the other institutions from time to time party thereto as Lenders.

3. Credit Agreement among XL CAPITAL LTD (“ XL ”), X.L. AMERICA, INC. (“ XLA ”), XL INSURANCE (BERMUDA) LTD (“ XLI ”), XL RE LTD (together with XL, XLA and XLI, the “ Account Parties ”), JPMORGAN CHASE BANK, N.A., as administrative agent (in such capacity, the “ Administrative Agent ”) and the Lenders party thereto, with respect to the Credit Agreement, dated as of June 22, 2005, (as may be amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”) entered into among the Account Parties, the Administrative Agent and the other institutions from time to time party thereto as Lenders.

4. Credit Agreement among XL CAPITAL LTD (“ XL ”) (the “ Account Party ”), the Guarantors (collectively, with the Account Party, the “ Obligors ”), and CITIBANK INTERNATIONAL PLC, as agent and trustee for the Lenders (in such capacity, the “ Agent ”), with respect to the Letter of Credit Facility and Reimbursement Agreement, dated November 14, 2007, (as may be amended, supplemented or otherwise modified from time to time, the “ Facility Agreement ”) entered into among the Obligors, the Agent and the other institutions from time to time party thereto as Lenders.

5. Note purchase agreement dated April 12, 2001 among X.L. America, Inc., XL Capital Ltd, XL Insurance Ltd, XL Re Ltd and each of the purchasers listed therein. Such notes will be defeased on the Closing Date.

EXHIBIT 1.01(g-2)

FORM OF XLCA SUBSCRIPTION AGREEMENT

Exhibit 1.01(g-2)

XL CAPITAL LTD

SUBSCRIPTION AGREEMENT

This SUBSCRIPTION AGREEMENT (this “ Agreement ”), dated as of August 5, 2008, by and between XL Capital Ltd, a Cayman Islands exempted limited company (the “ Company ”), and Syncora Guarantee Inc. (formerly known as XL Capital Assurance Inc.), a New York insurance company (the “ Subscriber ”).

WHEREAS, this Agreement is being entered into for the purpose of setting forth the terms, conditions and agreements between the Company and the Subscriber in connection with the Company’s issuance to the Subscriber of 5,776,621 shares (the “ Shares ”) of its Class A Ordinary Shares, par value $0.01 per share (“ Common Stock ”), pursuant to the Master Commutation, Release and Restructuring Agreement dated as of July 28, 2008 among the Company, Security Capital Assurance Ltd, XL Financial Assurance Ltd, XL Capital Assurance Inc. and the other parties thereto (the “ Master Agreement ”); and

WHEREAS, on the Closing Date (as defined below), the parties hereto and Syncora Guarantee Re Ltd. (formerly known as XL Financial Assurance Ltd) will execute and deliver a Registration Rights Agreement (the “ Registration Rights Agreement ”), substantially in the form attached hereto as Exhibit A , pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained and intending to be legally bound, the Company and the Subscriber hereby agree as follows:

1. SUBSCRIPTION FOR SHARES; CLOSING .

Exh. 1.01(g-2)-1

and location as the Company and the Subscriber shall otherwise mutually agree (the “ Closing Date ”).

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY .

The Company represents and warrants, as of the date hereof and as of the Closing Date, that:

Exh. 1.01(g-2)-2

3. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER .

The Subscriber represents and warrants, as of the date hereof and as of the Closing Date, that:

(c) Reliance on Exemptions . The Subscriber understands that the Shares are being offered and issued to it in reliance upon specific exemptions from the registration

Exh. 1.01(g-2)-3

Exh. 1.01(g-2)-4

to a court’s discretionary authority with respect to the granting of specific performance or other equitable remedies.

4. TRANSFER RESTRICTIONS

THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND WITHOUT A VIEW TO DISTRIBUTION AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ ACT ”), OR UNDER STATE SECURITIES LAWS. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS SECURITY OR ANY INTEREST OR PARTICIPATION THEREIN MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS AND, IN THE CASE OF CLAUSE (B), IF REQUESTED BY THE ISSUER, UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS. THIS SECURITY IS ALSO SUBJECT TO SIGNIFICANT RESTRICTIONS ON TRANSFER (WHICH INCLUDES A RIGHT OF FIRST OFFER) PURSUANT TO THE TERMS OF A REGISTRATION RIGHTS AGREEMENT AMONG THE ISSUER, THE HOLDER AND SYNCORA GUARANTEE RE LTD. (FORMERLY KNOWN AS XL FINANCIAL ASSURANCE LTD) DATED AUGUST 5, 2008 AND MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH SUCH AGREEMENT.

5. MISCELLANEOUS

(a) Headings . The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof.

Exh. 1.01(g-2)-5


	(i) if to the Company, XL Capital Ltd, One Bermudiana Road, Hamilton HM 11, Bermuda, Attention: General Counsel, Fax: 441-295-2840 or at such other address or facsimile number as may have been furnished in writing.

	(ii) if to the Subscriber, Syncora Guarantee Inc., 1221 Avenue of the Americas, New York, New York 10020-1001, Fax: 212-478-3579; Attention: Susan Comparato, General Counsel; or at such other address or facsimile number as may have been furnished in writing.

Exh. 1.01(g-2)-6

(h) Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State.

[Signature Page to Follow]

Exh. 1.01(g-2)-7

IN WITNESS WHEREOF, the Subscriber and the Company have caused this Agreement to be duly executed as of the date first written above.


	SYNCORA GUARANTEE INC.
	FORMERLY KNOWN AS
	XL CAPITAL ASSURANCE INC.

	By:

		Name:
		Title:

[SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT]

Accepted and Agreed
as of the date first written above:


XL CAPITAL LTD

By:

	Name:
	Title:

[SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT]

Schedule 2(d) – Non-Contravention

EXHIBIT 1.01(h-1)

XL STOCK RESALE AND REGISTRATION RIGHTS AGREEMENT

[Intentionally omitted—superseded by
the Amended and Restated Registration Rights Agreement
dated as of August 5, 2008]

Exhibit 1.01(h-1)

SCHEDULE 2.01-1

COMMUTED REINSURANCE AGREEMENTS

Part I


Agreement		Commutation Amount (pursuant to applicable commutation agreement)

2001 Facultative Quota Share Treaty		$25,000,000
Excess of Loss Agreement		$100,000,000
Adverse Development Cover		$65,300,000
Facultative Master Certificate		5,776,621 of XL’s Class A Ordinary Shares

Part II


Agreement	Portion of Commutation Amount Under Quota Share Treaty Commutation Agreement Paid By The XL Parties	Total Commutation Amount Under Quota Share Treaty

Quota Share Treaty	$1,584,700,000, plus 2,223,379 of XL’s Class A Ordinary Shares received by XLFA from XL as part of the consideration for commuting, terminating or settling the Quota Share Treaty	$3,926,000,000

Sch. 2.01-1-1

SCHEDULE 2.06(a-1)

SCA PARTIES RECEIVING A PORTION OF THE CASH CONSIDERATION AMOUNT


Allocation of Cash Proceeds


Total cash received by XLFA:	$	1,768,000,000

Transfer instructions for remitting funds to XLFA :
[Intentionally omitted]

Please send email/fax containing details of the transfer to :
[Intentionally omitted]

Rebecca O’Connell (VP & Assistant Treasurer) at SCA
Phone: (212) 478-3629
Fax: (212) 478-3587
E-mail: rebecca.oconnell@scafg.com



Total cash received by XLCA :	$	7,000,000

Transfer instructions for remitting funds to XLCA :
[Intentionally omitted]

Please send email/fax containing details of the transfer to :
[Intentionally omitted]

Rebecca O’Connell (VP & Assistant Treasurer) at SCA
Phone: (212) 478-3629
Fax: (212) 478-3587
E-mail: rebecca.oconnell@scafg.com

Sch. 2.06(a-1)-1

SCHEDULE 2.06(b-1)

SCA PARTIES RECEIVING A PORTION OF THE STOCK CONSIDERATION


XLFA:	2,223,379 shares of XL’s Class A Ordinary Shares, par value $0.01 per share

XLCA:	5,776,621 shares of XL’s Class A Ordinary Shares, par value $0.01 per share

Sch. 2.06(b-1)-1

AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

by and among

XL Capital Ltd.,

Syncora Guarantee Re Ltd.

and

Syncora Guarantee Inc.

Dated as of August 5, 2008

EXECUTION COPY

AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of August 5, 2008, by and between XL Capital Ltd., an exempted limited company incorporated under the laws of the Cayman Islands (the “ Company ” ), Syncora Guarantee Re Ltd. (formerly known as, XL Financial Assurance Ltd., a company domiciled in Bermuda) ( “ XLFA ” ) and Syncora Guarantee Inc. (formerly known as, XL Capital Assurance Inc., a New York insurance company) (“ XLCA ”).

WHEREAS, the Company, XLFA and XLCA are parties to that certain Master Commutation, Release and Restructuring Agreement, dated as of July 28, 2008, by and among Syncora Holdings Ltd (formerly known as Security Capital Assurance Ltd), XLFA, XLCA, the Company and the other parties thereto (the “ Master Transaction Agreement ” );

WHEREAS, the Closing (as defined in the Master Transaction Agreement) has occurred; and

WHEREAS, the Company, XLFA and XLCA previously entered into a Registration Rights Agreement, dated as of August 5, 2008 (the “ Registration Rights Agreement ”); and

WHEREAS, the Company, XLFA and XLCA now wish to amend and restate in its entirety the Registration Rights Agreement;

ARTICLE I
DEFINITIONS; HOLDING PERIOD AND RIGHT OF FIRST REFUSAL

Section 1.1 Certain Defined Terms . As used herein, the following terms shall have the following meanings:

“ Action ” means any legal, administrative, regulatory or other suit, action, claim, audit, assessment, arbitration or other proceeding, investigation or inquiry.

“ Agreement ” means this Amended and Restated Registration Rights Agreement as it may be amended, supplemented, restated or modified from time to time.

“ Business Day ” means any day, other than a Saturday, Sunday or a day on which banking institutions in New York, New York are authorized or obligated to close.

“ Class A Ordinary Shares ” means the Class A Ordinary Shares, par value $0.01 per share, of the Company.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC from time to time thereunder.

“ Holders ” means XLFA, XLCA and the Permitted Transferees that hold Registrable Securities from time to time (and “ Holder ” means any of such Persons).

“ Holders’ Representative ” means XLFA or any other Holder designated in writing by XLFA and XLCA as the Holders’ Representative.

“ Holding Period ” means the period from the date of this Agreement until the six-month anniversary of this Agreement.

“ Issuer Free Writing Prospectus ” means an issuer free writing prospectus, as defined in Rule 433 under the Securities Act, relating to an offer of the Registrable Securities.

“ Law ” means any statute, law, code, ordinance, rule or regulation of any Governmental Entity.

“ Other Securities ” means Class A Ordinary Shares other than Registrable Securities.

“ Permitted Transferee ” has the meaning set forth in Section 3.6 .

the meaning of Section 13(d)(3) of the Exchange Act) comprised of two or more of the foregoing.

“ Registrable Securities ” means (a) all 8,000,000 Class A Ordinary Shares issued to XLFA and XLCA as of the date of this Agreement, and (b) any securities issued directly or indirectly with respect to such shares described in clause (a) because of stock splits, stock dividends, reclassifications, recapitalizations, mergers, consolidations, or similar events. As to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such Registration Statement, (ii) such securities shall have been disposed of pursuant to Rule 144 or (iii) such securities are at such time eligible to be sold to the public without volume limitations pursuant to Rule 144, it being understood that in the event that such securities cease to be eligible to be sold to the public without volume limitations pursuant to Rule 144, then subject to clauses (i) and (ii) above such securities will again be Registrable Securities hereunder until such time as such securities are eligible to be sold to the public without volume limitations pursuant to Rule 144, and it being further agreed and understood that if such securities are at such time ineligible to be sold without volume limitations under Rule 144 because the Company does not satisfy the condition set forth in Rule 144(c)(1) and such ineligibility is due solely to the failure of Syncora Holdings Ltd after the date hereof to file with the SEC in a timely manner its Annual Report on Form 10-K under the Exchange Act, then until such time as such Annual Report on Form 10-K is filed by Syncora Holdings Ltd with the SEC such securities shall not be deemed to be Registrable Securities and the Company’s obligations under Sections 2.1 , 2.2 , 2.3 , 2.4 and 2.7 hereof with respect to such securities shall be suspended during such period.

“ Rule 144 ” means Rule 144 under the Securities Act (or any successor provision).

“ SEC ” means the United States Securities and Exchange Commission.

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC from time to time thereunder.

“ Selling Holder ” means each Holder of Registrable Securities included in a registration pursuant to Article II .

“ Shelf Registration Statement ” means a Registration Statement of the Company filed with the SEC on either (a) Form S-3 or (b) if the Company is not permitted to file a Registration Statement on Form S-3, a Registration Statement on Form S-1 (or any successor form or other appropriate form under the Securities Act), in each case for an offering to be made on a continuous or delayed basis pursuant to Rule 415 under the Securities Act covering Registrable Securities. To the extent the Company is a well-known seasoned issuer (as defined in Rule 405 under the Securities Act), a “ Shelf Registration Statement ” shall be deemed to refer to an automatic shelf registration statement (as defined in Rule 405 under the Securities Act) on Form S-3.

A “ Subsidiary ” of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which is owned directly or indirectly by such first person).

“ Transfer ” means, with respect to a given security, any transaction whereby a given Person (a) offers, pledges, sells, contract to sells, sells any option or contract to purchase, purchases any option or contract to sell, grants any option, right or warrant to purchase, lends, or otherwise transfers or disposes of, directly or indirectly, such given security or any securities convertible into or exercisable or exchangeable for any or all of such given security or (b) enters into any swap or any other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any or all of the given security, whether any such transaction described in clause (a) or (b) is to be settled by delivery of any or all of the given security or any other securities, in cash or otherwise.

succession of comparable successor Laws and references to all attachments thereto and instruments incorporated therein. References to a Person are also to its permitted successors and assigns. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

Section 1.3 Holding Period .

(a) The Holders agree that until the end of the Holding Period, they will not Transfer any of the Registrable Securities to any Person other than a Permitted Transferee.

(b) The Holders further agree that they will not publicly disclose the intention to make any Transfer referred to in Section 1.3(a) above prior to the end of the Holding Period. In furtherance of the foregoing, the Company and its transfer agent and registrar are hereby authorized to decline to make any transfer that would constitute a violation or breach of this Agreement.

Section 1.4 Right of First Offer .

(a) Offering Notice . Prior to exercising any rights under Article II or otherwise effecting any Transfer of any Class A Ordinary Shares, any Holder who desires to Transfer any number of Class A Ordinary Shares (such Holder being, a “ Transferring Party ” ) shall first offer to the Company the option to purchase from such Holder such number of the Class A Ordinary Shares that such Holder desires to Transfer by giving written notice (the “ Offering Notice ” ) to the Company stating the number of Class A Ordinary Shares that such Holder proposes to sell (the “ Offered Stock ” ) and the proposed purchase price per share to be paid for such Class A Ordinary Shares (the “ Offer Price ” ). An Offering Notice shall constitute an irrevocable offer from the Holder to the Company to sell to the Company the Offered Stock on the terms and conditions set forth in the Offering Notice for an amount of cash consideration per share equal to the Offer Price, and such irrevocable offer, if not accepted by the Company prior to the expiration of the Election Period (as defined below) in accordance with Section 1.4(b) , shall expire at the expiration of the Election Period.

(b) Company Option . The Company shall be entitled to irrevocably commit to purchase all of the Offered Stock upon the terms and conditions and for the cash consideration per share equal to the Offer Price, by giving written notice of such election to the Transferring Party (the “ Election Notice ” ), no later than 5 p.m. (New York time) on the fifth Business Day after the date on which the Offering Notice has been given to the Company (the “ Election Period ” ).

(i) If the Company does not elect to irrevocably commit to purchase all of the Offered Stock prior to the expiration of the Election Period as set forth in Section 1.4(b) , then the Transferring Party may Transfer all, but not less than all, of the Offered Stock to any Person at a price no less than the Offering Price and on terms and conditions no more favorable to the transferee than those specified in the Offering Notice for a period of up to thirty-five (35) days from the expiration of the Election Period including, if such Class A Ordinary Shares are at such time Registrable Securities, pursuant to Article II . The


	Offered Stock so Transferred to any Person within such period shall cease to be subject to the provisions of this Section 1.4 , and any Offered Stock not so Transferred within such period shall continue to be subject to the provisions of this Section 1.4 in connection with any subsequent proposed Transfer.

	(ii) If the Company elects to purchase all of the Offered Stock, then the closing of the purchase of such Offered Stock from such Transferring Party shall be held at the offices of Cadwalader, Wickersham & Taft LLP, One World Financial Center, New York, New York, or at such other location as shall be mutually agreed, at a mutually agreed upon time on a mutually agreed upon Business Day during the 10 day period immediately following the date on which the Election Notice was delivered to the Transferring Party or at such other time and place as the parties to the transaction may agree. At such closing, (x) the Transferring Party will deliver stock certificates evidencing the Offered Stock duly endorsed in blank (or accompanied by duly executed stock powers in blank) and such other instruments as the Company may reasonably require to consummate the purchase of such Offered Stock, (y) the Company shall deliver an amount equal to the product of (1) the Offered Stock and (2) the Offering Price, by wire transfer in immediately available funds to a bank account or bank accounts designated by the Transferring Party in writing to the Company at least two days prior to such closing.

(d) Failure to Elect . The failure of the Company to give any written notice specified in this Section 1.4 within the time period specified herein shall be deemed to be a waiver of its rights under this Section 1.4 to purchase the Offered Stock pursuant to such Offering Notice (but not any subsequent Offering Notice).

(e) Transfer to Permitted Transferee . Notwithstanding the foregoing, it is agreed and understood that the provisions of this Section 1.4 shall not apply to any Transfer of Class A Ordinary Shares to a Permitted Transferee in accordance with Section 3.6 .

ARTICLE II
REGISTRATION RIGHTS

Section 2.1 Demand Registrations . (a) Subject to Section 2.1(h) , at any time and from time to time following the last day of the Holding Period, the Holders’ Representative shall have the right by delivering a written notice to the Company (a “ Demand Notice ”) to require the Company to, pursuant to the terms of this Agreement, register under and in accordance with the provisions of the Securities Act the number of Registrable Securities Beneficially Owned by Holders and requested by such Demand Notice to be so registered (a “ Demand Registration ” ); provided , however , that a Demand Notice may only be made if the amount of Registrable Securities requested to be registered is reasonably expected to generate aggregate gross proceeds on sale (prior to deducting underwriting discounts and commissions and offering expenses) of at least $35 million. A Demand Notice shall also specify the expected method or methods of disposition of the applicable Registrable Securities. Following receipt of a Demand Notice, the Company shall use its reasonable best efforts to file, as promptly as reasonably practicable, but not later than, 60 days with respect to any underwritten offering, or 30 days with respect to any other offering, after receipt by the Company of such Demand Notice (subject to paragraph (e) of

this Section 2.1 ) ( provided , however , that with respect to a Demand Notice delivered to the Company following the Company’s failure or decline to exercise its option to purchase the Offered Stock pursuant to Section 1.4(b) , such 60 or 30 day period, as applicable, shall commence from the date on which the Offering Notice was delivered to the Company), a Registration Statement relating to the offer and sale of the Registrable Securities requested to be included therein by the Holders thereof in accordance with the methods of distribution elected by such Holders (a “ Demand Registration Statement ” ) and shall use its reasonable best efforts to cause such Registration Statement to be declared effective under the Securities Act as promptly as practicable after the filing thereof.

(b) If any of the Registrable Securities to be registered pursuant to a Demand Registration are to be sold in a firm commitment underwritten offering, and the managing underwriter(s) of such underwritten offering advise the Company and Holders in writing that it is their good faith opinion that the total number or dollar amount of Registrable Securities proposed to be sold in such offering, together with any Other Securities proposed to be included by holders thereof which are entitled to include securities in such Registration Statement, exceeds the total number or dollar amount of such securities that can be sold without having an adverse effect on the price, timing or distribution of the Registrable Securities to be so included together with all such Other Securities, then there shall be included in such firm commitment underwritten offering the number or dollar amount of Registrable Securities and such Other Securities that in the opinion of such managing underwriter(s) can be sold without so adversely affecting such offering, and such number of Registrable Securities and Other Securities shall be allocated for inclusion as follows:


	(i) first, the Registrable Securities for which inclusion in such demand offering was requested by the Holders, pro rata (if applicable), based on the number of Registrable Securities Beneficially Owned by each such Holder; and

	(ii) second, among any holders of Other Securities, pro rata , based on the number of Other Securities Beneficially Owned by each such holder.

(c) The Holders collectively shall be entitled to request no more than two Demand Registrations pursuant to this Section 2.1 ; provided , that in no event shall the Company be required to effect more than one Demand Registration in any three month period.

(e) The Company shall be entitled to postpone (but not more than once in any six-month period), for a reasonable period of time, together with any postponement under Section 2.2(c) , not in excess of 60 days (and not for periods exceeding, in the aggregate, 90 days during any twelve-month period), the filing or initial effectiveness of, or suspend the use of, a

Demand Registration Statement if the Company delivers to the Holders’ Representative a certificate signed by both the Chief Executive Officer and Chief Financial Officer of the Company certifying that, in their good faith judgment, such registration, offering or use would reasonably be expected to materially adversely affect or materially interfere with any bona fide and imminent material financing of the Company or any imminent material transaction under consideration by the Company or would require the disclosure of information that has not been, and is not otherwise required to be, disclosed to the public, the premature disclosure of which would materially adversely affect the Company. The Company shall have no obligation to include in any such certificate any reference to or description of the facts based upon which the Company is delivering such certificate. If the Company so postpones the filing of a Registration Statement, the Holders’ Representative will have the right to withdraw the request for registration by giving written notice to the Company within ten days of the anticipated termination date of the postponement period, as provided in the notice delivered to the Holders’ Representative and such withdrawn registration will not count as a Demand Registration.

(g) No request for registration will count for the purposes of the limitations in Section 2.1(c) if: (A) the Holders’ Representative determines in good faith to withdraw the proposed registration prior to the effectiveness of the Registration Statement relating to such request due to marketing conditions or regulatory reasons relating to the Company, (B) the Registration Statement relating to such request is not declared effective within 60 days of the date such Registration Statement is first filed with the SEC (other than solely by reason of the applicable Holders having refused to proceed), (C) the Registration Statement is not maintained effective for the period required pursuant to this Section 2.1(d) , (D) prior to the sale of at least 90% of the Registrable Securities included in the applicable registration relating to such request, such registration is adversely affected by any stop order, injunction or other order or requirement of the SEC or other Governmental Entity or court, (E) more than 10% of the Registrable Securities requested by the Holders to be included in the registration are not so included pursuant to Section 2.1(b) , or (F) the conditions to closing specified in any underwriting agreement or purchase agreement entered into in connection with the registration relating to such request are not satisfied (other than as a result of a default or breach thereunder by the applicable Holders). Notwithstanding anything to the contrary, the Company will pay all expenses (in accordance with Section 2.9 ) in connection with any request for registration pursuant to this Agreement regardless of whether or not such request counts toward the limitation set forth above.

(h) Notwithstanding anything else to the contrary in this Section 2.1 , if, prior to any request for registration pursuant to this Section 2.1 , (i) the Company shall have filed a Shelf Registration Statement covering all of the Registrable Securities, (ii) the plan of distribution set forth in such Shelf Registration Statement includes underwritten offerings and (iii) the Shelf Registration Statement is effective when the Holders’ Representative would otherwise make a request for registration under this Section 2.1 , the Company shall not be required to separately register any Registrable Securities in response to such request, and such request shall be deemed to be a request that the Company cooperate in effecting a Takedown (as

defined below) of the Registrable Securities pursuant to such Shelf Registration Statement. The Company may also register Other Securities on any such Shelf Registration Statement.

Section 2.2 Shelf Registration . (a) Subject to the second to last sentence of this Section 2.2(a) , within 5 days following the end of the Holding Period, the Company shall file with the SEC a Shelf Registration Statement providing for the registration and sale of all of the Registrable Securities by the Holders and shall use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act as soon as reasonably practicable thereafter. Notwithstanding the foregoing, the Company shall have no obligation to file, or keep effective a Shelf Registration if all Class A Ordinary Shares held by the Holders are no longer Registrable Securities. In the event that Class A Ordinary Shares which are no longer Registrable Securities (other than pursuant to clause (i) or (ii) of the definition of Registrable Securities) become Registrable Securities, the Company shall file or update a Shelf Registration Statement with respect to such Registrable Securities within five Business Days of receiving notification of such event and use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective under the Securities Act as soon as reasonably practicable thereafter.

(b) The Company shall use its reasonable best efforts to keep such Shelf Registration Statement continuously effective under the Securities Act in order to permit the Prospectus forming a part thereof to be usable by Holders until the earlier of the date as of which all Registrable Securities have been sold pursuant to the Shelf Registration Statement or another Registration Statement filed under the Securities Act (but in no event prior to the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder) (such period of effectiveness, the “ Shelf Period ”). Subject to Section 2.2(c) , the Company shall not be deemed to have used its reasonable best efforts to keep the Shelf Registration Statement effective during the Shelf Period if the Company voluntarily takes any action or omits to take any action that would result in Holders of Registrable Securities covered thereby not being able to offer and sell any Registrable Securities pursuant to such Shelf Registration Statement during the Shelf Period, unless such action or omission is required by applicable Law. The Company shall use its reasonable best efforts to remain a well-known seasoned issuer (as defined in Rule 405 under the Securities Act) and to not become an ineligible issuer (as defined in Rule 405 under the Securities Act) during the Shelf Period.

(c) The Company shall be entitled to postpone (but not more than once in any six-month period), for a reasonable period of time, together with any postponement under Section 2.1(e) , not in excess of 60 days (and not for periods exceeding, in the aggregate, 90 days during any twelve-month period), the filing or initial effectiveness of, or suspend the use of, a Shelf Registration Statement if the Company delivers to the Holders’ Representative a certificate signed by both the Chief Executive Officer and Chief Financial Officer of the Company certifying that, in their good faith judgment, such registration, offering or use would reasonably be expected to materially adversely affect or materially interfere with any bona fide material financing of the Company or any material transaction under consideration by the Company or would require the disclosure of information that has not been, and is not otherwise required to be, disclosed to the public, the premature disclosure of which would materially adversely affect the Company. The Company shall have no obligation to include in any such certificate any

reference to or description of the facts based upon which the Company is delivering such certificate.

(d) Upon a written request from any Holder (an “ Initiating Holder ”) to effect an offering under the Shelf Registration Statement (a “ Takedown ”), the Company will, as soon as practicable, (x) deliver a written notice relating to the proposed Takedown to all other Holders and (y) promptly (and in any event not later than twenty days after receiving such Initiating Holder’s request) supplement the Prospectus included in the Shelf Registration Statement as would permit or facilitate the sale and distribution of all or such portion of such Initiating Holder’s Registrable Securities as are specified in such request together with the Registrable Securities requested to be included in such Takedown by any other Holders who notify the Company in writing within ten business days after receipt of such written notice from the Company. If the Company and/or the holders of any Other Securities request inclusion of Other Securities in a Takedown, such Other Securities shall be included in the Takedown if, and only if, inclusion of such Other Securities would not be reasonably likely to delay in any material respect the timely effectuation of the Takedown or the sale of Registrable Securities pursuant to the Takedown. In the case of a request for or effectuation of a Takedown, all references in this Agreement to the effective date of a Registration Statement shall be deemed to refer to the date of pricing of such Takedown and all references to registration shall be deemed to refer to the Takedown.


	(i) first, the Registrable Securities for which inclusion in such underwritten offering requested by the Holders, pro rata (if applicable), based on the number of Registrable Securities Beneficially Owned by each such Holder; and

	(ii) second, among any holders of Other Securities, pro rata , based on the number of Other Securities Beneficially Owned by each such holder of Other Securities.

Section 2.3 Piggyback Registrations . (a) If, other than pursuant to Section 2.1 or Section 2.2 , the Company proposes or is required to file a registration statement under the Securities Act with respect to an offering of Class A Ordinary Shares, whether or not for sale for its own account (other than a registration statement (i) on Form S-4, Form S-8 or any successor forms thereto, (ii) filed solely in connection with any employee benefit or dividend reinvestment

plan, or (iii) so long as a Shelf Registration Statement is effective and available pursuant to Section 2.2 hereof, filed solely in connection with the issuance or resale of Class A Ordinary Shares issuable upon conversion, exercise or exchange of any securities of the Company or any of its Subsidiaries, where such convertible, exercisable or exchangeable securities were issued in, or as part of, a financing transaction), in a manner that would permit registration of Registrable Securities for sale to the public under the Securities Act, then the Company shall give prompt written notice of such proposed filing at least 30 days before the anticipated filing date (the “ Piggyback Notice ” ) to the Holders. The Piggyback Notice shall offer the Holders the opportunity to include in such registration statement the number of Registrable Securities as they may request (a “ Piggyback Registration ” ). Subject to Section 2.3(b) hereof, the Company shall include in each such Piggyback Registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after notice has been given to the Holders, to permit the distribution of such Registrable Securities in accordance with the methods of distribution elected by such Holders. The Holders shall be permitted to withdraw all or part of the Registrable Securities from a Piggyback Registration at any time at least two Business Days prior to the effective date of the Registration Statement relating to such Piggyback Registration. The Company shall use its reasonable best efforts to maintain the effectiveness of the Registration Statement for a Piggyback Registration for a period of at least 180 days after the effective date thereof or such shorter period in which all Registrable Securities included in such Registration Statement have actually been sold. No Piggyback Registration shall count towards registrations required under Section 2.1 .


	(i) first, all Other Securities being sold by the Company for its own account or by any Person (other than a Holder) exercising a contractual right to demand registration;

	(ii) second, all Registrable Securities requested to be included by the Holders, pro rata (if applicable), based on the number of Registrable Securities Beneficially Owned by each such Holder; and


	(iii) third, among any other holders of Other Securities requesting such registration, pro rata , based on the number of Other Securities Beneficially Owned by each such holder of Other Securities.

Section 2.4 Registration Procedures . If and whenever the Company is required to use its reasonable best efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Article II , the Company shall effect such registration to permit the sale of such Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall cooperate in the sale of the securities and shall, as expeditiously as possible (to the extent applicable, in the case of a Takedown):

(a) Prepare and file with the SEC a Registration Statement or Registration Statements on such form which shall be available for the sale of the Registrable Securities by the Holders or the Company in accordance with the intended method or methods of distribution thereof, and use its reasonable best efforts to cause such Registration Statement to become effective and to remain effective as provided herein; provided , however , that before filing a Registration Statement or Prospectus or any amendments or supplements thereto (excluding documents that would be incorporated or deemed to be incorporated therein by reference), the Company shall furnish or otherwise make available to the Selling Holders, their counsel and the managing underwriter(s), if any, copies of all such documents proposed to be filed, which documents will be subject to the reasonable review and comment of such counsel, and such other documents reasonably requested by such counsel, including any comment letter from the SEC, and, if requested by such counsel, provide such counsel reasonable opportunity to participate in the preparation of such Registration Statement and each Prospectus included therein and such other opportunities to conduct a reasonable investigation within the meaning of the Securities Act, including reasonable access to the Company’s books and records, officers, accountants and other advisors. The Company shall not file any such Registration Statement or Prospectus or any amendments or supplements thereto (excluding such documents that, upon filing, would be incorporated or deemed to be incorporated by reference therein) with respect to any registration pursuant to Section 2.1 , 2.2 or 2.3 to which any Holder (if such Registration Statement includes Registrable Securities of such Holder), its counsel, or the managing underwriter(s), if any, shall reasonably object, in writing, on a timely basis, unless, in the opinion of the Company, such filing is necessary to comply with applicable Law.

(e) If requested by the managing underwriter(s), if any, or the Holders of a majority of the Registrable Securities being sold in connection with an underwritten offering, promptly include in a Prospectus supplement, post-effective amendment or Issuer Free Writing Prospectus such information as the managing underwriter(s), if any, or such Holders may reasonably request in order to permit the intended method of distribution of such securities and make all required filings of such Prospectus supplement, such post-effective amendment or Issuer Free Writing Prospectus as soon as reasonably practicable after the Company has received such request.

(g) Deliver to each Selling Holder, and the managing underwriter(s), if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of Prospectus and any Issuer Free Writing Prospectus related to any such Prospectuses) and each amendment or supplement thereto as such Persons may reasonably request in connection with the distribution of the Registrable Securities; and the Company, subject to Section 2.5(b) , hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Selling Holders and the managing underwriter(s), if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any such amendment or supplement thereto.

(j) Upon the occurrence of any event contemplated by Section 2.4(c)(ii) , (c)(iii) , (c)(iv) , (c)(v) or (c)(vi) above, prepare a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference or an Issuer Free Writing Prospectus related thereto, or file any other required document so that, as thereafter delivered to the Selling Holders, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(k) Prior to the effective date of the Registration Statement relating to the Registrable Securities, provide a CUSIP number for the Registrable Securities.

(l) Provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such Registration Statement from and after a date not later than the effective date of such Registration Statement.

(m) Use its reasonable best efforts to cause all Registrable Securities covered by such Registration Statement to be authorized to be listed on each national securities exchange, if any, on which similar securities issued by the Company are then listed.

(n) Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other actions reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith or by the managing underwriter(s), if any, to expedite or facilitate the disposition of such Registrable Securities, and in connection therewith, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Selling Holders and the managing underwriter(s), if any, with respect to the business of the Company and its Subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers in underwritten offerings, and, if true, confirm the same if and when requested, (ii) use its reasonable best efforts to furnish to the Selling Holders of such Registrable Securities opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriter(s), if any, and counsels to the Selling Holders of the Registrable Securities), addressed to each Selling Holder of Registrable Securities and each of the managing underwriter(s), if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such counsel and managing underwriter(s), (iii) use its reasonable best efforts to obtain “comfort” letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any Subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement) who have certified the financial statements included in such Registration Statement, addressed to each Selling Holder of Registrable Securities (unless such accountants shall be prohibited from so addressing such letters by applicable standards of the accounting profession or such action is otherwise inconsistent with the then current practice in the accounting profession) and each of the managing underwriter(s), if any, such letters to be in customary form and covering matters of the type customarily covered in “comfort” letters in connection with underwritten offerings, (iv) if an underwriting agreement is entered into, the same shall contain customary indemnification provisions and procedures, except as otherwise agreed by the Company and Holders of a majority of the Registrable Securities being sold in connection therewith and the managing underwriter(s), if any, and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith, their counsel and the managing underwriter(s), if any, to evidence the continued validity of the representations and warranties made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required thereunder.

(o) Upon execution of a customary confidentiality agreement, make available for inspection by a representative of the Selling Holders, the managing underwriter(s), if any, and any attorneys or accountants retained by such Selling Holders or managing underwriter(s), at the offices where normally kept, during reasonable business hours, financial and other records, pertinent corporate documents and properties of the Company and its Subsidiaries, and cause the officers, directors and employees of the Company and its Subsidiaries to supply all information in each case reasonably requested by any such representative, managing underwriter(s), attorney or accountant in connection with such Registration Statement.

(p) Otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC and any applicable national securities exchange, and make available to its security holders, as soon as reasonably practicable (but not more than 18 months) after the effective date of the registration statement, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act.

Section 2.5 Certain Additional Agreements .

(b) Each Selling Holder agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.4(c)(iii) or (c)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 2.4(k) hereof, or until it is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus; provided, however, that (i) in no event shall such discontinuance exceed the time period set forth in Section 2.1(e) hereof, and (ii) the Company shall extend the time periods under Section 2.1 and Section 2.3 with respect to the length of time that the effectiveness of a Registration Statement must be maintained by the amount of time the Holder is required to discontinue disposition of such securities.

(c) The Company covenants and agrees that, so long as any Holder holds any Registrable Securities in respect of which any registration rights provided for in this Article II remain in effect, the Company will not, directly or indirectly, grant to any Person or agree to or otherwise become obligated in respect of rights of registration in the nature or substantially in the nature of those set forth in this Article II that would have priority over the Registrable Securities with respect to the inclusion of such securities in any registration by the Company (other than rights granted to a new registration rights holder after the date hereof to exercise a contractual right to demand registration that have terms no more favorable than the demand registration rights granted to the Holders in this Agreement), without the prior written consent of the Holder’s Representative. The rights granted to the Holders hereunder do not in any way conflict

with and are not inconsistent with the rights granted prior to the date hereof to the holders of any of the Company’s other issued and outstanding securities under any such agreements.

(d) Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it or an exemption therefrom in connection with sale of Registrable Securities pursuant to the Registration Statement.

Section 2.6 Indemnification .

(a) Indemnification by the Company . The Company shall indemnify and hold harmless, to the fullest extent permitted by Law, each Selling Holder whose Registrable Securities are covered by a Registration Statement or Prospectus, the officers, directors, partners (limited and general), members, managers and shareholders of each of them, each Person who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) each such Selling Holder and the officers, directors, partners (limited and general), members, managers and shareholders of each such controlling Person, each underwriter (including any Holder that is deemed to be an underwriter pursuant to any SEC comments or policies), if any, and each Person who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) such underwriter (collectively, “ Holder Indemnitees ” ), from and against any and all losses, claims, damages, liabilities, expenses (including, without limitation, costs of preparation and reasonable attorneys’ fees and any other reasonable fees or expenses incurred by such party in connection with any investigation or Action), judgments, fines, penalties, charges and amounts paid in settlement (collectively, “ Losses ” ), as incurred, arising out of or based upon any untrue statement (or alleged untrue statement) of a material fact contained in any applicable Registration Statement (or in any preliminary or final Prospectus contained therein, any document incorporated by reference therein or Issuer Free Writing Prospectus related thereto), amendment of or supplement to any of the foregoing or other document incident to any such registration, qualification, or compliance, or based on any omission (or alleged omission) to state therein (in the case of a final or preliminary Prospectus, in light of the circumstances under which they were made) a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or of the Exchange Act in connection with any such registration, qualification or compliance; provided, that the Company will not be liable to a Selling Holder or underwriter, as the case may be, in any such case to the extent that any such Loss arises out of or is based on any untrue statement or omission by such Selling Holder or underwriter, as the case may be, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement (or in any preliminary or final Prospectus contained therein, any document incorporated by reference therein or Issuer Free Writing Prospectus related thereto), amendment of or supplement to any of the foregoing or other document in reliance upon and in conformity with written information furnished to the Company by such Selling Holder or underwriter specifically for inclusion in such document; and provided, further, that the Company will not be liable to any Person who participates as an underwriter in any underwritten offering or sale of Registrable Securities, or to any Person who is a Selling Holder in any non-underwritten offering or sale of Registrable Securities, or any other Person, if any, who controls such underwriter or Selling Holder within the meaning of the Securities Act, under the indemnity agreement in this Section 2.6 with respect to any preliminary Prospectus or the final Prospectus (including any amended or supplemented

preliminary or final Prospectus), as the case may be, to the extent that any such loss, claim, damage or liability of such underwriter, Selling Holder or controlling Person results from the fact that such underwriter or Selling Holder sold Registrable Securities to a Person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final Prospectus as then amended or supplemented, whichever is most recent, if the Company has previously furnished copies thereof to such underwriter or Selling Holder and such final Prospectus, as then amended or supplemented, has corrected any such misstatement or omission. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Holder Indemnitee or any other Holder and shall survive the transfer of such securities. The foregoing indemnity agreement is in addition to any liability that the Company may otherwise have to each Holder Indemnitee.

(b) Indemnification by Selling Holders . In connection with any Registration Statement in which a Selling Holder is participating by registering Registrable Securities, such Selling Holder shall furnish to the Company in writing such information as the Company reasonably requests specifically for use in connection with any Registration Statement or Prospectus and agrees, severally and not jointly with any other Person, to indemnify and hold harmless, to the fullest extent permitted by Law, the Company, the officers and directors of the Company, and each Person who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) the Company, and each underwriter, if any, and each Person who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) such underwriter (collectively, “ Company Indemnitees ” ), from and against all Losses, as incurred, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such Registration Statement (or in any preliminary or final Prospectus contained therein, any document incorporated by reference therein or Issuer Free Writing Prospectus related thereto) or any amendment of or supplement to any of the foregoing or any other document incident to such registration, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a final or preliminary Prospectus, in light of the circumstances under which they were made) not misleading, in each case solely to the extent that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such Registration Statement (or in any preliminary or final Prospectus contained therein, any document incorporated by reference therein or Issuer Free Writing Prospectus related thereto), offering circular, or any amendment of or supplement to any of the foregoing or other document in reliance upon and in conformity with written information furnished to the Company by such Selling Holder expressly for inclusion in such document. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of its directors, officers or controlling Persons. The Company may require as a condition to its including Registrable Securities in any Registration Statement filed hereunder that the holder thereof acknowledge its agreement to be bound by the provisions of this Agreement (including Section 2.6 ) applicable to it.

so notify the indemnifying party shall not relieve the indemnifying party from any obligation or liability except to the extent that the indemnifying party has been actually prejudiced by such delay or failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party promptly after the receipt of written notice from such indemnified party of such claim or Action, to assume, at the indemnifying party’s expense, the defense of any such Action, with counsel reasonably satisfactory to such indemnified party; provided, however, that an indemnified party shall have the right to employ separate counsel in any such Action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless: (i) the indemnifying party agrees to pay such fees and expenses; (ii) the indemnifying party fails reasonably promptly to assume, or in the event of a conflict of interest, as determined after receiving written advice from outside counsel, cannot assume, the defense of such Action or fails to employ counsel reasonably satisfactory to such indemnified party, in which case the indemnified party shall also have the right to employ counsel and to assume the defense of such Action; or (iii) in the indemnified party’s reasonable judgment, after receiving written advice from outside counsel, a conflict of interest between such indemnified and indemnifying parties may exist in respect of such Action; provided, further, however, that the indemnifying party shall not, in connection with any one such Action or separate but substantially similar or related Actions in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not reasonable. Whether or not such defense is assumed by the indemnifying party, such indemnified party will not be subject to any liability for any settlement made without its written consent (but such consent will not be unreasonably withheld or delayed). No indemnifying party will be subject to any liability for any settlement made without its written consent (but such consent will not be unreasonably withheld or delayed). The indemnifying party shall not consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by all claimants or plaintiffs to such indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such claim or litigation.

(d) Contribution . (i) If the indemnification provided for in this Section 2.6 is unavailable to an indemnified party in respect of any Losses (other than in accordance with its terms), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission.


	(ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 2.6(d) were determined by pro rata allocation or by


	any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph.

	(iii) No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

written information furnished to the Company or the managing underwriter(s) by such Person and, provided further , that such Person’s (other than the Company’s) liability in respect of such representations and warranties shall not exceed such Person’s net proceeds from the offering.

Section 2.9 Registration Expenses . The Company shall pay all reasonable documented expenses incident to the Company’s performance of or compliance with its obligations under this Article II , including, without limitation, (i) all registration and filing fees (including fees and expenses (A) with respect to filings required to be made with the SEC, all applicable securities exchanges and/or the Financial Industry Regulatory Authority and (B) of compliance with securities or Blue Sky laws including any fees and disbursements of counsel for the underwriter(s) in connection with Blue Sky qualifications of the Registrable Securities pursuant to Section 2.4(h)) , (ii) printing expenses (including expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing Prospectuses if the printing of Prospectuses is requested by the managing underwriter(s), if any, or by the Holders of a majority of the Registrable Securities included in any Registration Statement), (iii) messenger, telephone and delivery expenses of the Company, (iv) fees and disbursements of counsel for the Company, (v) expenses of the Company incurred in connection with any road show, and (vi) fees and disbursements of all independent certified public accountants (including, without limitation, the expenses of any “comfort” letters required by this Agreement) and any other Persons, including special experts retained by the Company. In addition, the Company shall bear all of its internal expenses (including all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange on which similar securities issued by the Company are then listed and rating agency fees and the fees and expenses of any Person, including special experts, retained by the Company. The Company shall not be obligated to pay any underwriting discounts attributable to sales of Registrable Securities by Holders thereof or the fees and disbursements of any counsel to the Holders.

ARTICLE III
MISCELLANEOUS

Section 3.2 Termination . This Agreement shall terminate at such time as there are no Registrable Securities, except for the provisions of Sections 2.6 , 2.7 , 2.9 and this Article III , which shall survive such termination.

Section 3.3 Amendment and Waiver . This Agreement may not be amended except by an instrument in writing signed on behalf of each of the Company, XLFA and XLCA (or, in the case of an amendment at any time when XLFA and XLCA are not the sole Holders, signed on behalf of each of (i) the Company and (ii) the Holders of a majority of the aggregate number of Registrable Securities then held by all Holders). Any party hereto may waive any right of such party hereunder by an instrument in writing signed by such party and delivered to the other parties (or, in the case of a waiver of any rights of the Holders at any time when XLFA and

XLCA are not the sole Holders, by an instrument in writing signed by the Holders of a majority of the aggregate number of Registrable Securities then held by all Holders and delivered to the Company and the Holders’ Representative). The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

Section 3.6 Successors and Assigns . Neither this Agreement nor any right or obligation hereunder is assignable in whole or in part by any party without the prior written consent of the other party hereto; provided that XLFA and XLCA may transfer their respective rights and obligations hereunder (in whole or in part) to Syncora Holdings Ltd or any of its Subsidiaries (each, a “ Permitted Transferee ”) without the prior written consent of the Company. Any such assignment shall be effective upon receipt by the Company of (x) written notice from the transferring Holder stating the name and address of the Permitted Transferee and identifying the number of shares of Registrable Securities with respect to which the rights under this Agreement are being transferred and the nature of the rights so transferred and (y) a written agreement in substantially the form attached as Exhibit A hereto from such Permitted Transferee to be bound by the applicable terms of this Agreement.

(b) All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative,

and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party.

If to the Company: XL Capital Ltd, One Bermudiana Road, Hamilton HM 11, Bermuda, Attention: General Counsel, Fax: (441) 295-2840; and with a copy (which shall not constitute notice) to: Cadwalader, Wickersham & Taft, LLP, 1201 F Street, NW, Washington, DC 20004; Attention: Mark C. Ellenberg; Fax (202) 862-2400.

If to Syncora Guarantee Inc. or to Syncora Guarantee Re Ltd.: 1221 Avenue of the Americas, New York NY 10020-1001; Attention: General Counsel; Fax: (212) 478-3587; and with a copy (which shall not constitute notice) to: Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153; Attention: Joseph Verdesca; Fax: (212) 310-8007

Section 3.10 Governing Law; Consent to Jurisdiction . (a) This Agreement shall be governed in all respects by the laws of the State of New York, without regard to its conflicts of laws principles.

(c) Each of the parties hereto hereby irrevocably and unconditionally waives trial by jury in any legal Action or proceeding in relation to this Agreement and for any counterclaim therein.

[signature page follows]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.


	XL CAPITAL LTD

	By:	/s/ Robert Kuzloski

		Name: Robert Kuzloski
		Title: Senior Vice President

[SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]


	SYNCORA GUARANTEE RE LTD.
	formerly known as XL Financial Assurance Ltd.

	By:	/s/ Tom Currie

		Name: Tom Currie
		Title: SVP

[SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]


	SYNCORA GUARANTEE INC.
	(formerly known as XL Capital Assurance Inc.

	By:	/s/ Susan Comparato

		Name: Susan Comparato
		Title: SVP and GC

[SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT]

EXHIBIT A

JOINDER

Reference is made to the Registration Rights Agreement dated as of August 5, 2008 (as amended from time to time, the “ Registration Rights Agreement ”) among XL Capital Ltd, a Cayman Island corporation, Syncora Guarantee Re Ltd. (formerly known as, XL Financial Assurance Ltd, a company domiciled in Bermuda) and Syncora Guarantee Inc. (formerly known as, XL Capital Assurance Inc., a New York insurance company), and each other person who shall have become a party to the Registration Rights Agreement in accordance with the terms thereof.

By execution of this Joinder, the undersigned agrees to become a party to the Registration Rights Agreement and to be bound by the terms, conditions, restrictions and provisions thereof as a “Holder” thereunder, entitled to all of the rights available thereto and subject to all of the burdens imposed thereon.


Name:



Address for Notices:			With Copies to:











Signature:


Date:

EXHIBIT A-1

AMENDMENT NO. 2 TO MASTER COMMUTATION, RELEASE AND
RESTRUCTURING AGREEMENT

Dated as of October 15, 2008

AMENDMENT NO. 2 TO MASTER COMMUTATION, RELEASE AND
RESTRUCTURING AGREEMENT

AMENDMENT NO. 2 effective as of October 15, 2008 (this “ Amendment No. 2 ”) among XL CAPITAL LTD, an exempted limited company incorporated under the Laws of Cayman Islands, XL INSURANCE (BERMUDA) LTD (formerly known as X.L. Insurance Ltd), a Bermuda exempted company, XL REINSURANCE AMERICA INC., a New York insurance corporation, X.L. GLOBAL SERVICES, INC., a service company incorporated under the Laws of Delaware, XL SERVICES (BERMUDA) LTD, a service company incorporated under the Laws of Bermuda, X.L. AMERICA, INC., a company incorporated under the Laws of Delaware, SYNCORA HOLDINGS LTD (formerly known as Security Capital Assurance Ltd), a Bermuda exempted company, SYNCORA GUARANTEE INC. (formerly known as XL Capital Assurance Inc., and successor by merger to Syncora Guarantee Re Ltd. (formerly known as XL Financial Assurance Ltd) “ SGI ”), a New York insurance company, SYNCORA GUARANTEE SERVICES INC. (formerly known as XL Financial Administrative Services Inc.), a company incorporated under the Laws of Delaware, SYNCORA BERMUDA ADMINISTRATIVE LTD (formerly known as SCA Bermuda Administrative Ltd.), a company incorporated under the Laws of Bermuda, SYNCORA GUARANTEE (U.K.) LTD (formerly known as XL Capital Assurance (U.K.) Limited), an insurance company regulated by the Financial Services Authority and incorporated under the Laws of England and Wales, those portfolio trusts that are Affiliates of SGI that are a Party to the Master Agreement (as defined below) pursuant to the execution of a joinder agreement, and the CDS Counterparties.

WHEREAS, the parties hereto (the “ Parties ”) entered into a certain Master Commutation, Release and Restructuring Agreement dated as of July 28, 2008, and certain of the Parties amended such agreement as of August 1, 2008 (such agreement as amended, the “ Master Agreement ”);

WHEREAS, the Parties wish to change certain dates set forth in the Master Agreement; and

WHEREAS, the Parties wish to take such actions necessary to give effect to such changes;

Section 1. Definitions . Capitalized terms not otherwise defined in this Amendment No. 2 shall have the meanings ascribed to them in the Master Agreement.

Section 2. Amendments . Sections 2.04(a) , 6.10(b) , 6.12 , 6.13 , 6.14 , and 9.07 of the Master Agreement are hereby amended as follows:

2.1 Section 2.04(a) of the Master Agreement is hereby amended by replacing the date “October 15, 2008” with the date “October 31, 2008.”

2.2 Clause (i) of the first sentence of Section 6.10(b) of the Master Agreement is hereby amended by replacing the date “October 15, 2008” with the date “October 31, 2008.”

2.3 Clause (ii) of the first sentence of Section 6.12 of the Master Agreement is hereby amended by replacing the date “October 15, 2008” with the date “October 31, 2008.”

2.4 The last sentence of Section 6.12 of the Master Agreement is hereby amended by replacing the date “October 15, 2008” with the date “October 31, 2008.”

2.5 Section 6.13 of the Master Agreement is hereby amended by replacing the date “October 15, 2008”, in each instance in which it appears in such section, with the date “October 31, 2008.”

2.6 The last sentence of Section 6.14 of the Master Agreement is hereby amended by replacing the date “October 15, 2008” with the date “October 31, 2008.”

2.7 The Master Agreement is hereby amended by adding the following sentence to the end of Section 9.07 :


	“Notwithstanding anything herein to the contrary, in no event shall the consent of any of the XL Parties be necessary to extend or otherwise alter any of the dates referenced in Sections 2.04(a) , 6.10(b) , 6.12 , 6.13 , or 6.14 .”

Section 3. Substitution of Lehman Entity . (a) Lehman Brothers Special Financing Inc. (“ LBSF ”) has provided to the SCA Parties a written list (reflecting the best belief of an authorized signatory of LBSF) of (A) those credit default swap agreements with SGI or Affiliates of SGI to which LBSF was party, and of which LBSF was a beneficial owner, as of July 28, 2008 and (B) the notional amount of each such credit default swap agreement. For an abundance of clarity, the foregoing representations and warranties contained in this Section 3 only reflect the best belief of the authorized signatory of LBSF. LBSF is not making any representation or warranty that is not qualified by the best belief of such authorized signatory, and it will not be bound by or subject to liability based on any inaccuracy contained in any such list that ultimately results from such authorized signatory’s best belief being inadvertently inaccurate.

(b) LBSF hereby agrees to be bound by the terms and conditions of the Master Agreement and this Amendment No. 2. Each Party hereto hereby agrees that, effective as of July 28, 2008, LBSF is substituted for Lehman Brothers Inc. (“ LBI ”) as a Party to the Master Agreement for all purposes and is hereby substituted for LBI as the Party executing that certain joinder agreement to the Master Agreement dated as of July 28, 2008. LBSF has executed a joinder agreement to the Master Agreement pursuant to Section 9.04 thereof, effective as of July 28, 2008.

(c) Each Party hereby agrees that, for purposes of Section 2 of the joinder agreement to the Master Agreement executed and delivered by LBSF in connection herewith, the representations and warranties made by LBSF pursuant to Section 5.08 of the Master Agreement shall be deemed to be, and shall be replaced by, the representations and warranties set forth above in Section 3(a) hereof and, notwithstanding the provisions, and the date of effectiveness,

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of the joinder agreement, such representations and warranties are made by LBSF on the date hereof with respect to factual matters as existing on July 28, 2008.

Section 4. Miscellaneous .

4.1 Except as specifically set forth herein, the terms of this Amendment No. 2 shall not be deemed to be a consent, waiver or modification with respect to any term, condition or obligation of any of the Parties in the Master Agreement and shall not obligate any of the Parties to agree to any other amendment to the Master Agreement, including a further extension or alteration of the dates referenced in the Master Agreement.

4.2 This Amendment No. 2 may be executed and delivered in multiple counterparts, each of which, when so executed and delivered, shall be an original, but such counterparts shall together constitute but one and the same instrument and agreement. A facsimile or Portable Document Format copy of a signature shall have the same force and effect as an original signature.

4.3 This Amendment No. 2 is to be interpreted under and governed by the Laws of the State of New York without giving effect to conflicts of law provisions thereof. In the event that there is a dispute between or among the Parties arising under this Amendment No. 2, the Parties (i) agree that the exclusive forum to seek remedy shall be to institute a legal proceeding in the courts of the State of New York located in the City and County of New York, (ii) hereby expressly submit to the personal jurisdiction and venue of such courts for the purposes thereof and expressly waive any claim of lack of personal jurisdiction and improper venue and any claim that such courts are an inconvenient forum and (iii) agree that the prevailing Parties shall be entitled to recover their reasonable attorneys’ fees, costs and disbursements from the other Parties (in addition to any other relief to which the prevailing Parties may be entitled). Each Party hereby irrevocably consents to the service of process of any of the aforementioned courts in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the address provided to the Parties in accordance with Section 9.02, of the Master Agreement, such service to become effective ten (10) days after such mailing.

4.4 Each of the Parties hereby waives to the fullest extent permitted by applicable Law any right it may have to a trial by jury with respect to any litigation directly or indirectly arising out of, under, or in connection with this Amendment No. 2. Each of the Parties hereby (i) certifies that no representative, agent or attorney of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver and (ii) acknowledges that it has been induced to enter into this Amendment No. 2 by, among other things, the mutual waivers and certifications in this Section 4.4 .

4.5 Each Party has had the opportunity to negotiate the terms, consult with counsel, and modify the provisions of this Amendment No. 2. Therefore, the terms of this Amendment No. 2 will be considered and interpreted without any presumption, inference or rule requiring construction or interpretation of any provision of this Amendment No. 2 against the interests of the drafter of this Amendment No. 2.

-3-

Section 5. Effectiveness . Notwithstanding any provision to the contrary contained in this Amendment No. 2 or the Master Agreement, including, without limitation, the failure of the amendments thereto contained herein to become effective pursuant to Sections 9.07 and 9.08 of the Master Agreement, in the event such amendments fail to become effective solely as a result of the fact that LBI has not executed this Amendment No. 2, the Parties hereto agree that they shall be bound by all of the terms and conditions set forth in the Master Agreement as though the amendments thereto contained herein were in full force and effect.

[Signature Page Follows]

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IN WITNESS HEREOF, the Parties have caused this Amendment No. 2 to be duly executed and delivered as of the day and year first written above.


	XL CAPITAL LTD

	By:	/s/ Brian W. Nocco

		Name: Brian Nocco
		Title: EVP & CFO

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	XL SERVICES (BERMUDA) LTD

	By:	/s/ Brian W. Nocco

		Name: Brian Nocco
		Title:

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	X.L. AMERICA, INC.

	By:	/s/ Richard G. McCarty

		Name: Richard G. McCarty
		Title: Senior Vice President, General Counsel and Secretary

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	X.L. GLOBAL SERVICES, INC.

	By:	/s/ Toni A. Perkins

		Name: Toni A. Perkins
		Title: Assistant Secretary

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	XL REINSURANCE AMERICA INC.

	By:	/s/ Richard G. McCarty

		Name: Richard G. McCarty
		Title: Vice President

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	SYNCORA HOLDINGS LTD
	(formerly known as Security Capital Assurance Ltd)

	By:	/s/ Tom Currie

		Name: Tom Currie
		Title: SVP

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	SYNCORA GUARANTEE INC.
	(formerly known as XL Capital Assurance Inc.)

	By:	/s/ Susan Comparato

		Name: Susan Comparato
		Title: SVP, GC & Sec

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	SYNCORA GUARANTEE INC., as successor by merger to SYNCORA GUARANTEE RE LTD (formerly known as XL Financial Assurance Ltd.)

	By:	/s/ Susan Comparato

		Name: Susan Comparato
		Title: SVP, GC & Secretary

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	SYNCORA GUARANTEE SERVICES INC.
	(formerly known as XL Financial
	Administrative Services Inc.)

	By:	/s/ Susan Comparato

		Name: Susan Comparato
		Title: MD & Secretary

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	SYNCORA BERMUDA ADMINISTRATIVE LTD (formerly known as SCA Bermuda Administrative Ltd)

	By:	/s/ Tom Currie

		Name: Tom Currie
		Title: SVP

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	SYNCORA GUARANTEE (U.K.) LTD
	(formerly known as XL Capital
	Assurance (U.K.) Limited)

	By:	/s/ Susan Comparato

		Name: Susan Comparato
		Title: Acting CEO & GC

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


FF Trust 1	Portfolio CDS Trust 63	Portfolio CDS Trust 120	Portfolio CDS Trust 195
FF Trust 3	Portfolio CDS Trust 64	Portfolio CDS Trust 121	Portfolio CDS Trust 196
JPY Trust 3	Portfolio CDS Trust 65	Portfolio CDS Trust 122	Portfolio CDS Trust 197
Portfolio CDS Trust 1	Portfolio CDS Trust 66	Portfolio CDS Trust 123	Portfolio CDS Trust 198
Portfolio CDS Trust 2	Portfolio CDS Trust 67	Portfolio CDS Trust 124	Portfolio CDS Trust 199
Portfolio CDS Trust 3	Portfolio CDS Trust 68	Portfolio CDS Trust 128	Portfolio CDS Trust 208
Portfolio CDS Trust 4	Portfolio CDS Trust 70	Portfolio CDS Trust 130	Portfolio CDS Trust 209
Portfolio CDS Trust 6	Portfolio CDS Trust 71	Portfolio CDS Trust 132	Portfolio CDS Trust 210
Portfolio CDS Trust 7	Portfolio CDS Trust 72	Portfolio CDS Trust 133	Portfolio CDS Trust 211
Portfolio CDS Trust 8	Portfolio CDS Trust 73	Portfolio CDS Trust 135	Portfolio CDS Trust 212
Portfolio CDS Trust 10	Portfolio CDS Trust 74	Portfolio CDS Trust 136	Portfolio CDS Trust 213
Portfolio CDS Trust 11	Portfolio CDS Trust 75	Portfolio CDS Trust 139	Portfolio CDS Trust 214
Portfolio CDS Trust 12	Portfolio CDS Trust 76	Portfolio CDS Trust 141	Portfolio CDS Trust 215
Portfolio CDS Trust 13	Portfolio CDS Trust 77	Portfolio CDS Trust 142	Portfolio CDS Trust 216
Portfolio CDS Trust 15	Portfolio CDS Trust 78	Portfolio CDS Trust 144	Portfolio CDS Trust 219
Portfolio CDS Trust 16	Portfolio CDS Trust 80	Portfolio CDS Trust 145	Portfolio CDS Trust 222
Portfolio CDS Trust 17	Portfolio CDS Trust 81	Portfolio CDS Trust 146	Portfolio CDS Trust 224
Portfolio CDS Trust 18	Portfolio CDS Trust 82	Portfolio CDS Trust 147	Portfolio CDS Trust 229
Portfolio CDS Trust 22	Portfolio CDS Trust 83	Portfolio CDS Trust 150	Portfolio CDS Trust 230
Portfolio CDS Trust 24	Portfolio CDS Trust 84	Portfolio CDS Trust 151	Portfolio CDS Trust 231
Portfolio CDS Trust 25	Portfolio CDS Trust 86	Portfolio CDS Trust 154	Portfolio CDS Trust 232
Portfolio CDS Trust 26	Portfolio CDS Trust 88	Portfolio CDS Trust 155	Portfolio CDS Trust 234
Portfolio CDS Trust 27	Portfolio CDS Trust 89	Portfolio CDS Trust 158	Portfolio CDS Trust 235
Portfolio CDS Trust 28	Portfolio CDS Trust 92	Portfolio CDS Trust 159	Portfolio CDS Trust 236
Portfolio CDS Trust 30	Portfolio CDS Trust 93	Portfolio CDS Trust 160	Portfolio CDS Trust 237
Portfolio CDS Trust 31	Portfolio CDS Trust 94	Portfolio CDS Trust 161	Portfolio CDS Trust 238
Portfolio CDS Trust 32	Portfolio CDS Trust 96	Portfolio CDS Trust 162	Portfolio CDS Trust 239
Portfolio CDS Trust 33	Portfolio CDS Trust 97	Portfolio CDS Trust 166	Portfolio CDS Trust 240
Portfolio CDS Trust 34	Portfolio CDS Trust 99	Portfolio CDS Trust 167	Portfolio CDS Trust 241
Portfolio CDS Trust 35	Portfolio CDS Trust 100	Portfolio CDS Trust 168	Portfolio CDS Trust 242
Portfolio CDS Trust 36	Portfolio CDS Trust 101	Portfolio CDS Trust 171	Portfolio CDS Trust 243
Portfolio CDS Trust 40	Portfolio CDS Trust 103	Portfolio CDS Trust 174	Portfolio CDS Trust 244
Portfolio CDS Trust 41	Portfolio CDS Trust 104	Portfolio CDS Trust 175	Portfolio CDS Trust 248
Portfolio CDS Trust 42	Portfolio CDS Trust 105	Portfolio CDS Trust 178	Portfolio CDS Trust 249
Portfolio CDS Trust 43	Portfolio CDS Trust 106	Portfolio CDS Trust 179	Portfolio CDS Trust 250
Portfolio CDS Trust 49	Portfolio CDS Trust 107	Portfolio CDS Trust 180	Portfolio CDS Trust 251
Portfolio CDS Trust 50	Portfolio CDS Trust 108	Portfolio CDS Trust 181	Portfolio CDS Trust 252
Portfolio CDS Trust 51	Portfolio CDS Trust 110	Portfolio CDS Trust 182	Portfolio CDS Trust 253
Portfolio CDS Trust 54	Portfolio CDS Trust 111	Portfolio CDS Trust 187	Portfolio CDS Trust 24A
Portfolio CDS Trust 55	Portfolio CDS Trust 112	Portfolio CDS Trust 188	Portfolio CDS Trust 25A
Portfolio CDS Trust 56	Portfolio CDS Trust 113	Portfolio CDS Trust 189	Portfolio CDS Trust 29A
Portfolio CDS Trust 57	Portfolio CDS Trust 114	Portfolio CDS Trust 190	Portfolio CDS Trust 29B
Portfolio CDS Trust 58	Portfolio CDS Trust 115	Portfolio CDS Trust 191	Portfolio CDS Trust 4A
Portfolio CDS Trust 59	Portfolio CDS Trust 116	Portfolio CDS Trust 192
Portfolio CDS Trust 60	Portfolio CDS Trust 118	Portfolio CDS Trust 193
Portfolio CDS Trust 62	Portfolio CDS Trust 119	Portfolio CDS Trust 194


	By: SYNCORA ADMIN LLC (formerly known as XLCA Admin, LLC) acting through Syncora Admin LLC (formerly known as XLCA Admin, LLC), as Trustee

	By:	/s/ Susan Comparato

		Name: Susan Comparato
		Title: Managing Director & Secretary

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	AUSTRALIA AND NEW ZEALAND
	BANKING GROUP LIMITED

	By:	/s/ Frank Bonavita

		Name: F. Bonavita
		Title: Director

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	BANK OF AMERICA, N.A.

	By:	/s/ John W. Woodiel III

		Name: John W. Woodiel III
		Title: Senior Vice President

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	BARCLAYS BANK PLC

	By:	/s/ Kelly Smith

		Name: Kelly Smith
		Title: Director

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	CALYON

	By:	/s/ Alan Sidrane

		Name: Alan Sidrane
		Title: Managing Director

	By:	/s/ John-Charles van Essche

		Name: John-Charles van Essche
		Title: Managing Director

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	CANADIAN IMPERIAL BANK OF COMMERCE

	By:	/s/ Brian McDonough

		Name: B. T. McDonough
		Title: Executive Vice-President

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	DEUTSCHE BANK AG, LONDON BRANCH

	By:	/s/ Steven Kessler

		Name: Steven Kessler
		Title: Director

	By:	/s/ David N. Santore

		Name: David N. Santore
		Title: Vice President

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	DEXIA BANK BELGIUM SA

	By:	/s/ Bernhard Ardaen

		Name: Bernhard Ardaen
		Title: Proxyholder

	By:	/s/ Joris Laenen

		Name: Joris Laenen
		Title: Head of Dealing Room

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	DRESDNER BANK AG, LONDON BRANCH

	By:	/s/ Ronald G. Raffan

		Name: Ronald G. Raffan
		Title: Authorised Signatory

	By:	/s/ Christopher Croft

		Name: Christopher Croft
		Title: Authorised Signatory

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	HYPO PUBLIC FINANCE BANK

By:	/s/ Tom Glynn	/s/ Shampa Lahiri

	Name: Tom Glynn	Name: Shampa Lahiri
	Title: Authorized Signatories

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	LEHMAN BROTHERS SPECIAL FINANCING INC.

	By:	/s/ David J. Colet

		Name: David J. Colet
		Title: Director

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	NATIXIS

	By:	/s/ Joshua Laterman

		Name: Joshua Laterman
		Title:

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	NOMURA INTERNATIONAL PLC

	By:	/s/ Clare Jarrett

		Name: Clare Jarrett
		Title: Head Transaction Legal

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	ROYAL BANK OF CANADA

	By:	/s/ Matthew Gilchrist

		Name: Matthew Gilchrist
		Title: Authorized Signatory

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	THE ROYAL BANK OF SCOTLAND PLC
	By: Greenwich Capital Markets, Inc., its agent

	By:	/s/ Nadir-Benoit Elhied

		Name: Nadir-Benoit Elhied
		Title: SVP

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	SOCIÉTÉ GÉNÉRALE

	By:	/s/ Edith L. Hormick

		Name: Edith L. Hormick
		Title: Managing Director

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	UBS AG, LONDON BRANCH

	By:	/s/ Bryan M. Murtagh

		Name: Bryan M. Murtagh
		Title: Attorney-in-Fact


	By:	/s/ Thomas D. Prangley

		Name: Thomas D. Prangley
		Title: Attorney in Fact

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	WACHOVIA BANK, NATIONAL ASSOCIATION

	By:	/s/ Helen F. Wessling

		Name: Helen F. Wessling
		Title: Managing Director

[AMENDMENT NO. 2 TO THE MASTER COMMUTATION, RELEASE AND RESTRUCTURING AGREEMENT]


	Exhibit 10.11

	Accenture LLP

	300 Campus Drive
	Florham Park, NJ 07932

	www.accenture.com

March 5, 2009

John H. Sullivan
Senior Vice President
XL Global Services
100 Constitution Plaza
Hartford, CT 06103

RE: Early Termination of XL-Accenture OT Programme

Dear John,

This Letter Agreement is to confirm the understanding between Accenture LLP (“Accenture”) and XL Global Services, Inc. (“XL”) relating to XL’s intent to terminate for convenience in full the parties’ Operational Transformation Agreement (“OT Agreement”), dated May 6, 2008. Accenture provided XL with certain services (the “OT Programme”) under the OT Agreement. In consideration of the covenants and respective release of claims set forth in this letter, the parties agree as follows:

(1)

The OT Agreement will terminate effective May 6, 2009 (the “Effective Date of Termination”). However, the Parties further agree that they intend to negotiate a new agreement to cover future claims work (“Claims Project Agreement”). Notwithstanding the Effective Date of Termination, Section 35.4 of the OT Agreement or any reference to Capacity Services, Risk/Reward or any other Accenture revenue enhancement provisions, the OT Agreement will continue in full force and effect to cover the Claims Workstream as set out in the existing OT Agreement, as may be amended from time to time by agreement of the parties, until the Claims Project Agreement is completed between the Parties. The termination date of the OT Agreement as it relates to the Claims Workstream will be the date on which the Claims Project Agreement is executed between the Parties or the Effective Date of Termination, whichever is earlier. Until the Claims Project Agreement is executed, XL shall continue to pay for Claims Workstream services in accordance with the terms of the OT Agreement. In the event both Parties are unable to successfully negotiate a Claims Project Agreement prior to the effective date of termination of the OT Agreement, XL may, in its sole discretion, with respect to the Claims Workstream, elect not to continue to purchase products and services from Accenture without further obligation and penalty, however, this shall not alter XL’s obligations as set forth in paragraph (5) of this Letter Agreement. In the event XL elects not to procure future products and services from Accenture, XL agrees to pay for all outstanding charges owed to Accenture for services rendered, received and accepted by XL.


	Accenture LLP

	300 Campus Drive
	Florham Park, NJ 07932

	www.accenture.com


(2)	In accordance with Section 35.2 of the OT Agreement and Section 6 of Schedule 3 of the OT Agreement, XL will pay to Accenture Termination Compensation in the amount of Two Million, Five Hundred Thousand Dollars ($2,500,000.00).

(3)	In accordance with Section 35.1 of the OT Agreement, XL agrees to pay to Accenture upon receipt of its invoice all outstanding fees and expenses due for Services rendered up to and including the Effective Date of Termination. For work performed by Accenture for the non-Claims Workstreams in the first quarter of 2009 that has not been previously invoiced by Accenture and paid by XL, XL will pay an amount not greater than Two Million, Nine Hundred Thousand Dollars ($2,900,000.00). If the invoice reconciliation process as described in Schedule 3, Section 10 of the OT Agreement, results in an actual fee greater than this amount, XL will only be required to pay $2.9 million. If the reconciliation process results in a lower figure, XL will pay the lower figure that results from the reconciliation. The fees and expenses for the non-Claims Workstreams as described in this paragraph will be invoiced according to the usual invoicing and reconciliation process described in Schedule 3 of the OT Agreement.

(4)	In accordance with Section 35.1.1 of the OT Agreement, XL will pay to Accenture an amount equal to One Hundred Twenty Thousand Dollars ($120,000.00) for the mutually agreed unrecovered costs incurred by Accenture under the OT Programme.

(5)	In accordance with the terms of the OT Agreement (Section 34.4), XL may not terminate the OT Agreement in part at any time, nor may XL terminate the OT Agreement prior to May 6, 2009. XL no longer has the same business need for the services provided by the workstreams noted in paragraph (10), and has therefore requested that Accenture stop work on these workstreams on short notice. In consideration for Accenture granting XL’s request to terminate these workstreams prior to the Effective Date of Termination, XL will further pay to Accenture in addition to the other fees listed in this Letter Agreement, an amount equal to Two Million Dollars ($2,000,000.00) in compensation for work on the OT Programme that XL has requested to stop prematurely (“In-Flight WPDRs”). The Parties agree to this fee for In-Flight WPDRs.

(6)	The Parties further agree to the following:

	a.	The terms and conditions for the Claims Project Agreement shall be negotiated using the OT Agreement as a starting point. XL is under no obligation to accept the terms and conditions within the OT Agreement as both Parties agree there has been a significant change in project scope. The sole intent of using the OT Agreement as a starting point is to facilitate discussions between the Parties in an effort to reach agreement in the most expedient and cost effective manner possible to address the contract needs for the Claims Workstream;

	b.	Any consulting work within the Accenture practice area required by XL Insurance (“XLI”) in the next twelve (12) months from the date this Letter Agreement is signed shall be sole sourced to Accenture. This may include, but is not limited to business


	Accenture LLP

	300 Campus Drive
	Florham Park, NJ 07932

	www.accenture.com


		strategy, organization, business change, operating model, capability assessment, sourcing strategy, IT strategy, IT transformation, and/or other CxO level advice. Tax advice, legal advice, and actuarial advice is specifically excluded. Systems build work is also excluded from this agreement; although Accenture would be pleased to work with XL in that space should the opportunity arise. Accenture and XL may mutually agree that Accenture does not have the capabilities for a specific requirement from XL; in those instances the Parties may mutually agree that such consulting work will not be sourced to Accenture;

	c.	Any work provided under this paragraph will utilize the appropriate rates contained in the OT Agreement (adjusted for indexation and exchange rates) for the appropriate geography. These documented rates will survive the effective date of termination of the OT Agreement for twelve (12) months following the date of this Letter Agreement; and

	d.	XL agrees to give Accenture the opportunity to bid on all outsourcing work required by XLI, and will make commercially reasonable efforts for the same with regard to XL Capital, Ltd for the next twenty-four (24) months from the date this Letter Agreement is signed.

(7)	In accordance with Section 5.2 and Schedule 4 of the OT Agreement, XL contracted with Accenture for the provision of a minimum volume of certain Capacity Services. XL wishes to honor its obligation to use a minimum volume of Capacity Services, and both parties recognize that XL currently does not have a business need for the type of services originally planned. Therefore, XL agrees to pay Accenture Eight Hundred Thousand Dollars ($800,000.00) in consideration for Accenture waiving XL’s Capacity Services obligations (the “Capacity Services Payment”). In consideration for this Capacity Services Payment, Accenture will provide to XL a credit note in the amount of the Capacity Services Payment (“Consulting Credit Note”) for offset against future consulting services to be performed by Accenture. For the avoidance of doubt, no application maintenance, support services, or outsourcing services may be procured under this Consulting Credit Note. The following conditions shall apply to the issuance and use of this Consulting Credit Note:

	a.	The Consulting Credit Note is a total credit amount in U.S. dollars to be used for Accenture consulting services in the next twelve (12) months from the date this Letter Agreement is signed as detailed above, and is not tied to a certain number of mandays;

	b.	Expenses are in addition to and are not included in the Consulting Credit Note and will be invoiced separately when incurred;

	c.	The Consulting Credit Note may not be used for work covered by the Claims Project Agreement or the existing OT Agreement;

	d.	The Consulting Credit Note will only be applied to work actually performed by Accenture, i.e. it will be a credit to XL from Accenture, to offset amounts that would have been payable for services rendered. Under no circumstances shall any money be paid by Accenture to XL as a result of the Consulting Credit Note.


	Accenture LLP

	300 Campus Drive
	Florham Park, NJ 07932

	www.accenture.com


	e.	Services provided under the Consulting Credit Note will be utilized based on the Business Change Rate contained in the OT Agreement (adjusted for indexation and exchange rates) for the appropriate geography and these documented rates will survive the effective date of termination of the OT Agreement; and

	f.	Accenture will invoice for the full amount of the Capacity Services Payment in conjunction with and in addition to the Termination Compensation.

	The areas from which XL may choose to retain Accenture’s services in its use of the Consulting Credit Note may be drawn from Accenture’s consulting practice area, which subject to the other terms of this Letter Agreement may include, but is not limited to business strategy, organization, business change, operating model, capability assessment, sourcing strategy, IT strategy, IT transformation, and/or other CxO level advice. Tax advice, legal advice, and actuarial advice is specifically excluded. Systems build work is also excluded from this agreement; although Accenture would be pleased to work with XL in that space should the opportunity arise.

(8)	The Termination Compensation and all other termination-related fees referenced in paragraphs two, four, five, and six herein (the “Termination Fees”), not including fees associated with the Claims Workstream or the non-Claims Workstreams as described in paragraph (3), will be invoiced in total in a single invoice, which will be issued by March 4, 2009. The total invoice amount for the Termination Fees shall be Five Million, Four Hundred Twenty Thousand Dollars ($5,420,000.00), and will be payable in accordance with the terms of the OT Agreement, forty-five (45) days from the invoice date.

(9)	Schedule 3, Annex 6 of the OT Agreement describes the Risk/Reward Mechanism agreed by the Parties, and provides that if the OT Programme is terminated for any reason, the final Measurement Period for Risk/Reward will end on the expiration of the relevant notice period, and any outstanding payments for prior Measurement Periods will be honored (Schedule 3, Annex 6, Section 12). XL and Accenture agree Risk/Reward will be measured for the 2008 Measurement Period as described in Schedule 3, Annex 6, and if a payment is due to Accenture, such payment will be honored by XL notwithstanding the termination of the OT Agreement.

(10)	The Parties hereby agree that the following workstreams are closed down effective January 31, 2009, and Accenture has no further obligations with respect to them: US Underwriting and Policy Administration, Accounting Services, Core IT, Programme Management. Further, the Enterprise Performance Management and Management Information workstream will not commence as planned.

(11)	XL acknowledges and agrees that all Services performed and Deliverables that XL has requested or that Accenture has provided under the OT Programme have been successfully delivered by Accenture and documented in WPCRs. With regards to the Claims Workstream WPDRs that were completed under the OT Agreement, XL acknowledges and


	Accenture LLP

	300 Campus Drive
	Florham Park, NJ 07932

	www.accenture.com


	agrees that all Services performed and Deliverables that XL has requested or that Accenture has provided under the OT Programme have been successfully delivered by Accenture (in addition to XL acknowledging the foregoing by signing this Letter Agreement, the parties shall also document it in WPCRs). With the exception of the uncompleted Claims Deliverables, acceptance of which will be subject to the agreed upon terms and conditions of the OT Agreement (other than to the extent modified by the Claims Project Agreement), XL accepts all of the Services and Deliverables, and hereby releases and discharges Accenture, its partners, agents, and employees of and from all liabilities, obligations, claims, and demands whatsoever, arising from or under all work performed as part of the OT Programme.

(12)	The Parties agree, subject to paragraph (1) of this Letter Agreement, that the terms of the OT Agreement shall govern all work performed by Accenture in relation to the OT Programme for XL up to the Effective Date of Termination, which shall include any extension of the OT Agreement as it regards the Claims Workstream. Any variation from the terms of the OT Agreement as to the Claims Workstream must be mutually agreed between the Parties and will be subject to a Change Notice pursuant to the Change Control Process outlined in Schedule 7 of the OT Agreement.

(13)	Each Party shall be responsible for the payment of taxes in connection with this Letter Agreement in accordance with the OT Agreement.

(14)	Accenture and XL agree that the terms of Section 27, Confidentiality and Data Protection, of the OT Agreement will continue to apply between the parties as this provision will survive the expiration or termination of the OT Agreement.

(15)	Accenture and XL agree not to disclose the existence or terms of this Letter Agreement and any and all agreements, negotiations, or discussions relating to this Letter Agreement or the amount of consideration in support hereof, directly or indirectly, to any third party, except as such disclosures may be required by law, to their respective accountants or attorneys, without the express written consent of the other party.

(16)	All capitalized terms herein shall have the meaning given to them in the OT Agreement unless otherwise specified. In the event of a conflict between this Letter Agreement and the terms of the OT Agreement, this Letter Agreement shall take precedence to the extent of the conflict. Other than as expressly stated in this Letter Agreement, the Parties further agree that neither party waives any rights it has under the OT Agreement by agreeing to this Letter Agreement.

(17)	Each of the parties represents and warrants for itself that is authorized to enter into this Letter Agreement and bind its respective entities to the terms of the same. The Parties acknowledge that this Letter Agreement constitutes the full and final agreement of the parties relating to the subject matter contained herein. No other statements, promises, or


	Accenture LLP

	300 Campus Drive
	Florham Park, NJ 07932

	www.accenture.com


	representations have been made or relied upon by and among the parties. All prior discussions and negotiations have been merged and integrated into, and are superseded by this Letter Agreement. This Letter Agreement may only be modified or amended in writing.


On behalf of XL Global Services, Inc.

By:	/s/ David Duclos

Name:	David Duclos
Title:	Chief Executive, XL Insurance

By:	/s/ John H. Sullivan

Name:	John H. Sullivan
Title:	Senior Vice President

On behalf of Accenture, LLP

By:	/s/ John Cusano

Name:	John Cusano
Title:	Managing Partner North American Insurance

Exhibit 10.12


	Accenture LLP 300 Campus Drive Florham Park, NJ 07932 www.accenture.com

May 6, 2009

John H. Sullivan
Senior Vice President
XL Global Services
100 Constitution Plaza
Hartford, CT 06103


	RE:	Amendment I to the Letter Agreement
		Extension of OT Agreement Effective Date of Termination

Dear John,

In a Letter Agreement dated March 5, 2009, Accenture LLP (“Accenture”) and XL Global Services, Inc. (“XL”) (the “Letter Agreement”) agreed to provisions to provide for the early termination for convenience of the parties’ Operational Transformation Agreement dated May 6 ^th , 2008 (“OT Agreement”). In exchange for mutual consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties agree the Letter Agreement is modified as follows:


	1.	References in Sections 1 and 5 of the Letter Agreement to “May 6 ^th , 2009” are deleted and replaced with “June 5 ^th , 2009”

Each of the parties represents and warrants for itself that is authorized to enter into this Amendment I to the Letter Agreement and bind its respective entities to the terms of the same.

On behalf of XL Global Services, Inc.

By:
By:	/s/ David Duclos

Name:	David Duclos
Title:	Chief Executive, XL Insurance

By:	/s/ John H. Sullivan

Name:	John H. Sullivan
Title:	Senior Vice President


	Accenture LLP 300 Campus Drive Florham Park, NJ 07932 www.accenture.com

On behalf of Accenture, LLP

By:
By:	/s/ John Cusano

Name:	John Cusano
Title:	Managing Partner North American Insurance

Exhibit 31

Certification of Chief Executive Officer
XL Capital Ltd
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Chapter 98, Title 15 U.S.C. SS. 7241)


I, Michael S. McGavick, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of XL Capital Ltd;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: August 5, 2009

	/s/ M ICHAEL S. M C G AVICK

	Michael S. McGavick
	Chief Executive Officer

Certification of Chief Financial Officer
XL Capital Ltd
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Chapter 98, Title 15 U.S.C. SS. 7241)


I, Brian W. Nocco, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of XL Capital Ltd;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: August 5, 2009

	/s/ B RIAN W. N OCCO

	Brian W. Nocco
	Executive Vice President and
	Chief Financial Officer

Exhibit 32

Certification Accompanying Form 10-Q Report of XL Capital Ltd
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chapter 63, Title 18 U.S.C. SS.SS. 1350(a) and (b))

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18 U.S.C. ss.ss. 1350(a) and (b)), each of the undersigned hereby certifies that the Quarterly Report on Form 10-Q for the period ended June 30, 2009 of XL Capital Ltd (the “Company”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


	Dated: August 5, 2009

	/s/ M ICHAEL S. M C G AVICK

	MICHAEL S. McGAVICK
	CHIEF EXECUTIVE OFFICER
	XL CAPITAL LTD

	Dated: August 5, 2009

	/s/ B RIAN W. N OCCO

	BRIAN W. NOCCO
	EXECUTIVE VICE PRESIDENT,
	CHIEF FINANCIAL OFFICER
	XL CAPITAL LTD

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to XL Capital Ltd and will be retained by XL Capital Ltd and furnished to the Securities and Exchange Commission or its staff upon request.