UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 
For the Quarterly Period Ended September 30, 2004
 
OR
 
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 
For the Transition Period from                      to                     
 
Commission File No. 1-11778
I.R.S. Employer Identification No. 98-0091805
 
ACE LIMITED
(Incorporated in the Cayman Islands)
 
ACE Global Headquarters
17 Woodbourne Avenue
Hamilton HM 08
Bermuda
 
Telephone 441-295-5200
 
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 þ     NO ¨
 
Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
 
YES þ     NO ¨
 
The number of registrant’s Ordinary Shares ($0.041666667 par value) outstanding as of November 4, 2004 was 284,197,671.

 
1

 
ACE LIMITED
 
 INDEX TO FORM 10-Q

					
 	  	 	  	Page No.
	
Part I. FINANCIAL INFORMATION	  	 	
			
Item 1.	  	Financial Statements:	  	 	
			
 	  	Consolidated Balance Sheets September 30, 2004 (Unaudited) and December 31, 2003	  	3	
			
 	  	Consolidated Statements of Operations (Unaudited) Three and Nine Months Ended September 30, 2004 and 2003	  	4	
			
 	  	Consolidated Statements of Shareholders’ Equity (Unaudited) Nine Months Ended September 30, 2004 and 2003	  	5	
			
 	  	Consolidated Statements of Comprehensive Income (Unaudited) Three and Nine Months Ended September 30, 2004 and 2003	  	7	
			
 	  	Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2004 and 2003	  	8	
			
 	  	Notes to Interim Consolidated Financial Statements (Unaudited)	  	9	
			
Item 2.	  	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	34	
			
Item 3.	  	Quantitative and Qualitative Disclosures About Market Risk	  	65	
			
Item 4.	  	Controls and Procedures	  	65	
		
Part II. OTHER INFORMATION	  	 	
			
Item 1.	  	Legal Proceedings	  	67	
			
Item 2.	  	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	  	67	
			
Item 5.	  	Other Information	  	67	
			
Item 6.	  	Exhibits	  	68	
 
2

 
ACE LIMITED
PART I FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
ACE LIMITED AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS

 	  	September 30
2004
	 	 	December 31
2003
	 	
 	  	(Unaudited)	 	 	 	 	
 	  	(in thousands of U.S. dollars,
except share and per share data)	 	
Assets	  	 	 	 	 	 	 	 	
Investments	  	 	 	 	 	 	 	 	
Fixed maturities, at fair value (amortized cost - $20,325,522 and $18,006,405)	  	$	20,790,897	 	 	$	18,645,267	 	
Equity securities, at fair value (cost - $849,252 and $401,237)	  	 	959,820	 	 	 	543,811	 	
Securities on loan, at fair value (amortized cost/cost - $1,000,411 and $650,160)	  	 	1,044,454	 	 	 	684,629	 	
Short-term investments, at fair value	  	 	3,359,992	 	 	 	2,927,407	 	
Other investments (cost - $1,158,658 and $602,176)	  	 	1,228,384	 	 	 	645,085	 	
 	  				 				
Total investments	  	 	27,383,547	 	 	 	23,446,199	 	
Cash	  	 	625,799	 	 	 	561,650	 	
Accrued investment income	  	 	283,525	 	 	 	258,379	 	
Insurance and reinsurance balances receivable	  	 	3,378,925	 	 	 	2,836,616	 	
Accounts and notes receivable	  	 	169,737	 	 	 	191,519	 	
Reinsurance recoverable	  	 	14,268,455	 	 	 	14,080,716	 	
Deferred policy acquisition costs	  	 	975,273	 	 	 	1,004,753	 	
Prepaid reinsurance premiums	  	 	1,652,597	 	 	 	1,372,568	 	
Funds withheld	  	 	328,283	 	 	 	255,587	 	
Value of reinsurance business assumed	  	 	291,206	 	 	 	346,365	 	
Goodwill	  	 	2,612,449	 	 	 	2,710,830	 	
Deferred tax assets	  	 	1,015,576	 	 	 	1,089,805	 	
Other assets	  	 	1,470,311	 	 	 	1,397,806	 	
 	  				 				
Total assets	  	$	54,455,683	 	 	$	49,552,793	 	
 	  				 				
Liabilities	  	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	  	$	29,603,310	 	 	$	27,154,838	 	
Unearned premiums	  	 	6,465,590	 	 	 	6,050,788	 	
Future policy benefits for life and annuity contracts	  	 	520,638	 	 	 	491,837	 	
Funds withheld	  	 	185,410	 	 	 	208,728	 	
Insurance and reinsurance balances payable	  	 	2,273,284	 	 	 	1,902,622	 	
Contract holder deposit funds	  	 	220,303	 	 	 	212,335	 	
Securities lending collateral	  	 	1,068,056	 	 	 	698,587	 	
Payable for securities purchased	  	 	879,249	 	 	 	369,105	 	
Accounts payable, accrued expenses and other liabilities	  	 	1,293,735	 	 	 	1,206,046	 	
Dividends payable	  	 	59,667	 	 	 	53,182	 	
Short-term debt	  	 	145,648	 	 	 	545,727	 	
Long-term debt	  	 	1,848,847	 	 	 	1,349,202	 	
Trust preferred securities	  	 	412,373	 	 	 	475,000	 	
 	  				 				
Total liabilities	  	 	44,976,110	 	 	 	40,717,997	 	
 	  				 				
Commitments and contingencies	  	 	 	 	 	 	 	 	
Shareholders’ equity	  	 	 	 	 	 	 	 	
Preferred Shares ($1.00 par value, 2,300,000 shares authorized, issued and outstanding)	  	 	2,300	 	 	 	2,300	 	
Ordinary Shares ($0.041666667 par value, 500,000,000 shares authorized; 284,112,866 and 279,897,193 shares issued and outstanding)	  	 	11,838	 	 	 	11,662	 	
Additional paid-in capital	  	 	4,895,662	 	 	 	4,765,355	 	
Unearned stock grant compensation	  	 	(69,316	)	 	 	(44,912	)	
Retained earnings	  	 	4,031,251	 	 	 	3,380,619	 	
Deferred compensation obligation	  	 	12,601	 	 	 	16,687	 	
Accumulated other comprehensive income	  	 	607,838	 	 	 	719,772	 	
Ordinary Shares issued to employee trust	  	 	(12,601	)	 	 	(16,687	)	
 	  				 				
Total shareholders’ equity	  	 	9,479,573	 	 	 	8,834,796	 	
 	  				 				
Total liabilities and shareholders’ equity	  	$	54,455,683	 	 	$	49,552,793	 	

See accompanying notes to the interim consolidated financial statements
 
3

 
ACE LIMITED AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 2004 and 2003
(Unaudited)

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
 	  	(in thousands of U.S. dollars, except per share data)	 	
Revenues	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross premiums written	  	$	3,981,802	 	 	$	3,450,912	 	 	$	12,438,134	 	 	$	10,968,594	 	
Reinsurance premiums ceded	  	 	(1,213,252	)	 	 	(1,144,781	)	 	 	(3,564,487	)	 	 	(3,326,418	)	
 	  				 				 				 				
Net premiums written	  	 	2,768,550	 	 	 	2,306,131	 	 	 	8,873,647	 	 	 	7,642,176	 	
Change in unearned premiums	  	 	84,734	 	 	 	91,394	 	 	 	(632,008	)	 	 	(866,527	)	
 	  				 				 				 				
Net premiums earned	  	 	2,853,284	 	 	 	2,397,525	 	 	 	8,241,639	 	 	 	6,775,649	 	
Net investment income	  	 	251,396	 	 	 	214,689	 	 	 	726,376	 	 	 	633,048	 	
Net realized gains (losses)	  	 	(32,092	)	 	 	57,556	 	 	 	67,371	 	 	 	124,028	 	
 	  				 				 				 				
Total revenues	  	 	3,072,588	 	 	 	2,669,770	 	 	 	9,035,386	 	 	 	7,532,725	 	
 	  				 				 				 				
Expenses	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Losses and loss expenses	  	 	2,234,047	 	 	 	1,518,478	 	 	 	5,500,920	 	 	 	4,260,690	 	
Life and annuity benefits	  	 	48,447	 	 	 	44,524	 	 	 	134,569	 	 	 	136,582	 	
Policy acquisition costs	  	 	386,082	 	 	 	344,066	 	 	 	1,146,771	 	 	 	973,242	 	
Administrative expenses	  	 	325,629	 	 	 	293,355	 	 	 	950,331	 	 	 	840,315	 	
Interest expense	  	 	48,997	 	 	 	44,348	 	 	 	139,668	 	 	 	132,958	 	
Other (income) expense	  	 	(21,152	)	 	 	3,088	 	 	 	1,831	 	 	 	8,516	 	
 	  				 				 				 				
Total expenses	  	 	3,022,050	 	 	 	2,247,859	 	 	 	7,874,090	 	 	 	6,352,303	 	
 	  				 				 				 				
Income before income tax	  	 	50,538	 	 	 	421,911	 	 	 	1,161,296	 	 	 	1,180,422	 	
Income tax expense	  	 	53,158	 	 	 	66,946	 	 	 	304,082	 	 	 	207,545	 	
 	  				 				 				 				
Net income (loss)	  	$	(2,620	)	 	$	354,965	 	 	$	857,214	 	 	$	972,877	 	
 	  				 				 				 				
Basic earnings (loss) per share	  	$	(0.05	)	 	$	1.25	 	 	$	2.94	 	 	$	3.53	 	
 	  				 				 				 				
Diluted earnings (loss) per share	  	$	(0.05	)	 	$	1.22	 	 	$	2.88	 	 	$	3.46	 	

See accompanying notes to the interim consolidated financial statements
 
4

 
ACE LIMITED AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the nine months ended September 30, 2004 and 2003
(Unaudited)

 	  	2004
	 	 	2003
	 	
 	  	(in thousands of U.S. dollars)	 	
Preferred Shares	  	 	 	 	 	 	 	 	
Balance – beginning of period	  	$	2,300	 	 	$	—  	 	
Shares issued	  	 	—  	 	 	 	2,300	 	
 	  				 				
Balance – end of period	  	 	2,300	 	 	 	2,300	 	
 	  				 				
Ordinary Shares	  	 	 	 	 	 	 	 	
Balance – beginning of period	  	 	11,662	 	 	 	10,945	 	
Shares issued	  	 	66	 	 	 	563	 	
Exercise of stock options	  	 	131	 	 	 	110	 	
Issued under Employee Stock Purchase Plan (ESPP)	  	 	10	 	 	 	12	 	
Cancellation of shares	  	 	(31	)	 	 	(27	)	
 	  				 				
Balance – end of period	  	 	11,838	 	 	 	11,603	 	
 	  				 				
Additional paid-in capital	  	 	 	 	 	 	 	 	
Balance – beginning of period	  	 	4,765,355	 	 	 	3,781,112	 	
Ordinary Shares issued	  	 	69,050	 	 	 	47,628	 	
Exercise of stock options	  	 	73,301	 	 	 	36,394	 	
Ordinary Shares issued under ESPP	  	 	7,663	 	 	 	7,332	 	
Cancellation of Ordinary Shares	  	 	(28,591	)	 	 	(21,320	)	
Other	  	 	8,884	 	 	 	11,109	 	
Preferred Shares issued, net	  	 	—  	 	 	 	554,587	 	
Conversion of Mezzanine equity, net	  	 	—  	 	 	 	310,465	 	
 	  				 				
Balance – end of period	  	 	4,895,662	 	 	 	4,727,307	 	
 	  				 				
Unearned stock grant compensation	  	 	 	 	 	 	 	 	
Balance – beginning of period	  	 	(44,912	)	 	 	(42,576	)	
Stock grants awarded	  	 	(69,876	)	 	 	(47,112	)	
Stock grants forfeited	  	 	15,118	 	 	 	3,687	 	
Amortization	  	 	30,354	 	 	 	21,942	 	
 	  				 				
Balance – end of period	  	 	(69,316	)	 	 	(64,059	)	
 	  				 				
Retained earnings	  	 	 	 	 	 	 	 	
Balance – beginning of period	  	 	3,380,619	 	 	 	2,199,313	 	
Net income	  	 	857,214	 	 	 	972,877	 	
Dividends declared on Ordinary Shares	  	 	(172,944	)	 	 	(150,650	)	
Dividends declared on Preferred Shares	  	 	(33,638	)	 	 	(11,337	)	
Dividends declared on Mezzanine equity	  	 	—  	 	 	 	(9,773	)	
 	  				 				
Balance – end of period	  	 	4,031,251	 	 	 	3,000,430	 	
 	  				 				
Deferred compensation obligation	  	 	 	 	 	 	 	 	
Balance – beginning of period	  	 	16,687	 	 	 	18,631	 	
(Decrease) increase to obligation	  	 	(4,086	)	 	 	336	 	
 	  				 				
Balance – end of period	  	$	12,601	 	 	$	18,967	 	

See accompanying notes to the interim consolidated financial statements
 
5

 
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (cont’d)
For the nine months ended September 30, 2004 and 2003
(Unaudited)

 	  	2004
	 	 	2003
	 	
 	  	(in thousands of U.S. dollars)	 	
Accumulated other comprehensive income	  	 	 	 	 	 	 	 	
Net unrealized appreciation (depreciation) on investments	  	 	 	 	 	 	 	 	
Balance – beginning of period	  	$	684,267	 	 	$	476,411	 	
Change in period, net of income tax	  	 	(122,901	)	 	 	211,335	 	
 	  				 				
Balance – end of period	  	 	561,366	 	 	 	687,746	 	
 	  				 				
Minimum pension liability	  	 	 	 	 	 	 	 	
Balance – beginning of period	  	 	(35,684	)	 	 	—  	 	
Change in period, net of income tax	  	 	1,018	 	 	 	(40,054	)	
 	  				 				
Balance – end of period	  	 	(34,666	)	 	 	(40,054	)	
 	  				 				
Cumulative translation adjustment	  	 	 	 	 	 	 	 	
Balance – beginning of period	  	 	71,189	 	 	 	(36,519	)	
Change in period, net of income tax	  	 	9,949	 	 	 	57,202	 	
 	  				 				
Balance – end of period	  	 	81,138	 	 	 	20,683	 	
 	  				 				
Accumulated other comprehensive income	  	 	607,838	 	 	 	668,375	 	
 	  				 				
Ordinary Shares issued to employee trust	  	 	 	 	 	 	 	 	
Balance – beginning of period	  	 	(16,687	)	 	 	(18,631	)	
Decrease (increase) in Ordinary Shares	  	 	4,086	 	 	 	(336	)	
 	  				 				
Balance – end of period	  	 	(12,601	)	 	 	(18,967	)	
 	  				 				
Total shareholders’ equity	  	$	9,479,573	 	 	$	8,345,956	 	

See accompanying notes to the interim consolidated financial statements
 
6

 
ACE LIMITED AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended September 30, 2004 and 2003
(Unaudited)

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
 	  	(in thousands of U.S. dollars)	 	
Net income (loss)	  	$	(2,620	)	 	$	354,965	 	 	$	857,214	 	 	$	972,877	 	
Other comprehensive income	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net unrealized appreciation (depreciation) on investments	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized appreciation (depreciation) on investments	  	 	393,488	 	 	 	(165,252	)	 	 	6,844	 	 	 	300,900	 	
Reclassification adjustment for net realized (gains) losses included in net income	  	 	(31,929	)	 	 	(23,482	)	 	 	(175,946	)	 	 	(61,088	)	
 	  				 				 				 				
 	  	 	361,559	 	 	 	(188,734	)	 	 	(169,102	)	 	 	239,812	 	
Cumulative translation adjustment	  	 	21,193	 	 	 	(2,252	)	 	 	(488	)	 	 	81,594	 	
Minimum pension liability	  	 	2,234	 	 	 	(3,081	)	 	 	1,605	 	 	 	(62,081	)	
 	  				 				 				 				
Other comprehensive income (loss), before income tax	  	 	384,986	 	 	 	(194,067	)	 	 	(167,985	)	 	 	259,325	 	
Income tax benefit (expense) related to other comprehensive income items	  	 	(82,686	)	 	 	49,803	 	 	 	56,051	 	 	 	(30,842	)	
 	  				 				 				 				
Other comprehensive income (loss)	  	 	302,300	 	 	 	(144,264	)	 	 	(111,934	)	 	 	228,483	 	
 	  				 				 				 				
Comprehensive income	  	$	299,680	 	 	$	210,701	 	 	$	745,280	 	 	$	1,201,360	 	

See accompanying notes to the interim consolidated financial statements
 
7

 
ACE LIMITED AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2004 and 2003
(Unaudited)

 	  	2004
	 	 	2003
	 	
 	  	(in thousands of U.S. dollars)	 	
Cash flows from operating activities	  	 	 	 	 	 	 	 	
Net income	  	$	857,214	 	 	$	972,877	 	
Adjustments to reconcile net income to net cash flows from (used for) operating activities:	  	 	 	 	 	 	 	 	
Net realized (gains) losses	  	 	(67,371	)	 	 	(124,028	)	
Amortization of premium/discounts on fixed maturities	  	 	80,428	 	 	 	66,554	 	
Deferred income taxes	  	 	159,096	 	 	 	157,451	 	
Unpaid losses and loss expenses	  	 	2,963,498	 	 	 	1,205,295	 	
Unearned premiums	  	 	954,628	 	 	 	532,220	 	
Future policy benefits for life and annuity contracts	  	 	28,801	 	 	 	37,027	 	
Insurance and reinsurance balances payable	  	 	401,083	 	 	 	(177,348	)	
Accounts payable, accrued expenses and other liabilities	  	 	81,829	 	 	 	(134,845	)	
Insurance and reinsurance balances receivable	  	 	(581,646	)	 	 	(84,468	)	
Reinsurance recoverable	  	 	(310,348	)	 	 	(40,955	)	
Deferred policy acquisition costs	  	 	(154,140	)	 	 	(139,155	)	
Prepaid reinsurance premiums	  	 	(302,429	)	 	 	383,815	 	
Funds withheld, net	  	 	(87,899	)	 	 	27,656	 	
Value of reinsurance business assumed	  	 	43,752	 	 	 	21,939	 	
Other	  	 	11,448	 	 	 	(84,091	)	
 	  				 				
Net cash flows from operating activities	  	$	4,077,944	 	 	$	2,619,944	 	
 	  				 				
Cash flows from investing activities	  	 	 	 	 	 	 	 	
Purchases of fixed maturities	  	$	(18,278,983	)	 	$	(14,490,369	)	
Purchases of equity securities	  	 	(838,088	)	 	 	(75,464	)	
Sales of fixed maturities	  	 	13,908,365	 	 	 	11,099,741	 	
Sales of equity securities	  	 	439,597	 	 	 	107,873	 	
Maturities of fixed maturities	  	 	—  	 	 	 	94,612	 	
Net proceeds from the settlement of investment derivatives	  	 	13,912	 	 	 	18,502	 	
Sale of subsidiary (net of cash sold of $82 million)	  	 	953,164	 	 	 	—  	 	
Other	  	 	(136,733	)	 	 	(60,469	)	
 	  				 				
Net cash flows used for investing activities	  	$	(3,938,766	)	 	$	(3,305,574	)	
 	  				 				
Cash flows from financing activities	  	 	 	 	 	 	 	 	
Dividends paid on Ordinary Shares	  	$	(166,459	)	 	$	(145,462	)	
Dividends paid on Preferred Shares	  	 	(33,638	)	 	 	(11,337	)	
Proceeds from issuance of long-term debt	  	 	499,565	 	 	 	—  	 	
Proceeds from exercise of options for Ordinary Shares	  	 	73,432	 	 	 	36,504	 	
Proceeds from Ordinary Shares issued under ESPP	  	 	7,673	 	 	 	7,344	 	
Net proceeds from (repayment of) short-term debt	  	 	(400,079	)	 	 	40	 	
Repayment of trust preferred securities	  	 	(75,000	)	 	 	—  	 	
Net proceeds from issuance of Preferred Shares	  	 	—  	 	 	 	556,887	 	
Dividends paid on Mezzanine Equity	  	 	—  	 	 	 	(9,773	)	
 	  				 				
Net cash flows from (used for) financing activities	  	$	(94,506	)	 	$	434,203	 	
 	  				 				
Effect of foreign currency rate changes on cash and cash equivalents	  	$	19,477	 	 	$	19,193	 	
 	  				 				
Net increase (decrease) in cash	  	 	64,149	 	 	 	(232,234	)	
Cash – beginning of period	  	 	561,650	 	 	 	663,355	 	
 	  				 				
Cash – end of period	  	$	625,799	 	 	$	431,121	 	

See accompanying notes to the interim consolidated financial statements
 
8

 
ACE LIMITED AND SUBSIDIARIES
 NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.	General	
 
The interim unaudited consolidated financial statements, which include the accounts of the Company and its subsidiaries, have been prepared in accordance with accounting principles generally accepted in the United States of America and, in the opinion of management, reflect all adjustments (consisting of normally recurring accruals) necessary for a fair presentation of results for such periods. The results of operations and cash flows for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the consolidated financial statements, and related notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
 
ACE Limited (ACE or the Company) is a holding company incorporated with limited liability under the Cayman Islands Companies Law and maintains its business office in Bermuda. The Company, through its various subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. ACE operates through four business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance and Financial Services. These segments are described in Note 18.
 
Certain items in the prior year financial statements have been reclassified to conform with the current year presentation.
 
The following table summarizes the Company’s gross premiums written by geographic region for the nine months ended September 30, 2004 and 2003. Allocations have been made on the basis of location of risk.

Nine Months
Ended
	 	North
America
	 	Europe
	 	Australia & New
Zealand
	 	Asia
Pacific
	 	Latin America
	
September 30, 2004	 	64%	 	22%	 	3%	 	7%	 	4%	
September 30, 2003	 	64%	 	22%	 	3%	 	7%	 	4%	
 
2.	New accounting pronouncements	
 
Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (SOP 03-1) became effective on January 1, 2004 and provides guidance on accounting and reporting by insurance enterprises for certain nontraditional long-duration contracts and for separate accounts. Through the Global Reinsurance segment, the Company reinsures annuitization benefits, principally related to guaranteed minimum death benefits (GMDBs) and guaranteed minimum income benefits (GMIBs). The valuation of insurance liabilities related to the Company’s GMDB reinsurance product is subject to certain provisions of the SOP whereas the Company’s GMIB reinsurance product meets the definition of a derivative for accounting purposes and is therefore carried at fair value with changes in fair value recognized in income in the period of the change pursuant to the Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (FAS 133). Pursuant to SOP 03-1, liabilities for annuitization benefits, such as the minimum death benefit guarantee, are generally based on cumulative assessments or premiums to date multiplied by a benefit ratio that is determined by estimating the expected value of benefit payments and related adjustment expenses divided by the present value of cumulative assessment or expected fees during the annuitization period. In the event the Company was to anticipate an ultimate loss on the business over the in-force period of the underlying annuities, an additional liability would be established to recognize such losses. The Company adopted SOP 03-1 on January 1, 2004. In its capacity as reinsurer, the Company’s valuation of insurance liabilities related to its GMDB reinsurance program has been materially consistent with the requirements of the SOP. Consequently, the adoption of SOP 03-1 did not have a material impact on the Company’s consolidated financial statements. See Note 8b for further details regarding the Company’s reinsurance programs involving minimum benefit guarantees under annuity contracts.
 
In December 2003, the FASB revised its Statement of Financial Accounting Standards No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (FAS 132), to require additional disclosures related to pensions and postretirement benefits. While retaining the existing disclosure requirements for pensions and postretirement benefits, additional disclosures are required related to pension plan assets, obligations, contributions and net benefit costs, beginning with fiscal years ending after December 15, 2003. For foreign plans, these additional disclosures are required beginning with fiscal years ending after June 15, 2004. Additional disclosures pertaining to benefit payments are also required for fiscal years ending after June 15, 2004. FAS 132 revisions also include additional disclosure requirements for interim financial reports beginning after December 15, 2003. (See Note 12). Given that all of the
 
9

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Company’s defined benefit plans cover foreign employees, the Company is required to implement the additional disclosures beginning in its 2004 consolidated financial statements.
 
In March 2004, the Emerging Issues Task Force (EITF) reached a final consensus on EITF 03-1, The Meaning of Other-Than-Temporary Impairments and its Application to Certain Investments , which was initially to be effective for fiscal periods beginning after June 15, 2004. On October 4, 2004, the FASB issued FASB Staff Position (FSP) No. EITF Issue 03-1-1 delaying the effective date for the guidance that addresses recognition and measurement of other-than-temporary impairments of EITF 03-1, as contained in paragraphs 10-20, until certain implementation issues are addressed and another FSP (the final FSP) providing implementation guidance is issued. The final FSP providing implementation guidance is expected to be issued in December 2004. The final FSP is expected to address matters such as: 1) the level of impairment that can be considered temporary that would not create the need for an assertion about the ability and intent to hold an investment until a forecasted recovery; and 2) the circumstances under which an investor can sell securities at a loss that would not call into question the investor’s ability or intent to hold other unsold securities to recovery. Pursuant to the Company’s current policy on other-than-temporary impairments, the Company generally does not consider impairments of debt and equity securities to be other-than-temporary when: i) the impairment is caused solely by temporary market changes, such as interest rates and/or sector spreads for debt securities and standard fluctuations in the equity markets for equity securities; ii) the duration of the impairment is less than one year (unless the severity of the impairment exceeds 20 percent and the duration is 9 months or greater); and iii) subsequent sales of securities at a realized loss are based on changes in facts and circumstances after the balance sheet date and consistent with the classification of the investment portfolio as available-for-sale, including sales to support operational needs and those precipitated by changes in market conditions after the balance sheet date affecting the availability and the yield on alternative investments. For all other impaired securities, the Company must prove a specific ability and intent to hold to recovery. More often than not, the Company recognizes an other-than-temporary impairment for such securities. Once EITF 03-1 is finalized, the Company will complete an evaluation as to the impact on its policy and process for determining other-than-temporary impairments for marketable debt and equity securities. As a result of the Company’s adoption of paragraphs 10-20 of EITF 03-1 and the final FSP, the Company may potentially reclassify certain unrealized capital losses associated with certain securities classified as available-for-sale to realized capital losses, may be required to accelerate the realization of impairment losses through income, and/or re-designate certain investments as trading securities in accordance with FASB No. 115. Adoption of this standard is not expected to have a material impact on shareholders’ equity since fluctuations in fair value of available-for-sale securities are already recorded in accumulated other comprehensive income; however, it could have a material effect on results of operations.
 
On March 31, 2004, the FASB issued an Exposure Draft, Share Based Payment – an amendment of Statements 123 and 95 (Exposure Draft 123). Exposure Draft 123 was to be applied for fiscal years beginning after December 15, 2004. Subsequently, on October 13, 2004, the FASB concluded that its proposed statement, which would require all companies to measure compensation cost for all share-based payment awards (including employee stock options) at fair value, would be effective for public companies for interim or annual periods beginning after June 15, 2005. The FASB expects to issue a final standard by December 31, 2004. This standard will likely be known as FASB Statement No. 123R (Revised 2004) (FAS 123R). Retroactive application of the requirements of FASB Statement No. 123 (not FAS 123R) to the beginning of the fiscal year, or January 1, 2005 for a calendar year company, would be permitted, but not required. In accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), the Company has not recognized compensation expense for options in net income because the exercise price equaled the market value of the underlying common stock on the grant date. If Exposure Draft 123 is adopted as proposed, FAS 123R will require the Company to expense employee stock options and therefore, could have a material effect on results of operations and financial condition. The ultimate amount of compensation cost to be recognized is dependent on the final standard, the model and related assumptions used to determine the fair value of the options awarded, and the actual amount of employee stock options awarded in 2005. Once issued, the Company will complete its evaluation of the effect of this standard.
 
The FASB has issued an Exposure Draft, Earnings per Share – an amendment of FASB 128 (Exposure Draft 128) , which would amend the computational guidance in FAS 128, Earnings per Share , for calculating the number of incremental shares included in diluted shares when applying the treasury stock method. Exposure Draft 128 eliminates the provisions that allow an entity to rebut the presumption that contracts with the option of settling in either cash or stock will be settled in stock and would require that shares to be issued upon conversion of a mandatory convertible security be included in the weighted-average number of ordinary shares outstanding used in computing basic earnings per share from the date on which conversion becomes mandatory. If Exposure Draft 128 is adopted consistent with the FASB’s amendment of the original timing proposed, it will be effective for financial statements for both interim and annual periods ending after December 15, 2004. After the effective date, if Exposure Draft 128 is adopted as proposed, all prior-period EPS data presented will be adjusted retrospectively to conform with the provisions of Exposure Draft 128. Once issued, the Company will complete its evaluation of the effect of this standard.
 
10

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
3.	Catastrophe Charges	
 
During the current quarter, the Company incurred net catastrophe-related pre-tax charges of $479 million primarily associated with hurricanes which struck the Caribbean and the U.S. and, to a lesser extent, typhoons which impacted Asia (collectively referred to as catastrophe charges). The following table shows the impact of the catastrophe charges on each of our operating segments in the three and nine months ended September 30, 2004 (there were no catastrophe charges incurred in the first half of 2004).

Catastrophe Loss Charges—By Event
	  	Insurance—North
American
	 	 	Insurance—Overseas
General
	 	 	Global
Reinsurance
	 	 	Consolidated
P&C
	 	 	Financial
Services
	  	Total
	 	
 	  	(in millions of U.S. dollars)	 	
Gross loss	  	$	426	 	 	$	157	 	 	$	284	 	 	$	867	 	 	$	11	  	$	878	 	
							
Net loss	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Hurricane—Charley	  	$	31	 	 	$	—  	 	 	$	65	 	 	$	96	 	 	$	—  	  	$	96	 	
Hurricane—Frances	  	 	22	 	 	 	6	 	 	 	48	 	 	 	76	 	 	 	5	  	 	81	 	
Hurricane—Ivan	  	 	40	 	 	 	20	 	 	 	76	 	 	 	136	 	 	 	5	  	 	141	 	
Hurricane—Jeanne	  	 	33	 	 	 	18	 	 	 	63	 	 	 	114	 	 	 	1	  	 	115	 	
Typhoons	  	 	—  	 	 	 	9	 	 	 	26	 	 	 	35	 	 	 	—  	  	 	35	 	
 	  				 				 				 				 			  				
Total	  	 	126	 	 	 	53	 	 	 	278	 	 	 	457	 	 	 	11	  	 	468	 	
							
Reinstatement premiums (earned) expensed	  	 	13	 	 	 	13	 	 	 	(15	)	 	 	11	 	 	 	—  	  	 	11	 	
 	  				 				 				 				 			  				
Total impact before income tax	  	 	139	 	 	 	66	 	 	 	263	 	 	 	468	 	 	 	11	  	 	479	 	
Income tax benefit	  	 	(41	)	 	 	(21	)	 	 	(11	)	 	 	(73	)	 	 	—  	  	 	(73	)	
 	  				 				 				 				 			  				
Total impact after income tax	  	$	98	 	 	$	45	 	 	$	252	 	 	$	395	 	 	$	11	  	$	406	 	

4.	Sale of financial and mortgage guaranty business through Assured Guaranty Ltd.	
 
On April 28, 2004, the Company completed the sale of 65.3 percent of its U.S. financial and mortgage guaranty reinsurance and insurance businesses (transferred business) through the initial public offering (IPO) of 49 million common shares of Assured Guaranty Ltd. (Assured Guaranty) at $18.00 per share. Assured Guaranty was incorporated in Bermuda in August 2003 for the sole purpose of becoming a holding company for the transferred business.
 
Pursuant to the completion of the IPO, the Company received proceeds, net of offering costs, of approximately $835 million and a return of capital of $200 million. The transaction resulted in a reduction of shareholders’ equity of $61.1 million, representing the difference between net proceeds and the carrying value of 65.3 percent of Assured Guaranty at April 28, 2004 as well as taxes incurred on the transaction. The transaction also resulted in a pre-tax realized loss of $6.7 million which is included in realized gains (losses) in the accompanying statement of operations and an after-tax loss of $18.1 million, which consists of the following:

Loss on sale of financial and mortgage guaranty businesses	  	$	(49.7	)	
Realization of accumulated other comprehensive income on companies sold	  	 	43.0	 	
 	  				
Pre-tax loss included in net realized gains (losses)	  	 	(6.7	)	
Income tax expense	  	 	11.4	 	
 	  				
After-tax loss	  	$	(18.1	)	

A description of each component of the loss is as follows:
 
 	•	The loss on the sale of the transferred business of $49.7 million represents the difference between the carrying value of the Company’s interest in Assured Guaranty sold and net proceeds of the offering.	
 
 	•	The realization of accumulated other comprehensive income on companies sold of $43.0 million principally relates to the unrealized appreciation of available-for-sale securities included in the carrying value of the interest in Assured Guaranty sold; such gains had no effect on shareholders’ equity.	
 
 	•	Income tax expense of $11.4 million principally relates to federal income taxes incurred from the transferred business to Assured Guaranty and attributed to the Assured Guaranty shares sold by the Company. The income tax expense results from differences in the basis of the assets of the transferred subsidiaries for financial reporting purposes compared to the corresponding tax basis. In connection with its sale and pursuant to a tax allocation agreement, Assured Guaranty will make a tax election that will have the effect of increasing the tax basis of tangible and intangible assets to fair value. Future tax benefits that Assured Guaranty derives from this election will be payable to ACE and recognized by ACE when realized by Assured Guaranty. 	
 
Subsequent to the completion of the IPO, the Company beneficially owns 26 million common shares, or 34.7 percent of Assured Guaranty’s outstanding common shares and accordingly, no longer consolidates its interest in the Assured Guaranty companies. The retained interest is accounted for under the equity method of accounting with the Company’s carrying value of its investment reflected in other investments within the consolidated balance sheet and the proportionate share of earnings reflected in other (income) expense within the consolidated statement of operations. At September 30, 2004, the Company’s carrying value of its investment in Assured Guaranty is $509 million. 
 
The Company recognized compensation expense of $7.5 million in connection with the settlement of ACE stock awards held by the employees of Assured Guaranty during the three months ended June 30, 2004. These expenses are reflected in other (income) expense within the consolidated statement of operations.
 
In connection with the IPO, the Company has entered into reinsurance agreements with Assured Guaranty in order to retain the insurance liabilities of certain run-off businesses, including trade credit and residual value insurance. At their inception, these contracts had no effect on the Company’s income. Additionally, the Company has entered into a number of agreements with Assured Guaranty that will govern certain aspects of the relationship after this offering, including service agreements under which the Company will provide certain services to Assured Guaranty for a period of time.
 
The assets and liabilities of Assured Guaranty aggregated to $2.8 billion and $1.4 billion at December 31, 2003. Total revenues of Assured Guaranty included in the accompanying financial statements were $114.9 million and $295.8 million for the nine months ended September 30, 2004 and 2003, respectively. Net income of the
 
11

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Assured Guaranty companies included in the accompanying financial statements were $39.5 million and $117.1 million for the nine months ended September 30, 2004 and 2003, respectively.
 
5.	Investments	
 
The following table summarizes, for all securities in an unrealized loss position at September 30, 2004 (including securities on loan), the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position.

 	  	0 – 12 Months
	  	Over 12 Months
	  	Total
	
 	  	Fair Value
	  	Gross
Unrealized
Loss
	  	Fair
Value
	  	Gross
Unrealized
Loss
	  	Fair Value
	  	Gross
Unrealized
Loss
	
 	  	(in thousands of U.S. dollars)	
U.S. Treasury and agency	  	$	1,361,078	  	$	5,543	  	$	—  	  	$	—  	  	$	1,361,078	  	$	5,543	
Non-U.S. governments	  	 	1,734,666	  	 	17,023	  	 	—  	  	 	—  	  	 	1,734,666	  	 	17,023	
Corporate securities	  	 	3,126,363	  	 	23,520	  	 	—  	  	 	—  	  	 	3,126,363	  	 	23,520	
Mortgage-backed securities	  	 	2,173,005	  	 	12,654	  	 	—  	  	 	—  	  	 	2,173,005	  	 	12,654	
States, municipalities and political subdivisions	  	 	79,681	  	 	515	  	 	—  	  	 	—  	  	 	79,681	  	 	515	
 	  			  			  			  			  			  			
Total fixed maturities	  	 	8,474,793	  	 	59,255	  	 	—  	  	 	—  	  	 	8,474,793	  	 	59,255	
Equity securities	  	 	243,546	  	 	16	  	 	—  	  	 	—  	  	 	243,546	  	 	16	
Other investments	  	 	61	  	 	5	  	 	—  	  	 	—  	  	 	61	  	 	5	
 	  			  			  			  			  			  			
Total	  	$	8,718,400	  	$	59,276	  	$	—  	  	$	—  	  	$	8,718,400	  	$	59,276	

6.	Goodwill	
 
FAS No. 142, “Goodwill and Other Intangible Assets” (FAS 142) primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition. All goodwill recognized in the Company’s consolidated balance sheet at January 1, 2002 was assigned to one or more reporting units. FAS 142 requires that goodwill in each reporting unit be tested for impairment annually. Based on a review performed during the first quarter of 2004, the Company recognized a goodwill impairment loss of $11.3 million primarily relating to the Company’s Lloyd’s life syndicate. On April 28, 2004, the Company completed the sale of Assured Guaranty. As a result of the sale, goodwill was reduced by $85.4 million in the second quarter of 2004. In addition, as a result of a profitability review performed during the current quarter, it was determined that current expectations for future profitability of a wholly owned administration company were not sufficient to support a portion of the current carrying amount of goodwill. Accordingly, the Company recognized a goodwill impairment of $1.7 million in the third quarter of 2004. The following table details the movement in goodwill by segment for the nine months ended September 30, 2004.

 	  	Insurance –
North
American
	 	 	Insurance –
Overseas
General
	  	Global
Reinsurance
	  	Financial
Services
	 	 	ACE
Consolidated
	 	
 	  	(in thousands of U.S. dollars)	 	
Goodwill at beginning of period	  	$	1,127,513	 	 	$	1,121,636	  	$	364,958	  	$	96,723	 	 	$	2,710,830	 	
Goodwill impairment loss	  	 	(1,658	)	 	 	—  	  	 	—  	  	 	(11,305	)	 	 	(12,963	)	
Sale of subsidiary	  	 	—  	 	 	 	—  	  	 	—  	  	 	(85,418	)	 	 	(85,418	)	
 	  				 			  			  				 				
Goodwill at end of period	  	$	1,125,855	 	 	$	1,121,636	  	$	364,958	  	$	—  	 	 	$	2,612,449	 	

7.	Asbestos and environmental claims	
 
Included in the Company’s liabilities for losses and loss expenses are amounts for asbestos, environmental and latent injury damage claims and expenses (A&E). These A&E liabilities principally relate to claims arising from remediation costs associated with hazardous waste sites and bodily-injury claims related to asbestos products and environmental hazards. The estimation of these liabilities is particularly sensitive to the recent legal environment, including specific settlements that may be used as precedents to settle future claims. These amounts include provision for both reported and IBNR claims.
 
The table below presents selected loss reserve data for A&E exposures at September 30, 2004 and December 31, 2003.

 	  	September 30,
2004
	  	December 31,
2003
	
 	  	Gross
	  	Net
	  	Gross
	  	Net
	
 	  	(in millions of U.S. dollars)	
Asbestos	  	$	2,730	  	$	172	  	$	3,026	  	$	300	
Environmental and other latent exposures	  	 	1,007	  	 	155	  	 	1,148	  	 	250	
 	  			  			  			  			
Total	  	$	3,737	  	$	327	  	$	4,174	  	$	550	

Paid losses in the nine months ended September 30, 2004 for asbestos claims were $300 million on gross reserves and $131 million on net reserves. Foreign exchange revaluation decreased the gross asbestos reserve by $2 million and increased the net reserve by $1 million in 2004. Environmental and other latent exposure claim payments were $141 million on gross reserves and $95 million on net reserves in the nine months ended September 30, 2004. The gross and net reserves for asbestos at December 31, 2003 were increased to reflect a reclassification of pre-1987 asbestos claims from general liability reserves for comparative purposes.
 
The Company’s exposure to A&E claims principally arises out of liabilities acquired when we purchased Westchester Specialty in 1998 and the P&C business of CIGNA in 1999, with the larger exposure contained within the liabilities acquired in the CIGNA transaction. In 1996, prior to our acquisition of the P&C business of CIGNA, the Pennsylvania Insurance Commissioner approved a plan to restructure INA Financial Corporation and its subsidiaries which included a division of Insurance Company of North America (“INA”) into two separate corporations: (1) an active insurance company that retained the INA name and continued to write property-casualty business and (2) an inactive run-off company, now called Century Indemnity Company (“Century”), that succeeded to the A&E and other liabilities of INA under certain policies. As part of this restructuring, the A&E liabilities of various domestic and international INA subsidiaries were reinsured to Century and other subsidiaries of Brandywine Holdings Corporation (“Brandywine”), the current parent company of Century. As part of the Company’s 1999 acquisition of the P&C business of CIGNA, the Company acquired Brandywine and its various subsidiaries, including Century.
 
The Company is currently conducting a review of the numerous agreements and arrangements entered into in 1996 to accomplish the INA Financial restructuring, including the dividend retention fund and aggregate excess of loss reinsurance agreement discussed below, as well as certain agreements entered into in connection with the NICO/Bradywine cover discussed below, to determine the implications, which could be substantial, of the Company’s options with respect to its ongoing relationship with Century and the other Brandywine companies.
 
As part of the acquisition of Westchester Specialty, National Indemnity Company (“NICO”) provided $750 million of reinsurance protection for adverse development on loss and loss adjustment expense reserves. At September 30, 2004, the remaining unused limit in this NICO Westchester Specialty cover was $600 million.
 
As part of the acquisition of the CIGNA P&C business, NICO provided $2.5 billion of reinsurance protection to Century on all Brandywine loss and loss adjustment expense reserves, for any uncollectible reinsurance and on the A&E reserves of the domestic and international ACE INA insurance subsidiaries reinsured by Century. The benefits of this NICO contract flow to the other Brandywine companies and to the ACE INA insurance subsidiaries through reinsurance agreements between those companies and Century. This NICO/Brandywine cover was exhausted on an incurred basis with the increase in our A&E reserves in the fourth quarter of 2002.
 
The domestic ACE INA companies retain two primary funding obligations associated with the run-off Brandywine operations: a dividend retention fund obligation and required reinsurance coverage provided under an aggregate excess of loss reinsurance agreement. In accordance with the Brandywine restructuring order, INA Financial Corporation established and funded a dividend retention fund (the “Dividend Retention Fund”) consisting of $50 million plus investment earnings. Pursuant to terms of the restructuring, the full balance of this Dividend Retention Fund was contributed to Century as of December 31, 2002. To the extent in the future that dividends are paid by INA Holdings Corporation to its parent, INA Financial Corporation, and to the extent that INA Financial Corporation then pays such dividends to INA Corporation, a portion of those dividends must be withheld to replenish the principal of the Dividend Retention Fund to $50 million within five years. In 2003 and thus far in 2004, no such dividends were paid, and therefore no replenishment of the Dividend Retention Fund occurred. This dividend fund obligation, to maintain and to replenish the fund as necessary and to the extent dividends are paid, is ongoing until ACE INA receives prior written approval from the Pennsylvania Commissioner of Insurance to terminate the fund.
 
In addition, the ACE INA insurance subsidiaries are obligated to provide insurance coverage to Century in the amount of $800 million under an aggregate excess of loss reinsurance agreement (the “XOL Agreement”) if the statutory capital and surplus of Century falls below $25 million or if Century lacks liquid assets with which to pay claims as they become due, after giving effect to contribution of any Dividend Retention Fund balance. Coverage under the XOL Agreement was triggered as of December 31, 2002 following contribution of the Dividend Retention Fund balance. Approximately $463 million in GAAP basis losses were ceded under the XOL Agreement at September 30, 2004. Century reports the amount ceded under the XOL Agreement in accordance with statutory accounting principles which differ from GAAP by, among other things, allowing Century to discount its reserves.
 
The Pennsylvania Insurance Department requires a biennial, external actuarial review of liabilities residing in Century Indemnity Company as well as certain other U.S. subsidiaries of Brandywine. That review was last completed during the first quarter of 2003 and the Company recorded the financial impact in the year ended December 31, 2002. The Company expects the next review to be completed during the fourth quarter of 2004 and to record any financial impact in the year ending December 31, 2004.
 
In a lawsuit filed in the state of California in December 1999, certain of the Company’s competitors have challenged the restructuring that resulted in the creation of Brandywine. The restructuring was previously upheld by the Pennsylvania Supreme Court in July 1999. The lawsuit alleges that the restructuring does not effectively relieve the insurance subsidiary that issued the policies prior to the restructuring (Insurance Company of North America) from liabilities for claims on those policies by California policyholders. The California trial court has held in response to a pre-trial motion that a California statute does prohibit the transfer of California policies to a subsequent legal entity without the consent of the policyholders and noted that consent was not received in the context of the Brandywine restructuring. ACE intends to appeal this decision following completion of the remaining issues in the case in the trial court. The liabilities that are the subject of this California lawsuit are included within our A&E reserves for Brandywine.
 
The current case law regarding A&E claims can be characterized as still evolving and the Company does not believe that any firm direction will develop in the near future. Therefore, it is not possible to determine the future development of A&E claims with the same degree of reliability as with other types of claims. Such future development will be affected by the extent to which courts continue to expand the liabilities of defendants as well as to expand the intent of the policies and the scope of the coverage, as they have in the past.
 
The U.S. Congress has from time to time considered possible legislation with respect to U.S. asbestos bodily-injury claims. The Company cannot predict if and when any such legislation will be enacted, what the terms of any such legislation would be and what the costs and benefits to ACE would be.
 
8.	Reinsurance	
 
a)	Consolidated reinsurance	
 
The Company purchases reinsurance to manage various exposures including catastrophe risks. Although reinsurance agreements contractually obligate the Company’s reinsurers to reimburse it for the agreed-upon portion of its gross paid losses, they do not discharge the primary liability of the Company. The amounts for net premiums written and net premiums
 
12

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
earned in the statements of operations are net of reinsurance. Direct, assumed and ceded amounts for these items for the three and nine months ended September 30, 2004 and 2003 are as follows:

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
 	  	(in thousands of U.S. dollars)	 	
Premiums written	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Direct	  	$	3,367,347	 	 	$	2,798,564	 	 	$	10,107,887	 	 	$	8,651,950	 	
Assumed	  	 	614,455	 	 	 	652,348	 	 	 	2,330,247	 	 	 	2,316,644	 	
Ceded	  	 	(1,213,252	)	 	 	(1,144,781	)	 	 	(3,564,487	)	 	 	(3,326,418	)	
 	  				 				 				 				
Net	  	$	2,768,550	 	 	$	2,306,131	 	 	$	8,873,647	 	 	$	7,642,176	 	
 	  				 				 				 				
Premiums earned	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Direct	  	$	3,368,643	 	 	$	2,957,712	 	 	$	9,624,557	 	 	$	8,558,501	 	
Assumed	  	 	665,647	 	 	 	701,051	 	 	 	1,885,751	 	 	 	1,875,242	 	
Ceded	  	 	(1,181,006	)	 	 	(1,261,238	)	 	 	(3,268,669	)	 	 	(3,658,094	)	
 	  				 				 				 				
Net	  	$	2,853,284	 	 	$	2,397,525	 	 	$	8,241,639	 	 	$	6,775,649	 	

The composition of the Company’s reinsurance recoverable at September 30, 2004 and December 31, 2003, is as follows:

 	  	September 30
2004
	 	 	December 31
2003
	 	
 	  	(in thousands of U.S. dollars)	 	
Reinsurance recoverable on paid losses and loss expenses	  	$	1,058,618	 	 	$	1,277,119	 	
Bad debt reserve on paid losses and loss expenses	  	 	(428,180	)	 	 	(402,680	)	
Reinsurance recoverable on future policy benefits	  	 	15,744	 	 	 	14,668	 	
Reinsurance recoverable on unpaid losses and loss expenses	  	 	14,222,669	 	 	 	13,749,189	 	
Bad debt reserve on unpaid losses and loss expenses	  	 	(600,396	)	 	 	(557,580	)	
 	  				 				
Net reinsurance recoverable	  	$	14,268,455	 	 	$	14,080,716	 	

The Company evaluates the financial condition of its reinsurers and potential reinsurers on a regular basis and also monitors concentrations of credit risk with reinsurers. Provisions have been established for amounts estimated to be uncollectible.
 
Following is a breakdown of the Company’s reinsurance recoverable on paid losses at September 30, 2004 and December 31, 2003:

 	  	September 30, 2004
	 	 	December 31, 2003
	 	
Category
	  	Amount
	  	Bad Debt
Reserve
	  	% of Total
	 	 	Amount
	  	Bad Debt
Reserve
	  	% of Total
	 	
 	  	(in millions of U.S. dollars)	 	
General collections	  	$	550	  	$	46	  	8.4	%	 	$	730	  	$	45	  	6.2	%	
Other	  	 	509	  	 	382	  	75.0	%	 	 	547	  	 	358	  	65.4	%	
 	  			  			  			 			  			  			
Total	  	$	1,059	  	$	428	  	40.4	%	 	$	1,277	  	$	403	  	31.6	%	

General collections balances represents amounts in the process of collection in the normal course of business for which the Company has no indication of dispute or credit-related issues.
 
The other category includes amounts recoverable that are in dispute or are from companies who are in supervision, rehabilitation or liquidation. The Company’s estimation of the reserve for other, considers the merits of the underlying matter, the credit quality of the reinsurer and whether the Company has received collateral or other credit protections such as parental guarantees.
 
13

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
b)	Reinsurance programs involving minimum benefit guarantees under annuity contracts	
 
Beginning in 2000, the Company has been engaged in reinsuring various death and living benefit guarantees associated with variable annuities issued primarily in the United States. Each reinsurance treaty covers variable annuities written during a limited period, typically not exceeding two years. The Company generally receives a monthly premium during the accumulation phase of the covered annuities (in-force) based on a percentage of the underlying accumulated account values. Depending on an annuitant’s age, the accumulation phase can last many years. To limit the Company’s exposure under these programs, all reinsurance treaties include aggregate claim limits and many include an aggregate deductible.
 
The guarantees which are payable on death, referred to as guaranteed minimum death benefits (GMDBs), principally cover shortfalls between accumulated account value at the time of an annuitant’s death and either i) an annuitant’s total deposits; ii) an annuitant’s total deposits plus a minimum annual return; or iii) the highest accumulated account value attained during any policy anniversary date. In addition, a death benefit may be based on a formula specified in the variable annuity contract that uses a percentage of the growth of the underlying contract value. Reinsurance programs covering GMDBs are accounted for pursuant to SOP 03-1. (See Note 2).
 
Under reinsurance programs covering living benefit guarantees, the Company assumes the risk of guaranteed minimum income benefits (GMIBs) associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to purchase a guaranteed minimum level of monthly income. The Company’s GMIB reinsurance product meets the definition of a derivative for accounting purposes and is therefore carried at fair value with changes in fair value recognized in income in the period of the change pursuant to FAS 133. As the assuming entity, the Company is obligated to provide coverage until the expiration of the underlying annuities. Therefore, to best disclose the nature of the underlying risk over the exposure period within the statement of operations, the Company presents the change in fair value as follows. Premiums received under the reinsurance treaties are classified as premium. Expected losses allocated to premiums received are classified as life and annuity benefits and valued pursuant to SOP 03-1, similar to GMDB reinsurance. Other changes in fair value, principally arising from changes in expected losses allocated to expected future premiums, are classified as realized gains (losses). As fair value generally represents the cost to exit a business and thus includes a risk margin, the Company may recognize a loss for other changes in fair value during a given period due to temporary adverse changes in the capital markets (i.e. declining interest rates and/or declining equity markets) even when the Company continues to expect the business to be profitable. Management believes this presentation provides the most meaningful disclosure of changes in the underlying risk within the GMIB reinsurance programs for a given reporting period.
 
The presentation of income and expenses relating to GMDB and GMIB reinsurance for the three and nine months ending September 30, 2004 and 2003, are as follows:

 	  	Three Months Ended
September 30
	  	Nine Months Ended
September 30
	
 	  	2004
	 	 	2003
	  	2004
	 	 	2003
	
 	  	(in millions of U.S. dollars)	
GMDB	  	 	 	 	 	 	 	  	 	 	 	 	 	 	
Net premiums earned	  	$	12.0	 	 	$	4.5	  	$	31.9	 	 	$	19.6	
Life and annuity benefits expense	  	$	5.8	 	 	$	3.1	  	$	13.1	 	 	$	15.7	
GMIB	  	 	 	 	 	 	 	  	 	 	 	 	 	 	
Net premiums earned	  	$	17.3	 	 	$	8.1	  	$	45.4	 	 	$	15.3	
Life and annuity benefits expense	  	$	8.3	 	 	$	3.8	  	$	18.0	 	 	$	7.4	
Realized gains (losses)	  	$	(41.2	)	 	$	—  	  	$	(50.8	)	 	$	—  	
 
At September 30, 2004, reported liabilities for GMDB and GMIB reinsurance were $30.8 million and $92.1 million, respectively, compared with $30.5 million and $22.8 million, respectively, at December 31, 2003. Reported liabilities for both GMDB and GMIB reinsurance are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in the equity markets, and changes in the allocation of the investments underlying annuitant’s account value. These models and the related assumptions are continually reviewed by management and enhanced, as appropriate, based upon improvements in modeling techniques and availability of more timely information, such as market conditions and demographics of in-force annuities.
 
14

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
At September 30, 2004, the Company’s net amount at risk from its GMDB and GMIB reinsurance programs are $372 million and $21 million, respectively. For the GMDB programs, the net amount at risk is defined as the excess, if any, of the current guaranteed value over the current account value. For the GMIB programs, the net amount at risk is defined as the excess, if any, of the present value of the minimum guaranteed annuity payments over the present value of the annuity payments otherwise available to each policyholder.
 
9.	Commitments, contingencies and guarantees	
 
The Company invests in private equity partnerships with a carrying value of $95 million included in other investments. In connection with these investments, the Company has commitments that may require funding of up to $123 million over the next several years.
 
The Company’s insurance subsidiaries are subject to claims litigation involving disputed interpretations of policy coverages and, in some jurisdictions, direct actions by allegedly-injured persons seeking damages from policyholders. These lawsuits, involving claims on policies issued by our subsidiaries which are typical to the insurance industry in general and in the normal course of business, are considered in the Company’s loss and loss expense reserves. In addition to claims litigation, 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 policies. This category of business litigation typically involves, inter alia, allegations of underwriting errors or misconduct, employment claims, regulatory activity or disputes arising from business ventures. While the outcomes of the business litigation involving the Company cannot be predicted with certainty at this point, the Company is disputing, and will continue to dispute, allegations against it that are without merit. The Company believes that the ultimate outcomes of matters in this category of business litigation will not have a material adverse effect on the financial condition, future operating results or liquidity of the Company, although an adverse resolution of a number of these items could have a material adverse effect on the Company’s results of operations in a particular quarter or fiscal year.
 
ACE has received subpoenas from the office of the New York Attorney General (the NYAG) and from other state attorneys general in connection with investigations of certain insurance industry practices (the AG Investigations). On October 14, 2004, the NYAG filed a civil suit against Marsh & McLennan Companies Inc. (Marsh), alleging that certain Marsh business practices were fraudulent and violated antitrust and securities laws. ACE was not named as a defendant in the suit, although ACE was named as one of four insurance companies whose employees participated in the practices in question.
 
Several purported shareholder class action lawsuits have been filed against ACE and certain of its present and former executive officers relating to certain of the practices being investigated by the AG Investigations. In addition, the plaintiffs in a pending lawsuit originally brought by policyholders against brokers has been amended by adding ACE and other carriers as additional defendants. ACE intends to vigorously defend against these actions.
 
Pursuant to the AG Investigations, ACE has decided to eliminate the use of placement service agreements (PSAs) that provide insurance brokers additional commissions based on the extent of premiums produced. Because the insurance brokers represent ACE’s largest distribution channel, the elimination of PSAs and any other changes in business practices of insurance brokers resulting from the AG Investigations could potentially impact ACE’s future premium volume although such effect, if any, cannot be quantified at this time.
 
10.	Credit facilities	
 
In April 2004, the Company replaced its $500 million, 364-day revolving credit facility and its $250 million, five-year revolving credit facility with a $600 million three-year credit facility. This facility is available for general corporate purposes, commercial paper back-up and the issuance of letters of credit (LOCs). At September 30, 2004, the outstanding LOCs issued under the replaced facilities was $64 million and commercial paper outstanding was $146 million. There were no other drawings or LOCs issued under these facilities.
 
During the current quarter we entered into an $850 million unsecured operational LOC facility and a $500 million secured operational LOC facility, both expiring in September 2007. These facilities replace four LOC facilities permitting up to $1.4 billion of LOCs. Upon the effectiveness of the new LOC facilities, all outstanding LOCs issued under the replaced facilities were deemed to have been issued under the unsecured LOC facility and the replaced facilities terminated.
 
15

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
11.	Debt	
 
The following table outlines the Company’s debt at September 30, 2004 and December 31, 2003.

 	  	September 30
2004
	  	December 31
2003
	
 	  	(in millions of U.S. dollars)	
Short-term debt	  	 	 	  	 	 	
ACE INA commercial paper	  	$	146	  	$	146	
ACE INA Notes due August 2004	  	 	—  	  	 	400	
 	  			  			
 	  	 	146	  	 	546	
 	  			  			
Long-term debt	  	 	 	  	 	 	
ACE INA Notes due 2006	  	 	300	  	 	300	
ACE Limited Senior Notes due 2007	  	 	500	  	 	499	
ACE US Holdings Senior Notes due 2008	  	 	250	  	 	250	
ACE INA Subordinated Notes due 2009	  	 	200	  	 	200	
ACE INA Senior Notes due 2014	  	 	499	  	 	—  	
ACE INA Debentures due 2029	  	 	100	  	 	100	
 	  			  			
 	  	$	1,849	  	$	1,349	
 	  			  			
Trust Preferred Securities	  	 	 	  	 	 	
ACE INA Trust Preferred Securities due 2029	  	$	103	  	$	100	
ACE INA Capital Securities due 2030	  	 	309	  	 	300	
Capital Re LLC Monthly Income Preferred Securities due 2044	  	 	—  	  	 	75	
 	  			  			
 	  	$	412	  	$	475	

a)	Short-term debt	
 
The Company has commercial paper programs that use revolving credit facilities as back-up facilities and provide for up to $2.8 billion in commercial paper issuance (subject to the availability of back-up facilities, which totaled $600 million at September 30, 2004) for ACE and for ACE INA. For the nine months ended September 30, 2004 and 2003, commercial paper interest rates averaged 1.4 percent, for both years.
 
b)	ACE INA senior notes	
 
In June 2004, ACE INA issued $500 million of 5.875 percent notes due June 15, 2014. The notes are not redeemable before maturity and do not have the benefit of any sinking fund. These senior unsecured notes are guaranteed on a senior basis by the Company and they rank equally with all of the Company’s other senior obligations. They also contain a customary limitation on lien provisions as well as customary events of default provisions which, if breached, could result in the accelerated maturity of such senior debt. The proceeds of the notes were used partly to repay $75 million of Capital Re LLC trust preferred securities on July 12, 2004. The balance was used to repay $400 million of ACE INA 8.2 percent notes, which matured on August 15, 2004, and for general corporate purposes.
 
c)	Capital Re LLC monthly income preferred securities	
 
On July 12, 2004, Capital Re LLC redeemed all $75 million of its 7.65 percent cumulative monthly income preferred securities, series A. The redemption was funded by a portion of the net proceeds of the $500 million 5.875 percent senior notes sold by ACE INA.
 
12.	Defined benefit plans	
 
The Company maintains non-contributory defined benefit plans that cover certain foreign employees, principally located in Europe and Asia. The Company does not provide any such plans to U.S. employees. Benefits under these plans are based on employees’ years of service and compensation during final years of service. All underlying defined benefit plans are subject
 
16

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
to periodic actuarial valuation by qualified local actuarial firms. The Company funds the plans at the amount required by FAS No. 87, “Employers’ Accounting for Pensions” (FAS 87). The accumulated benefit obligation is compared to plan assets, both as defined in FAS 87, and any resulting deficiency is recorded as a liability.
 
Net periodic benefit costs recognized by component for the three and nine months ended September 30, 2004 and 2003 are as follows:

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
 	  	(in thousands of U.S. dollars)	 	
Components of net benefit cost	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	  	$	1,342	 	 	$	1,355	 	 	$	4,070	 	 	$	4,064	 	
Interest cost	  	 	3,538	 	 	 	3,807	 	 	 	11,484	 	 	 	11,423	 	
Expected return on plan assets	  	 	(2,969	)	 	 	(2,975	)	 	 	(9,905	)	 	 	(8,924	)	
Amortization of net transition asset	  	 	2	 	 	 	2	 	 	 	5	 	 	 	5	 	
Amortization of prior service cost	  	 	26	 	 	 	24	 	 	 	77	 	 	 	73	 	
Amortization of net actuarial loss	  	 	1,392	 	 	 	1,505	 	 	 	4,558	 	 	 	4,511	 	
 	  				 				 				 				
Net benefit cost	  	$	3,331	 	 	$	3,718	 	 	$	10,289	 	 	$	11,152	 	

13.	Restricted stock awards	
 
Under the Company’s long-term incentive plans, 1,591,251 restricted Ordinary Shares were awarded during the nine months ended September 30, 2004, to officers of the Company and its subsidiaries. These shares vest at various dates through September 30, 2008. In addition, during the period, 30,361 restricted Ordinary Shares were awarded to outside directors under the terms of the 1995 Outside Directors Plan. These shares vest in May 2005.
 
At the time of grant the market value of the shares awarded under these grants is recorded as unearned stock grant compensation and is presented as a separate component of shareholders’ equity. The unearned compensation is charged to income over the vesting period using the accelerated method.
 
17

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
14.	Earnings (loss) per share	
 
The following table sets forth the computation of basic and diluted earnings (loss) per share.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
 	  	(in thousands of U.S. dollars, except share and per share data)	 	
Numerator:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	  	$	(2,620	)	 	$	354,965	 	 	$	857,214	 	 	$	972,877	 	
Dividends on Preferred Shares	  	 	(11,213	)	 	 	(11,214	)	 	 	(33,761	)	 	 	(14,900	)	
Dividends on Mezzanine equity	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(9,773	)	
 	  				 				 				 				
Net income (loss) available to holders of Ordinary Shares	  	$	(13,833	)	 	$	343,751	 	 	$	823,453	 	 	$	948,204	 	
 	  				 				 				 				
Denominator:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Denominator for basic earnings (loss) per share:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding	  	 	280,993,760	 	 	 	275,404,544	 	 	 	279,988,076	 	 	 	268,474,758	 	
Effect of other dilutive securities	  	 	—  	 	 	 	6,485,692	 	 	 	5,298,054	 	 	 	5,731,326	 	
 	  				 				 				 				
Denominator for diluted earnings per share:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted weighted average shares outstanding and assumed conversions	  	 	280,993,760	 	 	 	281,890,236	 	 	 	285,286,130	 	 	 	274,206,084	 	
 	  				 				 				 				
Basic earnings (loss) per share	  	$	(0.05	)	 	$	1.25	 	 	$	2.94	 	 	$	3.53	 	
 	  				 				 				 				
Diluted earnings (loss) per share	  	$	(0.05	)	 	$	1.22	 	 	$	2.88	 	 	$	3.46	 	

The denominator for diluted loss per share for the three months ended September 30, 2004 does not include the dilutive effect of other dilutive securities. The incremental shares from assumed conversions are not included in computing diluted loss per share amounts as these shares are considered anti-dilutive. Other dilutive securities totaled 4,623,319 shares for the three months ended September 30, 2004.
 
15.	FAS 148 Pro Forma Disclosures	
 
In December 2002, FASB issued FAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (FAS 148). FAS 148 amends the disclosure requirements of FAS No. 123 “Accounting for Stock-Based Compensation” (FAS 123) to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The Company continues to account for stock-based compensation plans in accordance with APB 25. No compensation expense for options is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant.
 
18

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Following is a summary of options issued and outstanding for the three and nine months ended September 30, 2004 and 2003:

 	  	Year of
Expiration
	  	Average
Exercise
Price
	  	Options for
Ordinary
Shares
	 	  	Year of
Expiration
	  	Average
Exercise
Price
	  	Options for
Ordinary
Shares
	 	
 	  	Three Months Ended September 30, 2004
	 	  	Three Months Ended September 30, 2003
	 	
Balance – beginning of period	  	 	  	 	 	  	17,582,940	 	  	 	  	 	 	  	20,444,862	 	
Options granted	  	2014	  	$	41.45	  	108,600	 	  	2013	  	$	32.86	  	203,000	 	
Options exercised	  	2004 - 2013	  	$	40.17	  	(462,646	)	  	2003 - 2010	  	$	33.12	  	(560,738	)	
Options forfeited	  	2008 - 2014	  	$	40.34	  	(530,734	)	  	2009 - 2013	  	$	37.74	  	(249,800	)	
 	  	 	  	 	 	  			  	 	  	 	 	  			
Balance – end of period	  	 	  	 	 	  	16,698,160	 	  	 	  	 	 	  	19,837,324	 	

 	  	Nine Months Ended September 30, 2004
	 	  	Nine Months Ended September 30, 2003
	 	
Balance – beginning of period	  	 	  	 	 	  	18,391,136	 	  	 	  	 	 	  	19,312,287	 	
Options granted	  	2014	  	$	43.44	  	2,243,910	 	  	2013	  	$	28.02	  	3,686,962	 	
Options exercised	  	2004 - 2014	  	$	43.07	  	(3,132,583	)	  	2003 - 2011	  	$	33.86	  	(2,632,109	)	
Options forfeited	  	2006 - 2014	  	$	40.57	  	(804,303	)	  	2003 - 2013	  	$	38.66	  	(529,816	)	
 	  	 	  	 	 	  			  	 	  	 	 	  			
Balance – end of period	  	 	  	 	 	  	16,698,160	 	  	 	  	 	 	  	19,837,324	 	

The following table outlines the Company’s net income available to holders of Ordinary Shares and diluted earnings per share for the three and nine months ended September 30, 2004 and 2003, had the compensation cost been determined in accordance with the fair value method recommended in FAS 123.

 	  	Three Months Ended
September 30
	  	Nine Months Ended
September 30
	
 	  	2004
	 	 	2003
	  	2004
	  	2003
	
 	  	(in thousands of U.S. dollars, except per share data)	
Net income (loss) available to holders of Ordinary Shares:	  	 	 	 	 	 	 	  	 	 	  	 	 	
As reported	  	$	(13,833	)	 	$	343,751	  	$	823,453	  	$	948,204	
Add: Stock-based compensation expense included in reported net income, net of income tax	  	 	9,287	 	 	 	5,401	  	 	33,116	  	 	18,106	
Deduct: Compensation expense, net of income tax	  	 	16,311	 	 	 	13,070	  	 	58,411	  	 	39,899	
 	  				 			  			  			
Pro forma	  	$	(20,857	)	 	$	336,082	  	$	798,158	  	$	926,411	
Basic earnings (loss) per share:	  	 	 	 	 	 	 	  	 	 	  	 	 	
As reported	  	$	(0.05	)	 	$	1.25	  	$	2.94	  	$	3.53	
Pro forma	  	$	(0.07	)	 	$	1.22	  	$	2.85	  	$	3.45	
Diluted earnings (loss) per share:	  	 	 	 	 	 	 	  	 	 	  	 	 	
As reported	  	$	(0.05	)	 	$	1.22	  	$	2.88	  	$	3.46	
Pro forma	  	$	(0.07	)	 	$	1.19	  	$	2.80	  	$	3.38	
 
The fair value of the options issued is estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions used for grants for the three months ended September 30, 2004 and 2003, respectively: dividend yield of 1.85 percent and 2.32 percent, expected volatility of 24.31 percent and 30.75 percent, risk free interest rate of 3.61 percent and 2.76 percent. The expected life is four years and the forfeiture rate is 5 percent for 2004 and 2003.
 
The following weighted-average assumptions were used for the nine months ended September 30, 2004 and 2003, respectively: dividend yield of 1.75 percent and 2.45 percent, expected volatility of 26.65 percent and 32.67 percent, risk free interest rate of 2.77 percent and 2.35 percent. The expected life is four years and the forfeiture rate is 5 percent for 2004 and 2003.
 
19

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
16.	Taxation	
 
Under current Cayman Islands’ law, the Company is not required to pay any taxes in the Cayman Islands on its income or capital gains. The Company has received an undertaking that, in the event of any taxes being imposed, the Company will be exempted from taxation in the Cayman Islands until the year 2013. Under current Bermuda law, the Company and its Bermuda subsidiaries are not required to pay any taxes in Bermuda on its income or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, the Company will be exempt from taxation in Bermuda until March 2016.
 
Income from the Company’s operations at Lloyd’s is subject to United Kingdom corporation taxes. Lloyd’s is required to pay U.S. income tax on U.S. connected income (U.S. income) written by Lloyd’s syndicates. Lloyd’s has a closing agreement with the IRS whereby the amount of tax due on this business is calculated by Lloyd’s and remitted directly to the IRS. These amounts are then charged to the personal accounts of the Names/Corporate Members in proportion to their participation in the relevant syndicates. The Company’s Corporate Members are subject to this arrangement but, as U.K. domiciled companies, will receive U.K. corporation tax credits for any U.S. income tax incurred up to the value of the equivalent U.K. corporation income tax charge on the U.S. income.
 
The income tax provision below includes income tax expense of $11.4 million, which relates to federal income taxes incurred from the transferred business to Assured Guaranty and attributed to the Assured Guaranty shares sold by the Company (See Note 4). The income tax expense results from a higher basis in the assets of the transferred subsidiaries for financial reporting purposes compared to the corresponding tax basis. In connection with its sale and pursuant to a tax allocation agreement, Assured Guaranty will make a tax election that will have the effect of increasing the tax basis of tangible and intangible assets to fair value. Future tax benefits that Assured Guaranty derives from this election will be payable to ACE and recognized by ACE when realized by Assured Guaranty.
 
ACE Prime Holdings and ACE Cap Re USA Holdings (through April 28, 2004), and their respective subsidiaries are subject to income taxes imposed by U.S. authorities and file consolidated U.S. income tax returns. Should the U.S. subsidiaries pay a dividend to the Company, withholding taxes will apply. Certain international operations of the Company are also subject to income taxes imposed by the jurisdictions in which they operate.
 
The Company is not subject to taxation other than as stated above. There can be no assurance that there will not be changes in applicable laws, regulations or treaties, which might require the Company to change the way it operates or become subject to taxation.
 
The income tax provision for the three and nine months ended September 30, 2004 and 2003 is as follows:

 	  	Three Months Ended
September 30
	  	Nine Months Ended
September 30
	
 	  	2004
	  	2003
	  	2004
	  	2003
	
 	  	(in thousands of U.S. dollars)	
Current tax expense	  	$	39,362	  	$	26,375	  	$	144,986	  	$	50,094	
Deferred tax expense	  	 	13,796	  	 	40,571	  	 	159,096	  	 	157,451	
 	  			  			  			  			
Provision for income taxes	  	$	53,158	  	$	66,946	  	$	304,082	  	$	207,545	

20

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The weighted average expected tax provision has been calculated using pre-tax accounting income (loss) in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. A reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average tax rate for the three and nine months ended September 30, 2004 and 2003, is provided below.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
 	  	(in thousands of U.S. dollars)	 	
Expected tax provision at weighted average rate	  	$	53,430	 	 	$	64,090	 	 	$	265,442	 	 	$	202,144	 	
Permanent differences	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tax-exempt interest	  	 	(1,421	)	 	 	(3,979	)	 	 	(8,269	)	 	 	(11,621	)	
Sale of Assured Guaranty	  	 	—  	 	 	 	—  	 	 	 	35,011	 	 	 	—  	 	
Goodwill	  	 	—  	 	 	 	525	 	 	 	3,957	 	 	 	1,575	 	
Other	  	 	327	 	 	 	2,901	 	 	 	1,957	 	 	 	4,355	 	
Net withholding taxes	  	 	822	 	 	 	3,409	 	 	 	5,984	 	 	 	11,092	 	
 	  				 				 				 				
Total provision for income taxes	  	$	53,158	 	 	$	66,946	 	 	$	304,082	 	 	$	207,545	 	

The components of the net deferred tax asset at September 30, 2004 and December 31, 2003 are as follows:

 	  	September 30
2004
	  	December 31
2003
	
 	  	(in thousands of U.S. dollars)	
Deferred tax assets	  	 	 	  	 	 	
Loss reserve discount	  	$	583,429	  	$	518,443	
Unearned premium reserve	  	 	160,498	  	 	114,521	
Foreign tax credits	  	 	322,833	  	 	204,052	
Investments	  	 	128,593	  	 	92,898	
Bad debts	  	 	143,216	  	 	152,619	
Net operating loss carryforward	  	 	138,631	  	 	412,469	
Other	  	 	132,353	  	 	120,203	
 	  			  			
Total deferred tax assets	  	 	1,609,553	  	 	1,615,205	
 	  			  			
Deferred tax liabilities	  	 	 	  	 	 	
Deferred policy acquisition costs	  	 	138,284	  	 	163,199	
Unrealized appreciation on investments	  	 	128,346	  	 	174,547	
Unremitted foreign earnings	  	 	201,606	  	 	52,062	
 	  			  			
Total deferred tax liabilities	  	 	468,236	  	 	389,808	
 	  			  			
Valuation allowance	  	 	125,741	  	 	135,592	
 	  			  			
Net deferred tax asset	  	$	1,015,576	  	$	1,089,805	

The valuation allowance of $126 million at September 30, 2004 and $136 million at December 31, 2003, reflects management’s assessment, based on available information, that it is more likely than not that a portion of the deferred tax asset will not be realized due to the inability of certain foreign subsidiaries to generate sufficient taxable income. Adjustments to the valuation allowances are made when there is a change in management’s assessment of the amount of deferred tax asset that is realizable. The change in the valuation allowance of $10 million relates to the business that transferred from the Company to Assured Guaranty (See Note 4).
 
At September 30, 2004, the Company has net operating loss carryforwards for U.S. federal income tax purposes of approximately $396 million. The net operating loss carryforwards are available to offset future U.S. federal taxable income and, if unutilized, will expire in the years 2018-2022.
 
17.	Information provided in connection with outstanding debt of subsidiaries	
 
The following tables present condensed consolidating financial information at September 30, 2004 and December 31, 2003 and for the three and nine months ended September 30, 2004 and 2003, for ACE Limited (the “Parent Guarantor”) and its “Subsidiary Issuers”. The Subsidiary Issuers are direct or indirect wholly-owned subsidiaries of the Parent Guarantor. At September 30, 2004, the Subsidiary Issuer was ACE INA Holdings, Inc and at December 31, 2003, the Subsidiary Issuers were ACE INA Holdings, Inc. and ACE Financial Services, Inc. (formerly Capital Re Corporation), parent company of Capital Re LLC. On July 12, 2004, ACE Financial Services, Inc. redeemed all $75 million of its trust preferred securities
 
21

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
(See Note 11(c)). Investments in subsidiaries are accounted for by the Parent Guarantor and the Subsidiary Issuers under the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are reflected in the Parent Guarantor’s investment accounts and earnings. The Parent Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary  Issuers.
 
Condensed Consolidating Balance Sheet at September 30, 2004
(in thousands of U.S. dollars)

 	  	ACE Limited
(Parent Co.
Guarantor)
	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)
	 	 	Other ACE
Limited
Subsidiaries and
Eliminations (1)
	  	Consolidating
Adjustments  (2)
	 	 	ACE Limited
Consolidated
	
Assets	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	
Investments	  	$	715	 	 	$	12,941,542	 	 	$	14,441,290	  	$	—  	 	 	$	27,383,547	
Cash	  	 	6,824	 	 	 	333,539	 	 	 	285,436	  	 	—  	 	 	 	625,799	
Insurance and reinsurance balances receivable	  	 	—  	 	 	 	2,549,534	 	 	 	829,391	  	 	—  	 	 	 	3,378,925	
Reinsurance recoverable	  	 	—  	 	 	 	13,133,903	 	 	 	1,134,552	  	 	—  	 	 	 	14,268,455	
Goodwill	  	 	—  	 	 	 	2,130,908	 	 	 	481,541	  	 	—  	 	 	 	2,612,449	
Investments in subsidiaries	  	 	10,067,701	 	 	 	—  	 	 	 	—  	  	 	(10,067,701	)	 	 	—  	
Due (to) from subsidiaries and affiliates, net	  	 	(43,805	)	 	 	(40,094	)	 	 	40,094	  	 	43,805	 	 	 	—  	
Other assets	  	 	85,529	 	 	 	5,050,142	 	 	 	1,050,837	  	 	—  	 	 	 	6,186,508	
 	  				 				 			  				 			
Total assets	  	$	10,116,964	 	 	$	36,099,474	 	 	$	18,263,141	  	$	(10,023,896	)	 	$	54,455,683	
 	  				 				 			  				 			
Liabilities	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	
Unpaid losses and loss expenses	  	$	—  	 	 	$	21,429,706	 	 	$	8,173,604	  	$	—  	 	 	$	29,603,310	
Unearned premiums	  	 	—  	 	 	 	4,800,763	 	 	 	1,664,827	  	 	—  	 	 	 	6,465,590	
Future policy benefits for life and annuity contracts	  	 	—  	 	 	 	—  	 	 	 	520,638	  	 	—  	 	 	 	520,638	
Short-term debt	  	 	—  	 	 	 	145,648	 	 	 	—  	  	 	—  	 	 	 	145,648	
Long-term debt	  	 	499,577	 	 	 	1,099,270	 	 	 	250,000	  	 	—  	 	 	 	1,848,847	
Trust preferred securities	  	 	—  	 	 	 	412,373	 	 	 	—  	  	 	—  	 	 	 	412,373	
Other liabilities	  	 	137,814	 	 	 	3,752,588	 	 	 	2,089,302	  	 	—  	 	 	 	5,979,704	
 	  				 				 			  				 			
Total liabilities	  	 	637,391	 	 	 	31,640,348	 	 	 	12,698,371	  	 	—  	 	 	 	44,976,110	
 	  				 				 			  				 			
Total shareholders’ equity	  	 	9,479,573	 	 	 	4,459,126	 	 	 	5,564,770	  	 	(10,023,896	)	 	 	9,479,573	
 	  				 				 			  				 			
Total liabilities and shareholders’ equity	  	$	10,116,964	 	 	$	36,099,474	 	 	$	18,263,141	  	$	(10,023,896	)	 	$	54,455,683	

(1)	Includes all other subsidiaries of ACE Limited and intercompany eliminations.	
 
(2)	Includes ACE Limited parent company eliminations.	
 
22

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Condensed Consolidating Balance Sheet at December 31, 2003
(in thousands of U.S. dollars)

 	  	ACE
Limited
(Parent Co.
Guarantor)
	  	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)
	 	 	ACE Financial
Services, Inc.
(Subsidiary
Issuer)
	 	 	Other ACE
Limited
Subsidiaries and
Eliminations (1)
	 	 	Consolidating
Adjustments  (2)
	 	 	ACE Limited
Consolidated
	
Assets	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments	  	$	16,903	  	$	10,351,235	 	 	$	1,184,969	 	 	$	11,893,092	 	 	$	—  	 	 	$	23,446,199	
Cash	  	 	27,260	  	 	167,667	 	 	 	23,112	 	 	 	343,611	 	 	 	—  	 	 	 	561,650	
Insurance and reinsurance balances receivable	  	 	—  	  	 	2,015,186	 	 	 	28,433	 	 	 	792,997	 	 	 	—  	 	 	 	2,836,616	
Reinsurance recoverable	  	 	—  	  	 	12,055,309	 	 	 	—  	 	 	 	2,025,407	 	 	 	—  	 	 	 	14,080,716	
Goodwill	  	 	—  	  	 	2,130,908	 	 	 	96,723	 	 	 	483,199	 	 	 	—  	 	 	 	2,710,830	
Investments in subsidiaries	  	 	9,056,845	  	 	—  	 	 	 	152,000	 	 	 	(152,000	)	 	 	(9,056,845	)	 	 	—  	
Due (to) from subsidiaries and affiliates, net	  	 	349,617	  	 	(17,929	)	 	 	(46,819	)	 	 	64,748	 	 	 	(349,617	)	 	 	—  	
Other assets	  	 	53,430	  	 	4,526,075	 	 	 	181,774	 	 	 	1,155,503	 	 	 	—  	 	 	 	5,916,782	
 	  			  				 				 				 				 			
Total assets	  	$	9,504,055	  	$	31,228,451	 	 	$	1,620,192	 	 	$	16,606,557	 	 	$	(9,406,462	)	 	$	49,552,793	
 	  			  				 				 				 				 			
Liabilities	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	  	$	—  	  	$	18,996,890	 	 	$	110,259	 	 	$	8,047,689	 	 	$	—  	 	 	$	27,154,838	
Unearned premiums	  	 	—  	  	 	3,757,093	 	 	 	389,027	 	 	 	1,904,668	 	 	 	—  	 	 	 	6,050,788	
Future policy benefits for life and annuity contracts	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	491,837	 	 	 	—  	 	 	 	491,837	
Short-term debt	  	 	—  	  	 	545,727	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	545,727	
Long-term debt	  	 	499,451	  	 	599,751	 	 	 	—  	 	 	 	250,000	 	 	 	—  	 	 	 	1,349,202	
Trust preferred securities	  	 	—  	  	 	400,000	 	 	 	75,000	 	 	 	—  	 	 	 	—  	 	 	 	475,000	
Other liabilities	  	 	169,808	  	 	3,192,513	 	 	 	128,109	 	 	 	1,160,175	 	 	 	—  	 	 	 	4,650,605	
 	  			  				 				 				 				 			
Total liabilities	  	 	669,259	  	 	27,491,974	 	 	 	702,395	 	 	 	11,854,369	 	 	 	—  	 	 	 	40,717,997	
 	  			  				 				 				 				 			
Total shareholders’ equity	  	 	8,834,796	  	 	3,736,477	 	 	 	917,797	 	 	 	4,752,188	 	 	 	(9,406,462	)	 	 	8,834,796	
 	  			  				 				 				 				 			
Total liabilities and shareholders’ equity	  	$	9,504,055	  	$	31,228,451	 	 	$	1,620,192	 	 	$	16,606,557	 	 	$	(9,406,462	)	 	$	49,552,793	

(1)	Includes all other subsidiaries of ACE Limited and intercompany eliminations.	
 
(2)	Includes ACE Limited parent company eliminations.	
 
23

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Condensed Consolidating Statement of Operations
For the three months ended September 30, 2004
(in thousands of U.S. dollars)

 	  	ACE Limited
(Parent Co.
Guarantor)
	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)
	 	 	Other ACE
Limited
Subsidiaries and
Eliminations  (1)
	 	 	Consolidating
Adjustments  (2)
	 	 	ACE Limited
Consolidated
	 	
Net premiums written	  	$	—  	 	 	$	1,723,536	 	 	$	1,045,014	 	 	$	—  	 	 	$	2,768,550	 	
Net premiums earned	  	 	—  	 	 	 	1,671,290	 	 	 	1,181,994	 	 	 	—  	 	 	 	2,853,284	 	
Net investment income	  	 	106	 	 	 	127,281	 	 	 	124,009	 	 	 	—  	 	 	 	251,396	 	
Equity in earnings of subsidiaries	  	 	41,236	 	 	 	—  	 	 	 	—  	 	 	 	(41,236	)	 	 	—  	 	
Net realized gains (losses)	  	 	(4,214	)	 	 	3,942	 	 	 	(31,820	)	 	 	—  	 	 	 	(32,092	)	
Losses and loss expenses	  	 	—  	 	 	 	1,197,854	 	 	 	1,036,193	 	 	 	—  	 	 	 	2,234,047	 	
Life and annuity benefits	  	 	—  	 	 	 	—  	 	 	 	48,447	 	 	 	—  	 	 	 	48,447	 	
Policy acquisition costs and administrative expenses	  	 	33,842	 	 	 	401,664	 	 	 	279,559	 	 	 	(3,354	)	 	 	711,711	 	
Interest expense	  	 	5,906	 	 	 	36,589	 	 	 	7,032	 	 	 	(530	)	 	 	48,997	 	
Other (income) expense	  	 	—  	 	 	 	(4,933	)	 	 	(16,219	)	 	 	—  	 	 	 	(21,152	)	
Income tax expense (benefit)	  	 	—  	 	 	 	58,651	 	 	 	(5,493	)	 	 	—  	 	 	 	53,158	 	
 	  				 				 				 				 				
Net income (loss)	  	$	(2,620	)	 	$	112,688	 	 	$	(75,336	)	 	$	(37,352	)	 	$	(2,620	)	

Condensed Consolidating Statement of Operations
For the three months ended September 30, 2003
(in thousands of U.S. dollars)

 	  	ACE Limited
(Parent Co.
Guarantor)
	  	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)
	  	ACE Financial
Services, Inc.
(Subsidiary
Issuer)
	  	Other ACE
Limited
Subsidiaries and
Eliminations  (1)
	  	Consolidating
Adjustments  (2)
	 	 	ACE Limited
Consolidated
	
Net premiums written	  	$	—  	  	$	1,266,366	  	$	56,422	  	$	983,343	  	$	—  	 	 	$	2,306,131	
Net premiums earned	  	 	—  	  	 	1,257,160	  	 	44,439	  	 	1,095,926	  	 	—  	 	 	 	2,397,525	
Net investment income	  	 	3,314	  	 	91,605	  	 	11,988	  	 	110,967	  	 	(3,185	)	 	 	214,689	
Equity in earnings of subsidiaries	  	 	383,607	  	 	—  	  	 	—  	  	 	—  	  	 	(383,607	)	 	 	—  	
Net realized gains (losses)	  	 	5,386	  	 	1,617	  	 	14,936	  	 	35,617	  	 	—  	 	 	 	57,556	
Losses and loss expenses	  	 	—  	  	 	894,728	  	 	14,452	  	 	609,298	  	 	—  	 	 	 	1,518,478	
Life and annuity benefits	  	 	—  	  	 	—  	  	 	—  	  	 	44,524	  	 	—  	 	 	 	44,524	
Policy acquisition costs and administrative expenses	  	 	29,170	  	 	317,396	  	 	17,045	  	 	275,910	  	 	(2,100	)	 	 	637,421	
Interest expense	  	 	7,217	  	 	32,256	  	 	1,658	  	 	5,392	  	 	(2,175	)	 	 	44,348	
Other (income) expense	  	 	—  	  	 	360	  	 	—  	  	 	2,728	  	 	—  	 	 	 	3,088	
Income tax expense	  	 	955	  	 	37,988	  	 	11,052	  	 	16,951	  	 	—  	 	 	 	66,946	
 	  			  			  			  			  				 			
Net income	  	$	354,965	  	$	67,654	  	$	27,156	  	$	287,707	  	$	(382,517	)	 	$	354,965	

(1)	Includes all other subsidiaries of ACE Limited and intercompany eliminations.	
 
(2)	Includes ACE Limited parent company eliminations.	
 
24

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Condensed Consolidating Statement of Operations
For the nine months ended September 30, 2004
(in thousands of U.S. dollars)

 	  	ACE Limited
(Parent Co.
Guarantor)
	  	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)
	  	Other ACE
Limited
Subsidiaries and
Eliminations (1)
	  	Consolidating
Adjustments (2)
	 	 	ACE Limited
Consolidated
	
Net premiums written	  	$	—  	  	$	5,183,185	  	$	3,690,462	  	$	—  	 	 	$	8,873,647	
Net premiums earned	  	 	—  	  	 	4,593,678	  	 	3,647,961	  	 	—  	 	 	 	8,241,639	
Net investment income	  	 	4,802	  	 	344,722	  	 	381,107	  	 	(4,255	)	 	 	726,376	
Equity in earnings of subsidiaries	  	 	949,268	  	 	—  	  	 	—  	  	 	(949,268	)	 	 	—  	
Net realized gains (losses)	  	 	8,687	  	 	31,185	  	 	27,499	  	 	—  	 	 	 	67,371	
Losses and loss expenses	  	 	—  	  	 	3,081,485	  	 	2,419,435	  	 	—  	 	 	 	5,500,920	
Life and annuity benefits	  	 	—  	  	 	—  	  	 	134,569	  	 	—  	 	 	 	134,569	
Policy acquisition costs and administrative expenses	  	 	86,682	  	 	1,108,040	  	 	911,661	  	 	(9,281	)	 	 	2,097,102	
Interest expense	  	 	18,151	  	 	104,074	  	 	20,373	  	 	(2,930	)	 	 	139,668	
Other (income) expense	  	 	—  	  	 	563	  	 	1,268	  	 	—  	 	 	 	1,831	
Income tax expense	  	 	710	  	 	233,539	  	 	69,833	  	 	—  	 	 	 	304,082	
 	  			  			  			  				 			
Net income	  	$	857,214	  	$	441,884	  	$	499,428	  	$	(941,312	)	 	$	857,214	

Condensed Consolidating Statement of Operations
For the nine months ended September 30, 2003
(in thousands of U.S. dollars)

 	  	ACE Limited
(Parent Co.
Guarantor)
	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)
	  	ACE Financial
Services, Inc.
(Subsidiary
Issuer)
	  	Other ACE
Limited
Subsidiaries and
Eliminations (1)
	  	Consolidating
Adjustments (2)
	 	 	ACE Limited
Consolidated
	
Net premiums written	  	$	—  	 	 	$	3,846,762	  	$	209,166	  	$	3,586,248	  	$	—  	 	 	$	7,642,176	
Net premiums earned	  	 	—  	 	 	 	3,360,354	  	 	131,942	  	 	3,283,353	  	 	—  	 	 	 	6,775,649	
Net investment income	  	 	15,110	 	 	 	266,834	  	 	34,791	  	 	330,865	  	 	(14,552	)	 	 	633,048	
Equity in earnings of subsidiaries	  	 	1,072,991	 	 	 	—  	  	 	—  	  	 	—  	  	 	(1,072,991	)	 	 	—  	
Net realized gains (losses)	  	 	(8,594	)	 	 	38,459	  	 	24,527	  	 	69,636	  	 	—  	 	 	 	124,028	
Losses and loss expenses	  	 	—  	 	 	 	2,335,223	  	 	38,269	  	 	1,887,198	  	 	—  	 	 	 	4,260,690	
Life and annuity benefits	  	 	—  	 	 	 	—  	  	 	—  	  	 	136,582	  	 	—  	 	 	 	136,582	
Policy acquisition costs and administrative expenses	  	 	75,521	 	 	 	859,336	  	 	53,605	  	 	831,445	  	 	(6,350	)	 	 	1,813,557	
Interest expense	  	 	26,743	 	 	 	97,274	  	 	5,027	  	 	16,246	  	 	(12,332	)	 	 	132,958	
Other (income) expense	  	 	—  	 	 	 	1,809	  	 	—  	  	 	6,707	  	 	—  	 	 	 	8,516	
Income tax expense	  	 	4,366	 	 	 	128,297	  	 	26,367	  	 	48,515	  	 	—  	 	 	 	207,545	
 	  				 			  			  			  				 			
Net income	  	$	972,877	 	 	$	243,708	  	$	67,992	  	$	757,161	  	$	(1,068,861	)	 	$	972,877	

(1)	Includes all other subsidiaries of ACE Limited and intercompany eliminations.	
 
(2)	Includes ACE Limited parent company eliminations.	
 
25

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Condensed Consolidating Statement of Cash Flows
For the nine months ended September 30, 2004
(in thousands of U.S. dollars)

 	  	ACE
Limited
(Parent Co.
Guarantor)
	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)
	 	 	Other ACE
Limited
Subsidiaries and
Eliminations (1)
	 	 	ACE Limited
Consolidated
	 	
Net cash flows from operating activities	  	$	(10,125	)	 	$	2,283,480	 	 	$	1,804,589	 	 	$	4,077,944	 	
 	  				 				 				 				
Cash flows from investing activities	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities	  	 	(11,967	)	 	 	(8,385,109	)	 	 	(9,881,907	)	 	 	(18,278,983	)	
Purchases of equity securities	  	 	—  	 	 	 	(386,805	)	 	 	(451,283	)	 	 	(838,088	)	
Sales of fixed maturities	  	 	28,019	 	 	 	5,828,967	 	 	 	8,051,379	 	 	 	13,908,365	 	
Sales of equity securities	  	 	—  	 	 	 	321,532	 	 	 	118,065	 	 	 	439,597	 	
Net proceeds from the settlement of investment derivatives	  	 	8,857	 	 	 	—  	 	 	 	5,055	 	 	 	13,912	 	
Capitalization of subsidiaries	  	 	(637,051	)	 	 	365,187	 	 	 	271,864	 	 	 	—  	 	
Dividends received from subsidiaries	  	 	452,108	 	 	 	—  	 	 	 	(452,108	)	 	 	—  	 	
Sale of subsidiary (net of cash sold)	  	 	—  	 	 	 	—  	 	 	 	953,164	 	 	 	953,164	 	
Other	  	 	—  	 	 	 	(13,447	)	 	 	(123,286	)	 	 	(136,733	)	
 	  				 				 				 				
Net cash flows used for investing activities	  	$	(160,034	)	 	$	(2,269,675	)	 	$	(1,509,057	)	 	$	(3,938,766	)	
 	  				 				 				 				
Cash flows from financing activities	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid on Ordinary Shares	  	 	(166,459	)	 	 	—  	 	 	 	—  	 	 	 	(166,459	)	
Dividends paid on Preferred Shares	  	 	(33,638	)	 	 	—  	 	 	 	—  	 	 	 	(33,638	)	
Net proceeds from (repayment of) short-term debt	  	 	—  	 	 	 	(400,079	)	 	 	—  	 	 	 	(400,079	)	
Proceeds from long-term debt, net	  	 	—  	 	 	 	499,565	 	 	 	—  	 	 	 	499,565	 	
Repayment of trust preferred securities	  	 	—  	 	 	 	—  	 	 	 	(75,000	)	 	 	(75,000	)	
Advances to (from) affiliates	  	 	268,715	 	 	 	51,261	 	 	 	(319,976	)	 	 	—  	 	
Proceeds from exercise of options for Ordinary Shares	  	 	73,432	 	 	 	—  	 	 	 	—  	 	 	 	73,432	 	
Proceeds from Ordinary Shares issued under ESPP	  	 	7,673	 	 	 	—  	 	 	 	—  	 	 	 	7,673	 	
 	  				 				 				 				
Net cash flows from (used for) financing activities	  	$	149,723	 	 	$	150,747	 	 	$	(394,976	)	 	$	(94,506	)	
 	  				 				 				 				
Effect of foreign currency rate changes on cash and cash equivalents	  	$	—  	 	 	$	1,320	 	 	$	18,157	 	 	$	19,477	 	
 	  				 				 				 				
Net increase (decrease) in cash	  	 	(20,436	)	 	 	165,872	 	 	 	(81,287	)	 	 	64,149	 	
Cash – beginning of period	  	 	27,260	 	 	 	167,667	 	 	 	366,723	 	 	 	561,650	 	
 	  				 				 				 				
Cash – end of period	  	$	6,824	 	 	$	333,539	 	 	$	285,436	 	 	$	625,799	 	

(1)	Includes all other subsidiaries of ACE Limited and intercompany eliminations.	
 
26

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Condensed Consolidating Statement of Cash Flows
For the nine months ended September 30, 2003
(in thousands of U.S. dollars)

 	  	ACE Limited
(Parent Co.
Guarantor)
	 	 	ACE INA
Holdings, Inc.
(Subsidiary
Issuer)
	 	 	ACE
Financial
Services, Inc.
(Subsidiary
Issuer)
	 	 	Other ACE
Limited
Subsidiaries and
Eliminations  (1)
	 	 	ACE Limited
Consolidated
	 	
Net cash flows from (used for) operating activities	  	$	(117,372	)	 	$	1,030,655	 	 	$	162,121	 	 	$	1,544,540	 	 	$	2,619,944	 	
 	  				 				 				 				 				
Cash flows from investing activities	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities	  	 	(20,448	)	 	 	(4,616,326	)	 	 	(346,596	)	 	 	(9,506,999	)	 	 	(14,490,369	)	
Purchases of equity securities	  	 	—  	 	 	 	(44,076	)	 	 	—  	 	 	 	(31,388	)	 	 	(75,464	)	
Sales of fixed maturities	  	 	60,133	 	 	 	2,624,522	 	 	 	191,024	 	 	 	8,224,062	 	 	 	11,099,741	 	
Sales of equity securities	  	 	—  	 	 	 	56,364	 	 	 	—  	 	 	 	51,509	 	 	 	107,873	 	
Maturities of fixed maturities	  	 	—  	 	 	 	—  	 	 	 	3,000	 	 	 	91,612	 	 	 	94,612	 	
Net proceeds from (payments made on) the settlement of investment derivatives	  	 	(9,222	)	 	 	—  	 	 	 	—  	 	 	 	27,724	 	 	 	18,502	 	
Dividends received from	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Capitalization of subsidiaries	  	 	(697,393	)	 	 	667,617	 	 	 	—  	 	 	 	29,776	 	 	 	—  	 	
Dividends received from subsidiaries	  	 	306,000	 	 	 	—  	 	 	 	—  	 	 	 	(306,000	)	 	 	—  	 	
Other	  	 	—  	 	 	 	(39,167	)	 	 	—  	 	 	 	(21,302	)	 	 	(60,469	)	
 	  				 				 				 				 				
Net cash flows from (used for) investing activities	  	$	(360,930	)	 	$	(1,351,066	)	 	$	(152,572	)	 	$	(1,441,006	)	 	$	(3,305,574	)	
 	  				 				 				 				 				
Cash flows from financing activities	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid on Ordinary Shares	  	 	(145,462	)	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(145,462	)	
Dividends paid on Mezzanine equity	  	 	(9,773	)	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(9,773	)	
Dividends paid on Preferred shares	  	 	(11,337	)	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(11,337	)	
Net proceeds from issuance of preferred shares	  	 	556,887	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	556,887	 	
Proceeds from short-term debt, net	  	 	—  	 	 	 	40	 	 	 	—  	 	 	 	—  	 	 	 	40	 	
Advances to (from) affiliates	  	 	66,256	 	 	 	—  	 	 	 	—  	 	 	 	(66,256	)	 	 	—  	 	
Proceeds from exercise of options for Ordinary Shares	  	 	36,504	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	36,504	 	
Proceeds from Ordinary Shares issued under ESPP	  	 	7,344	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	7,344	 	
 	  				 				 				 				 				
Net cash flows from (used for) financing activities	  	$	500,419	 	 	$	40	 	 	$	—  	 	 	$	(66,256	)	 	$	434,203	 	
 	  				 				 				 				 				
Effect of foreign currency rate changes on cash and cash equivalents	  	$	—  	 	 	$	10,243	 	 	$	—  	 	 	$	8,950	 	 	$	19,193	 	
 	  				 				 				 				 				
Net increase (decrease) in cash	  	 	22,117	 	 	 	(310,128	)	 	 	9,549	 	 	 	46,228	 	 	 	(232,234	)	
Cash – beginning of period	  	 	2,150	 	 	 	478,161	 	 	 	4,438	 	 	 	178,606	 	 	 	663,355	 	
 	  				 				 				 				 				
Cash – end of period	  	$	24,267	 	 	$	168,033	 	 	$	13,987	 	 	$	224,834	 	 	$	431,121	 	

(1)	Includes all other subsidiaries of ACE Limited and intercompany eliminations.	
 
27

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
18.	Segment information	
 
The Company operates through four business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance and Financial Services. These segments distribute their products through various forms of brokers and agencies. Insurance - North American, Insurance - Overseas General and Global Reinsurance utilize direct marketing programs to reach clients. Additionally, Insurance - North American has formed internet distribution channels for some of its products and Global Reinsurance and Financial Services have established relationships with reinsurance intermediaries.
 
The Insurance – North American segment includes the operations of ACE USA, ACE Canada and ACE Bermuda, excluding the financial solutions business in both the U.S. and Bermuda, which are included in the Financial Services segment. These operations provide a broad range of property and casualty insurance and reinsurance products, including excess liability, excess property, professional lines, aerospace, accident and health coverages and claim and risk management products and services, to a diverse group of commercial and non-commercial enterprises and consumers. Subsequent to the IPO, the title insurance business is included in the Insurance – North American segment. The operations of ACE USA also include the run-off operations, which include Brandywine, Commercial Insurance Services, residual market workers’ compensation business, pools and syndicates not attributable to a single business group, the run-off of open market facilities and the run-off results of various other smaller exited lines of business. Run-off operations do not actively sell insurance products, but are responsible for the management of existing policies and related claims.
 
The Insurance – Overseas General segment consists of ACE International and the insurance operations of ACE Global Markets. ACE International includes ACE INA’s network of indigenous insurance operations, which were acquired in 1999. The segment has four regions of operations: ACE Asia Pacific, ACE Far East, ACE Latin America and the ACE European Group, (which comprises ACE Europe, ACE INA UK Limited and the insurance operations of ACE Global Markets). ACE Global Markets provides funds at Lloyd’s to support underwriting by the Lloyd’s syndicates managed by Lloyd’s managing agencies which are owned by the Company (including for segment purposes Lloyd’s operations owned by ACE Financial Services). The reinsurance operation of ACE Global Markets is included in the Global Reinsurance segment. Companies within the Insurance – Overseas General segment write a variety of insurance products including property, casualty, professional lines (D&O and E&O), marine, energy, aviation, political risk, consumer-oriented products and A&H – principally being supplemental accident.
 
The Global Reinsurance segment comprises ACE Tempest Re Bermuda, ACE Tempest Re USA and ACE Tempest Re Europe. These subsidiaries provide property catastrophe, casualty and property reinsurance. Subsequent to the IPO, the trade credit business is included in the Global Reinsurance segment. Global Reinsurance also includes the operations of ACE Tempest Life Re. The principal business of ACE Tempest Life Re is to provide reinsurance coverage to other life insurance companies.
 
The Financial Services segment includes the financial solutions business in the U.S. and Bermuda and the Company’s share of Assured Guaranty’s earnings. Prior to the IPO of Assured Guaranty, the Financial Services segment included the financial guaranty business of ACE Guaranty Corp. and ACE Capital Re International. The financial results of the transferred business are included in the results of the Financial Services segment through April 28, 2004 (the date of the sale). Commencing May 1, 2004, the Company’s proportionate share of Assured Guaranty’s earnings is reflected in other (income) expenses in the Financial Services segment. The financial solutions business includes insurance and reinsurance solutions to complex risks that generally cannot be adequately addressed by the traditional insurance marketplace. It consists of securitization and risk trading, finite and structured risk products, and retroactive contracts in the form of loss portfolio transfers.
 
The following tables summarize the operations by segment for the three and nine months ended September 30, 2004 and 2003.
 
For segment reporting purposes, certain items have been presented in a different manner than in the consolidated financial statements.
 
28

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Statement of Operations by Segment
For the three months ended September 30, 2004
(in thousands of U.S. Dollars)

 	  	Insurance –
North
American
	 	 	Insurance -
Overseas
General
	  	Global
Reinsurance
	 	 	Corporate
and
Other (1)
	 	 	Consolidated
Property &
Casualty (2)
	 	 	Financial
Services
	 	 	ACE
Consolidated
	 	
Operations Data	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross premiums written	  	$	2,218,697	 	 	$	1,291,964	  	$	342,541	 	 	$	—  	 	 	$	3,853,202	 	 	$	68,088	 	 	$	3,921,290	 	
Net premiums written	  	 	1,348,761	 	 	 	980,338	  	 	311,815	 	 	 	—  	 	 	 	2,640,914	 	 	 	68,088	 	 	 	2,709,002	 	
Net premiums earned	  	 	1,233,978	 	 	 	1,086,044	  	 	362,706	 	 	 	—  	 	 	 	2,682,728	 	 	 	111,066	 	 	 	2,793,794	 	
Losses and loss expenses	  	 	1,009,326	 	 	 	652,929	  	 	435,926	 	 	 	19,536	 	 	 	2,117,717	 	 	 	116,330	 	 	 	2,234,047	 	
Policy acquisition costs	  	 	114,298	 	 	 	198,396	  	 	65,356	 	 	 	—  	 	 	 	378,050	 	 	 	2,505	 	 	 	380,555	 	
Administrative expenses	  	 	129,224	 	 	 	139,281	  	 	16,183	 	 	 	36,983	 	 	 	321,671	 	 	 	2,982	 	 	 	324,653	 	
 	  				 			  				 				 				 				 				
Underwriting income (loss)	  	 	(18,870	)	 	 	95,438	  	 	(154,759	)	 	 	(56,519	)	 	 	(134,710	)	 	 	(10,751	)	 	 	(145,461	)	
 	  				 			  				 				 				 				 				
Life	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross premiums written	  	 	—  	 	 	 	—  	  	 	60,512	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	60,512	 	
Net premiums written	  	 	—  	 	 	 	—  	  	 	59,548	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	59,548	 	
Net premiums earned	  	 	—  	 	 	 	—  	  	 	59,490	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	59,490	 	
Life and annuity benefits	  	 	—  	 	 	 	—  	  	 	48,447	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	48,447	 	
Policy acquisition costs	  	 	—  	 	 	 	—  	  	 	5,527	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	5,527	 	
Administrative expenses	  	 	—  	 	 	 	—  	  	 	976	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	976	 	
Net investment income	  	 	—  	 	 	 	—  	  	 	8,089	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	8,089	 	
 	  				 			  				 				 				 				 				
Underwriting income	  	 	—  	 	 	 	—  	  	 	12,629	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	12,629	 	
 	  				 			  				 				 				 				 				
Net investment income	  	 	120,041	 	 	 	60,716	  	 	31,061	 	 	 	2,674	 	 	 	214,492	 	 	 	28,815	 	 	 	243,307	 	
Other (income) expense	  	 	(2,452	)	 	 	3,064	  	 	277	 	 	 	(294	)	 	 	595	 	 	 	(21,747	)	 	 	(21,152	)	
Net realized gains (losses)	  	 	9,138	 	 	 	1,711	  	 	(35,636	)	 	 	(6,429	)	 	 	(31,216	)	 	 	(876	)	 	 	(32,092	)	
Interest expense	  	 	5,431	 	 	 	—  	  	 	—  	 	 	 	41,584	 	 	 	47,015	 	 	 	1,982	 	 	 	48,997	 	
Income tax expense (benefit)	  	 	33,385	 	 	 	41,560	  	 	(1,865	)	 	 	(20,704	)	 	 	52,376	 	 	 	782	 	 	 	53,158	 	
 	  				 			  				 				 				 				 				
Net income (loss)	  	$	73,945	 	 	$	113,241	  	$	(145,117	)	 	$	(80,860	)	 	$	(51,420	)	 	$	36,171	 	 	$	(2,620	)	

(1)	Includes ACE Limited, ACE INA Holdings and intercompany eliminations.	
 
(2)	Excludes life reinsurance business.	
 
29

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Statement of Operations by Segment
For the three months ended September 30, 2003
(in thousands of U.S. Dollars)

 	  	Insurance –
North
American
	  	Insurance -
Overseas
General
	  	Global
Reinsurance
	 	 	Corporate
and
Other (1)
	 	 	Consolidated
Property &
Casualty (2)
	  	Financial
Services
	  	ACE
Consolidated
	
Operations Data	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	  	 	 	  	 	 	
Gross premiums written	  	$	1,818,820	  	$	1,200,752	  	$	275,526	 	 	$	—  	 	 	$	3,295,098	  	$	107,073	  	$	3,402,171	
Net premiums written	  	 	1,064,794	  	 	871,405	  	 	217,400	 	 	 	—  	 	 	 	2,153,599	  	 	105,742	  	 	2,259,341	
Net premiums earned	  	 	990,321	  	 	881,942	  	 	273,560	 	 	 	—  	 	 	 	2,145,823	  	 	205,277	  	 	2,351,100	
Losses and loss expenses	  	 	711,987	  	 	528,673	  	 	133,762	 	 	 	—  	 	 	 	1,374,422	  	 	144,056	  	 	1,518,478	
Policy acquisition costs	  	 	94,873	  	 	170,444	  	 	55,975	 	 	 	—  	 	 	 	321,292	  	 	17,850	  	 	339,142	
Administrative expenses	  	 	103,209	  	 	120,595	  	 	15,485	 	 	 	31,485	 	 	 	270,774	  	 	21,811	  	 	292,585	
 	  			  			  				 				 			  			  			
Underwriting income (loss)	  	 	80,252	  	 	62,230	  	 	68,338	 	 	 	(31,485	)	 	 	179,335	  	 	21,560	  	 	200,895	
 	  			  			  				 				 			  			  			
Life	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	  	 	 	  	 	 	
Gross premiums written	  	 	—  	  	 	—  	  	 	48,741	 	 	 	—  	 	 	 	—  	  	 	—  	  	 	48,741	
Net premiums written	  	 	—  	  	 	—  	  	 	46,790	 	 	 	—  	 	 	 	—  	  	 	—  	  	 	46,790	
Net premiums earned	  	 	—  	  	 	—  	  	 	46,425	 	 	 	—  	 	 	 	—  	  	 	—  	  	 	46,425	
Life and annuity benefits	  	 	—  	  	 	—  	  	 	44,524	 	 	 	—  	 	 	 	—  	  	 	—  	  	 	44,524	
Policy acquisition costs	  	 	—  	  	 	—  	  	 	4,924	 	 	 	—  	 	 	 	—  	  	 	—  	  	 	4,924	
Administrative expenses	  	 	—  	  	 	—  	  	 	770	 	 	 	—  	 	 	 	—  	  	 	—  	  	 	770	
Net investment income	  	 	—  	  	 	—  	  	 	9,357	 	 	 	—  	 	 	 	—  	  	 	—  	  	 	9,357	
 	  			  			  				 				 			  			  			
Underwriting income	  	 	—  	  	 	—  	  	 	5,564	 	 	 	—  	 	 	 	—  	  	 	—  	  	 	5,564	
 	  			  			  				 				 			  			  			
Net investment income (expense)	  	 	99,753	  	 	40,110	  	 	23,498	 	 	 	(6,343	)	 	 	157,018	  	 	48,314	  	 	205,332	
Other (income) expense	  	 	697	  	 	2,414	  	 	(607	)	 	 	—  	 	 	 	2,504	  	 	584	  	 	3,088	
Net realized gains (losses)	  	 	7,893	  	 	4,382	  	 	10,306	 	 	 	5,386	 	 	 	27,967	  	 	29,589	  	 	57,556	
Interest expense	  	 	6,913	  	 	1,150	  	 	—  	 	 	 	34,649	 	 	 	42,712	  	 	1,636	  	 	44,348	
Income tax expense (benefit)	  	 	47,268	  	 	13,258	  	 	2,720	 	 	 	(13,436	)	 	 	49,810	  	 	17,136	  	 	66,946	
 	  			  			  				 				 			  			  			
Net income (loss)	  	$	133,020	  	$	89,900	  	$	105,593	 	 	$	(53,655	)	 	$	269,294	  	$	80,107	  	$	354,965	

(1)	Includes ACE Limited, ACE INA Holdings and intercompany eliminations.	
 
(2)	Excludes life reinsurance business.	
 
30

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Statement of Operations by Segment
For the nine months ended September 30, 2004
(in thousands of U.S. Dollars)

 	  	Insurance –
North
American
	  	Insurance -
Overseas
General
	  	Global
Reinsurance
	 	 	Corporate
and
Other (1)
	 	 	Consolidated
Property &
Casualty (2)
	  	Financial
Services
	 	 	ACE
Consolidated
	
Operations Data	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	
Gross premiums written	  	$	6,225,946	  	$	4,466,271	  	$	1,285,858	 	 	$	—  	 	 	$	11,978,075	  	$	290,885	 	 	$	12,268,960	
Net premiums written	  	 	3,890,164	  	 	3,283,452	  	 	1,244,985	 	 	 	—  	 	 	 	8,418,601	  	 	289,561	 	 	 	8,708,162	
Net premiums earned	  	 	3,419,361	  	 	3,195,710	  	 	1,037,663	 	 	 	—  	 	 	 	7,652,734	  	 	423,960	 	 	 	8,076,694	
Losses and loss expenses	  	 	2,542,679	  	 	1,878,773	  	 	769,120	 	 	 	19,536	 	 	 	5,210,108	  	 	290,812	 	 	 	5,500,920	
Policy acquisition costs	  	 	326,244	  	 	578,415	  	 	203,270	 	 	 	—  	 	 	 	1,107,929	  	 	22,428	 	 	 	1,130,357	
Administrative expenses	  	 	347,265	  	 	416,151	  	 	50,232	 	 	 	95,965	 	 	 	909,613	  	 	37,502	 	 	 	947,115	
 	  			  			  				 				 			  				 			
Underwriting income (loss)	  	 	203,173	  	 	322,371	  	 	15,041	 	 	 	(115,501	)	 	 	425,084	  	 	73,218	 	 	 	498,302	
 	  			  			  				 				 			  				 			
Life	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	
Gross premiums written	  	 	—  	  	 	—  	  	 	169,174	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	169,174	
Net premiums written	  	 	—  	  	 	—  	  	 	165,485	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	165,485	
Net premiums earned	  	 	—  	  	 	—  	  	 	164,945	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	164,945	
Life and annuity benefits	  	 	—  	  	 	—  	  	 	134,569	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	134,569	
Policy acquisition costs	  	 	—  	  	 	—  	  	 	16,414	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	16,414	
Administrative expenses	  	 	—  	  	 	—  	  	 	3,216	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	3,216	
Net investment income	  	 	—  	  	 	—  	  	 	24,443	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	24,443	
 	  			  			  				 				 			  				 			
Underwriting income	  	 	—  	  	 	—  	  	 	35,189	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	35,189	
 	  			  			  				 				 			  				 			
Net investment income	  	 	331,379	  	 	163,511	  	 	87,304	 	 	 	1,780	 	 	 	583,974	  	 	117,959	 	 	 	701,933	
Other (income) expense	  	 	3,474	  	 	10,192	  	 	(150	)	 	 	(881	)	 	 	12,635	  	 	(10,804	)	 	 	1,831	
Net realized gains (losses)	  	 	91,780	  	 	28,916	  	 	(33,266	)	 	 	8,687	 	 	 	96,117	  	 	(28,746	)	 	 	67,371	
Interest expense	  	 	15,742	  	 	—  	  	 	—  	 	 	 	119,048	 	 	 	134,790	  	 	4,878	 	 	 	139,668	
Income tax expense (benefit)	  	 	164,261	  	 	153,659	  	 	2,726	 	 	 	(48,355	)	 	 	272,291	  	 	31,791	 	 	 	304,082	
 	  			  			  				 				 			  				 			
Net income (loss)	  	$	442,855	  	$	350,947	  	$	101,692	 	 	$	(174,846	)	 	$	685,459	  	$	136,566	 	 	$	857,214	

(1)	Includes ACE Limited, ACE INA Holdings and intercompany eliminations.	
 
(2)	Excludes life reinsurance business.	
 
31

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Statement of Operations by Segment
For the nine months ended September 30, 2003
(in thousands of U.S. Dollars)

 	  	Insurance –
North
American
	  	Insurance -
Overseas
General
	 	 	Global
Reinsurance
	 	 	Corporate
and
Other (1)
	 	 	Consolidated
Property &
Casualty (2)
	  	Financial
Services
	 	 	ACE
Consolidated
	
Operations Data	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	
Gross premiums written	  	$	5,131,214	  	$	3,850,494	 	 	$	1,086,710	 	 	$	—  	 	 	$	10,068,418	  	$	756,474	 	 	$	10,824,892	
Net premiums written	  	 	2,966,874	  	 	2,768,618	 	 	 	1,005,558	 	 	 	—  	 	 	 	6,741,050	  	 	763,505	 	 	 	7,504,555	
Net premiums earned	  	 	2,663,089	  	 	2,555,787	 	 	 	790,957	 	 	 	—  	 	 	 	6,009,833	  	 	629,541	 	 	 	6,639,374	
Losses and loss expenses	  	 	1,860,915	  	 	1,540,888	 	 	 	392,674	 	 	 	—  	 	 	 	3,794,477	  	 	466,213	 	 	 	4,260,690	
Policy acquisition costs	  	 	278,612	  	 	485,251	 	 	 	152,835	 	 	 	—  	 	 	 	916,698	  	 	45,536	 	 	 	962,234	
Administrative expenses	  	 	292,663	  	 	355,736	 	 	 	44,778	 	 	 	84,528	 	 	 	777,705	  	 	60,251	 	 	 	837,956	
 	  			  				 				 				 			  				 			
Underwriting income (loss)	  	 	230,899	  	 	173,912	 	 	 	200,670	 	 	 	(84,528	)	 	 	520,953	  	 	57,541	 	 	 	578,494	
 	  			  				 				 				 			  				 			
Life	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	
Gross premiums written	  	 	—  	  	 	—  	 	 	 	143,702	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	143,702	
Net premiums written	  	 	—  	  	 	—  	 	 	 	137,621	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	137,621	
Net premiums earned	  	 	—  	  	 	—  	 	 	 	136,275	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	136,275	
Life and annuity benefits	  	 	—  	  	 	—  	 	 	 	136,582	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	136,582	
Policy acquisition costs	  	 	—  	  	 	—  	 	 	 	11,008	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	11,008	
Administrative expenses	  	 	—  	  	 	—  	 	 	 	2,359	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	2,359	
Net investment income	  	 	—  	  	 	—  	 	 	 	25,004	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	25,004	
 	  			  				 				 				 			  				 			
Underwriting income	  	 	—  	  	 	—  	 	 	 	11,330	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	11,330	
 	  			  				 				 				 			  				 			
Net investment income	  	 	306,121	  	 	113,107	 	 	 	63,293	 	 	 	(23,218	)	 	 	459,303	  	 	148,741	 	 	 	608,044	
Other (income) expense	  	 	6,966	  	 	3,707	 	 	 	(1,893	)	 	 	—  	 	 	 	8,780	  	 	(264	)	 	 	8,516	
Net realized gains (losses)	  	 	14,751	  	 	(7,053	)	 	 	26,482	 	 	 	(8,594	)	 	 	25,586	  	 	98,442	 	 	 	124,028	
Interest expense	  	 	21,813	  	 	2,016	 	 	 	72	 	 	 	103,850	 	 	 	127,751	  	 	5,207	 	 	 	132,958	
Income tax expense (benefit)	  	 	128,774	  	 	55,898	 	 	 	9,689	 	 	 	(40,563	)	 	 	153,798	  	 	53,747	 	 	 	207,545	
 	  			  				 				 				 			  				 			
Net income (loss)	  	$	394,218	  	$	218,345	 	 	$	293,907	 	 	$	(179,627	)	 	$	715,513	  	$	246,034	 	 	$	972,877	

(1)	Includes ACE Limited, ACE INA Holdings and intercompany eliminations.	
 
(2)	Excludes life reinsurance business.	
 
Underwriting assets for property and casualty and financial services are reviewed in total by management for purposes of decision-making. The Company does not allocate assets to our segments. Assets are specifically identified for our life reinsurance operations and corporate holding companies, including ACE Limited and ACE INA Holdings.
 
The following table summarizes the identifiable assets at September 30, 2004 and December 31, 2003.

 	  	September 30
2004
	  	December 31
2003
	
 	  	(in millions of U.S. dollars)	
Life reinsurance	  	$	739	  	$	698	
Corporate	  	 	2,232	  	 	2,483	
All other	  	 	51,484	  	 	46,372	
 	  			  			
Total assets	  	$	54,455	  	$	49,553	

32

ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables summarize the revenues of each segment by product offering for the three and nine months ended September 30, 2004 and 2003.
 
Net premiums earned by type of premium
 
Three Months Ended September 30, 2004

 	  	Property &
Casualty
	  	Life, Accident
& Health
	  	Financial
Guaranty
	  	Financial
Solutions
	  	ACE
Consolidated
	
 	  	(in millions of U.S. dollars)	
Insurance – North American	  	$	1,190	  	$	44	  	$	—  	  	$	—  	  	$	1,234	
Insurance – Overseas General	  	 	840	  	 	246	  	 	—  	  	 	—  	  	 	1,086	
Global Reinsurance	  	 	362	  	 	60	  	 	—  	  	 	—  	  	 	422	
Financial Services	  	 	—  	  	 	—  	  	 	—  	  	 	111	  	 	111	
 	  			  			  			  			  			
 	  	$	2,392	  	$	350	  	$	—  	  	$	111	  	$	2,853	

Three Months Ended September 30, 2003

 	  	Property &
Casualty
	  	Life, Accident
& Health
	  	Financial
Guaranty
	  	Financial
Solutions
	  	ACE
Consolidated
	
 	  	(in millions of U.S. dollars)	
Insurance – North American	  	$	958	  	$	32	  	$	—  	  	$	—  	  	$	990	
Insurance – Overseas General	  	 	682	  	 	200	  	 	—  	  	 	—  	  	 	882	
Global Reinsurance	  	 	274	  	 	46	  	 	—  	  	 	—  	  	 	320	
Financial Services	  	 	—  	  	 	—  	  	 	80	  	 	125	  	 	205	
 	  			  			  			  			  			
 	  	$	1,914	  	$	278	  	$	80	  	$	125	  	$	2,397	

Nine Months Ended September 30, 2004

 	  	Property &
Casualty
	  	Life, Accident
& Health
	  	Financial
Guaranty
	  	Financial
Solutions
	  	ACE
Consolidated
	
 	  	(in millions of U.S. dollars)	
Insurance – North American	  	$	3,289	  	$	130	  	$	—  	  	$	—  	  	$	3,419	
Insurance – Overseas General	  	 	2,490	  	 	706	  	 	—  	  	 	—  	  	 	3,196	
Global Reinsurance	  	 	1,037	  	 	165	  	 	—  	  	 	—  	  	 	1,202	
Financial Services	  	 	—  	  	 	—  	  	 	104	  	 	320	  	 	424	
 	  			  			  			  			  			
 	  	$	6,816	  	$	1,001	  	$	104	  	$	320	  	$	8,241	

Nine Months Ended September 30, 2003

 	  	Property &
Casualty
	  	Life, Accident
& Health
	  	Financial
Guaranty
	  	Financial
Solutions
	  	ACE
Consolidated
	
 	  	(in millions of U.S. dollars)	
Insurance – North American	  	$	2,558	  	$	105	  	$	—  	  	$	—  	  	$	2,663	
Insurance – Overseas General	  	 	1,989	  	 	567	  	 	—  	  	 	—  	  	 	2,556	
Global Reinsurance	  	 	791	  	 	136	  	 	—  	  	 	—  	  	 	927	
Financial Services	  	 	—  	  	 	—  	  	 	240	  	 	389	  	 	629	
 	  			  			  			  			  			
 	  	$	5,338	  	$	808	  	$	240	  	$	389	  	$	6,775	

33

 Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	
 
The following is a discussion of our results of operations, financial condition, and liquidity and capital resources as of and for the three and nine months ended September 30, 2004. Our results of operations and cash flows for any interim period are not necessarily indicative of our results for the full year. This discussion should be read in conjunction with our Consolidated Financial Statements and related notes and our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2003.
 
Cautionary Statement Regarding Forward-Looking Information
 
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Any written or oral statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks, uncertainties and assumptions about our business that could cause actual results to differ materially from such statements. These risks, uncertainties and assumptions (which are described in more detail elsewhere herein and in other documents we file with the Securities and Exchange Commission (SEC)) include but are not limited to:
 
•	global political conditions, the occurrence of any terrorist attacks, including any nuclear, biological or chemical events, or the outbreak and effects of war, and possible business disruption or economic contraction that may result from such events;	
 
•	the ability to collect reinsurance recoverable, credit developments of reinsurers, and any delays with respect thereto;	
 
•	the occurrence of catastrophic events or other insured or reinsured events with a frequency or severity exceeding our estimates;	
 
•	actual loss experience from insured or reinsured events;	
 
•	the uncertainties of the loss-reserving and claims-settlement processes, including the difficulties associated with assessing environmental damage and asbestos-related latent injuries, the impact of aggregate-policy-coverage limits, and the impact of bankruptcy protection sought by various asbestos producers and other related businesses and the timing of loss payments;	
 
•	judicial decisions and rulings, new theories of liability, and legal tactics;	
 
•	the effects of public company bankruptcies and/or accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues, including the effects of such events on:	
 
 	•	the capital markets;	
 
 	•	the markets for directors and officers and errors and omissions insurance; and	
 
 	•	claims and litigation arising out of such disclosures or practices by other companies;	
 
•	the impact of the September 11 tragedy and its aftermath on our insureds, reinsureds, and on the insurance and reinsurance industry;	
 
•	uncertainties relating to governmental, legislative and regulatory policies, developments, investigations and treaties, which, among other things, could subject us to insurance regulation or taxation in additional jurisdictions or affect our current operations;	
 
•	the actual amount of new and renewal business, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets, including regulatory constraints on exit strategies;	
 
•	the competitive environment in which we operate, including trends in pricing or in policy terms and conditions, which may differ from our projections;	
 
•	actions that rating agencies may take from time to time, such as changes in our claims-paying, financial strength or credit ratings;	
 
•	developments in global financial markets, including changes in interest rates, stock markets and other financial markets, and foreign currency exchange rate fluctuations, which could affect our statement of operations, investment portfolio and financing plans;	
 
•	changing rates of inflation and other economic conditions;	
 
•	the amount of dividends received from subsidiaries;	
 
34

•	loss of the services of any of our executive officers without suitable replacements being recruited in a reasonable time frame;	
 
•	the ability of technology to perform as anticipated; and	
 
•	management’s response to these factors.	
 
The words “believe”, “anticipate”, “estimate”, “project”, “should”, “plan”, “expect”, “intend”, “hope”, “will likely result” or “will continue”, and variations thereof and similar expressions, identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future events or otherwise. 
 
Overview
 
ACE Limited (ACE) is the Bermuda-based holding company of the ACE Group of Companies incorporated with limited liability under the Cayman Islands Companies Law. We created our business office in Bermuda in 1985 when we initially incorporated the Company and we continue to maintain our business office in Bermuda. Through our various operating subsidiaries, we provide a broad range of insurance and reinsurance products to insureds worldwide through operations in the U.S. and almost 50 other countries. Our long-term business strategy focuses on achieving underwriting income and providing value to our clients and shareholders through the utilization of our substantial capital base in the insurance and reinsurance markets.
 
As an insurance and reinsurance company, we generate gross revenues from two principal sources, premiums which are usually paid in advance of loss payments, and dividends and interest income earned on invested assets. Cash flow is primarily generated from premiums collected and investment income received less paid losses and loss expenses. Generally when an insurance company writing long-tail business grows, as ACE has over the last several years, its cash flows tend to be positive. ACE generated approximately $4 billion in positive operating cash flow in the nine months ended September 30, 2004, and cash and invested assets over this period increased $4 billion.
 
Invested assets are generally held in liquid, investment grade fixed income securities of relatively short duration. We also invest a small portion of our assets in less liquid or higher risk assets to achieve higher returns. Claims payments in any short-term period are highly unpredictable due to the random nature of loss events and the timing of claims awards or settlements. The value of investments held to pay future claims is subject to market forces such as the level of interest rates, stock market volatility and credit events such as corporate defaults. The actual cost of claims is also volatile based on factors such as loss trends, inflation rates, court awards and catastrophic events. We believe that our cash balances, our highly liquid investments, credit facilities and reinsurance protection provide sufficient liquidity to meet any unforeseen claim demands that might occur.
 
This was perhaps the most expensive quarter in the industry’s history for natural catastrophes. Industry loss estimates globally related to Hurricanes Charley, Frances, Ivan and Jeanne which struck the Caribbean and the U.S. and the typhoons which impacted Asia are estimated to be in excess of $30 billion (see section entitled “Catastrophe Charges” for financial impact on ACE). As a result, we expect that the rate environment will tighten – particularly in property and catastrophe related lines.
 
Insurance Industry Investigation and Related Matters
 
ACE has received subpoenas from the office of the New York Attorney General (the “NYAG”) and from other state attorneys general in connection with investigations of certain insurance industry practices (AG Investigations). On October 14, 2004, the NYAG filed a civil suit against Marsh & McLennan Companies Inc. (Marsh), alleging that certain Marsh business practices were fraudulent and violated antitrust and securities laws. ACE was not named as a defendant in the suit, although ACE was named as one of four insurance companies whose employees participated in the practices in question. In addition, an underwriter in an ACE insurance subsidiary has pleaded guilty to a misdemeanor based on these practices. ACE is cooperating and will continue to cooperate with the AG Investigations.
 
ACE is conducting its own internal investigation that will encompass the subjects raised by the NYAG. It is being conducted by a team from the firm of Debevoise & Plimpton LLP. The team is headed by former United States Attorney Mary Jo White and reports to management and directly to the Audit Committee of the Board of Directors. The Audit Committee of the Board of Directors has retained Cleary Gottlieb Steen & Hamilton, special outside counsel, to advise it in connection with these matters. We have terminated two employees, including our employee that has pleaded guilty to a misdemeanor, and have suspended three other employees as a result of our internal investigation.
 
Several purported shareholder class action lawsuits have been filed against ACE and certain of its present and former executive officers relating to certain of the practices being investigated by the AG Investigations. In addition, the plaintiffs in a pending lawsuit originally brought by policyholders against brokers has been amended by adding ACE and other carriers as additional defendants. ACE intends to vigorously defend against these actions.
 
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While ACE is not a party to any action brought by the NYAG or any other governmental authority, there can be no assurance that ACE will not be named in future actions. ACE cannot at this time estimate its potential costs related to these legal matters and accordingly no liability is being established in the Consolidated Financial Statements. In the opinion of ACE’s management, ACE’s ultimate liability for these matters is not likely to have a material adverse effect on ACE’s consolidated financial condition, although it is possible that the effect could be material to ACE’s consolidated results of operations for an individual reporting period.
 
Pursuant to the AG Investigations, ACE has decided to eliminate the use of placement service agreements (PSAs) that provide insurance brokers additional commissions based on the extent of premiums produced. Because the insurance brokers represent ACE’s largest distribution channel, the elimination of PSAs and any other changes in business practices of insurance brokers resulting from the AG Investigations could potentially impact ACE’s future premium volume although such effect, if any, cannot be quantified at this time.
 
In addition we are taking several new steps to monitor and improve our compliance with best underwriting practices, and avoid real or any appearance of conflicts of interest. These steps include:
 
 	•	issuing new, detailed guidelines relating to the way we work with brokers and submits quotes. These guidelines will include a requirement that any commissions paid to brokers be reported to policyholders on the declarations page of all commercial policies.	
 
 	•	We will appoint a business practices compliance officer.	
 
 	•	An outside consulting firm is being retained to review and recommend enhancements to our business practice training, compliance and controls.	
 
 	•	Responsibilities of our Chief Ethics Officer, including serving as head of the ACE Ethics Committee, have now been assumed by our General Counsel.	
 
Catastrophe Charges
 
During the current quarter, we incurred net catastrophe-related pre-tax charges of $479 million primarily associated with hurricanes which struck the Caribbean and the U.S. and, to a lesser extent, typhoons which impacted Asia (collectively referred to as catastrophe charges). The following table shows the impact of the catastrophe charges on each of our operating segments in the three and nine months ended September 30, 2004 (we incurred no catastrophe charges in the first half of 2004).

Catastrophe Loss Charges - By Event
	  	Insurance -
North
American
	 	 	Insurance -
Overseas
General
	 	 	Global
Reinsurance
	 	 	Consolidated
P&C
	 	 	Financial
Services
	 	 	Total
	 	
 	  	(in millions of U.S. dollars)	 	
Gross loss	  	$	426	 	 	$	157	 	 	$	284	 	 	$	867	 	 	$	11	 	 	$	878	 	
Net loss	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Hurricane - Charley	  	$	31	 	 	$	—  	 	 	$	65	 	 	$	96	 	 	$	—  	 	 	$	96	 	
Hurricane - Frances	  	 	22	 	 	 	6	 	 	 	48	 	 	 	76	 	 	 	5	 	 	 	81	 	
Hurricane - Ivan	  	 	40	 	 	 	20	 	 	 	76	 	 	 	136	 	 	 	5	 	 	 	141	 	
Hurricane - Jeanne	  	 	33	 	 	 	18	 	 	 	63	 	 	 	114	 	 	 	1	 	 	 	115	 	
Typhoons	  	 	—  	 	 	 	9	 	 	 	26	 	 	 	35	 	 	 	—  	 	 	 	35	 	
 	  				 				 				 				 				 				
Total	  	 	126	 	 	 	53	 	 	 	278	 	 	 	457	 	 	 	11	 	 	 	468	 	
Reinstatement premiums (earned) expensed	  	 	13	 	 	 	13	 	 	 	(15	)	 	 	11	 	 	 	—  	 	 	 	11	 	
 	  				 				 				 				 				 				
Total impact before income tax	  	 	139	 	 	 	66	 	 	 	263	 	 	 	468	 	 	 	11	 	 	 	479	 	
Income tax benefit	  	 	(41	)	 	 	(21	)	 	 	(11	)	 	 	(73	)	 	 	—  	 	 	 	(73	)	
 	  				 				 				 				 				 				
Total impact after income tax	  	$	98	 	 	$	45	 	 	$	252	 	 	$	395	 	 	$	11	 	 	$	406	 	
 	  				 				 				 				 				 				
Effective tax rate	  	 	29	%	 	 	32	%	 	 	4	%	 	 	16	%	 	 	—  	%	 	 	15	%	
 
The above information is based on currently available information derived from modeling techniques, industry assessments of exposure and claims information obtained from our clients and brokers. Actual losses from these events may vary materially from our estimates due to the inherent uncertainties in making such determinations resulting from several factors, including the potential inaccuracies and inadequacies in the data provided by clients and brokers, the modeling techniques and the application of such techniques, as well as the high frequency of recent catastrophic events and the effects of any resultant demand surge on claims activity.
 
Sale of Financial and Mortgage Guaranty Business through Assured Guaranty Ltd.
 
On April 28, 2004, we completed the sale of 65.3 percent of our financial and mortgage guaranty reinsurance and insurance businesses (transferred business) through the initial public offering (IPO) of 49 million common shares of Assured Guaranty Ltd. (Assured Guaranty) at $18.00 per share. Assured Guaranty was incorporated in Bermuda in August 2003 for the sole purpose of becoming a holding company for our transferred business.
 
Pursuant to the completion of the IPO, we received proceeds, net of offering costs, of approximately $835 million and a return of capital of $200 million from Assured Guaranty, which were used to support our P&C business and strengthen our balance sheet capital position. The transaction resulted in a reduction of our shareholders’ equity of $61.1 million, representing the difference between net proceeds and the carrying value of 65.3 percent of Assured Guaranty at April 28, 2004 as well as taxes incurred on the transaction. The transaction also resulted in a pretax realized loss of $6.7 million and an after tax loss of $18.1 million. Additionally, in the second quarter we recognized compensation expense of $7.5 million in connection with the settlement of ACE stock awards held by the employees of Assured Guaranty. These expenses are reflected in “Other (income) expense” within the consolidated statement of operations.
 
Subsequent to the IPO, we beneficially own 26 million common shares, or 34.7 percent of Assured Guaranty’s outstanding common shares and accordingly, no longer consolidate our interest in the Assured Guaranty companies. Beginning April 29, 2004, we account for the retained interest under the equity method of accounting with the carrying value of our investment reflected in “Other investments” within the consolidated balance sheet and our proportionate share of earnings reflected in
 
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“Other (income) expense” within the consolidated statement of operations. For segment reporting purposes, our proportionate share of earnings is reflected in our Financial Services segment.
 
In connection with the IPO, we have entered into reinsurance agreements with Assured Guaranty in order to retain the insurance liabilities of certain run-off businesses, including trade credit and residual value insurance. At their inception, these contracts had no effect on our net income. Additionally, we have entered into a number of agreements with Assured Guaranty that will govern certain aspects of the relationship after this offering, including service agreements under which we will provide certain services to Assured Guaranty for a period of time.
 
See Note 4 of our Interim Consolidated Financial Statements for more information pertaining to this transaction.
 
Critical Accounting Estimates
 
Our Consolidated Financial Statements include amounts that, either by their nature or due to requirements of accounting principles generally accepted in the U.S. (GAAP), are determined using best estimates and assumptions. While we believe that the amounts included in our Consolidated Financial Statements reflect our best judgment, actual amounts could ultimately materially differ from those currently presented in our Consolidated Financial Statements. We believe the items that require the most subjective and complex estimates are:
 
•	unpaid losses and loss expense reserves, including asbestos reserves;	
 
•	reinsurance recoverable, including our bad debt provision;	
 
•	impairments to the carrying value of our investment portfolio;	
 
•	the valuation of our deferred tax assets;	
 
•	the fair value of certain derivatives; and	
 
•	the valuation of goodwill.	
 
We believe our accounting policies for these items are of critical importance to our Consolidated Financial Statements. The following discussion provides information regarding the estimates and assumptions required to arrive at our unpaid losses and loss expenses and should be read in conjunction with the section entitled, “Unpaid Losses and Loss Expenses”, included further within this document.
 
Unpaid losses and loss expenses
 
As an insurance and reinsurance company, we are required, under GAAP, to establish loss reserves for the estimated unpaid portion of the ultimate liability for losses and loss expenses under the terms of our policies and agreements with our insured and reinsured customers. These reserves include estimates for both claims that have been reported and those that have been incurred but not reported (IBNR), and include estimates of expenses associated with processing and settling these claims. At September 30, 2004, the unpaid losses and loss expense reserve was $29.6 billion. Our P&C loss reserves are not discounted. The process of establishing reserves for property and casualty (P&C) claims can be complex and is subject to considerable variability as it requires the use of informed estimates and judgments. These estimates and judgments are based on numerous factors, and may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws change. We have actuarial staff in each of our operating segments who track insurance reserves and regularly evaluate the levels of loss reserves, taking into consideration factors that may impact the ultimate loss reserves. The potential for variation in loss reserves is impacted by numerous factors, which we explain below.
 
We estimate loss reserves for all insurance and reinsurance business we write. In most cases, we do not have all the necessary information to determine the ultimate settlement value for a claim at the time we are required to accrue for the loss. As a result, historical experience and other statistical information are used to estimate the ultimate cost of the loss, depending on the type of business. To determine carried reserves for a particular line of business, we may perform one or more reserving methods to estimate ultimate losses and loss expenses and use the results to select a single point estimate. These methods may include, but are not necessarily limited to, extrapolations of our historical reported and paid loss data, application of industry loss development patterns to our reported or paid losses, expected loss ratios developed by management, or historical industry loss ratios. Underlying judgments and assumptions that may be incorporated into these actuarial methods include, but are not necessarily limited to, adjustments to historical data used in models to exclude aberrations in claims data such as catastrophes that are typically analyzed separately, application of tail factors used to project ultimate claims from historical loss experience when there are several data points to use, adjustments to actuarial models and related data for known business changes, such as changes in claims covered under insurance contracts, and the effect of recent or pending litigation on future claim settlements.
 
The process of determining a single best estimate by product, when more than one estimate is developed in the course of the actuarial review, may be performed in several ways. However, the objective of such process, which is consistently applied to
 
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all product lines, is to determine a single best estimate that we believe represents a better estimate than any other. Such estimate is viewed to support the most likely outcome of ultimate loss settlements and determined based on several factors, including but not limited to, the extent of historical data and reliance on such data within the underlying reserve methodology, historical accuracy of loss estimates compared with actual loss experience for the product line or comparable product lines, and nature and extent of underlying assumptions. Depending on the facts and circumstances of each product line, the determination of a single best estimate may be accomplished by selecting a single point estimate when one estimate is determined to reflect a “better” estimate than the other point estimates or using a probability weighted average approach when more than one estimate is viewed to be reasonable. For example, an actuary may select loss reserves developed using an incurred loss development approach instead of a paid loss development approach as the best estimate when reported losses are viewed to be more credible indicators of ultimate loss estimates compared with paid losses. The actuaries’ evaluation process to determine a best estimate involves collaboration with underwriting, claims and finance departments and culminates with the input of the segment reserve committees which have the responsibility for finalizing and approving the point estimate to be used as our best estimate.
 
We do not calculate a range of loss reserve estimates. Actuarial ranges are not a true reflection of the potential volatility between loss reserves estimated at the balance sheet date and the ultimate settlement of losses. This is due to the fact that an actuarial range is developed based on known events as of the valuation date whereas actual volatility or prior period development has historically occurred in subsequent Consolidated Financial Statements in part from events and circumstances that were unknown as of the original valuation date.
 
While we perform annual loss reserve studies for all product lines, the timing of such studies vary throughout the year. Additionally, for each product line, we review the emergence of actual losses relative to expectations used in reserving each quarter. If warranted from findings in loss emergence tests, we will accelerate the timing of our product line reserve studies.
 
Since the ACE INA acquisition in 1999, our consolidated reserve for losses and loss expenses, net of reinsurance, reported at each year-end has developed by as much as ten percent (four percent excluding asbestos and environmental (A&E) reserve strengthening), although ultimate loss reserve development could be higher. See the “Analysis of Losses and Loss Expense Development” in our Annual Report on Form 10-K for the year ended December 31, 2003, for a summary of historical volatility between estimated loss reserves and ultimate loss settlements.
 
The “Unpaid Losses and Loss Expenses” section in our Annual Report on Form 10-K for the year ended December 31, 2003, includes a discussion of our reserve-setting procedures by segment. The following is a discussion of specific reserving considerations by type of claim:
 
Short-Tail Business, such as Property Coverages
 
Short-tail business describes lines of business for which losses are usually known and paid shortly after the loss actually occurs. This would include, for example, most property, personal accident, aviation hull and automobile physical damage policies that are written. Typically, there is less variability in these lines of business.
 
Long-Tail Business, such as Casualty Coverages
 
Long-tail business describes lines of business for which specific losses may not be known for some period and losses take much longer to emerge. This includes most casualty lines such as general liability, directors and officers liability (D&O) and workers’ compensation. Within our general insurance business, long-tail casualty business has been increasing and for the nine months ended September 30, 2004 comprises approximately 53 percent of net premiums earned. There are many factors contributing to the uncertainty and volatility of long-tail business. Among these are:
 
 	•	Given the recent expansion of this business, historical experience is often too immature to place reliance upon for reserving purposes. Instead, particularly for newer lines of business, reserve methods are based on industry loss ratios or development patterns that reflect the nature and coverage of the underwritten business and its future development. For new or growing lines of business, actual loss experience is apt to differ from industry loss statistics that are based on averages as well as loss experience of previous underwriting years;	
 
 	•	The inherent uncertainty of the length of paid and reporting development patterns;	
 
 	•	The possibility of future litigation, legislative or judicial change that might impact future loss experience relative to prior loss experience relied upon in loss reserve analyses; and	
 
 	•	Loss reserve analyses typically require loss or other data be grouped by common characteristics in some manner. If data from two combined lines of business exhibit different characteristics, such as loss payment patterns, the credibility of the reserve estimate could be affected. Because casualty lines of business can have various intricacies in their underlying coverage, there is an inherent risk as to the homogeneity of the underlying data used in performing reserve analyses.	
 
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The estimation of unpaid losses and loss expense reserves can also be affected by the layer at which a particular contract or set of contracts is written. In the case of direct insurance, where the insurer is taking on risk in the lower value end of the particular contract, the experience will tend to be more frequency driven. These lines of business allow for more traditional actuarial methods to be used in determining loss reserve levels, as it is customary to have more historical experience to rely upon. In the case of excess contracts, the experience will tend to be more of a severity nature, as only a significant loss will enter the layer. For structured or unique contracts, most common to the financial solutions business and to a lesser extent our reinsurance business, traditional actuarial methods for setting loss reserves (such as loss development triangles), have to be tempered with an analysis of each contract’s terms, original pricing information, subsequent internal and external analyses of the ongoing contracts, market exposures and history, and qualitative input from claims managers. 
 
More information regarding our critical accounting estimates is included in the section entitled “Critical Accounting Estimates” in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2003.
 
Results of Operations – Three and Nine Months Ended September 30, 2004 and 2003
 
The discussions that follow include tables, which show both our consolidated and segment operating results for the three and nine months ended September 30, 2004 and 2003. In presenting our segment operating results, we have discussed our performance with reference to underwriting results which is a non-GAAP measure. We consider this measure, which may be defined differently by other companies, to be important to an understanding of our overall results of operations. Underwriting results are calculated by subtracting losses and loss expenses, life and annuity benefits, policy acquisition costs and administrative expenses from net premiums earned. We use underwriting results and operating ratios to monitor the results of our operations without the impact of certain factors, including net investment income, other (income) expense, interest and income tax expense and net realized gains (losses). We believe the use of these measures enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business. Underwriting results should not be viewed as a substitute for measures determined in accordance with GAAP.
 
Consolidated Operating Results

 	  	Three Months Ended
September 30
	  	Nine Months Ended
September 30
	
 	  	2004
	 	 	2003
	  	2004
	  	2003
	
 	  	(in millions of U.S. dollars)	
Net premiums written	  	$	2,768	 	 	$	2,306	  	$	8,873	  	$	7,642	
Net premiums earned	  	 	2,853	 	 	 	2,397	  	 	8,241	  	 	6,775	
Net investment income	  	 	252	 	 	 	216	  	 	726	  	 	633	
Net realized gains (loss)	  	 	(33	)	 	 	57	  	 	67	  	 	124	
 	  				 			  			  			
Total revenues	  	$	3,072	 	 	$	2,669	  	$	9,034	  	$	7,532	
 	  				 			  			  			
Losses and loss expenses	  	 	2,234	 	 	 	1,519	  	 	5,501	  	 	4,261	
Life and annuity benefits	  	 	48	 	 	 	45	  	 	134	  	 	137	
Policy acquisition costs	  	 	386	 	 	 	343	  	 	1,147	  	 	973	
Administrative expenses	  	 	326	 	 	 	293	  	 	950	  	 	840	
Interest expense	  	 	48	 	 	 	45	  	 	139	  	 	133	
Other (income) expense	  	 	(21	)	 	 	3	  	 	2	  	 	8	
 	  				 			  			  			
Total expenses	  	$	3,021	 	 	$	2,247	  	$	7,873	  	$	6,352	
 	  				 			  			  			
Income before income tax	  	 	51	 	 	 	422	  	 	1,161	  	 	1,180	
Income tax expense	  	 	54	 	 	 	67	  	 	304	  	 	207	
 	  				 			  			  			
Net income (loss)	  	$	(3	)	 	$	355	  	$	857	  	$	973	

Net premiums written, which reflect the premiums we retain after purchasing reinsurance protection, increased 20 percent and 16 percent in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. Our P&C business reported increases in net premiums written of 23 percent and 25 percent in the three and nine months ended September 30, 2004, respectively. Adjusting for the appreciation of foreign currencies relative to the U.S. dollar, net premiums written in our P&C business increased 20 percent for the three and nine months ended September 30, 2004. The increase in our P&C business was primarily a result of our increased participation in the casualty market which has experienced favorable market conditions over the last several quarters, and to a lesser extent, an increase in personal accident business. Such increases were slightly offset
 
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by a decline in net premiums written in our Financial Services business primarily due to the de-consolidation of Assured Guaranty beginning April 28, 2004 (subsequent to the IPO).
 
The following table provides a consolidated breakdown of net premiums earned by line of business for the three and nine months ended September 30, 2004 and 2003.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	  	% of
total
	 	 	2003
	  	% of
total
	 	 	2004
	  	% of
total
	 	 	2003
	  	% of
total
	 	
 	  	(in millions of U.S. dollars)	 	
Property and all Other	  	$	839	  	29	%	 	$	818	  	34	%	 	$	2,450	  	30	%	 	$	2,367	  	35	%	
Casualty	  	 	1,553	  	55	%	 	 	1,096	  	46	%	 	 	4,366	  	53	%	 	 	2,971	  	44	%	
Personal Accident (A&H)	  	 	290	  	10	%	 	 	232	  	10	%	 	 	836	  	10	%	 	 	672	  	10	%	
 	  			  			 			  			 			  			 			  			
Total P&C	  	 	2,682	  	94	%	 	 	2,146	  	90	%	 	 	7,652	  	93	%	 	 	6,010	  	89	%	
Global Re – life	  	 	60	  	2	%	 	 	46	  	2	%	 	 	165	  	2	%	 	 	136	  	2	%	
Financial services	  	 	111	  	4	%	 	 	205	  	8	%	 	 	424	  	5	%	 	 	629	  	9	%	
 	  			  			 			  			 			  			 			  			
Net premiums earned	  	$	2,853	  	100	%	 	$	2,397	  	100	%	 	$	8,241	  	100	%	 	$	6,775	  	100	%	

Net premiums earned reflect the portion of net premiums written that were recorded as revenues for the period. Net premiums earned in our P&C business increased 25 percent and 27 percent (22 percent and 23 percent, adjusting for foreign exchange) in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. Our Financial Services business reported decreases of 46 percent and 33 percent in the three and nine months ended September 30, 2004, respectively. The change in net premiums earned for both the P&C and Financial Services businesses is consistent with the trend in net premiums written.
 
Net investment income increased 17 percent and 15 percent in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. This increase was due to positive operating cash flows during 2003 and 2004, partially offset by a reduction in our average investment yields due to the declining interest rate environment. See the section entitled “Net Investment Income” for more information.
 
The net realized loss in the current quarter and the decline in net realized gains in the nine months ended September 30, 2004, were primarily due to fair value adjustments of the derivative components of certain variable annuity products in our life reinsurance operation. See the section entitled “Net Realized Gains (Losses)” for more information.
 
In evaluating our P&C and Financial Services business we use the combined ratio, the loss and loss expense ratio, the policy acquisition cost ratio and the administrative expense ratio. We calculate these ratios by dividing the respective expense amounts of our P&C and Financial Services business by net premiums earned from our P&C and Financial Services business, respectively. We do not calculate these ratios for the life reinsurance business because they are not appropriate measures of the underwriting results for that business. The combined ratio is determined by adding the loss and loss expense ratio, the policy acquisition cost ratio and the administrative expense ratio. A combined ratio under 100 percent indicates underwriting income, and a combined ratio exceeding 100 percent indicates underwriting losses.
 
The following table shows our consolidated loss and loss expense ratio, policy acquisition ratio, administrative expense ratio and combined ratio for the three and nine months ended September 30, 2004 and 2003.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
Loss and loss expense ratio	  	80.0	%	 	64.6	%	 	68.1	%	 	64.2	%	
Policy acquisition cost ratio	  	13.6	%	 	14.4	%	 	14.0	%	 	14.5	%	
Administrative expense ratio	  	11.6	%	 	12.4	%	 	11.7	%	 	12.6	%	
Combined ratio	  	105.2	%	 	91.4	%	 	93.8	%	 	91.3	%	
 
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Our loss and loss expense ratio increased 15.4 percentage points and 3.9 percentage points in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. This increase was primarily due to the increased catastrophe charges in the current quarter and to a lesser extent, prior period development, and changes in business mix. The following table shows the impact of catastrophe charges and prior period development on our loss and loss expense ratio for the three and nine months ended September 30, 2004 and 2003.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
Loss and loss expense ratio, as reported	  	80.0	%	 	64.6	%	 	68.1	%	 	64.2	%	
Catastrophe charges impact	  	17.0	%	 	1.8	%	 	5.9	%	 	1.2	%	
Adverse (favorable) development impact	  	(0.1	)%	 	2.6	%	 	0.1	%	 	1.6	%	
 	  			 			 			 			
Loss and loss expense ratio, adjusted	  	63.1	%	 	60.2	%	 	62.1	%	 	61.4	%	

Catastrophe charges in the nine months ended September 30, 2004, were $468 million, all occurring in the current quarter. For the three and nine months ended September 30, 2003, catastrophe charges were $42 million and $77 million, respectively. Also impacting our loss and loss expense ratio is prior period development. Prior period development represents the income effect from changes in loss estimates reported in previous calendar years and excludes the effect of losses recognized in connection with the earning of premium during the period. For purposes of analysis and disclosure, management views prior period development to be changes in the nominal value of loss estimates from period to period and excludes changes in loss estimates that do not arise from the emergence of claims, such as those related to interest or foreign currency. Accordingly, specific items excluded from prior period development are gains/losses related to foreign currency translation that affect both the valuation of unpaid losses and loss expenses and losses incurred, losses recognized from the early termination or commutation of reinsurance agreements that principally relate to the time value of money, and changes in the value of reinsurance business assumed reflected in losses incurred but principally related to the time value of money. For the three months ended September 30, 2004, we incurred favorable development of $1 million, comprised of $218 million of favorable development and $217 million of adverse development. This compares with adverse development of $60 million, comprised of $75 million of favorable development and $135 million of adverse development, in the same quarter in 2003. For the nine months ended September 30, 2004, we incurred net adverse development of $10 million. Our Segment Operating Results, below, contain explanations of prior period development recognized in our Consolidated Financial Statements.
 
Our losses and loss expenses in the current quarter also include $19 million in connection with the commutation of ceded reinsurance contracts that resulted from a differential between consideration received from reinsurers and the related reduction of reinsurance recoverables, principally related to the time value of money. Due to our initiatives to reduce reinsurance recoverable balances and thereby encourage such commutations, losses recognized in connection with the commutation of ceded reinsurance contracts are generally not considered when assessing segment performance and accordingly, are directly allocated to Corporate. The remaining increase in the loss and loss expense ratio in the three and nine months ended September 30, 2004, was principally the result of changes in business mix in our Global Reinsurance and Insurance – North American segments. Global Reinsurance has been growing its non-catastrophe P&C lines while Insurance – North American has been increasing its participation in casualty lines. See the section entitled “Segment Operating Results” for more information.
 
Our policy acquisition costs include commissions, premium taxes, underwriting and other costs that vary with, and are primarily related to, the production of premium. Increases in policy rates outpaced policy acquisition costs which caused our policy acquisition cost ratio to decrease in the three and nine months ended September 30, 2004, compared with the same periods in 2003. Administrative expenses include all other operating costs. Administrative expenses increased as a result of the growth in our business and also the depreciation of the U.S. Dollar which had the effect of increasing administrative expenses by $29 million or three percent in the nine months ended September 30, 2004, respectively. The administrative expense ratio improved in the current periods due to the increase in net premiums earned and also due to continued expense reduction initiatives, which began in 2003.
 
Our issuance of $500 million of ACE INA 5.875 percent senior notes during the second quarter of 2004 caused our interest expense to be temporarily higher in the current quarter. We repaid the $400 million of ACE INA 8.2 percent notes on August 15, 2004. Other (income) expense includes equity in net income of subsidiary from Assured Guaranty – see the section entitled “Other Income and Expense” for more information.
 
The current quarter decrease in income tax expense is a result of the decline in taxable net income caused by the catastrophe charges. However, due to the fact that almost two-thirds of the catastrophe charges were reported in lower-tax jurisdictions, our income tax expense did not decrease at a rate consistent with the decline in our current quarter net income. As a result, the effective tax rate on net income for the quarter was 105 percent compared with 16 percent in the same quarter in 2003. For the nine months ended September 30, 2004, income tax expense increased primarily due to the increase in taxable net income in the first half of 2004. The increased profitability for Insurance—Overseas General and Insurance – North American added $134 million to income tax expense in the nine months ended September 30, 2004. Additionally, in the second quarter, we incurred approximately $11 million in income tax expense related to federal income taxes from the transfer of our U.S. financial and mortgage guaranty operations to Assured Guaranty and attributed to the sale of our Assured Guaranty shares. These increases, in addition to incurring the bulk of the catastrophe charges in our lower-tax jurisdictions, caused our effective tax rate on net income to increase to 26 percent in the nine months ended September 30, 2004, compared with 18 percent in the same period in 2003. Our effective tax rate is dependent upon the mix of earnings from different jurisdictions with various tax rates; a change in the geographic mix of earnings would change the effective tax rate. 
 
Net income declined $358 million in the three months ended September 30, 2004, primarily due to the significant current quarter catastrophe charges. These catastrophe charges also caused our net income to decline 12 percent in the nine months
 
41

ended September 30, 2004. The appreciation of foreign currencies relative to the U.S. Dollar added $9 million and $30 million to our net income in the three and nine months ended September 30, 2004, respectively.
 
Segment Operating Results – Three and Nine Months Ended September 30, 2004 and 2003
 
Insurance - North American
 
The Insurance – North American segment comprises our P&C insurance operations in the U.S., Bermuda and Canada. This segment writes a variety of insurance products including property, liability (general liability and workers’ compensation), professional lines (directors and officers (D&O), errors and omissions (E&O) and medical risk coverages), commercial and recreational marine, program business, accident and health (A&H) - principally being personal accident, aerospace, consumer-oriented products and other specialty lines.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
 	  	(in millions of U.S. dollars)	 	
Net premiums written	  	$	1,349	 	 	$	1,065	 	 	$	3,890	 	 	$	2,967	 	
Net premiums earned	  	 	1,234	 	 	 	990	 	 	 	3,419	 	 	 	2,663	 	
Losses and loss expenses	  	 	1,010	 	 	 	712	 	 	 	2,543	 	 	 	1,861	 	
Policy acquisition costs	  	 	114	 	 	 	95	 	 	 	326	 	 	 	279	 	
Administrative expenses	  	 	129	 	 	 	103	 	 	 	347	 	 	 	293	 	
 	  				 				 				 				
Underwriting income (loss)	  	$	(19	)	 	$	80	 	 	$	203	 	 	$	230	 	
 	  				 				 				 				
Net investment income	  	 	120	 	 	 	98	 	 	 	331	 	 	 	300	 	
Other (income) expense	  	 	(2	)	 	 	—  	 	 	 	4	 	 	 	6	 	
Interest expense	  	 	5	 	 	 	5	 	 	 	15	 	 	 	16	 	
Income tax expense	  	 	33	 	 	 	48	 	 	 	164	 	 	 	129	 	
Net realized gains (losses)	  	 	9	 	 	 	8	 	 	 	92	 	 	 	15	 	
 	  				 				 				 				
Net income	  	$	74	 	 	$	133	 	 	$	443	 	 	$	394	 	
 	  				 				 				 				
Loss and loss expense ratio	  	 	81.8	%	 	 	71.9	%	 	 	74.4	%	 	 	69.9	%	
Policy acquisition cost ratio	  	 	9.3	%	 	 	9.6	%	 	 	9.5	%	 	 	10.4	%	
Administrative expense ratio	  	 	10.5	%	 	 	10.4	%	 	 	10.2	%	 	 	11.0	%	
Combined ratio	  	 	101.6	%	 	 	91.9	%	 	 	94.1	%	 	 	91.3	%	
 
Net premiums written for the Insurance – North American segment increased 27 percent and 31 percent in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. The increase relates primarily to growth in casualty business. Over the last several quarters, Insurance – North American has been increasing casualty lines of business and decreasing property lines of business as rates, terms and conditions have been more favorable for casualty business relative to property business. Additionally, Insurance – North American’s retention ratio increased to 61 percent for the nine months ended September 30, 2004, compared with 59 percent for the same period in 2003. Insurance – North American has been increasing its retention, particularly on casualty business, in order to take advantage of improved market conditions for rates and terms and to reduce reliance on reinsurance.
 
The following two tables provide a line of business and entity/divisional breakdown of Insurance – North American’s net premiums earned for the three and nine months ended September 30, 2004 and 2003.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	  	% of
total
	 	 	2003
	  	% of
total
	 	 	2004
	  	% of
total
	 	 	2003
	  	% of
total
	 	
 	  	(in millions of U.S. dollars)	 	
Property and all Other	  	$	318	  	25	%	 	$	394	  	40	%	 	$	945	  	28	%	 	$	1,057	  	40	%	
Casualty	  	 	872	  	71	%	 	 	562	  	57	%	 	 	2,344	  	69	%	 	 	1,501	  	56	%	
Personal Accident (A&H)	  	 	44	  	4	%	 	 	32	  	3	%	 	 	130	  	3	%	 	 	105	  	4	%	
 	  			  			 			  			 			  			 			  			
Net premiums earned	  	$	1,234	  	100	%	 	$	990	  	100	%	 	$	3,419	  	100	%	 	$	2,663	  	100	%	

42

													
 	  	Three Months Ended
September 30
	  	Nine Months Ended
September 30
	
 	  	2004
	  	2003
	  	2004
	  	2003
	
 	  	(in millions of U.S. dollars)	
ACE USA	  	$	800	  	$	585	  	$	2,192	  	$	1,581	
ACE Westchester Specialty	  	 	332	  	 	302	  	 	912	  	 	783	
ACE Bermuda	  	 	102	  	 	103	  	 	315	  	 	299	
 	  			  			  			  			
Net premiums earned	  	$	1,234	  	$	990	  	$	3,419	  	$	2,663	

ACE USA, which includes ACE operations in Canada, provides a broad array of products and services to corporate and consumer clients throughout the U.S. and Canada through licensed insurance companies. Distribution channels include retail brokers, agents, managing general agents, and managing general underwriters. ACE USA’s net premiums earned increased 37 percent and 39 percent in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. ACE USA’s growth in the current periods was driven by casualty business, where submission levels have been strong. In 2004, casualty lines continue to experience generally more favorable policy terms and conditions and a more favorable rate environment than property business. As a result, ACE USA has experienced increased opportunity to write these lines at adequate margins. ACE USA reported solid growth in excess workers’ compensation (primarily high deductible policies in national accounts business) due to new business and rate increases. ACE USA also experienced strong demand for small business workers’ compensation coverage and umbrella excess coverage as well as professional liability (mainly D&O) and medical coverages. Additionally, net premiums earned benefited from increased retention – ACE USA’s retention ratio increased to 66 percent for the nine months ended September 30, 2004, compared with 58 percent for the same period in 2003.
 
ACE Westchester Specialty specializes in the wholesale distribution of excess and surplus lines property, inland marine and casualty coverage and products. ACE Westchester Specialty also provides coverage for agriculture business and specialty programs through its Program division. ACE Westchester Specialty’s net premiums earned increased 10 percent and 16 percent in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. This increase primarily reflects higher casualty writings as well as increased agriculture coverages, reflecting new business growth. Additionally, due to lower reinsurance costs and the growth in casualty business (which we have been retaining more of due to favorable market conditions), the retention ratio for ACE Westchester Specialty has increased to 53 percent for the nine months ended September 30, 2004, compared with 48 percent for the same period in 2003.
 
ACE Bermuda, which specializes in providing professional lines and excess liability coverage, reported flat net premiums earned in the current quarter and an increase of five percent in the nine months ended September 30, 2004. ACE Bermuda reported growth in excess liability in the current quarter, which was offset by softening rates on professional lines and excess property business. ACE Bermuda’s moderate increase in net premiums earned in the nine months ended September 30, 2004, was primarily due to growth in excess liability and professional lines business on the strength of increased rates and new business primarily written in 2003. As can be seen in the current quarter, rate increases for these lines have slowed in 2004 and in some lines rates are declining, which will impact net premiums earned in future quarters.
 
The loss and loss expense ratio increased 9.9 percentage points and 4.5 percentage points in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. This increase was primarily due to the increased catastrophe charges in the current quarter and to a lesser extent, prior period development. The following table shows the impact of catastrophe charges and prior period development on our loss and loss expense ratio for the three and nine months ended September 30, 2004 and 2003.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
Loss and loss expense ratio, as reported	  	81.8	%	 	71.9	%	 	74.4	%	 	69.9	%	
Catastrophe charges impact	  	10.9	%	 	2.0	%	 	4.0	%	 	0.8	%	
Adverse prior period development impact	  	3.4	%	 	3.0	%	 	2.9	%	 	2.9	%	
 	  			 			 			 			
Loss and loss expense ratio, adjusted	  	67.5	%	 	66.9	%	 	67.5	%	 	66.2	%	

Catastrophe charges in the nine months ended September 30, 2004, and 2003, were $126 million and $20 million, respectively, all occurring in the third quarter of each year. For the three months ended September 30, 2004, the adverse prior period development was $42 million, representing 0.6 percent of $7.2 billion of the segment’s unpaid loss and loss expense reserves at the beginning of the period. The overall adverse experience was the net result of several underlying favorable and adverse movements, the most significant of which are as follows. There was adverse development of approximately $35 million (accident years 2002 and prior) as a consequence of an increase in case reserves following updated claim information received during the quarter for two excess professional lines policies written by ACE Bermuda. In addition, there was approximately $69 million in adverse development in our domestic US run-off operations following completion in the quarter of reserve studies which reflected higher than anticipated actual loss experience.
 
43

The major lines of business impacted were an open market facility writing specialty business ($28 million across accident years 1998-2002), a middle market block of business ($21 million in accident years 2001 and prior), and a block of agents’ errors and omissions business ($20 million in accident years 2000 and prior). The aviation business experienced approximately $24 million of adverse development spread across accident year 2003 and prior whilst the block of guaranteed cost workers compensation business experienced $10 million of adverse development following the completion of periodic reserve studies in the quarter. The held reserves also experienced favorable development. On certain lines offering short-tail coverage there was $83 million of favorable experience arising from lower than anticipated claims experience involving accident years 2002 and 2003. Favorable development of $16 million on accident years 2002 and prior was also experienced on the excess liability book where the actuarial assumptions were revised this quarter to reflect favorable claims emergence relative to expectations. While we perform annual loss reserve studies for all product lines, the timing of such studies vary throughout the year. Additionally, for each product line, we review the emergence of actual losses relative to expectations used in reserving each quarter. If warranted from findings in loss emergence tests, we will accelerate the timing of our product line reserve studies.
 
The remaining increase in the loss and loss expense ratio of 0.6 percentage points and 1.3 percentage points in the three and nine months ended September 30, 2004, was principally the result of casualty lines comprising a higher proportion of net premiums earned in 2004 relative to 2003. Due to their longer claim pay-out duration, casualty lines exhibit a higher loss and loss expense ratio relative to other types of business.
 
The policy acquisition cost ratio decreased in the current periods because the rate increases in policy rates outpaced the rate of increase in policy acquisition costs, such as premium taxes and commission expenses, particularly on casualty lines which constitute a higher proportion of our business in the current periods. Administrative expenses increased 25 percent and 18 percent in the three and nine months ended September 30, 2004, respectively, primarily due to the increased costs associated with servicing the growth in Insurance – North American’s product lines. The administrative expense ratio declined in the nine months ended September 30, 2004, due to an increase in net premiums earned that outpaced the growth in expenses.
 
Insurance – North American reported declines in underwriting income in the current periods primarily due to higher loss and loss expense ratios, partially offset by increases in net premiums earned.
 
44

Insurance - Overseas General
 
The Insurance – Overseas General segment comprises ACE International, our network of indigenous insurance operations, and the insurance operations of ACE Global Markets. The Insurance – Overseas General segment writes a variety of insurance products including property, casualty, professional lines (D&O and E&O), marine, energy, aviation, political risk, consumer-oriented products and A&H – principally being personal accident.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
 	  	(in millions of U.S. dollars)	 	
Net premiums written	  	$	980	 	 	$	872	 	 	$	3,283	 	 	$	2,769	 	
Net premiums earned	  	 	1,086	 	 	 	882	 	 	 	3,196	 	 	 	2,556	 	
Losses and loss expenses	  	 	653	 	 	 	529	 	 	 	1,879	 	 	 	1,541	 	
Policy acquisition costs	  	 	199	 	 	 	170	 	 	 	579	 	 	 	485	 	
Administrative expenses	  	 	139	 	 	 	121	 	 	 	416	 	 	 	356	 	
 	  				 				 				 				
Underwriting income	  	$	95	 	 	$	62	 	 	$	322	 	 	$	174	 	
 	  				 				 				 				
Net investment income	  	 	61	 	 	 	39	 	 	 	164	 	 	 	111	 	
Other (income) expense	  	 	3	 	 	 	3	 	 	 	10	 	 	 	4	 	
Income tax expense	  	 	42	 	 	 	12	 	 	 	154	 	 	 	55	 	
Net realized gains (losses)	  	 	2	 	 	 	4	 	 	 	29	 	 	 	(7	)	
 	  				 				 				 				
Net income	  	$	113	 	 	$	90	 	 	$	351	 	 	$	219	 	
 	  				 				 				 				
Loss and loss expense ratio	  	 	60.1	%	 	 	59.9	%	 	 	58.8	%	 	 	60.3	%	
Policy acquisition cost ratio	  	 	18.3	%	 	 	19.3	%	 	 	18.1	%	 	 	19.0	%	
Administrative expense ratio	  	 	12.8	%	 	 	13.7	%	 	 	13.0	%	 	 	13.9	%	
Combined ratio	  	 	91.2	%	 	 	92.9	%	 	 	89.9	%	 	 	93.2	%	
 
Insurance – Overseas General’s net premiums written increased 12 percent and 19 percent (6 percent and 9 percent adjusting for foreign exchange) in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. This increase was primarily due to growth at ACE International in the current periods. Additionally, Insurance – Overseas General’s current period net premiums written benefited from higher retention of gross premiums written. The retention ratio was 74 percent for the nine months ended September 30, 2004 compared with 72 percent in the same period in 2003.
 
ACE International’s P&C operations are organized geographically along product lines. Property insurance products include traditional commercial fire coverage as well as energy industry-related coverages. Principal casualty products are commercial general liability and liability coverage for multinational organizations. Through our professional lines, we provide D&O and professional indemnity coverages for medium to large clients. The A&H insurance operations provide principally accident coverage to individuals and groups outside of U.S. insurance markets. ACE International’s net premiums written increased 20 percent and 25 percent in the three and nine months ended September 30, 2004, respectively (12 percent adjusting for foreign exchange). Reporting higher premium production across most regions, ACE International recorded net premiums written of $744 million and $2.5 billion in the three and nine months ended September 30, 2004, respectively. ACE International’s increase in net premiums written in the current periods was primarily driven by ACE Europe and ACE Asia Pacific, as both regions reported double-digit growth in P&C and A&H business, due to rising rates and new business. Additionally, ACE Latin America reported growth in A&H business, a result of successful marketing campaigns in Mexico and Brazil.
 
ACE Global Markets primarily underwrites P&C insurance through Lloyd’s Syndicate 2488 and ACE European Group Limited (formerly ACE INA UK Limited). The main lines of business include aviation, property, energy, professional lines, marine, political risk and A&H. ACE Global Markets’ net premiums written declined seven percent to $236 million in the current quarter primarily due to soft market conditions within the property and energy lines. In the nine months ended September 30, 2004, ACE Global Markets reported an increase in net premiums written of two percent to $823 million. Rate increases continue to be obtained on professional lines, A&H, aviation and marine business, however the professional lines market is becoming less favorable and property and energy lines are experiencing rate reductions of approximately 5 and 12 percent, respectively. The recent hurricane activity in the Caribbean and U.S. may have an impact on property rates going forward.
 
45

The following two tables provide a line of business and entity/divisional breakdown of Insurance – Overseas General’s net premiums earned for the current periods.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	  	% of
total
	 	 	2003
	  	% of
total
	 	 	2004
	  	% of
total
	 	 	2003
	  	% of
total
	 	
 	  	(in millions of U.S. dollars)	 	
Property and all Other	  	$	327	  	30	%	 	$	258	  	29	%	 	$	972	  	30	%	 	$	792	  	31	%	
Casualty	  	 	513	  	47	%	 	 	424	  	48	%	 	 	1,518	  	48	%	 	 	1,197	  	47	%	
Personal Accident (A&H)	  	 	246	  	23	%	 	 	200	  	23	%	 	 	706	  	22	%	 	 	567	  	22	%	
 	  			  			 			  			 			  			 			  			
Net premiums earned	  	$	1,086	  	100	%	 	$	882	  	100	%	 	$	3,196	  	100	%	 	$	2,556	  	100	%	

													
 	  	Three Months Ended
September 30
	  	Nine Months Ended
September 30
	
 	  	2004
	  	2003
	  	2004
	  	2003
	
 	  	(in millions of U.S. dollars)	
ACE Europe	  	$	477	  	$	375	  	$	1,435	  	$	1,059	
ACE Asia Pacific	  	 	129	  	 	99	  	 	358	  	 	271	
ACE Far East	  	 	98	  	 	89	  	 	288	  	 	266	
ACE Latin America	  	 	88	  	 	75	  	 	255	  	 	212	
 	  			  			  			  			
ACE International	  	 	792	  	 	638	  	 	2,336	  	 	1,808	
ACE Global Markets	  	 	294	  	 	244	  	 	860	  	 	748	
 	  			  			  			  			
Net premiums earned	  	$	1,086	  	$	882	  	$	3,196	  	$	2,556	

Insurance – Overseas General increased net premiums earned 23 percent and 25 percent in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. Adjusting for the devaluation of the U.S. dollar, Insurance – Overseas General’s net premiums earned increased 15 percent and 16 percent in the three and nine months ended September 30, 2004, respectively. Consistent with the trend in net premiums written, the major driver of growth was ACE Europe which contributed close to 60 percent of Insurance – Overseas General’s increase in net premiums earned in the nine months ended September 30, 2004. ACE Europe has been experiencing several quarters of increased production across most of its product offerings and has also been bolstered by the appreciation of foreign currencies against the U.S. dollar.
 
The loss and loss expense ratio increased 0.2 percentage points in the three months ended September 30, 2004, compared with the same quarter in 2003, primarily due to increased catastrophe charges, partially offset by improved prior period development, compared with the same quarter in 2003. For the nine months ended September 30, 2004, our loss and loss expense ratio decreased 1.5 percentage points, primarily due to favorable development, partially offset by increased catastrophe charges. The following table shows the impact of catastrophe charges and prior period development on our loss and loss expense ratio for the three and nine months ended September 30, 2004 and 2003.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
Loss and loss expense ratio, as reported	  	60.1	%	 	59.9	%	 	58.8	%	 	60.3	%	
Catastrophe charges impact	  	5.5	%	 	1.1	%	 	1.5	%	 	0.4	%	
Adverse (favorable) development impact	  	(0.7	)%	 	4.0	%	 	(0.6	)%	 	1.8	%	
 	  			 			 			 			
Loss and loss expense ratio, adjusted	  	55.3	%	 	54.8	%	 	57.9	%	 	58.1	%	

Catastrophe charges in the nine months ended September 30, 2004, and 2003, were $53 million and $10 million, respectively, all occurring in the third quarter of each year. For the three months ended September 30, 2004, there was favorable prior period development of $8 million which represented 0.2 percent of the $4 billion of the segment’s unpaid loss and loss expense reserves at the beginning of the period. The short-tail property and fire lines showed favorable development of $21 million (primarily from accident year 2003) due to lower than anticipated reporting of claims in the current quarter. This was offset by adverse development of $11 million on European marine business (accident years 2001 to 2003) due to the change in reserving assumptions to lengthen loss development factors given a combination of actual claims emergence in the quarter and a shift in the manner in which we participate in much of this business from primary or lead underwriter to secondary underwriter.
 
46

For the three months ended September 30, 2003, Overseas General incurred adverse prior period development of $35 million. The 2003 development is primarily attributed to ACE International’s casualty and consumer lines.
 
The policy acquisition cost ratio for Insurance – Overseas General improved in the three and nine months ended September 30, 2004, compared with the same periods in 2003. The improvement reflects underwriters’ continued focus on reducing commission charges, with improvements seen particularly within ACE Global Market’s financial lines and A&H divisions, together with changes in business mix. Insurance – Overseas General’s administrative expenses increased 15 percent and 17 percent in the three and nine months ended September 30, 2004, primarily due to the depreciation of the U.S. dollar and increased staff costs at ACE Europe and ACE Asia Pacific. The administrative expense ratio for Insurance – Overseas General improved due to the increase in net premiums earned coupled with a reduction in Lloyd’s charges within ACE Global Markets.
 
Underwriting income increased in the three and nine months ended September 30, 2004, primarily due to the increase in net premiums earned, combined with stable loss and loss expense ratios over the same periods.
 
Global Reinsurance
 
The Global Reinsurance segment comprises ACE Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re Europe, and ACE Tempest Life Re (ACE Life Re). ACE Life Re is our Bermuda-based life reinsurance operation and is addressed separately.
 
47

Property and Casualty Reinsurance

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
 	  	(in millions of U.S. dollars)	 	
Net premiums written	  	$	312	 	 	$	217	 	 	$	1,245	 	 	$	1,005	 	
Net premiums earned	  	 	362	 	 	 	274	 	 	 	1,037	 	 	 	791	 	
Losses and loss expenses	  	 	436	 	 	 	134	 	 	 	769	 	 	 	393	 	
Policy acquisition costs	  	 	65	 	 	 	56	 	 	 	203	 	 	 	153	 	
Administrative expenses	  	 	16	 	 	 	16	 	 	 	50	 	 	 	45	 	
 	  				 				 				 				
Underwriting income (loss)	  	 	(155	)	 	 	68	 	 	 	15	 	 	 	200	 	
 	  				 				 				 				
Net investment income	  	 	31	 	 	 	23	 	 	 	87	 	 	 	63	 	
Other (income) expense	  	 	—  	 	 	 	(1	)	 	 	—  	 	 	 	(2	)	
Income tax expense (benefit)	  	 	(1	)	 	 	3	 	 	 	3	 	 	 	9	 	
Net realized gains (losses)	  	 	2	 	 	 	9	 	 	 	14	 	 	 	36	 	
 	  				 				 				 				
Net income	  	$	(121	)	 	$	98	 	 	$	113	 	 	$	292	 	
 	  				 				 				 				
Loss and loss expense ratio	  	 	120.2	%	 	 	48.9	%	 	 	74.1	%	 	 	49.6	%	
Policy acquisition cost ratio	  	 	18.0	%	 	 	20.4	%	 	 	19.6	%	 	 	19.3	%	
Administrative expense ratio	  	 	4.5	%	 	 	5.7	%	 	 	4.8	%	 	 	5.7	%	
Combined ratio	  	 	142.7	%	 	 	75.0	%	 	 	98.5	%	 	 	74.6	%	
 
Global Reinsurance’s net premiums written increased 44 percent and 24 percent in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. The growth in net premiums written during the current quarter was mainly a result of higher gross premiums written at ACE Tempest Re USA and ACE Tempest Re Europe, $15 million in reinstatement premiums related to the current quarter’s catastrophe charges and higher retention of gross premiums written. Global Reinsurance’s retention ratio was 91 percent in the current quarter, compared with 79 percent in the same quarter in 2003. The majority of the current quarter’s growth was in non-catastrophe P&C lines, while the amount of reinsurance sold for specific catastrophe risks was lower compared with the same quarter in 2003.
 
The following two tables provide a line of business and entity/divisional breakdown of Global Reinsurance’s net premiums earned for the three and nine months ended September 30, 2004 and 2003.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	  	% of
total
	 	 	2003
	  	% of
total
	 	 	2004
	  	% of
total
	 	 	2003
	  	% of
total
	 	
 	  	(in millions of U.S. dollars)	 	
Property and all Other	  	$	105	  	29	%	 	$	75	  	27	%	 	$	281	  	27	%	 	$	226	  	28	%	
Casualty	  	 	168	  	46	%	 	 	110	  	40	%	 	 	504	  	49	%	 	 	272	  	34	%	
Property catastrophe	  	 	89	  	25	%	 	 	89	  	33	%	 	 	252	  	24	%	 	 	293	  	38	%	
 	  			  			 			  			 			  			 			  			
Net premiums earned	  	$	362	  	100	%	 	$	274	  	100	%	 	$	1,037	  	100	%	 	$	791	  	100	%	

													
 	  	Three Months Ended
September 30
	  	Nine Months Ended
September 30
	
 	  	2004
	  	2003
	  	2004
	  	2003
	
 	  	(in millions of U.S. dollars)	
ACE Tempest Re Europe	  	$	77	  	$	55	  	$	227	  	$	187	
ACE Tempest Re USA	  	 	194	  	 	127	  	 	552	  	 	325	
ACE Tempest Re Bermuda	  	 	91	  	 	92	  	 	258	  	 	279	
 	  			  			  			  			
Net premiums earned	  	$	362	  	$	274	  	$	1,037	  	$	791	

Net premiums earned increased 32 percent and 31 percent in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. This increase was driven by growth in non-catastrophe P&C business
 
48

at ACE Tempest Re USA and ACE Tempest Re Europe. Non-catastrophe P&C business has increased steadily over the last several quarters and comprised 76 percent of the net premiums earned in the nine months ended September 30, 2004.
 
ACE Tempest Re USA, which focuses on writing property per risk and casualty reinsurance, reported a 53 percent and 70 percent increase in net premiums earned in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003, primarily due to increased casualty business written and higher renewal rates. ACE Tempest Re Europe, which writes most lines of traditional and non-traditional P&C lines with an orientation towards specialty and short-tail products reported a 40 percent and 21 percent increase in net premiums earned in the three and nine months ended September 30, 2004, respectively. This increase was primarily due to significantly higher casualty writings, and increased retention of business in the current quarter. ACE Tempest Re Bermuda, which principally provides property catastrophe reinsurance globally to insurers of commercial and personal property, reported a one percent and eight percent decrease in net premiums earned in the three and nine months ended September 30, 2004, respectively. ACE Tempest Re Bermuda has been experiencing downward pressure on premium production due to the market-wide decline in rates on property catastrophe business.
 
The loss and loss expense ratio increased 71.3 percentage points and 24.5 percentage points in the three and nine months ended September 30, 2004, respectively. The following table shows the impact of catastrophe charges and prior period development on our loss and loss expense ratio for the three and nine months ended September 30, 2004 and 2003.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
Loss and loss expense ratio, as reported	  	120.2	%	 	48.9	%	 	74.1	%	 	49.6	%	
Catastrophe charges impact	  	74.9	%	 	4.4	%	 	26.1	%	 	5.9	%	
Adverse (favorable) development impact	  	(6.1	)%	 	(1.0	)%	 	(4.6	)%	 	(2.0	)%	
 	  			 			 			 			
Loss and loss expense ratio, adjusted	  	51.4	%	 	45.5	%	 	52.6	%	 	45.7	%	

Catastrophe charges in the nine months ended September 30, 2004, were $278 million, all occurring in the current quarter. This compares with catastrophe charges of $12 million and $47 million in the three and nine months ended September 30, 2003, respectively. For the three months ended September 30, 2004, Global Reinsurance experienced favorable prior period development of $22 million representing 1.8 percent of the segment’s unpaid loss and loss expense reserves at the beginning of the period. The favorable development is primarily related to property and other short-tail lines and resulted from a difference between expected claims emergence pursuant to reserving assumptions used for accident years 2003 and 2002 and actual claims experience reported by ceding companies. For the three months ended September 30, 2003, Global Reinsurance experienced favorable development of $3 million. The 2003 development is principally related to favorable settlement of case reserves on property catastrophe business at ACE Tempest Re Bermuda, certain short-tail property lines at ACE Tempest Re USA, and the aviation line at ACE Tempest Re Europe.
 
The remaining increase in the loss and loss expense ratio was primarily related to the shift in mix of business that has resulted from growth in non-catastrophe P&C business at ACE Tempest Re USA and ACE Tempest Re Europe. Non-catastrophe P&C business typically exhibits higher loss ratios than property catastrophe business (except in periods with high catastrophe charges). As Global Reinsurance increases non-catastrophe P&C writing, we expect its loss and loss expense ratio to continue to increase in line with what would be expected from a traditional multi-line reinsurer.
 
Global Reinsurance’s policy acquisition cost ratio declined in the current quarter, primarily due to reductions at ACE Tempest Re UK and ACE Tempest Re Bermuda. ACE Tempest Re UK’s policy acquisition ratio declined due to a variation in the mix of policies compared to the prior year, while ACE Tempest Re Bermuda had non-renewals of two treaties with relatively high-acquisition cost treaties. For the nine months ended September 30, 2004, Global Reinsurance’s policy acquisition ratio increased due to the higher proportion of business generated from ACE Tempest Re USA, relative to ACE Tempest Re Europe and ACE Tempest Re Bermuda. ACE Tempest Re USA’s business is written more on a pro-rata basis (versus excess-of-loss), which incurs higher acquisition costs due to the higher level of ceding commissions paid. Administrative expenses increased in the three and nine months ended September 30, 2004, primarily due to higher staffing costs to support growth in business at ACE Tempest Re USA. The administrative expense ratio decreased due to increased net premiums earned.
 
In the current quarter Global Reinsurance reported an underwriting loss of $155 million. Underwriting income declined 93 percent in the nine months ended September 30, 2004. The deterioration in the current periods is a result of the catastrophe charges discussed above, partially offset by higher net premiums earned, and the increased favorable prior period
 
49

development. Foreign exchange did not have a material impact on Global Reinsurance’s underwriting (loss) income in the three and nine months ended September 30, 2004
 
Life Reinsurance
 
ACE Life Re principally provides reinsurance coverage to other life insurance companies, focusing on guarantees included in certain fixed and variable annuity products. We do not compete on a traditional basis for pure mortality business. The reinsurance transactions we undertake typically help clients – ceding companies – to manage mortality, morbidity, investment, and/or lapse risks embedded in their book of business. We price life reinsurance using actuarial and investment models that incorporate a number of factors, including assumptions for mortality, morbidity, expenses, demographics, persistency, investment returns and inflation. We assess the performance of our life reinsurance business based on life underwriting income which includes net investment income.

 	  	Three Months Ended
September 30
	  	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	  	2004
	 	 	2003
	 	
 	  	(in millions of U.S. dollars)	 	
Net premiums written	  	$	59	 	 	$	47	  	$	165	 	 	$	138	 	
Net premiums earned	  	 	60	 	 	 	46	  	 	165	 	 	 	136	 	
Life and annuity benefits	  	 	48	 	 	 	45	  	 	134	 	 	 	137	 	
Policy acquisition costs	  	 	6	 	 	 	5	  	 	17	 	 	 	11	 	
Administrative expenses	  	 	1	 	 	 	—  	  	 	3	 	 	 	2	 	
Net investment income	  	 	8	 	 	 	10	  	 	24	 	 	 	25	 	
 	  				 			  				 				
Life underwriting income	  	 	13	 	 	 	6	  	 	35	 	 	 	11	 	
Net realized gains (losses)	  	 	(37	)	 	 	1	  	 	(47	)	 	 	(10	)	
 	  				 			  				 				
Net income (loss)	  	$	(24	)	 	$	7	  	$	(12	)	 	$	1	 	

Life underwriting income improved in the three and nine months ended September 30, 2004, compared with the same periods in 2003, primarily due to the increase in net premiums earned, combined with stable life and annuity benefits. Net premiums earned increased in the current periods primarily due to higher variable annuity production. Life and annuity benefits were stable due to the increased proportion of premium volume from variable annuity products, which typically have lower expected benefit pay-outs than other business. Net income decreased in the three and nine months ended September 30, 2004, due to the large net realized loss in the current quarter. The net realized loss was primarily a result of the decline in interest rates during the current quarter, which required a fair value adjustment of the derivative component of certain variable annuity products.
 
Financial Services
 
The Financial Services segment consists of our financial solutions business and our proportionate share of Assured Guaranty’s earnings; which is 100 percent through April 28, 2004 and 34.7 percent thereafter. The financial solutions operations provide one-off insurance and reinsurance solutions to clients with unique or complex risks, which are not adequately addressed in the traditional insurance market. Each financial solutions contract is structured to meet the needs of each client. Assured Guaranty provides credit enhancement products to the municipal finance, structured finance and mortgage markets.
 
Certain products (principally credit protection oriented) issued by the Financial Services segment have been determined to meet the definition of a derivative under FAS 133. For more information see the “Critical Accounting Estimates” section in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2003.
 
From April 29, 2004, our proportionate share of Assured Guaranty’s earnings is reflected in “Other (income) expense” in our consolidated income statement. The equity pick-up from Assured Guaranty for the three and nine months ended September 30, 2004, was $22 million and $30 million, respectively.
 
50

																	
 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
 	  	(in millions of U.S. dollars)	 	
Net premiums written	  	$	68	 	 	$	105	 	 	$	290	 	 	$	763	 	
Net premiums earned	  	 	111	 	 	 	205	 	 	 	424	 	 	 	629	 	
Losses and loss expenses	  	 	116	 	 	 	144	 	 	 	291	 	 	 	466	 	
Policy acquisition costs	  	 	2	 	 	 	17	 	 	 	22	 	 	 	45	 	
Administrative expenses	  	 	4	 	 	 	22	 	 	 	38	 	 	 	60	 	
 	  				 				 				 				
Underwriting income (loss)	  	$	(11	)	 	$	22	 	 	$	73	 	 	$	58	 	
 	  				 				 				 				
Net investment income	  	 	29	 	 	 	49	 	 	 	118	 	 	 	149	 	
Other (income) expense	  	 	(22	)	 	 	1	 	 	 	(11	)	 	 	—  	 	
Interest expense	  	 	2	 	 	 	2	 	 	 	5	 	 	 	5	 	
Income tax expense	  	 	—  	 	 	 	17	 	 	 	31	 	 	 	54	 	
Net realized gains (losses)	  	 	(3	)	 	 	29	 	 	 	(30	)	 	 	98	 	
 	  				 				 				 				
Net income	  	$	35	 	 	$	80	 	 	$	136	 	 	$	246	 	
 	  				 				 				 				
Loss and loss expense ratio	  	 	104.7	%	 	 	70.2	%	 	 	68.6	%	 	 	74.0	%	
Policy acquisition cost ratio	  	 	2.3	%	 	 	8.7	%	 	 	5.3	%	 	 	7.2	%	
Administrative expense ratio	  	 	2.7	%	 	 	10.6	%	 	 	8.8	%	 	 	9.6	%	
Combined ratio	  	 	109.7	%	 	 	89.5	%	 	 	82.7	%	 	 	90.8	%	
 
Financial Services reported decreases in net premiums written of 35 percent and 62 percent in the three and nine months ended September 30, 2004, respectively, compared with the same periods in 2003. The decline was primarily a result of the sale of Assured Guaranty, as the second and third quarters of 2004 did not include net premiums written from Assured Guaranty (April 2004 production was offset by the effect of an inter-company reinsurance transaction which resulted in the transfer of unearned premium reserves to the Global Reinsurance segment), while net premiums written from financial guaranty business over the same period in 2003 was $230 million. The current quarter’s rate of decline was less than the nine month period due to the financial solutions unit which increased net premiums written by $73 million in the current quarter. The decrease in this segment’s net premiums written in the nine months ended September 30, 2004, also reflects the first quarter non-renewal of certain financial solutions business and the reversal of unearned premium reserves and related premiums written in connection with the termination of equity CDO business. With respect to the financial solutions business, premium volume can vary significantly from period to period and therefore premiums written in any one period are not indicative of premiums to be written in future periods.
 
The Financial Services segment reported an increase in underwriting income of 26 percent in the nine months ended September 30, 2004, including an underwriting loss of $11 million in the current quarter. The underwriting loss in the current quarter was primarily a result of a higher loss and loss expense ratio, primarily due to the catastrophe charges which contributed $11 million to the current quarter’s underwriting loss. Additionally, Assured Guaranty contributed underwriting income of $16 million in the three months ended September 30, 2003, compared with nil in the current quarter. The nine months ended September 30, 2004, were also impacted by the sale of Assured Guaranty but to a lesser extent as the company was not sold until the second quarter and the impact of the sale was partially offset by improved financial solutions underwriting income in the second quarter of 2004.
 
For the three and nine months ended September 30, 2004, Financial Services experienced favorable prior period development of $14 million and $21 million, respectively, representing 0.6 percent and 0.7 percent of the segment’s unpaid loss and loss expense reserves at the beginning of each respective period. For the three months ended September 30, 2004, the favorable development of $14 million is principally attributed to a multi-year claims-made insurance policy for which it was determined that certain claims previously recognized in 2003 and 2002 would fall below policy attachment points. The additional favorable development for the nine months ended September 30, 2004 is attributed to the receipt of ceding company reports updating claims information on a large high excess of loss assumed multi-year contract partially offset by adverse development on two smaller contracts.
 
51

Net Investment Income

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	  	2003
	 	 	2004
	  	2003
	 	
 	  	(in millions of U.S. dollars)	 	
Insurance – North American	  	$	120	  	$	98	 	 	$	331	  	$	300	 	
Insurance – Overseas General	  	 	61	  	 	39	 	 	 	164	  	 	111	 	
Global Reinsurance – P&C	  	 	31	  	 	23	 	 	 	87	  	 	63	 	
Global Reinsurance – Life	  	 	8	  	 	10	 	 	 	24	  	 	25	 	
Financial Services	  	 	29	  	 	49	 	 	 	118	  	 	149	 	
Corporate and Other	  	 	3	  	 	(3	)	 	 	2	  	 	(15	)	
 	  			  				 			  				
Net investment income	  	$	252	  	$	216	 	 	$	726	  	$	633	 	

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 changes in overall asset allocation. Net investment income increased 17 percent and 15 percent in the three and nine months ended September 30, 2004, compared with the same periods in 2003. The increased net investment income was primarily due to the positive operating cash flows during 2003 and the nine months ended September 30, 2004 that has resulted in a higher average invested asset base. The annualized average market yield on fixed maturities was 4.0 percent at September 30, 2004.
 
Net Realized Gains (Losses)
 
Our investment strategy takes a long-term view, and our investment portfolio is actively managed to maximize total return within certain specific guidelines, designed to minimize risk. Our investment portfolio is reported at fair value. The effect of market movements on our investment portfolio impact income (through net realized gains (losses)) when securities are sold, when “other than temporary” impairments are recorded on invested assets or through the reporting of derivatives at fair value, including financial futures and options, interest rate swaps, GMIB reinsurance, and credit-default swaps. Changes in unrealized appreciation and depreciation on available-for-sale securities, which result from the revaluation of securities held, are reported as a separate component of accumulated other comprehensive income in shareholders’ equity.
 
The following table presents our pre-tax net realized gains (losses) for the three and nine months ended September 30, 2004 and 2003.

 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
 	  	(in millions of U.S. dollars)	 	
Fixed maturities and short-term investments	  	$	19	 	 	$	16	 	 	$	67	 	 	$	77	 	
Equity securities	  	 	7	 	 	 	1	 	 	 	75	 	 	 	(53	)	
Other investments	  	 	(10	)	 	 	(2	)	 	 	(21	)	 	 	(13	)	
Currency	  	 	1	 	 	 	3	 	 	 	(2	)	 	 	18	 	
Financial futures, options and interest rate swaps	  	 	(6	)	 	 	13	 	 	 	23	 	 	 	19	 	
Fair value adjustment on insurance derivatives	  	 	(44	)	 	 	26	 	 	 	(75	)	 	 	76	 	
 	  				 				 				 				
Subtotal derivatives	  	 	(50	)	 	 	39	 	 	 	(52	)	 	 	95	 	
 	  				 				 				 				
Total net realized gains (losses)	  	$	(33	)	 	$	57	 	 	$	67	 	 	$	124	 	

Consistent with our investment objectives and the classification of our investment portfolio as available for sale, subject to guidelines as to asset classes, credit quality, and liquidity approved by our Finance Committee, our investment managers generally have the ability to sell fixed maturity, short-term, or equity investments when they determine that an alternative security with comparable risks is likely to provide a higher investment return, considering the realized gain or loss on sale and differential in future investment income. Often, sales of individual securities occur when investment managers conclude there are changes in the credit quality of a particular security or, for other reasons, market value is apt to deteriorate. Further, we may sell securities when we conclude it is prudent to reduce a concentration to a particular issuer or industry. Therefore, sales volume may increase in a volatile credit market in which credit spreads and thus the market value of fixed maturity investments are subject to significant changes in a short period of time. The interest rate environment will tend to have a limited effect on sales volume but extreme conditions could have an affect on the magnitude of realized gains or losses. For example, in a declining rate environment, the market value of securities increase resulting in a greater likelihood of net
 
52

realized gains and we would tend to reduce the average duration of our fixed maturity investment portfolio whereas an increasing rate environment would tend to have the opposite effect. The effect of a high level of realized losses or gains for a particular period will tend to be offset by increases or decreases in investment income, respectively, in subsequent periods. From a liquidity perspective, our greatest risk is that we could be forced to sell a large volume of securities at a loss (i.e., in a high interest rate environment) to meet operating needs and are thus unable to reinvest proceeds to recoup such losses with future investment income (see section entitled “Liquidity and Capital Resources” for more information).
 
FAS 133 requires us to recognize all derivatives as either assets or liabilities on our consolidated balance sheet, and measure them at fair value. We record the gains and losses resulting from the fair value measurement of derivatives in net realized gains (losses). We participate in derivative instruments in two principal ways as follows: i) to offer protection to others as the seller or writer of the derivative, such as our credit derivatives business and reinsurance of guaranteed minimum income benefits (GMIBs) that are treated as derivatives for accounting purposes; or ii) to mitigate our own risk, principally arising from our investment holdings. We do not consider either type of transaction to be speculative. We recorded net realized losses of $50 million and $52 million, in the three and nine months ended September 30, 2004, respectively, on all derivative transactions, compared with net realized gains of $39 million and $95 million in the same periods in 2003.
 
With respect to our credit derivatives and GMIB reinsurance businesses (insurance derivatives), we record a portion of the change in fair value in unpaid loss and loss expenses and future policy benefits for life and annuity contracts, respectively, representing our best estimate of loss pay-outs related to fees or premiums earned, and a portion in net realized gains (losses), representing other changes in fair value. The fair value adjustment included in net realized gains (losses) in the three and nine months ended September 30, 2004, were net realized losses of $44 million and $75 million, respectively, compared with net realized gains of $26 million and $76 million in the same periods in 2003. In 2004, the change in fair value was related to many factors including a loss of approximately $25 million related to the reversal of unrealized gains upon the termination of several credit default swaps. These credit default swaps were covering the equity layer of synthetic CDOs written by our financial solutions business. The unrealized losses were generally offset by increases in net premiums earned. In addition, net realized losses of $41 million and $51 million were reported for GMIB reinsurance in the three and nine months ended September 30, 2004, respectively. This was principally a result of a decrease in interest rates in the third quarter that increased the related fair value liability. In addition to affecting the fair value of guaranties on in-force annuities, interest rate changes also affect the fair value of new annuities attaching to GMIB reinsurance treaties during the current period because they are priced using interest rates prevalent at the inception of the treaty. Based on in-force annuities covered by GMIB reinsurance treaties at September 30, 2004, we estimate that a 50 basis points decline in interest rates would result in an unrealized loss of approximately $40 million. Similarly, we estimate that a one percent decline in the Standard and Poor’s (S&P) Index would result in an unrealized loss of approximately $6 million. These estimated changes in fair value would be recorded as net realized losses in our net income. The gain or loss created by the estimated fair value adjustment will rise or fall each period based on estimated market pricing and may not be an indication of ultimate claims. Fair value is defined as the amount at which an asset or liability could be bought or sold in a current transaction between willing parties. We generally plan to hold derivative financial instruments to maturity. Where we hold derivative financial instruments to maturity, these fair value adjustments would generally be expected to reverse resulting in no gain or loss over the entire term of the contract. However, in the event that we terminate a derivative contract prior to maturity, as a result of a decision to exit a line of business or for risk management purposes, the difference between the final settlement of cash inflows and outflows and financial statement accruals for premiums and losses will be reflected as premiums earned and losses incurred, respectively. Additionally, at termination, any unrealized gain or loss, previously classified as a realized gain or loss, will be reversed and classified as a realized loss or gain, respectively.
 
A net realized loss of $6 million and a net realized gain of $23 million were recorded on financial futures and option contracts and interest rate swaps in the three and nine months ended September 30, 2004, respectively, compared with net realized gains of $13 million and $19 million in the same periods in 2003. We recorded a net realized loss of $4 million and a net realized gain of $9 million on interest rate swaps in the three and nine months ended September 30, 2004, respectively, compared with a net realized gain of $5 million and a net realized loss of $9 million in the same periods in 2003. The interest rate swaps are designed to reduce the negative impact of increases in interest rates on our fixed maturity portfolio. We recorded a net realized loss of $2 million and a net realized gain of $2 million in the three and nine months ended September 30, 2004, respectively, on our S&P equity index futures contracts as the S&P 500 equity index decreased 1.9 percent and increased 1.5 percent during these periods. We use foreign currency forward contracts to minimize the effect of fluctuating foreign currencies on certain non-U.S. dollar holdings in our portfolio that are not specifically matching foreign currency liabilities. These contracts are not designated as specific hedges and, in accordance with FAS 133, we record all realized and unrealized gains and losses on these contracts as net realized gains (losses) in the period in which the currency values change.
 
We regularly review our investment portfolio for possible impairment based on criteria including economic conditions, credit loss experience and issuer-specific developments. If there is a decline in a security’s net realizable value, we must determine whether that decline is temporary or “other than temporary”. If we believe a decline in the value of a particular investment is temporary, we record it as an unrealized loss in our shareholders’ equity. If we believe the decline is “other than temporary”, we write down the carrying value of the investment and record a net realized loss in our statement of operations. The decision to recognize a decline in the value of a security carried at fair value as “other than temporary” rather than temporary
 
53

has no impact on our book value. Once a security is identified as having a potential “other than temporary” impairment, we determine whether or not cost will ultimately be recovered and whether we have the intent and ability to hold the security until an expected recovery period, absent a significant change in facts that is expected to have a material adverse financial effect on the issuer.
 
Our net realized gains (losses) in the nine months ended September 30, 2004, included write-downs of $15 million related to fixed maturity investments, $5 million related to equity securities and $10 million related to other investments, as a result of conditions which caused us to conclude the decline in fair value of the investment was “other than temporary”. The nine months ended September 30, 2003, included write-downs of $25 million related to fixed maturity investments, $61 million related to equity securities and $20 million related to other investments.
 
The process of determining whether a decline in value is temporary or “other than temporary” requires considerable judgment and differs depending on whether or not the security is traded on a public market as well as by type of security. For more information on our process for reviewing our investments for possible impairment, see the “Net Realized Gains (Losses)” section in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2003.
 
See Note 5 to the Interim Consolidated Financial Statements for a table which summarizes for all securities in an unrealized loss position at September 30, 2004 (including securities on loan), the aggregate fair value and gross unrealized loss by length of time the amounts have continuously been in an  unrealized loss position.
 
Other Income and Expense

 	  	Three Months Ended
September 30
	  	Nine Months Ended
September 30
	 	
 	  	2004
	 	 	2003
	  	2004
	 	 	2003
	 	
 	  	(in millions of U.S. dollars)	 	
Equity in net income of unconsolidated entities	  	$	(21	)	 	$	—  	  	$	(31	)	 	$	(5	)	
Minority interest in net income of consolidated entities	  	 	(1	)	 	 	3	  	 	11	 	 	 	7	 	
Goodwill impairment	  	 	1	 	 	 	—  	  	 	14	 	 	 	6	 	
Compensation expense relating to IPO	  	 	—  	 	 	 	—  	  	 	8	 	 	 	—  	 	
 	  				 			  				 				
Other (income) expense	  	$	(21	)	 	$	3	  	$	2	 	 	$	8	 	

The three and nine months ended September 30, 2004, includes equity in net income of subsidiary of $22 million and $30 million, respectively, from Assured Guaranty, which was offset by $8 million in compensation expense in connection with the settlement of ACE stock awards held by the employees of Assured Guaranty. Additionally, we recognized goodwill impairments of $13 million primarily as a result of a review conducted during the first quarter of 2004 and $1 million as a result of a profitability review performed during the current quarter, when it was determined that current expectations for future profitability of our wholly owned administration company were not sufficient to support a portion of the current carrying amount of goodwill.
 
Investments and Cash
 
Our principal investment objective is to ensure that funds are available to meet our insurance and reinsurance obligations. Within this broad liquidity constraint, the purpose of our investment portfolio’s structure is to maximize total return subject to specifically approved guidelines of overall asset classes, credit quality, and liquidity and volatility of expected returns. Our investment portfolio is invested primarily in fixed income securities with an average credit quality of AA, as rated by the independent investment rating service S&P. The portfolio is externally managed by independent, professional, investment managers. The average duration of our fixed income securities was 3.4 years at September 30, 2004, and December 31, 2003. Our “Other investments” principally comprise direct investments, investments in investment funds and investments in limited partnerships.
 
54

The following table identifies our invested assets by type held at fair value and cost/amortized cost at September 30, 2004 and December 31, 2003.

 	  	September 30, 2004
	  	December 31, 2003
	
 	  	Fair
Value
	  	Cost/
Amortized Cost
	  	Fair
Value
	  	Cost/
Amortized Cost
	
 	  	(in millions of U.S. dollars)	
Fixed maturities	  	$	20,791	  	$	20,325	  	$	18,645	  	$	18,006	
Securities on loan	  	 	1,044	  	 	1,000	  	 	684	  	 	650	
Short-term investments	  	 	3,360	  	 	3,360	  	 	2,928	  	 	2,928	
Cash	  	 	626	  	 	626	  	 	562	  	 	562	
 	  			  			  			  			
 	  	 	25,821	  	 	25,311	  	 	22,819	  	 	22,146	
Equity securities	  	 	960	  	 	849	  	 	544	  	 	401	
Other investments	  	 	1,228	  	 	1,159	  	 	645	  	 	602	
 	  			  			  			  			
Total investments and cash	  	$	28,009	  	$	27,319	  	$	24,008	  	$	23,149	

We also gain exposure to equity markets through the use of derivative instruments. The combined equity exposure through both our equity portfolio and derivative instruments was valued at $1.1 billion at September 30, 2004, compared with $662 million at December 31, 2003. The increase of $4 billion in total investments and cash is due to positive cash flows from operations as a result of strong premium volume, increased securities lending collateral and unrealized gains on the portfolio. Additionally, “Other investments” includes our 34.7 percent ($509 million) equity interest in Assured Guaranty. The increase was partially offset by a decline in invested assets due to the sale of Assured Guaranty.
 
The following tables show the market value of our fixed maturities, short-term investments, securities on loan and cash at September 30, 2004 and December 31, 2003. The first table lists elements according to type, and the second according to S&P credit rating.

 	  	September 30, 2004
	 	 	December 31, 2003
	 	
 	  	Market Value
	  	Percentage of
Total
	 	 	Market Value
	  	Percentage of
Total
	 	
 	  	(in millions of
U.S. dollars)	  	 	 	 	(in millions of
U.S. dollars)	  	 	 	
Treasury	  	$	1,491	  	5.8	%	 	$	1,715	  	7.5	%	
Agency	  	 	1,506	  	5.8	%	 	 	1,512	  	6.6	%	
Corporate	  	 	7,418	  	28.7	%	 	 	6,304	  	27.6	%	
Mortgage-backed securities	  	 	4,940	  	19.1	%	 	 	3,894	  	17.1	%	
Asset-backed securities	  	 	958	  	3.7	%	 	 	737	  	3.2	%	
Municipal	  	 	591	  	2.3	%	 	 	1,445	  	6.3	%	
Non-U.S.	  	 	4,955	  	19.2	%	 	 	3,723	  	16.3	%	
Cash and short-term investments	  	 	3,962	  	15.4	%	 	 	3,489	  	15.4	%	
 	  			  			 			  			
Total	  	$	25,821	  	100	%	 	$	22,819	  	100	%	

													
 	  	Market Value
	  	Percentage of
Total
	 	 	Market Value
	  	Percentage of
Total
	 	
 	  	(in millions of
U.S. dollars)	  	 	 	 	(in millions of
U.S. dollars)	  	 	 	
AAA	  	$	13,250	  	51.3	%	 	$	12,315	  	54.0	%	
AA	  	 	4,146	  	16.1	%	 	 	3,389	  	14.8	%	
A	  	 	4,378	  	17.0	%	 	 	3,534	  	15.5	%	
BBB	  	 	2,248	  	8.7	%	 	 	1,783	  	7.8	%	
BB	  	 	752	  	2.9	%	 	 	709	  	3.1	%	
B	  	 	994	  	3.8	%	 	 	1,029	  	4.5	%	
Other	  	 	53	  	0.2	%	 	 	60	  	0.3	%	
 	  			  			 			  			
Total	  	$	25,821	  	100	%	 	$	22,819	  	100	%	

In accordance with our investment process, we invest in below-investment grade securities through dedicated investment portfolios managed by external investments managers that have investment professionals specifically dedicated to this asset class. At September 30, 2004, our fixed income investment portfolio included below-investment grade securities and non-rated securities which, in total, comprised approximately seven percent of our fixed income portfolio. We define a security as being below-investment grade if it has an S&P credit rating of BB or less. Our below investment-grade and non-rated portfolio includes approximately 500 names, with the top 15 holdings making up approximately 12 percent of the $1.9 billion
 
55

balance at September 30, 2004. The highest single exposure in this portfolio of securities is $22 million. Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions such as recession or increasing interest rates, than are investment grade issuers. We reduce the overall risk in the below-investment grade portfolio, as in all investments, through careful credit analysis, strict investment policy guidelines, and diversification by issuer and/or guarantor as well as by industry.
 
Unpaid Losses and Loss Expenses
 
We establish reserves for the estimated unpaid ultimate liability for losses and loss expenses under the terms of our policies and agreements. These reserves take into account estimates both for claims that have been reported and for IBNR, and include estimates of expenses associated with processing and settling claims. The table below presents a rollforward of our unpaid losses and loss expenses for the nine months ended September 30, 2004.

 	  	Gross
Losses
	 	 	Reinsurance
Recoverable
	 	 	Net
Losses
	 	
 	  	(in millions of U.S. dollars)	 	
Balance at December 31, 2003	  	$	27,155	 	 	$	13,192	 	 	$	13,963	 	
Losses and loss expenses incurred	  	 	8,060	 	 	 	2,559	 	 	 	5,501	 	
Losses and loss expenses paid	  	 	(5,523	)	 	 	(2,453	)	 	 	(3,070	)	
Sale of Assured Guaranty	  	 	(456	)	 	 	(103	)	 	 	(353	)	
Other (including foreign exchange revaluation) (1)	  	 	367	 	 	 	427	 	 	 	(60	)	
 	  				 				 				
Balance at September 30, 2004	  	$	29,603	 	 	$	13,622	 	 	$	15,981	 	

(1)	Other includes approximately $220 million of gross losses and $140 million of reinsurance recoverable related to ACE increasing its participation in the Lloyds syndicate to 100 percent	
 
The process of establishing reserves for claims can be complex and imprecise as it requires the use of informed estimates and judgments. Our estimates and judgments may be revised as claims develop; as additional experience and other data become available; as new or improved methodologies are developed; and as current laws change. The following table shows our total reserves segregated between case reserves and IBNR reserves.

 	  	September 30, 2004
	  	December 31, 2003
	
 	  	Gross
	  	Ceded
	  	Net
	  	Gross
	  	Ceded
	  	Net
	
 	  	(in millions of U.S. dollars)	
Case reserves	  	$	13,385	  	$	5,669	  	$	7,716	  	$	13,252	  	$	5,916	  	$	7,336	
IBNR	  	 	16,218	  	 	7,953	  	 	8,265	  	 	13,903	  	 	7,276	  	 	6,627	
 	  			  			  			  			  			  			
Total	  	$	29,603	  	$	13,622	  	$	15,981	  	$	27,155	  	$	13,192	  	$	13,963	

We continually evaluate our reserve estimates taking into account new information and discussion and negotiation with our insureds. While we believe our reserve for unpaid losses and loss expenses at September 30, 2004 is adequate, new information or trends, such as judicial action broadening the scope of coverage or expanding liability, may lead to future developments in ultimate losses and loss expenses significantly greater or less than the reserve provided, which could have a material adverse effect on future operating results. Particularly significant variables for which a change in assumption could have a material effect on unpaid losses and loss expenses include, but are not limited to, the following:
 
Insurance - North American Segment
 
Given the long reporting and paid development pattern, the tail factors used to project actual current losses to ultimate losses for claims covered by our middle market workers’ compensation policies require considerable judgment that could be material to consolidated losses and loss expense reserves. Specifically, a one percent change in the tail factor could cause approximately a $43 million change, either positively or negatively, for the selected net loss and loss expense ultimate for that segment. We believe that our selected tail factors represent the most likely loss development based on historical loss payment patterns of this and other comparable long-tail lines of business as well as the current legal and economic environment. The actual tail factor could vary by several percentage points from the tail factor selected. Because tail factors are stated in terms of decimals (e.g., 1.125) and often, the actuary’s choice regarding reasonably supportable tail factors range within percentages of each other, the realistic change in tail factors can be expressed in percentage points.
 
56

Insurance – Overseas General
 
Certain international long tail lines, such as casualty and professional lines, are particularly susceptible to changes in loss trend and claim inflation. Heightened perceptions of tort and settlement awards around the world are increasing the demand for these products as well as contributing to the uncertainty of the reserving estimates. Our reserving methods rely heavily on loss development patterns estimated from historical data and while we attempt to adjust such factors for known changes in the current tort environment, it is possible that such factors may not entirely reflect all recent trends in tort environments. For example, a three month delay of our selected loss development patterns could increase reserve estimates on long tail casualty and professional lines by approximately $69 million.
 
Global Reinsurance
 
Typically there is inherent uncertainty around the length of paid and reporting development patterns, especially for certain casualty lines such as excess workers compensation or general liability which may take up to 30 years to fully develop. This uncertainty is accentuated by the need to supplement client development patterns with industry development patterns as justified by the credibility of the data. The underlying source and selection of the final development pattern can thus have a significant impact on the selected net loss and loss expense ultimate. For example, a 10 percent slowing or quickening of the development pattern for certain long-tail lines could cause the ultimate loss derived by the Bornhuetter-Ferguson method to increase by as much as 5 percent, or $30 million.
 
Assumed Reinsurance
 
At September 30, 2004, unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $1.6 billion, consisting of $330 million of case reserves and $1.3 billion of incurred but not reported loss reserves.
 
Prior to 2000, our reinsurance operations had been concentrated in the property catastrophe reinsurance market. For catastrophe business, we principally estimate unpaid losses and loss expenses on an event basis by considering various sources of information including specific loss estimates reported by our cedants, ceding company and overall industry loss estimates reported by our brokers, and our internal data regarding reinsured exposures related to the geographical location of the event. The latter internal analysis enables us to establish catastrophe reserves for known events with more certainty at an earlier date than would be the case if we solely relied on reports from third parties to determine carried reserves.
 
In 2000, we began writing casualty lines of reinsurance in the United States, and to a lesser extent, Europe, Asia, and Australia. Given the long-tail nature of this business, these new lines have both increased the amount of reserves in the Global Reinsurance segment as well as the uncertainty in the loss estimation process. For our casualty reinsurance business, we generally rely on ceding companies to report claims and then use that data as a key input to estimate unpaid losses and loss expenses. Due to the reliance on claims information reported by ceding companies, as well as other factors, the estimation of unpaid losses and loss expenses for assumed reinsurance includes certain risks and uncertainties that are unique relative to our direct insurance business. These include, but are not necessarily limited to, the following:
 
 	•	The reported claims information could be inaccurate.	
 
 	•	Typically a lag exists between the reporting of a loss event to a ceding company and its reporting to us as a reinsurance claim. The use of a broker to transmit financial information from a ceding company to us increases the reporting lag. Because most of our reinsurance business is produced by brokers, ceding companies generally first submit claim and other financial information to brokers who then report the proportionate share of such information to each reinsurer of a particular treaty. The reporting lag generally results in a longer period of time between the date a claim is incurred and the date a claim is reported compared to direct insurance operations. Therefore, the risk of delayed recognition of loss reserve development is higher for assumed reinsurance than for direct insurance lines.	
 
 	•	The historical claims data for a particular reinsurance agreement can be limited relative to our insurance business in that there may be less historical information available. Additionally, for many coverages, such as excess of loss contracts, there may be relatively few expected claims in a particular year so the actual number of claims may be susceptible to significant variability. In such cases, the actuary often relies on industry data from several recognized sources.	
 
We mitigate the above risks in several ways. In addition to routine analytical reviews of ceding company reports to ensure reported claims information appears reasonable, we perform regular underwriting and claims audits of certain ceding companies to ensure reported claims information is accurate, complete, and timely. As appropriate, audit findings are used to adjust claims in the reserving process. We also use our knowledge of the historical development of losses from individual ceding companies to adjust the level of adequacy we believe exists in the reported ceded losses.
 
Within the Insurance – North American segment, we also have exposure to certain liability reinsurance lines that have been in run-off since 1994. Unpaid losses and loss expenses relating to this run-off reinsurance business resides within the Brandywine Division of our Insurance – North American segment. Most of the remaining unpaid losses and loss expense reserves for the run-off reinsurance business relate to asbestos and environmental claims. (See section entitled “Asbestos and Environmental Claims for more information)
 
57

Asbestos and Environmental Claims
 
Included in our liabilities for losses and loss expenses are amounts for A&E. These A&E liabilities principally relate to claims arising from remediation costs associated with hazardous waste sites and bodily-injury claims related to asbestos products and environmental hazards. The estimation of these liabilities is particularly sensitive to the recent legal environment, including specific settlements that may be used as precedents to settle future claims. These amounts include provision for both reported and IBNR claims.
 
The table below presents selected loss reserve data for A&E exposures at September 30, 2004 and December 31, 2003.

 	  	September 30,
2004
	  	December 31,
2003
	
 	  	Gross
	  	Net
	  	Gross
	  	Net
	
 	  	(in millions of U.S. dollars)	
Asbestos	  	$	2,730	  	$	172	  	$	3,026	  	$	300	
Environmental and other latent exposures	  	 	1,007	  	 	155	  	 	1,148	  	 	250	
 	  			  			  			  			
Total	  	$	3,737	  	$	327	  	$	4,174	  	$	550	

Paid losses in the nine months ended September 30, 2004 for asbestos claims were $300 million on gross reserves and $131 million on net reserves. Foreign exchange revaluation decreased the gross asbestos reserve by $2 million and increased the net reserve by $1 million in 2004. Environmental and other latent exposure claim payments were $141 million on gross reserves and $95 million on net reserves in the nine months ended September 30, 2004. The gross and net reserves for asbestos at December 31, 2003 were increased to reflect a reclassification of pre-1987 asbestos claims from general liability reserves for comparative purposes.
 
Our exposure to A&E claims principally arises out of liabilities acquired when we purchased Westchester Specialty in 1998 and the P&C business of CIGNA in 1999, with the larger exposure contained within the liabilities acquired in the CIGNA transaction. In 1996, prior to our acquisition of the P&C business of CIGNA, the Pennsylvania Insurance Commissioner approved a plan to restructure INA Financial Corporation and its subsidiaries which included a division of Insurance Company of North America (“INA”) into two separate corporations: (1) an active insurance company that retained the INA name and continued to write property-casualty business and (2) an inactive run-off company, now called Century Indemnity Company (“Century”), that succeeded to the A&E and other liabilities of INA under certain policies. As part of this restructuring, the A&E liabilities of various domestic and international INA subsidiaries were reinsured to Century and other subsidiaries of Brandywine Holdings Corporation (“Brandywine”), the current parent company of Century. As part of our 1999 acquisition of the P&C business of CIGNA, we acquired Brandywine and its various subsidiaries, including Century.
 
We are currently conducting a review of the numerous agreements and arrangements entered into in 1996 to accomplish the INA Financial restructuring, including the dividend retention fund and aggregate excess of loss reinsurance agreement discussed below, as well as certain agreements entered into in connection with the NICO/Bradywine cover discussed below, to determine the implications, which could be substantial, of our options with respect to our ongoing relationship with Century and the other Brandywine companies.
 
As part of the acquisition of Westchester Specialty, National Indemnity Company (“NICO”) provided $750 million of reinsurance protection for adverse development on loss and loss adjustment expense reserves. At September 30, 2004, the remaining unused limit in this NICO Westchester Specialty cover was $600 million.
 
As part of the acquisition of the CIGNA P&C business, NICO provided $2.5 billion of reinsurance protection to Century on all Brandywine loss and loss adjustment expense reserves, for any uncollectible reinsurance and on the A&E reserves of the domestic and international ACE INA insurance subsidiaries reinsured by Century. The benefits of this NICO contract flow to the other Brandywine companies and to the ACE INA insurance subsidiaries through reinsurance agreements between those companies and Century. This NICO/Brandywine cover was exhausted on an incurred basis with the increase in our A&E reserves in the fourth quarter of 2002.
 
The domestic ACE INA companies retain two primary funding obligations associated with the run-off Brandywine operations: a dividend retention fund obligation and required reinsurance coverage provided under an aggregate excess of loss reinsurance agreement. In accordance with the Brandywine restructuring order, INA Financial Corporation established and funded a dividend retention fund (the “Dividend Retention Fund”) consisting of $50 million plus investment earnings. Pursuant to terms of the restructuring, the full balance of this Dividend Retention Fund was contributed to Century as of December 31, 2002. To the extent in the future that dividends are paid by INA Holdings Corporation to its parent, INA Financial Corporation, and to the extent that INA Financial Corporation then pays such dividends to INA Corporation, a portion of those dividends must be withheld to replenish the principal of the Dividend Retention Fund to $50 million within five years. In 2003 and thus far in 2004, no such dividends were paid, and therefore no replenishment of the Dividend Retention Fund occurred. This dividend fund obligation, to maintain and to replenish the fund as necessary and to the extent dividends are paid, is ongoing until ACE INA receives prior written approval from the Pennsylvania Commissioner of Insurance to terminate the fund.
 
In addition, the ACE INA insurance subsidiaries are obligated to provide insurance coverage to Century in the amount of $800 million under an aggregate excess of loss reinsurance agreement (the “XOL Agreement”) if the statutory capital and surplus of Century falls below $25 million or if Century lacks liquid assets with which to pay claims as they become due, after giving effect to contribution of any Dividend Retention Fund balance. Coverage under the XOL Agreement was triggered as of December 31, 2002 following contribution of the Dividend Retention Fund balance. Approximately $463 million in GAAP basis losses were ceded under the XOL Agreement at September 30, 2004. Century reports the amount ceded under the XOL Agreement in accordance with statutory accounting principles which differ from GAAP by, among other things, allowing Century to discount its reserves.
 
The Pennsylvania Insurance Department requires a biennial, external actuarial review of liabilities residing in Century Indemnity Company as well as certain other U.S. subsidiaries of Brandywine. That review was last completed during the first quarter of 2003 and we recorded the financial impact in the year ended December 31, 2002. We expect the next review to be completed during the fourth quarter of 2004 and to record any financial impact in the year ending December 31, 2004.
 
In a lawsuit filed in the state of California in December 1999, certain of our competitors have challenged the restructuring that resulted in the creation of Brandywine. The restructuring was previously upheld by the Pennsylvania Supreme Court in July 1999. The lawsuit alleges that the restructuring does not effectively relieve the insurance subsidiary that issued the policies prior to the restructuring (Insurance Company of North America) from liabilities for claims on those policies by California policyholders. The California trial court has held in response to a pre-trial motion that a California statute does prohibit the transfer of California policies to a subsequent legal entity without the consent of the policyholders and noted that consent was not received in the context of the Brandywine restructuring. ACE intends to appeal this decision following completion of the remaining issues in the case in the trial court. The liabilities that are the subject of this California lawsuit are included within our A&E reserves for Brandywine.
 
The current case law regarding A&E claims can be characterized as still evolving and we do not believe that any firm direction will develop in the near future. Therefore, it is not possible to determine the future development of A&E claims with the same degree of reliability as with other types of claims. Such future development will be affected by the extent to which courts continue to expand the liabilities of defendants as well as to expand the intent of the policies and the scope of the coverage, as they have in the past.
 
The U.S. Congress has from time to time considered possible legislation with respect to U.S. asbestos bodily-injury claims. We cannot predict if and when any such legislation will be enacted, what the terms of any such legislation would be and what the costs and benefits to ACE would be.
 
More information relating to our A&E loss reserves is included in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2003.
 
58

Reinsurance
 
One of the ways we manage our loss exposure is through the use of reinsurance. While reinsurance agreements are designed to limit our losses from large exposures and permit recovery of a portion of direct unpaid losses, reinsurance does not relieve us of liability to our insureds. Accordingly, the losses and loss expense reserves on our balance sheet represent our total unpaid gross losses. The reinsurance recoverable represents anticipated recoveries of a portion of those gross unpaid losses as well as amounts recoverable from reinsurers with respect to claims paid. The table below presents our net reinsurance recoverable at September 30, 2004 and December 31, 2003.

 	  	September 30
2004
	 	 	December 31
2003
	 	
 	  	(in millions of U.S. dollars)	 	
Reinsurance recoverable on paid losses and loss expenses	  	$	1,059	 	 	$	1,277	 	
Bad debt reserve on paid losses and loss expenses	  	 	(428	)	 	 	(403	)	
Reinsurance recoverable on future policy benefits	  	 	16	 	 	 	15	 	
Reinsurance recoverable on unpaid losses and loss expenses	  	 	14,222	 	 	 	13,749	 	
Bad debt reserve on unpaid losses and loss expenses	  	 	(600	)	 	 	(557	)	
 	  				 				
Net reinsurance recoverable	  	$	14,268	 	 	$	14,081	 	

We evaluate the financial condition of our reinsurers and potential reinsurers on a regular basis and also monitor concentrations of credit risk with reinsurers. Provisions have been established for amounts estimated to be uncollectible.
 
Following is a breakdown of our reinsurance recoverable on paid losses at September 30, 2004 and December 31, 2003:

 	  	September 30, 2004
	 	 	December 31, 2003
	 	
Category
	  	Amount
	  	Bad Debt
Reserve
	  	% of Total
Reserve
	 	 	Amount
	  	Bad Debt
Reserve
	  	% of Total
Reserve
	 	
 	  	(in millions of U.S. dollars)	 	
General collections	  	$	550	  	$	46	  	8.4	%	 	$	730	  	$	45	  	6.2	%	
Other	  	 	509	  	 	382	  	75.0	%	 	 	547	  	 	358	  	65.4	%	
 	  			  			  			 			  			  			
Total	  	$	1,059	  	$	428	  	40.4	%	 	$	1,277	  	$	403	  	31.6	%	

The general collections category represents amounts in the process of collection in the normal course of business. These are balances for which we have no indication of dispute or credit-related issues.
 
The o ther category includes amounts recoverable that are in dispute, or are from companies in supervision, rehabilitation or liquidation. Our estimation of this reserve considers the merits of the underlying matter, the credit quality of the reinsurer and whether we have received collateral or other credit protections, such as parental guarantees.
 
59

The following tables provide a listing of our largest reinsurers (on a one quarter lag basis) with the first category representing the top ten reinsurers and the second category representing the remaining reinsurers with balances greater than $20 million. The third category includes amounts due from over 2,500 companies, each having balances of less than $20 million. Our bad debt reserve in the three categories is principally based on an analysis of the credit quality of the reinsurer and collateral balances. The next category, mandatory pools and government agencies, includes amounts backed by certain state and federal agencies. In certain states, insurance companies are required by law to participate in these pools. The fifth category, structured settlements, includes annuities purchased from life insurance companies to settle claims. Since we retain the ultimate liability in the event that the life company fails to pay the claimant, we reflect the amount as a liability and as a recoverable for GAAP purposes. These amounts are not subject to dispute and we establish our bad debt reserve based on the application of historical collection experience. The next category, captives, includes companies established and owned by our insurance clients to assume a significant portion of their direct insurance risk from us, i.e., they are structured to allow clients to self-insure a portion of their insurance risk. It is generally our policy to obtain collateral equal to expected losses; where appropriate, exceptions are granted, but only with review and sign-off at a senior officer level. Our final category, other, includes amounts recoverable that are in dispute or are from companies that are in judicial or administrative supervision, rehabilitation or liquidation. We establish our bad debt reserve for these categories based on a case by case analysis of individual situations, including credit and collateral analysis and consideration of our collection experience in similar situations. At June 30, 2004, we held collateral of $2.7 billion, of which $1.7 billion was matched and usable against existing recoverables.

Breakdown of Reinsurance Recoverable
	  	June 30
2004
	  	Bad Debt
Reserve
	  	% of Gross
	 	
 	  	(in millions of U.S. dollars)	 	
Categories	  	 	 	  	 	 	  	 	 	
Top 10 reinsurers	  	$	7,964	  	 	104	  	1.3	%	
Other reinsurers balances greater than $20 million	  	 	3,263	  	 	138	  	4.2	%	
Other reinsurers balances less than $20 million	  	 	1,044	  	 	107	  	10.2	%	
Mandatory pools and government agencies	  	 	706	  	 	3	  	0.4	%	
Structured settlements	  	 	424	  	 	2	  	0.5	%	
Captives	  	 	1,013	  	 	1	  	0.1	%	
Other	  	 	959	  	 	644	  	67.2	%	
 	  			  			  			
Total	  	$	15,373	  	$	999	  	6.5	%	

Top 10 Reinsurers (net of collateral)

Berkshire Hathaway Insurance Group	  	Lloyd’s of London	
CIGNA	  	Munich Re	
Equitas	  	St. Paul Travelers Companies	
GE Global Insurance Group	  	Swiss Re Group	
Hannover	  	XL Capital Group	
 
Other Reinsurers Balances Greater Than $20 million (net of collateral)

AIOI Insurance	  	Electric Insurance Company	  	Overseas Partners Ltd.	
Allianz Group	  	Endurance Specialty	  	Partner Re	
American International Group	  	Everest Re Group	  	Platinum Underwriters	
Arch Capital	  	Fairfax Financial	  	QBE Insurance	
Aspen Insurance Holdings Ltd	  	FM Global Group	  	Renaissance Re Holdings Ltd.	
AVIVA	  	Gerling Group	  	Royal & Sun Alliance Insurance Group Plc	
AXA	  	Great American P&C Insurance Companies	  	SCOR Group	
Chubb Insurance Group	  	Hartford Insurance Group	  	Sompo Japan	
CNA Insurance Companies	  	Independence Blue Cross (Amerihealth)	  	Toa Reinsurance Company	
Constellation Reinsurance Company	  	ING – Internationale Nederlanden Group	  	Trenwick Group	
Converium Group	  	Liberty Mutual Insurance Companies	  	White Mountains Insurance Group	
DaimlerChrysler Insurance Company	  	Millea Holdings	  	WR Berkley Corp.	
Dominion Ins. Co. Ltd	  	Mitsui Sumitomo Insurance Company Ltd	  	Zurich Financial Services Group	
 
LIQUIDITY AND CAPITAL RESOURCES
 
Liquidity
 
Liquidity is a measure of a company’s ability to generate cash flows sufficient to meet short-term and long-term cash requirements of its business operations. As a holding company, ACE possesses assets that consist primarily of the stock of its subsidiaries, and of other investments. In addition to net investment income, our cash flows currently depend primarily on dividends or other statutorily permissible payments. Historically, these dividends and other payments have come from our Bermuda-based operating subsidiaries, which we refer to as our Bermuda subsidiaries.
 
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As an insurance company, one of our principal responsibilities to our clients is to ensure that we have ready access to funds to settle large unforeseen claims. Given anticipated growth in premiums and a lengthening of the average duration of our claim liabilities due to a higher proportionate growth in long-tail relative to short-tail business, we expect that positive cash flow from operations (underwriting activities and investment income) will be sufficient to cover cash outflows under most loss scenarios through 2005. To further ensure the sufficiency of funds to settle unforeseen claims, we hold a certain amount of invested assets in cash and short-term investments and maintain available credit facilities. In addition, for certain insurance, reinsurance, or deposit contracts that tend to have relatively large and reasonably estimable cash outflows, such as loss portfolio contracts, we attempt to establish dedicated portfolios of assets that are duration-matched with the related liabilities. With respect to the duration of our overall investment portfolio, we manage asset durations to both maximize return given current market conditions and provide sufficient liquidity to cover future loss payments. In a low rate environment, the overall duration of our fixed maturity investments tends to be shorter and in a high rate environment, such durations tend to be longer. Given the current low rate environment, at September 30, 2004, the average duration of our fixed maturity investments is less than the average expected duration of our insurance liabilities.
 
Despite our safeguards, if paid losses accelerated beyond our ability to fund such paid losses from current operating cash flows, we might need to either liquidate a portion of our investment portfolio or arrange for financing. Potential events causing such a liquidity strain could be several significant catastrophic events occurring in a relatively short period of time or large scale uncollectible reinsurance recoverables on paid losses (as a result of coverage disputes, reinsurers’ credit problems or decreases in the value of collateral supporting reinsurance recoverables). Additional strain on liquidity could occur if the investments sold to fund such paid losses were sold at depressed prices. Because each subsidiary focuses on a more limited number of specific product lines than is collectively available from the ACE group of companies, the mix of business tends to be less diverse at the subsidiary level. As a result, the probability of a liquidity strain, as described above, may be greater for individual subsidiaries than when liquidity is assessed on a consolidated basis. If such a liquidity strain were to occur in a subsidiary, we may be required to contribute capital to the particular subsidiary and/or curtail dividends from the subsidiary to support holding company operations. With respect to the catastrophe charges during the quarter ended September 30, 2004, we anticipate all loss payments will be funded in the ordinary course of business due to positive operating cash flow combined with adequate balances of cash and short-term investments.
 
The payments of dividends or other statutorily permissible distributions from our operating companies are subject to the laws and regulations applicable to each jurisdiction, as well as the need to maintain capital levels adequate to support the insurance and reinsurance operations, including financial strength ratings issued by independent rating agencies, which are discussed below. During the nine months ended September 30, 2004, we were able to meet all of our obligations, including the payment of dividends declared on our Ordinary Shares and Preferred Shares, with our net cash flow and dividends received. Should the need arise, we generally have access to the debt markets and other available credit facilities that are discussed below.
 
We assess which subsidiaries to draw dividends from based on a number of factors. Considerations such as regulatory and legal restrictions as well as the subsidiary’s financial condition are paramount to the dividend decision. The legal restrictions on the payment of dividends from retained earnings by our Bermuda subsidiaries are currently satisfied by the share capital and additional paid-in capital of each of the Bermuda subsidiaries. During the three months ended September 30, 2004, ACE Bermuda and ACE Tempest Life Reinsurance Ltd declared and paid dividends of $55 million and $75 million, respectively. During the nine months ended September 30, 2004, ACE Bermuda and ACE Tempest Life Reinsurance Ltd declared and paid dividends of $227 million and $225 million, respectively. No dividends were declared in the three months ended September 30, 2003. During the nine months ended September 30, 2003, ACE Bermuda declared and paid dividends of $281 million, and ACE Cap Re International Ltd. declared and paid dividends of $25 million.
 
The payment of any dividends from ACE Global Markets or its subsidiaries would be subject to applicable U.K. insurance laws and regulations including those promulgated by the Society of Lloyd’s. ACE INA’s U.S. insurance subsidiaries may pay dividends, without prior regulatory approval, only from earned surplus and subject to certain annual limitations and the maintenance of a minimum capital requirement. ACE INA’s international subsidiaries are also subject to insurance laws and regulations particular to the countries in which the subsidiaries operate. These laws and regulations include restrictions that limit the amount of dividends payable without prior approval of regulatory insurance authorities.
 
We did not receive any dividends from ACE Global Markets or ACE INA in the current period. Under the Lloyd’s accounting model, syndicates in Lloyd’s operate each year as an annual venture. Each year of account is held open for three years. At the end of three years, the year of account purchases reinsurance from the next open year, which is known as reinsurance to close or RITC, and distributes the remaining funds to the investors in the syndicate. ACE Global Markets has historically retained these funds for operational purposes. ACE INA issued debt to provide partial financing for the ACE INA acquisition and for other operating needs. This debt is serviced by dividends paid by ACE INA’s insurance subsidiaries to ACE INA as well as other group resources.
 
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Our sale of 65.3 percent of the common shares of Assured Guaranty in the second quarter generated proceeds, net of offering costs, of approximately $835 million and a return of capital of $200 million from Assured Guaranty, which were used to support our P&C business and strengthen our balance sheet capital position.
 
Our consolidated sources of funds consist primarily of net premiums written, net investment income and proceeds from sales and maturities of investments. Funds are used primarily to pay claims, operating expenses, dividends and for the purchase of investments. After satisfying our cash requirements, excess cash flows from these underwriting and investing activities are invested.
 
Our insurance and reinsurance operations provide liquidity in that premiums are received in advance, sometimes substantially in advance, of the time claims are paid. Generally cash flows are affected by claim payments that, due to the nature of our operations, may comprise large loss payments on a limited number of claims and which can fluctuate significantly from year to year. The irregular timing of these loss payments can create significant variations in cash flows from operations between periods. Sources of liquidity include cash from operations, financing arrangements or routine sales of investments.
 
•	Our consolidated net cash flows from operating activities were $4 billion in the nine months ended September 30, 2004, compared with $2.6 billion in the same period in 2003. The increase of $1.4 billion primarily relates to the increase in net premiums written of $1.2 billion and net investment income of $93 million, combined with a decrease in loss and loss expenses paid of $119 million.	
 
•	Our consolidated net cash flows used for investing activities increased to $3.9 billion in the nine months ended September 30, 2004, and was net of $953 million received from the sale of Assured Guaranty (net of cash sold). This compares with net cash flows used for investing activities of $3.3 billion in the same period in 2003. This increase primarily reflects our strong consolidated net cash flows from operating activities. Net purchases of fixed maturities were $4.3 billion in the nine months ended September 30, 2004, compared with $3.4 billion in the same period in 2003.	
 
•	Our consolidated net cash flows used for financing activities was $95 million in the nine months ended September 30, 2004, compared with net cash flows from financing activities of $434 million in the same period in 2003. The current period included net proceeds of $499 million from our debt issuance, which was partially offset by the repayment of debt and trust preferred securities of $475 million. The same period in 2003 included net proceeds of $557 million from our Preferred Share issuance. In addition, an increase in proceeds of $37 million from the exercise of options for Ordinary Shares during the current period was partially offset by an increase in dividends paid of $33 million on all outstanding shares.	
 
Although our ongoing operations continue to generate positive cash flows, our cash flows are currently impacted by a large book of loss reserves from businesses in run-off. The run-off operations generated negative operating cash flows of $45 million in the nine months ended September 30, 2004, compared with $503 million in the same period in 2003, primarily due to claim payments.
 
Both internal and external forces influence our financial condition, results of operations and cash flows. Claim settlements, premium levels and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, ranging up to several years or more, may lapse between the occurrence of an insured loss, the reporting of the loss to us and the settlement of the liability for that loss. We believe that our cash balances, cash flow from operations, routine sales of investments and the liquidity provided by our credit facilities, as discussed below are adequate to meet expected cash requirements.
 
ACE and its subsidiaries are assigned debt and financial strength (insurance) ratings from internationally recognized rating agencies, including S&P, A.M. Best, Moody’s Investors Service and Fitch IBCA. The ratings issued on our companies by these agencies are announced publicly and are available directly from the agencies. Our website, acelimited.com, also contains some information about our ratings, which you can find under the “Investor Information” tab.
 
Financial strength ratings represent the opinions of the rating agencies on the financial strength of a company and its capacity to meet the obligations of insurance policies. Independent ratings are one of the important factors that establish our competitive position in the insurance markets. The rating agencies consider many factors in determining the financial strength rating of an insurance company, including the relative level of statutory surplus necessary to support the business operations of the company. These ratings are based upon factors relevant to policyholders, agents and intermediaries and are not directed toward the protection of investors. Such ratings are not recommendations to buy, sell or hold securities.
 
Debt ratings apply to short- and long-term debt as well as preferred stock. These ratings are assessments of the likelihood that we will make timely payments of principal and interest and preferred stock dividends.
 
It is possible that, in the future, one or more of the rating agencies may reduce our existing ratings. If one or more of our ratings were downgraded, we could incur higher borrowing costs and our ability to access the capital markets could be
 
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impacted. In addition, our insurance and reinsurance operations could be adversely impacted by a downgrade in our financial strength ratings, including a possible reduction in demand for our products in certain markets.
 
Capital Resources
 
Capital resources consist of funds deployed or available to be deployed to support our business operations. The following table summarizes the components of our capital resources at September 30, 2004 and December 31, 2003.

 	  	September 30
2004
	 	 	December 31
2003

 	  	(in millions of U.S. dollars)	 	
Short-term debt	  	$	146	 	 	$	546	 	
Long-term debt	  	 	1,849	 	 	 	1,349	 	
 	  				 				
Total debt	  	 	1,995	 	 	 	1,895	 	
 	  				 				
Trust preferred securities	  	 	412	 	 	 	475	 	
Preferred Shares	  	 	557	 	 	 	557	 	
Ordinary shareholders’ equity	  	 	8,922	 	 	 	8,278	 	
 	  				 				
Total shareholders’ equity	  	 	9,479	 	 	 	8,835	 	
 	  				 				
Total capitalization	  	$	11,886	 	 	$	11,205	 	
 	  				 				
Ratio of debt to total capitalization	  	 	16.8	%	 	 	16.9	%	
Ratio of debt plus trust preferreds to total capitalization	  	 	20.3	%	 	 	21.2	%	
 
We believe our financial strength provides us with the flexibility and capacity to obtain funds externally through debt or equity financing on both a short-term and long-term basis. Our ability to access the capital markets is dependent on, among other things, market conditions and our perceived financial strength. We have accessed both the debt and equity markets from time to time.
 
During the second quarter of 2004, we issued $500 million of ACE INA 5.875 percent senior notes due June 15, 2014. The proceeds of the notes were used, in the current quarter, to repay $75 million of Capital Re trust preferred securities and $400 million of ACE INA 8.2 percent notes due in 2004, and for general corporate purposes.
 
Our diluted book value per Ordinary Share increased to $31.29 at September 30, 2004, compared with $29.46 at December 31, 2003. In calculating our diluted book value per Ordinary Share, we include in the denominator in-the-money options. The expected proceeds from the in-the-money options are included in the numerator. Shareholders’ equity increased $644 million in the nine months ended September 30, 2004, primarily due to net income of $857 million and cash received on the exercise of options for Ordinary Shares of $73 million, partially offset by dividends declared of $206 million and a decrease in unrealized gain on our investment portfolio of $123 million.
 
On January 14, 2004 and April 14, 2004, we paid dividends of 19 cents per Ordinary Share to shareholders of record on December 31, 2003 and March 31, 2004, respectively. On July 14, 2004 and October 14, 2004, we paid dividends of 21 cents per ordinary share to shareholders of record on June 30, 2004 and September 30, 2004, respectively. We have paid dividends each quarter since we became a public company in 1993. However, the declaration, payment and value of future dividends on Ordinary Shares is at the discretion of our Board of Directors and will be dependent upon our profits, financial requirements and other factors, including legal restrictions on the payment of dividends and such other factors as our Board of Directors deems relevant. Dividends on the Preferred Shares are payable quarterly, when and if declared by our Board of Directors, in arrears on March 1, June 1, September 1 and December 1 of each year. On March 1, 2004, June 1, 2004, and September 1, 2004 we paid dividends of $4.875 per Preferred Share (which translates to 48.75 cents per Depositary Share) to shareholders of record on February 29, 2004, May 31, 2004, and August 31, 2004, respectively.
 
As part of our capital management program, in November 2001, our Board of Directors authorized the repurchase of any ACE issued debt or capital securities including Ordinary Shares, up to $250 million. At September 30, 2004, this authorization had not been utilized.
 
In 2002, we filed a shelf registration statement with the SEC, which became effective in 2003, relating to a number of different types of debt and equity securities. At September 30, 2004, the amount available under the shelf filing was $425 million. During the current quarter, we filed a shelf registration statement with the SEC relating to the issuance of up to $1.5 billion of certain types of debt and equity securities. As of November 8, 2004, this registration statement was not effective.
 
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Credit Facilities
 
As our Bermuda subsidiaries are not admitted insurers and reinsurers in the U.S., the terms of certain U.S. insurance and reinsurance contracts require them to provide LOCs to clients. In addition, ACE Global Markets is required to satisfy certain U.S. regulatory trust fund requirements which can be met by the issuance of LOCs.
 
The following table shows our credit facilities by credit line, usage, expiry date and purpose at September 30, 2004.

 	  	Credit Line 1
	  	Usage
	  	Expiry Date
	  	Purpose
	
Liquidity Facilities	  	 	 	  	 	 	  	 	  	 	
ACE Limited 2	  	$	600	  	$	64	  	April 2007	  	General Corporate	
Secured Operational LOC Facilities	  	 	 	  	 	 	  	 	  	 	
ACE Limited	  	 	500	  	 	194	  	Sept. 2007	  	General Corporate	
Unsecured Operational LOC Facilities	  	 	 	  	 	 	  	 	  	 	
ACE Limited	  	 	850	  	 	619	  	Sept. 2007	  	General Corporate	
ACE Limited 3	  	 	100	  	 	90	  	Oct. 2004	  	General Corporate	
ACE International	  	 	27	  	 	—  	  	Various	  	General Corporate	
Unsecured Capital Facilities	  	 	 	  	 	 	  	 	  	 	
ACE Limited 4	  	 	676	  	 	676	  	Nov. 2008	  	General Corporate	
 	  			  			  	 	  	 	
Total	  	$	2,753	  	$	1,643	  	 	  	 	

1.	Certain facilities are guaranteed by operating subsidiaries and/or ACE Limited	
 
2.	Commercial paper back-up facility, may also be used for LOCs	
 
3.	Renewal being finalized at time of filing	
 
4.	Supports ACE Global Markets underwriting capacity for Lloyd’s Syndicate 2488-2004 capacity of £550 million (approximately $1 billion)	
 
During the current quarter we entered into an $850 million unsecured operational LOC facility and a $500 million secured operational LOC facility, both expiring in September 2007. These facilities replace four LOC facilities permitting up to $1.4 billion of LOCs. Upon the effectiveness of the new LOC facilities, all outstanding LOCs issued under the replaced facilities were deemed to have been issued under the unsecured LOC facility and the replaced facilities terminated.
 
Some of the facilities noted above require that we maintain certain covenants, all of which have been met at September 30, 2004. These covenants include:
 
(i)	maintenance of a minimum consolidated net worth covenant of not less than $6.0 billion (subject to a reset provision on the last day of each fiscal year) plus 25 percent of cumulative net income since December 31, 2003, plus 50 percent of net proceeds of any issuance of equity interests subsequent to December 31, 2003; and	
 
(ii)	maintenance of a maximum debt to total capitalization ratio of not greater than 0.35 to 1. Under this covenant, debt does not include trust preferred securities or mezzanine equity, except where the ratio of the sum of trust preferred securities and mezzanine equity to total capitalization is greater than 15 percent. In this circumstance, the amount greater than 15 percent would be included in the debt to total capitalization ratio.	
 
At September 30, 2004, (a) the minimum consolidated net worth requirement under the covenant described in (i) above was $6.2 billion and our actual consolidated net worth as calculated under that covenant was $8.9 billion; and (b) our ratio of debt to total capitalization was 0.17 to 1.
 
In addition to these covenants, the ACE Global Markets capital facility requires that collateral be posted if the financial strength rating of ACE Limited falls to S&P BBB+ or lower. Prior to November 2003 (the last renewal date of the ACE Global Markets unsecured LOC), this requirement related to ACE Bermuda.
 
Our failure to comply with the covenants under any credit facility would, subject to grace periods in the case of certain covenants, result in an event of default. This could require us to repay any outstanding borrowings or to cash collateralize letters of credit under such facility. An event of default under one or more credit facilities with outstanding credit extensions of $25 million or more would result in an event of default under all of the facilities described above.
 
American Jobs Creation Act of 2004
 
On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law by President Bush. The Act repeals the extraterritorial income exclusion provisions of the Internal Revenue Code, provides a deduction with respect to certain US manufacturing activities, creates a one-time incentive to repatriate earnings from non-US subsidiaries and modifies various provisions of the Code dealing with domestic, international and employee compensation issues. Many provisions of the Act will require further guidance from the Internal Revenue Service to fully assess their implications. While ACE is currently
 
64

evaluating the impact of the Act on its operations the changes are not expected to have a material effect on ACE’s operating results or financial condition.
 
Recent Accounting Pronouncements
 
See Note 2 to the Interim Consolidated Financial Statements for a discussion of recent accounting pronouncements.
 
 Item 3.	Quantitative and Qualitative Disclosures about Market Risk	
 
Market Sensitive Instruments and Risk Management
 
Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments. We are exposed to potential loss to various market risks, including changes in interest rates and foreign currency exchange rates. Our investment portfolio consists of both fixed income and equity securities, denominated in both U.S. and foreign currencies, which are sensitive to changes in interest rates, equity prices and foreign currency exchange rates. Due to the classification of the majority of our debt and equity securities as available-for-sale, changes in interest rates, equity prices or foreign currency exchange rates will have an immediate affect on comprehensive income and shareholders’ equity but will not ordinarily have an immediate affect on net income. Nevertheless, changes in interest rates and equity prices affect consolidated net income when, and if, a security is sold or impaired. We also use investment derivative instruments such as futures, options, interest rate swaps, and foreign currency forward contracts to manage the duration of our investment portfolio and foreign currency exposures and also to obtain exposure to a particular financial market. These instruments are sensitive to changes in interest rates, foreign currency exchange rates and equity security prices. Changes in the fair value of these derivative instruments have an immediate affect on both net income and shareholders’ equity. The portfolio includes other market sensitive instruments, which are subject to changes in market values with changes in interest rates.
 
Duration Management and Market Exposure Management
 
We use financial futures, options, interest rate swaps and foreign currency forward contracts for the purpose of managing certain investment portfolio exposures. These instruments are recognized as assets or liabilities in our Consolidated Financial Statements and changes in market value are included in net realized gains or losses in the consolidated statements of operations.
 
Our exposure to interest rate risk is concentrated in our fixed income portfolio, and to a lesser extent, our debt obligations. An increase in interest rates of 100 basis points applied instantly across the yield curve would have resulted in a decrease in the market value of our fixed income portfolio of 3.4 percent at September 30, 2004, and December 31, 2003. This equates to a pre-tax decrease in market value of approximately $789 million on a fixed income portfolio valued at $23 billion at September 30, 2004. This compares with an approximately $696 million pre-tax decrease in market value on a fixed income portfolio valued at $20.6 billion at December 31, 2003. An immediate time horizon was used as this presents the worst case scenario.
 
Our portfolio of equity securities, which we carry on our balance sheet at fair value, has exposure to price risk. This risk is defined as the potential loss in fair value resulting from adverse changes in stock prices. In addition, we attain exposure to the equity markets through the use of derivative instruments which also have exposure to price risk. Our U.S. equity portfolio is highly correlated with the S&P 500 index and changes in that index would approximate the impact on our portfolio. Our international equity portfolio has exposure to a broad range of non-U.S. equity markets, primarily in those countries where we have insurance operations. This portfolio is correlated to movement in each of these countries’ broad equity market. The combined equity exposure through both our portfolios of equity securities and derivative instruments was valued at $1.1 billion at September 30, 2004, compared with $662 million at December 31, 2003. A hypothetical ten percent decline in the price of each stock in our portfolio of equity securities and the index correlated to the derivative instruments would have resulted in pretax declines in fair value of $108 million and $66 million at September 30, 2004 and December 31, 2003, respectively. Changes in fair value of these derivative instruments are recorded as net realized gains (losses) in the consolidated statements of operations. Changes in the fair value of our equity portfolio are recorded as unrealized appreciation (depreciation) and are included as other comprehensive income in shareholders’ equity.
 
Many of our non-U.S. companies maintain both assets and liabilities in local currencies. Therefore, exchange rate risk is generally limited to net assets denominated in those foreign currencies. Foreign exchange risk is reviewed as part of our risk management process. Locally required capital levels are invested in home currencies in order to satisfy regulatory requirements, and to support local insurance operations regardless of currency fluctuations.
 
 Item 4.	Controls and Procedures	
 
As of the end of the period covered by this report, the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s
 
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disclosure controls and procedures as defined in Rule 13a-15 under the Securities Exchange Act of 1934. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in allowing information required to be disclosed in reports filed under the Securities and Exchange Act of 1934 to be recorded, processed, summarized and reported within time periods specified in the rules and forms of the SEC.
 
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ACE LIMITED
PART II OTHER INFORMATION
 
 Item 1.	Legal Proceedings	
 
Our insurance subsidiaries are subject to claims litigation involving disputed interpretations of policy coverages and in some jurisdictions, direct actions by allegedly injured persons seeking damages from policyholders. These lawsuits involving claims on policies issued by our subsidiaries which are typical to the insurance industry in general and in the normal course of business, are considered in our loss and loss expense reserves which are discussed in the unpaid losses and loss expenses discussion. In addition to claims litigation, we and our 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 policies. This category of business litigation typically involves, inter alia, allegations of underwriting errors or misconduct, employment claims, regulatory activity or disputes arising from our business ventures. While the outcomes of the business litigation involving us cannot be predicted with certainty at this point, we are disputing and will continue to dispute allegations against us that are without merit and believe that the ultimate outcomes of matters in this category of business litigation will not have a material adverse effect on our financial condition, future operating results or liquidity, although an adverse resolution of a number of these items could have a material adverse effect on our results of operations in a particular quarter or fiscal year.
 
Several purported shareholder class action lawsuits have been filed against ACE and certain of its present and former executive officers relating to certain of the practices being investigated by the AG Investigations. In addition, the plaintiffs in a pending lawsuit originally brought by policyholders against brokers has been amended by adding ACE and other carriers as additional defendants. ACE intends to vigorously defend against these actions.
 
 Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	
 
This table provides information with respect to purchases by the Company of its Ordinary Shares during the three months ended September 30,  2004:
 
Issuer’s Purchases of Equity Securities*

Period
	  	Total
Number of
Shares
Purchased**
	  	Average Price
Paid per
Share
	  	Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plan*
	  	Approximate
Dollar Value of
Shares that
May Yet
Be Purchased
Under the Plan*
	
July 1, 2004 through
July 31, 2004	  	12,707	  	$	41.93	  	—  	  	$	250 million	
August 1, 2004 through
August 31, 2004	  	670	  	$	42.73	  	—  	  	$	250 million	
September 1, 2004 through
September 30, 2004	  	—  	  	 	—  	  	—  	  	$	250 million	
 	  		  	 	 	  	 	  	 	 	
Total	  	13,377	  	 	 	  	 	  	 	 	

*	As part of ACE’s capital management program, in November 2001, the Company’s Board of Directors authorized the repurchase of any ACE issued debt or capital securities including Ordinary Shares, up to $250 million. At September 30, 2004, this authorization had not been utilized.	
 
**	For the three months ended September 30, 2004 this columns relates entirely to the surrender to the Company of shares of Common Stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees	
 
 Item 5.	Other Information	
 
1.	On August 13, 2004, the Company declared a quarterly dividend of $0.21 per Ordinary Share payable on October 14, 2004, to shareholders of record on September 30, 2004.	
 
2.	On August 13, 2004, the Company declared a dividend of $4.875 per Preferred Share, payable on September 1, 2004, to shareholders of record on August 31, 2004.	
 
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 Item 6.	Exhibits	
 
Exhibits

10.1	  	Reimbursement agreement for $500,000,000 Letter of Credit Facility on a secured basis, dated as of September 22, 2004, among ACE Limited, certain subsidiaries, various lenders and Wachovia Bank, National Association as administrative agent.	
		
10.2	  	Reimbursement agreement for $850,000,000 Letter of Credit Facility on a unsecured basis, dated as of September 22, 2004, among ACE Limited, certain subsidiaries, various lenders and Wachovia Bank, National Association as administrative agent.	
		
31.1	  	Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.	
		
31.2	  	Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.	
		
32.1	  	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	
		
32.2	  	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	
 
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ACE LIMITED
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 	 	 	 	ACE LIMITED	
			
November 9, 2004	 	 	 	/ S /    E VAN G REENBERG        	
 	 	 	 	Evan Greenberg
President and Chief
Executive Officer	
			
November 9, 2004	 	 	 	/ S /    P HILIP V. B ANCROFT        	
 	 	 	 	Philip V. Bancroft
Chief Financial Officer	
 
69

 
ACE LIMITED
EXHIBITS

Exhibit
Number
	  	Description

 	  	Exhibits	
		
10.1	  	Reimbursement agreement for $500,000,000 Letter of Credit Facility on a secured basis, dated as of September 22, 2004, among ACE Limited, certain subsidiaries, various lenders and Wachovia Bank, National Association as administrative agent.	
		
10.2	  	Reimbursement agreement for $850,000,000 Letter of Credit Facility on a unsecured basis, dated as of September 22, 2004, among ACE Limited, certain subsidiaries, various lenders and Wachovia Bank, National Association as administrative agent.	
		
31.1	  	Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.	
		
31.2	  	Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.	
		
32.1	  	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	
		
32.2	  	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	
 
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Exhibit 10.1

 
REIMBURSEMENT AGREEMENT
 
among
 
ACE LIMITED
ACE BERMUDA INSURANCE LTD.
ACE TEMPEST LIFE REINSURANCE LTD.
ACE TEMPEST REINSURANCE LTD.,
as Account Parties,
 
THE BANKS NAMED HEREIN,
 
WACHOVIA BANK, NATIONAL ASSOCIATION,
as an Issuing Bank and as Administrative Agent
 
and
 
BANK OF AMERICA, N.A.,
as Syndication Agent
 
$500,000,000 Secured Letter of Credit Facility
 
WACHOVIA CAPITAL MARKETS, LLC
BANC OF AMERICA SECURITIES LLC
as Joint Book Runners and Joint Lead Arrangers
 
Dated as of September 22, 2004

TABLE OF CONTENTS

 	  	 	  	Page

ARTICLE I	
	
DEFINITIONS AND ACCOUNTING TERMS	
			
1.01	  	Certain Defined Terms	  	1	
1.02	  	Computation of Time Periods; Other Definitional Provisions	  	16	
1.03	  	Accounting Terms and Determinations	  	17	
	
 ARTICLE II	
	
AMOUNTS AND TERMS OF THE LETTERS OF CREDIT	
			
2.01	  	The Letters of Credit	  	17	
2.02	  	Issuance and Renewals and Drawings, Participations and Reimbursement with Respect to Letters of Credit	  	18	
2.03	  	Repayment of Advances	  	22	
2.04	  	Termination or Reduction of the LC Commitment Amounts	  	23	
2.05	  	Fees	  	24	
2.06	  	Increased Costs, Etc.	  	24	
2.07	  	Payments and Computations	  	26	
2.08	  	Taxes	  	27	
2.09	  	Sharing of Payments, Etc.	  	29	
2.10	  	Use of Letters of Credit	  	29	
2.11	  	Defaulting Banks	  	29	
2.12	  	Replacement of Affected Bank	  	31	
2.13	  	Certain Provisions Relating to the Issuing Banks and Letters of Credit	  	31	
2.14	  	Downgrade Event with Respect to a Bank	  	33	
2.15	  	Non-Dollar Letters of Credit	  	35	
2.16	  	Collateral	  	37	
	
ARTICLE III	
	
CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT	
			
3.01	  	Conditions Precedent to Effective Date	  	37	
3.02	  	Conditions Precedent to Each Issuance, Extension or Increase of a Letter of Credit	  	39	
3.03	  	Determinations Under Section 3.01	  	39	
	
ARTICLE IV	
	
REPRESENTATIONS AND WARRANTIES	
			
4.01	  	Representations and Warranties of the Account Parties	  	40	
 
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 ARTICLE V	
	
COVENANTS OF THE ACCOUNT PARTIES	
			
5.01	  	Affirmative Covenants	  	44	
5.02	  	Negative Covenants	  	46	
5.03	  	Reporting Requirements	  	50	
5.04	  	Financial Covenants	  	53	
	
ARTICLE VI	
	
EVENTS OF DEFAULT	
			
6.01	  	Events of Default	  	54	
6.02	  	Actions in Respect of the Letters of Credit upon Default	  	57	
	
 ARTICLE VII	
	
THE GUARANTY	
			
7.01	  	The Guaranty	  	58	
7.02	  	Guaranty Unconditional	  	58	
7.03	  	Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances	  	59	
7.04	  	Waiver by the Account Parties	  	59	
7.05	  	Subrogation	  	59	
7.06	  	Stay of Acceleration	  	60	
7.07	  	Continuing Guaranty; Assignments	  	60	
	
 ARTICLE VIII	
	
THE AGENTS	
			
8.01	  	Authorization and Action	  	60	
8.02	  	Agents’ Reliance, Etc.	  	61	
8.03	  	Agents and Affiliates	  	61	
8.04	  	Bank Credit Decision	  	61	
8.05	  	Indemnification	  	62	
8.06	  	Successor Administrative Agent	  	62	
8.07	  	Collateral Matters	  	63	
	
 ARTICLE IX	
	
MISCELLANEOUS	
			
9.01	  	Amendments, Etc.	  	63	
9.02	  	Notices, Etc.	  	64	
9.03	  	No Waiver; Remedies	  	65	
 
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9.04	  	Costs and Expenses	  	65	
9.05	  	Right of Set-off	  	66	
9.06	  	Binding Effect	  	66	
9.07	  	Assignments and Participations	  	66	
9.08	  	Execution in Counterparts	  	69	
9.09	  	No Liability of the Issuing Banks	  	69	
9.10	  	Confidentiality	  	70	
9.11	  	Jurisdiction, Etc.	  	70	
9.12	  	Governing Law	  	71	
9.13	  	Waiver of Jury Trial	  	71	
9.14	  	Disclosure of Information	  	71	
9.15	  	USA Patriot Act	  	71	
9.16	  	Certain Effective Date Matters	  	72	

Schedule I	  	LC Commitment Amounts	
Schedule I – Part 2	  	Domestic Lending Offices	
Schedule II	  	Existing Letters of Credit	
Schedule III	  	Methodology for Calculation of Collateral Values	
Schedule 4.01(b)	  	Subsidiaries	
Schedule 5.02(a)	  	Liens	
		
Exhibit A	  	Form of Assignment and Acceptance	
Exhibit B	  	Form of Collateral Value Report	
Exhibit C-1	  	Form of Opinion of Maples and Calder	
Exhibit C-2	  	Form of Opinion of Mayer, Brown, Rowe & Maw LLP	
Exhibit C-3	  	Form of Opinion of Conyers, Dill & Pearman	
Exhibit D	  	Form of Pledge and Security Agreement	
Exhibit E	  	Form of Letter of Instruction	
 
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REIMBURSEMENT AGREEMENT
 
REIMBURSEMENT AGREEMENT dated as of September 22, 2004, among ACE Limited, a Cayman Islands company (the “ Parent ”), ACE Bermuda Insurance Ltd., a Bermuda company (“ ACE Bermuda ”), ACE Tempest Life Reinsurance Ltd., a Bermuda company (“ Tempest Life ”), and ACE Tempest Reinsurance Ltd., a Bermuda company (“ Tempest ”) (ACE Bermuda, Tempest Life and Tempest, together with the Parent, the “ Account Parties ” and individually an “ Account Party ”), the banks, financial institutions and other institutional lenders listed on the signature pages hereof as the Initial Banks (the “ Initial Banks ”), Wachovia Bank, National Association (“ Wachovia ”), as an Issuing Bank (as hereinafter defined), Bank of America, N.A. (“ Bank of America ”), as syndication agent, (the “ Syndication Agent ”), Barclays Bank PLC (“ Barclays ”), as co-documentation agent, CitiBank, N.A. (“ CitiBank ”), as co-documentation agent, JPMorgan Chase Bank, as co-documentation agent (“ Chase ” and, together with Barclays and CitiBank, the “ Documentation Agents ”), and Wachovia, as administrative agent (together with any successor administrative agent appointed pursuant to Article VIII , the “ Administrative Agent ” and, together with the Syndication Agent and Documentation Agents, the “ Agents ”) for the Banks.
 
PRELIMINARY STATEMENTS:
 
The Account Parties have requested that the Issuing Banks and the Banks make available to the Account Parties a secured credit facility in an amount up to $500,000,000 to provide for the issuance of letters of credit for the account of one or more of the Account Parties. The Issuing Banks and the Banks have indicated their willingness to agree to make such letters of credit available on the terms and conditions of this Agreement.
 
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows:
 
ARTICLE I
 
DEFINITIONS AND ACCOUNTING TERMS
 
1.01 Certain Defined Terms . As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): 
 
“ Account Parties ” has the meaning specified in the recital of parties to this Agreement.
 
“ ACE Bermuda ” has the meaning specified in the recital of parties to this Agreement.
 
“ ACE INA ” means ACE INA Holdings Inc., a Delaware corporation.
 
“ Adjusted Consolidated Debt ” means, at any time, an amount equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) to the extent exceeding
 
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an amount equal to 15% of Total Capitalization, the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Preferred Securities).
 
“ Administrative Agent ” has the meaning specified in the recital of parties to this Agreement.
 
“ Administrative Agent’s Account ” means the account of the Administrative Agent maintained by the Administrative Agent at Wachovia Bank, National Association, Charlotte Plaza Building, 201 South College Street, 8 th Floor NC0680, Charlotte, North Carolina 28288, Account No. 5000000027444, Re: ACE Ltd., Attn: Syndication Agency Services, or such other account as the Administrative Agent shall specify in writing to the Banks.
 
“ Advance ” means a Letter of Credit Advance.
 
“ Affected Bank ” means any Bank that (i) has made, or notified any Account Party that an event or circumstance has occurred which may give rise to, a demand for compensation under Section 2.06(a) or (b) or Section 2.08 (but only so long as the event or circumstance giving rise to such demand or notice is continuing) or (ii) is a Downgraded Bank.
 
“ Affiliate ” means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term “control” (including the terms “controlling”, “controlled by” and “under common control with”) of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Interests of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise.
 
“ Agents ” has the meaning specified in the recital of parties to this Agreement.
 
“ Agreement Currency ” has the meaning specified in Section 2.15(g) .
 
“ Applicable Account Party ” with respect to any outstanding or proposed Letter of Credit means the Account Party for the account of which such Letter of Credit was or is proposed to be issued.
 
“ Applicable Lending Office ” means, with respect to each Bank, such Bank’s Domestic Lending Office.
 
“ Approved Investment ” means any Investment that was made by the Parent or any of its Subsidiaries pursuant to investment guidelines set forth by the board of directors of the Parent which are consistent with past practices.
 
“ Assignment and Acceptance ” means an assignment and acceptance entered into by a Bank and an Eligible Assignee, and accepted by the Administrative Agent, in accordance with Section 9.07 and in substantially the form of Exhibit A hereto.
 
“ Available Amount ” of any Letter of Credit means, at any time, the maximum amount available to be drawn under such Letter of Credit at such time or at any future time (assuming
 
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compliance at such time or such future time with all conditions to drawing) (including without limitation amounts which have been the subject of drawings by the applicable beneficiary but which have not yet been paid by an Issuing Bank).
 
“ Bank of America ” has the meaning specified in the recital of parties to this Agreement.
 
“ Bankruptcy Law ” means Title 11, U.S. Code, or any similar foreign, federal or state law for the relief of debtors.
 
“ Banks ” means the Initial Banks and each Person that shall become a Bank hereunder pursuant to Section 9.07(a) , (b) and (c) for so long as such Initial Bank or Person, as the case may be, shall be a party to this Agreement.
 
“ Barclays ” has the meaning specified in the recital of parties to this Agreement.
 
“ Base Amount ” has the meaning set forth in Section 5.04(b) .
 
“ Base Rate ” means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the rate of interest announced publicly by Wachovia in Charlotte, North Carolina from time to time, as Wachovia’s prime rate (which may not be its best lending rate) or, if higher on the day in question, ½ of 1% above the Federal Funds Rate.
 
“ Bilateral Agreements ” means (i) the Insurance and Reinsurance Letters of Credit Agreement dated November 20, 2003 issued by Barclays relating to the Lloyd’s Dollar Trust Funds of Syndicate 2488; and (ii) the Insurance Letters of Credit – Master Agreement dated April 20, 1994 between Tempest (then known as Tempest Reinsurance Company Limited) and CitiBank.
 
“ Business Day ” means a day of the year on which banks are not required or authorized by law to close in Charlotte, North Carolina, New York, New York, London, England or Bermuda.
 
“ Capitalized Leases ” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.
 
“ Change of Control ” means the occurrence of any of the following: (a) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Interests of the Parent (or other securities convertible into such Voting Interests) representing 30% or more of the combined voting power of all Voting Interests of the Parent or (b) a majority of the board of directors of the Parent shall not be Continuing Members.
 
“ CitiBank ” has the meaning specified in the recital of parties to this Agreement.
 
“ Collateral ” means all the assets, property and interests in property that shall from time to time be pledged or be purported to be pledged as direct or indirect security for the Obligations pursuant to any one or more of the Security Documents.
 
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“ Collateral Value ” means, for any Business Day as of which it is being calculated, (a) for each category of Collateral set forth on Schedule III , an amount equal to the “Eligible Percentage” of the market value (or, as to cash, the dollar amount) thereof set forth opposite such category of Collateral on Schedule III , and (b) for the Collateral, in the aggregate, the sum of such amounts, in each case as of the close of business on the immediately preceding Business Day or, if such amount is not determinable as of the close of business on such immediately preceding Business Day, as of the close of business on the most recent Business Day on which such amount is determinable, which Business Day shall be not more than two (2) Business Days prior to the Business Day as of which the Collateral Value is being calculated; provided that the calculation of the Collateral Value shall be further subject to the terms and conditions set forth on Schedule III ; and provided further that no Collateral (including, without limitation, cash) shall be included in the calculation of the Collateral Value unless the Administrative Agent has a first priority perfected Lien on and security interest in such Collateral pursuant to the Security Documents.
 
“ Collateral Value Report ” has the meaning specified in Section 2.16(b) .
 
“ Committed Facility ” means, at any time, the aggregate amount of the Banks’ LC Commitment Amounts at such time.
 
“ Confidential Information ” means information that any Loan Party furnishes to any Agent or any Bank, but does not include any such information that is or becomes generally available to the public other than as a result of a breach by any Agent or any Bank of its obligations hereunder or that is or becomes available to such Agent or such Bank from a source other than the Loan Parties that is not, to the best of such Agent’s or such Bank’s knowledge, acting in violation of a confidentiality agreement with a Loan Party.
 
“ Consolidated ” refers to the consolidation of accounts in accordance with GAAP.
 
“ Consolidated Net Income ” means, for any period, the net income of the Parent and its Consolidated Subsidiaries, determined on a Consolidated basis for such period.
 
“ Consolidated Net Worth ” means at any date the Consolidated stockholders’ equity of the Parent and its Consolidated Subsidiaries determined as of such date, provided that such determination for purposes of Section 5.04 shall be made without giving effect to adjustments pursuant to Statement No. 115 of the Financial Accounting Standards Board of the United States of America.
 
“ Contingent Obligation ” means, with respect to any Person, any obligation or arrangement of such Person to guarantee or intended to guarantee any Debt, leases, dividends or other payment obligations (“ primary obligations ”) of any other Person (the “ primary obligor ”) in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement or (c) any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any
 
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property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided , however , that Contingent Obligations shall not include any obligations of any such Person arising under insurance contracts entered into in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith.
 
“ Continuing Member ” means a member of the Board of Directors of the Parent who either (i) was a member of the Parent’s Board of Directors on the date of execution and delivery of this Agreement by the Parent and has been such continuously thereafter or (ii) became a member of such Board of Directors after such date and whose election or nomination for election was approved by a vote of the majority of the Continuing Members then members of the Parent’s Board of Directors.
 
“ Custodial Account ” means each custodial, brokerage or similar account of any Account Party maintained by a custodian, broker or other securities intermediary as a “securities account” within the meaning of Section 8-501(a) of the Uniform Commercial Code for such Account Party as the “entitlement holder” within the meaning of Section 8-102(7) of the Uniform Commercial Code pursuant to a Custodial Agreement, on which (and on the contents of which) a Lien has been granted as security for the Obligations.
 
“ Custodial Agreement ” means each custodial or similar agreement between the Account Parties (or any of them) and a Custodian, pursuant to which one or more Custodial Accounts are maintained, in each case as amended.
 
“ Custodian ” means (i) State Street (in its capacity as custodian of the State Street Custodial Accounts) and (ii) each other bank or financial institution that maintains a Custodial Account (in its capacity as custodian thereof), in each case including any sub-custodian.
 
“ Debenture ” means debt securities issued by ACE INA or the Parent to a Special Purpose Trust in exchange for proceeds of Preferred Securities and common securities of such Special Purpose Trust.
 
“ Debt ” of any Person means, without duplication for purposes of calculating financial ratios, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of such Person’s business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person created or
 
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arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under Capitalized Leases (excluding imputed interest), (f) all obligations of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests (except for obligations to pay for Equity Interests within customary settlement periods) in such Person or any other Person or any warrants, rights or options to acquire such capital stock (excluding payments under a contract for the forward sale of ordinary shares of such Person issued in a public offering), valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person and (i) all indebtedness and other payment obligations referred to in clauses (a) through (h) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligations; provided , however , that the amount of Debt of such Person under clause (i) above shall, if such Person has not assumed or otherwise become liable for any such Debt, be limited to the lesser of the principal amount of such Debt or the fair market value of all property of such Person securing such Debt; provided further that “Debt” shall not include obligations in respect of insurance or reinsurance contracts entered into in the ordinary course of business or any obligations of such Person (1) to purchase securities (or other property) which arise out of or in connection with the sale of the same or substantially similar securities (or other property) or (2) to return collateral consisting of securities arising out of or in connection with the loan of the same or substantially similar securities; provided further that, solely for purposes of Section 5.04 and the definitions of “Adjusted Consolidated Debt” and “Total Capitalization”, “Debt” shall not include (x) any contingent obligations of any Person under or in connection with acceptance, letter of credit or similar facilities or (y) obligations of the Parent or ACE INA under any Debentures or under any subordinated guaranty of any Preferred Securities or obligations of a Special Purpose Trust under any Preferred Securities.
 
“ Default ” means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both.
 
“ Defaulted Amount ” means, with respect to any Bank at any time, any amount required to be paid by such Bank to any Agent or any other Bank hereunder or under any other Loan Document at or prior to such time that has not been so paid as of such time, including, without limitation, any amount required to be paid by such Bank to (a) an Issuing Bank pursuant to Section 2.02(f) to purchase a portion of a Letter of Credit Advance made by such Issuing Bank and (b) any Agent or any Issuing Bank pursuant to Section 8.05 to reimburse such Agent or such Issuing Bank for such Bank’s ratable share of any amount required to be paid by the Banks to such Agent or such Issuing Bank as provided therein.
 
“ Defaulting Bank ” means, at any time, any Bank that, at such time, (a) owes a Defaulted Amount or (b) shall take any action or be the subject of any action or proceeding of a type described in Section 6.01(g) .
 
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“ Documentation Agents ” has the meaning specified in the recital of parties to this Agreement.
 
“ Dollar Equivalent ” has the meaning specified in Section 2.15(h) .
 
“ Domestic Lending Office ” means, with respect to any Bank, the office of such Bank specified as its “Domestic Lending Office” opposite its name on Part 2 of Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Bank, as the case may be, or such other office of such Bank as such Bank may from time to time specify to any Account Party and the Administrative Agent.
 
“ Downgrade Account ” has the meaning specified in Section 2.14(a) .
 
“ Downgrade Event ” means, with respect to any Bank, a reduction of the credit rating for the senior unsecured unsupported long-term debt of such Bank (or, if no such rating exists, then a reduction of the long-term issuer credit rating of such Bank) by S&P or Moody’s.
 
“ Downgrade Notice ” has the meaning specified in Section 2.14(a) .
 
“ Downgraded Bank ” means any Bank which has a credit rating of less than A- (in the case of S&P) or A3 (in the case of Moody’s) for its senior unsecured unsupported long-term debt or which does not have any credit rating on such debt from one of S&P or Moody’s; provided, that if at any time such Bank has no such senior unsecured unsupported long-term debt rating from either rating service but does have a long-term issuer credit rating from either or both services, then such Bank shall not be considered a Downgraded Bank so long as such long-term issuer credit rating remains at or above A- (in the case of S&P) or A3 (in the case of Moody’s).
 
“ Effective Date ” means the first date on which the conditions set forth in Article III shall have been satisfied.
 
“ Eligible Assignee ” means (i) a Bank, (ii) an Affiliate of a Bank, or (iii) a commercial bank, a savings bank or other financial institution that is approved by the Administrative Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected pursuant to Section 9.07 , the Parent (such approvals not to be unreasonably withheld or delayed); provided , however , that neither any Loan Party nor any Affiliate of a Loan Party shall qualify as an Eligible Assignee under this definition.
 
“ Environmental Action ” means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or Hazardous Material or arising from alleged injury or threat to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief.
 
“ Environmental Law ” means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment, injunction, decree or judicial or agency
 
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interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials.
 
“ Environmental Permit ” means any permit, approval, identification number, license or other authorization required under any Environmental Law.
 
“ Equity Interests ” means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.
 
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.
 
“ ERISA Affiliate ” means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any Loan Party, or under common control with any Loan Party, within the meaning of Section 414 of the Internal Revenue Code or Section 4001 of ERISA.
 
“ Events of Default ” has the meaning specified in Section 6.01 .
 
“ Existing Letters of Credit ” means, collectively, the letters of credit outstanding on the Effective Date issued by Wachovia pursuant to the Existing Reimbursement Agreement, which letters of credit are listed on Schedule II hereto.
 
“ Existing Reimbursement Agreement ” means the Reimbursement Agreement, dated as of September 25, 2003, among the Account Parties, the banks and other lenders named therein, Bank of America, The Bank of Nova Scotia, Bank One, NA and Deutsche Bank AG, New York Branch, as Co-Syndication Agents, and Wachovia, as Issuing Bank and as Administrative Agent, as amended, providing for a $500,000,000 secured letter of credit facility for the benefit of the Account Parties.
 
“ Existing Unsecured Reimbursement Agreement ” means the Reimbursement Agreement, dated as of September 25, 2003, among the Account Parties, the banks and other lenders named therein, Bank of America, The Bank of Nova Scotia, Bank One, NA and Deutsche Bank AG, New York Branch, as Co-Syndication Agents, and Wachovia, as Issuing Bank and as Administrative Agent, as amended, providing for a $500,000,000 unsecured letter of credit facility for the benefit of the Account Parties.
 
“ Expiration Date ” shall mean September 22, 2007.
 
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“ Federal Funds Rate ” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it.
 
“ Fee Letter ” means the fee letter dated August 18, 2004 among the Parent, Wachovia and Wachovia Capital Markets, LLC, as amended.
 
“ Fiscal Year ” means the fiscal year of the Parent and its Consolidated Subsidiaries ending on December 31 in any calendar year.
 
“ Foreign Government Scheme or Arrangement ” has the meaning specified in Section 4.01(m)(ii) .
 
“ Foreign Plan ” has the meaning specified in Section 4.01(m)(ii) .
 
“ GAAP ” has the meaning specified in Section 1.03 .
 
“ Guaranty ” means the undertaking by each of the Account Parties under Article VII .
 
“ Hazardous Materials ” means (a) petroleum or petroleum products, by-products or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law.
 
“ Hedge Agreements ” means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other hedging agreements.
 
“ Indemnified Party ” has the meaning specified in Section 9.04(b) .
 
“ Initial Banks ” has the meaning specified in the recital of parties to this Agreement.
 
“ Internal Revenue Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder.
 
“ Investment ” in any Person means any loan or advance to such Person, any purchase or other acquisition of any Equity Interests or Debt or the assets comprising a division or business unit or a substantial part or all of the business of such Person, any capital contribution to such Person or any other direct or indirect investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (h) or (i) of the definition of “Debt” in respect of such Person; provided , however , that any purchase by any Loan Party or any
 
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Subsidiary of any catastrophe-linked instruments which are (x) issued for the purpose of transferring traditional reinsurance risk to the capital markets and (y) purchased by such Loan Party or Subsidiary in accordance with its customary reinsurance underwriting procedures, or the entry by any Loan Party or any Subsidiary into swap instruments relating to such instruments in accordance with such procedures, shall be deemed to be the entry by such Person into a reinsurance contract and shall not be deemed to be an Investment by such Person.
 
“ Issuing Banks ” means Wachovia, CitiBank, Barclays and any other Bank that has been appointed by the Parent, has accepted such appointment and has been approved in writing by the Administrative Agent (which approval shall not be unreasonably withheld).
 
“ Joint Lead Arrangers ” means Wachovia Capital Markets, LLC and Banc of America Sercurities, LLC, collectively.
 
“ JPMorgan Credit Agreement ” has the meaning specified in Section 5.02(a)(xvii) .
 
“ Judgment Currency ” has the meaning specified in Section 2.15(g) .
 
“ LC Commitment Amount ” means, with respect to any Bank at any time, the amount set forth opposite such Bank’s name on Schedule I hereto under the caption “LC Commitment Amount” or, if such Bank has entered into one or more Assignment and Acceptances, set forth for such Bank in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) as such Bank’s “LC Commitment Amount”, as such amount may be reduced at or prior to such time pursuant to Section 2.04 .
 
“ LC Participation Obligations ” has the meaning specified in Section 2.14(a) .
 
“ L/C Related Documents ” has the meaning specified in Section 2.03(a)(ii) .
 
“ Letter of Credit Advance ” has the meaning specified in Section 2.02(g) .
 
“ Letter of Credit Agreement ” has the meaning specified in Section 2.02(a) .
 
“ Letter of Credit Exposure ” at any time means the sum at such time of (a) the aggregate outstanding amount of Letter of Credit Advances, (b) the aggregate Available Amounts of all outstanding Letters of Credit (including, without limitation, all outstanding Existing Letters of Credit) and (c) the aggregate Available Amounts of all Letters of Credit which have been requested by an Account Party to be issued hereunder but have not yet been so issued.
 
“ Letter of Credit Outstandings ” at any time means the sum at such time of (a) the aggregate outstanding amount of Letter of Credit Advances and (b) the aggregate Available Amounts of all outstanding Letters of Credit, in each case after giving effect to any issuance or renewal of a Letter of Credit occurring on the date of determination and any other changes in the aggregate amounts under clauses (a) and (b) above as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letter of Credit or any reductions in the maximum amount available for drawings under any Letter of Credit taking effect on such date.
 
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“ Letter of Credit Participating Interest ” has the meaning specified in Section 2.02(e) .
 
“ Letter of Credit Participating Interest Commitment ” has the meaning specified in Section 2.02(e) .
 
“ Letter of Credit Participating Interest Percentage ” means, for any Bank, a fraction, expressed as a percentage, the numerator of which is such Bank’s LC Commitment Amount and the denominator of which is the aggregate LC Commitment Amounts of all the Banks.
 
“ Letter of Instruction ” means a letter in substantially the form of Exhibit E .
 
“ Letters of Credit ” has the meaning specified in Section 2.01 .
 
“ Lien ” means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property.
 
“ Loan Documents ” means (i) this Agreement, (ii) the Fee Letter, (iii) each Letter of Credit Agreement, (iv) each Security Document and (v) each Letter of Instruction, in each case as amended from time to time.
 
“ Loan Parties ” means the Account Parties.
 
“ Mandatorily Convertible Preferred Securities ” means units comprised of (i) Preferred Securities or preferred shares of Parent and (ii) a contract for the sale of ordinary shares of the Parent.
 
“ Margin Stock ” has the meaning specified in Regulation U.
 
“ Material Adverse Change ” means any material adverse change in the business, financial condition, operations or properties of the Parent and its Subsidiaries, taken as a whole.
 
“ Material Adverse Effect ” means a material adverse effect on (a) the business, condition, operations or properties of the Parent and its Subsidiaries, taken as a whole, (b) the rights and remedies of the Administrative Agent, any Issuing Bank or any Bank under any Loan Document or (c) the ability of the Loan Parties, taken as a whole, to perform their obligations under the Loan Documents.
 
“ Material Financial Obligation ” means a principal amount of Debt and/or payment obligations in respect of any Hedge Agreement of the Parent and/or one or more of its Subsidiaries arising in one or more related or unrelated transactions exceeding in the aggregate $50,000,000.
 
“ Material Subsidiary ” means (i) any Subsidiary of the Parent that has more than $10,000,000 in assets or that had more than $10,000,000 of revenue during the most recent period of four fiscal quarters for which financial statements are available, and (ii) any Subsidiary
 
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that is the direct or indirect parent company of any Subsidiary that qualified as a “Material Subsidiary” under clause (i) above.
 
“ Minimum Amount ” has the meaning set forth in Section 5.04(b) .
 
“ Moody’s ” means Moody’s Investors Service, Inc.
 
“ Multiemployer Plan ” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions.
 
“ Net Proceeds ” means, with respect to any issuance of Equity Interests by any Person, the amount of cash received by such Person in connection with such transaction after deducting therefrom the aggregate, without duplication, of the following amounts to the extent properly attributable to such transaction: (a) reasonable brokerage commissions, attorneys’ fees, finder’s fees, financial advisory fees, accounting fees, underwriting fees, investment banking fees, and other similar commissions, and fees and expenses and disbursements of any of the foregoing, in each case to the extent paid or payable by such Person; (b) printing and related expenses of filing and recording or registration fees or charges or similar fees or charges paid by such Person; and (c) taxes paid or payable by such Person to any governmental authority or regulatory body as a result of such transaction.
 
“ Non-Dollar Letters of Credit ” has the meaning specified in Section 2.15(a) .
 
“ Obligations ” means all obligations of every nature of the Account Parties from time to time owing, due or payable to any Agent or to any Bank under this Agreement or any of the other Loan Documents, whether for principal, reimbursement for payments made under Letters of Credit (including, without limitation, Existing Letters of Credit), interest (including, to the greatest extent permitted by law, post-petition interest), fees, expenses, indemnities or any other obligations, and whether now existing or hereafter incurred, created or arising and whether direct or indirect, absolute or contingent, or due or to become due (including obligations of performance).
 
“ Other Taxes ” has the meaning specified in Section 2.08(b) .
 
“ Overnight Rate ” has the meaning specified in Section 2.15(h) .
 
“ Parent ” has the meaning specified in the recital of parties to this Agreement.
 
“ Patriot Act ” has the meaning specified in Section 9.15 .
 
“ PBGC ” means the Pension Benefit Guaranty Corporation (or any successor).
 
“ Pension Plan ” means a “pension plan”, as such term is defined in section 3(2) of ERISA, which is subject to title IV of ERISA (other than any “multiemployer plan” as such term is defined in section 4001(a)(3) of ERISA), and to which any Loan Party or any ERISA Affiliate may have any liability, including any liability by reason of having been a substantial employer
 
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within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA.
 
“ Permitted Collateral Liens ” has the meaning specified in Section 5.02(a) .
 
“ Permitted Liens ” means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced or which are being contested in good faith by appropriate proceedings: (a) Liens for taxes, assessments and governmental charges or levies not yet due and payable; (b) Liens imposed by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 90 days; (c) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes.
 
“ Person ” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.
 
“ Pledge and Security Agreement ” means the Pledge and Security Agreement made by the Account Parties party thereto in favor of the Administrative Agent, in substantially the form of Exhibit D , as amended.
 
“ Preferred Interests ” means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person’s property and assets, whether by dividend or upon liquidation.
 
“ Preferred Securities ” means (i) preferred securities issued by a Special Purpose Trust which shall provide, among other things, that dividends shall be payable only out of proceeds of interest payments on the Debentures, or (ii) other instruments that may be treated in whole or in part as equity for rating agency purposes while being treated as debt for tax purposes.
 
“ Pro Rata ” means from and to the Banks in accordance with their respective Letter of Credit Participating Interest Percentages.
 
“ Pro Rata Share ” means, for any Bank, its share determined Pro Rata, in accordance with the definition of the term “Pro Rata.”
 
“ Redeemable ” means, with respect to any Equity Interest, any Debt or any other right or obligation, any such Equity Interest, Debt, right or obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder.
 
“ Register ” has the meaning specified in Section 9.07(d) .
 
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“ Regulation U ” means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.
 
“ Required Banks ” means, at any time, Banks owed or holding at least a majority in interest of the sum of (a) aggregate principal amount of the Letter of Credit Advances outstanding at such time and (b) the aggregate Available Amount of all Letters of Credit outstanding at such time, or, if no such principal amount and no Letters of Credit are outstanding at such time, Banks having LC Commitment Amounts constituting at least a majority in interest of the aggregate of the LC Commitment Amounts; provided , however , that if any Bank shall be a Defaulting Bank at such time, there shall be excluded from the determination of Required Banks at such time (A) the aggregate principal amount of the interest of such Bank in Letter of Credit Advances and outstanding at such time, (B) such Bank’s Pro Rata Share of the aggregate Available Amount of all Letters of Credit outstanding at such time and (C) the Unused LC Commitment Amount of such Bank at such time.
 
“ Responsible Officer ” means the Chairman, Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer, Treasurer or General Counsel of the Parent.
 
“ S&P ” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.
 
“ Securitization Transaction ” means any sale, assignment or other transfer by Parent or any Subsidiary of any accounts receivable, premium finance loan receivables, lease receivables or other payment obligations owing to Parent or such Subsidiary or any interest in any of the foregoing, together in each case with any collections and other proceeds thereof, any collection or deposit accounts related thereto, and any collateral, guaranties or other property or claims in favor of Parent or such Subsidiary supporting or securing payment by the obligor thereon of, or otherwise related to, any such receivables.
 
“ Security Documents ” means, collectively, (i) the Pledge and Security Agreement and all other security agreements, pledge agreements, charges and mortgages at any time delivered to the Administrative Agent to create or evidence the Liens securing the Obligations, and (ii) the State Street Control Agreements and all other control agreements and similar agreements pursuant to which a Lien on a Custodial Account (and on the contents thereof) securing the Obligations is perfected in favor of the Administrative Agent, in each case under (i) and (ii), as amended.
 
“ Significant Subsidiary ” means a Subsidiary of Parent that is a “significant subsidiary” of the Parent under Regulation S-X promulgated by the Securities and Exchange Commission.
 
“ Solvent ” and “ Solvency ” mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature and (d) such Person is not
 
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engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
 
“ Special Purpose Trust ” means a special purpose business trust established by the Parent or ACE INA of which the Parent or ACE INA will hold all the common securities, which will be the issuer of the Preferred Securities, and which will loan to the Parent or ACE INA (such loan being evidenced by the Debentures) the net proceeds of the issuance and sale of the Preferred Securities and common securities of such Special Purpose Trust.
 
“ State Street ” means State Street Bank and Trust Company.
 
“ State Street Control Agreements ” means, collectively, the control agreements among State Street, the Administrative Agent and (respectively) each of the Account Parties, each in form and substance reasonably satisfactory to the Administrative Agent, as amended.
 
“ State Street Custodial Accounts ” means, collectively, the Custodial Accounts of each of the Account Parties pledged pursuant to the Pledge and Security Agreement and in which the Administrative Agent’s Lien is perfected pursuant to the State Street Control Agreements.
 
“ State Street Custodial Agreements ” means, collectively, the Custodial Agreements by and between State Street and (respectively) each of the Account Parties, in each case as amended.
 
“ Subsidiary ” of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries.
 
“ Subsidiary Guarantors ” means the Account Parties (other than the Parent).
 
“ Syndication Agent ” has the meaning specified in the recital of parties to this Agreement.
 
“ Taxes ” has the meaning specified in Section 2.08(a) .
 
“ Tempest ” has the meaning specified in the recital of parties to this Agreement.
 
“ Tempest Life ” has the meaning specified in the recital of parties to this Agreement.
 
“ Total Capitalization ” means, at any time, an amount (without duplication) equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) Consolidated
 
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stockholders equity of the Parent and its Subsidiaries plus (without duplication) (iii) the then issued and outstanding amount of Preferred Securities (including Mandatorily Convertible Preferred Securities) and (without duplication) Debentures.
 
“ Uniform Commercial Code ” has the meaning specified in the Pledge and Security Agreement.
 
“ Unsecured Letter of Credit Facility ” means the $850,000,000 unsecured letter of credit facility for the benefit of the Account Parties evidenced by the Reimbursement Agreement, dated as of even date herewith, among the Account Parties, the banks and other lenders named therein, Bank of America, as Syndication Agent, Barclays and CitiBank, as Issuing Banks, and Wachovia, as an Issuing Bank and as Administrative Agent (as amended or otherwise modified from time to time).
 
“ Unused LC Commitment Amount ” means, with respect to any Bank at any time, (a) such Bank’s LC Commitment Amount at such time minus (b) such Bank’s Pro Rata Share of (i) the aggregate Available Amount of all Letters of Credit hereunder (including, without limitation, all Existing Letters of Credit) and (ii) the aggregate principal amount of all Letter of Credit Advances made by the Issuing Banks pursuant to Section 2.02(g) and outstanding at such time (whether held by the Issuing Banks or the Banks).
 
“ U.S. Government Securities ” means securities issued or unconditionally guaranteed by the United States of America or any agency or instrumentality thereof and backed by the full faith and credit of the United States of America.
 
“ Voting Interests ” means shares of capital stock issued by a corporation, or equivalent Equity Interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency.
 
“ Wachovia ” has the meaning specified in the recital of parties to this Agreement.
 
“ Welfare Plan ” means a welfare plan, as defined in Section 3(1) of ERISA, that is maintained for employees of any Loan Party or in respect of which any Loan Party could have liability.
 
“ Withdrawal Liability ” has the meaning specified in Part I of Subtitle E of Title IV of ERISA.
 
1.02 Computation of Time Periods; Other Definitional Provisions . In this Agreement and the other Loan Documents in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”. References in the Loan Documents to any agreement or contract “as amended” shall mean and be a reference to such agreement or contract as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms.
 
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1.03 Accounting Terms and Determinations . Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time in the United States of America (“ GAAP ”), applied on a basis consistent (except for changes concurred in by the Parent’s independent public accountants) with the most recent audited consolidated financial statements of the Parent and its Subsidiaries delivered to the Banks; provided that, if the Parent notifies the Administrative Agent that the Parent wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Administrative Agent notifies the Parent that the Required Banks wish to amend Article V for such purpose), then the Parent’s compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective (and, concurrently with the delivery of any financial statements required to be delivered hereunder, the Parent shall provide a statement of reconciliation conforming such financial information to such generally accepted accounting principles as previously in effect), until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Parent and the Required Banks.
 
ARTICLE II
 
AMOUNTS AND TERMS OF
THE LETTERS OF CREDIT
 
2.01 The Letters of Credit . Each Issuing Bank agrees, on the terms and subject to the conditions herein set forth, to issue standby letters of credit (the “ Letters of Credit ”) for the account of any Account Party on any Business Day from time to time during the period from the Effective Date to the Expiration Date. From and after the Effective Date, the Existing Letters of Credit shall be Letters of Credit hereunder. No Issuing Bank shall have any obligation to issue, and no Account Party will request the issuance of, any Letter of Credit hereunder if (a) the aggregate Available Amounts of all Letters of Credit issued by such Issuing Bank would exceed, after giving effect to such issuance, the maximum amount set forth in a letter agreement between such Issuing Bank and the Parent, on behalf of the Account Parties, or (b) the aggregate Available Amounts of all Letters of Credit would exceed, after giving effect to such issuance, the aggregate Collateral Value, or (c) any Bank’s Pro Rata Share of the Available Amount of such Letter of Credit exceeds, immediately before the time of such issuance, an amount equal to such Bank’s Pro Rata Share of the total Unused LC Commitment Amounts of the Banks at such time (as such amount shall be advised by the Administrative Agent to the respective Issuing Bank as contemplated by Section 2.02 ). Unless all the Banks consent otherwise in writing, no Issuing Bank shall have any obligation to issue, and no Account Party shall request the issuance of, any Letter of Credit hereunder if the Available Amount of such Letter of Credit exceeds, immediately before the time of such issuance, an amount equal to the total Unused LC Commitment Amounts of the Banks at such time (as such amount shall be advised by the Administrative Agent to the respective Issuing Bank as contemplated by Section 2.02 ). No Issuing Bank shall have any obligation to issue, and no Account Party shall request the issuance of, any Letter of Credit except within the following limitations: (i) subject to the provisions of Section 2.15, each Letter of Credit shall be denominated in U.S. dollars, (ii) each Letter of Credit
 
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shall be payable only against sight drafts (and not time drafts) and (iii) no Letter of Credit shall have an expiration date (including all rights of the Applicable Account Party or the beneficiary to require renewal) later than one year after the date of issuance thereof, but a Letter of Credit may by its terms be automatically renewable annually unless the respective Issuing Bank notifies the beneficiary thereof of its election not to renew such Letter of Credit (which such Issuing Bank agrees to do on and subject to the terms of Section 2.02(d) ). No Issuing Bank shall have any obligation to issue any letter of credit which is unsatisfactory in form, substance or beneficiary to such Issuing Bank in the exercise of its reasonable judgment consistent with its customary practice. Letters of Credit may be issued for the account of any Subsidiary of the Parent that is not an Account Party hereunder, provided that the Parent shall be a joint applicant and account party with respect to any such Letter of Credit.
 
2.02 Issuance and Renewals and Drawings, Participations and Reimbursement with Respect to Letters of Credit .
 
(a) Request for Issuance . An Account Party may from time to time request, upon at least three Business Days’ notice (given not later than 11:00 A.M. Charlotte, North Carolina time on the last day permitted therefor), an Issuing Bank issue or renew (other than any automatic renewal thereof) a Letter of Credit by:
 
(i) delivering to such Issuing Bank, with a copy to the Administrative Agent, either (x) a written request to such effect or (y) a request made in electronic form through such Issuing Bank’s remote access system and in accordance with the terms and conditions (including any written agreements between such Issuing Bank and any Account Party) applicable thereto, in each case specifying the date on which such Letter of Credit is to be issued (which shall be a Business Day), the expiration date thereof, the Available Amount thereof, the name and address of the beneficiary thereof and the form thereof, and in each case with a copy of such request (or, in the case of clause (y) above, a written or electronic summary thereof) to the Administrative Agent; and
 
(ii) in the case of the issuance of a Letter of Credit, delivering to such Issuing Bank, with a copy to the Administrative Agent, a completed agreement and application with respect to such Letter of Credit as such Issuing Bank may specify for use in connection with such requested Letter of Credit (a “ Letter of Credit Agreement ”), together with such other certificates, documents and other papers or information as are specified in such Letter of Credit Agreement or as may be required pursuant to such Issuing Bank’s customary practices for the issuance of letters of credit (including requirements relating to requests made through such Issuing Bank’s remote access system).
 
In addition, the applicable Account Party shall deliver to the Administrative Agent a Collateral Value Report not later than 11:00 A.M. Charlotte, North Carolina time on the Business Day immediately preceding the date on which such Letter of Credit is to be issued.
 
If the limitations set forth in Sections 2.01(b) and 2.01(c) are satisfied and if the Required Banks have not given notice to the Administrative Agent to cease issuing or renewing Letters of Credit
 
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as contemplated by this Agreement, the Administrative Agent shall promptly notify the respective Issuing Bank (in writing or by telephone immediately confirmed in writing) that such Issuing Bank is authorized to issue or renew, as the case may be, such Letter of Credit. An Issuing Bank shall not issue or renew, as the case may be, any Letter of Credit (other than by the automatic renewal thereof) unless it shall have received notice from the Administrative Agent that it is authorized to do so as described in the preceding sentence. If such Issuing Bank issues or renews a Letter of Credit, it shall deliver the original of such Letter of Credit to the beneficiary thereof or as the Applicable Account Party shall otherwise direct, and shall promptly notify the Administrative Agent thereof and furnish a copy thereof to the Administrative Agent. Each Issuing Bank may issue Letters of Credit through any of its branches or Affiliates (whether domestic or foreign) that issue letters of credit, and each Account Party authorizes and directs each Issuing Bank to select the branch or Affiliate that will issue or process any Letter of Credit.
 
(b) Request for Extension or Increase . An Account Party may from time to time request an Issuing Bank extend the expiration date of an outstanding Letter of Credit issued for its account or increase (or, with the consent of the beneficiary, decrease) the Available Amount of or the amount available to be drawn on such Letter of Credit by delivering to such Issuing Bank, with a copy to the Administrative Agent, either (i) a written request to such effect or (ii) a request made in electronic form through such Issuing Bank’s remote access system. Such extension or increase shall for all purposes hereunder (including for purposes of Section 2.02(a) ) be treated as though such Account Party had requested issuance of a replacement Letter of Credit (except only that such Issuing Bank may, if it elects, issue a notice of extension or increase in lieu of issuing a new Letter of Credit in substitution for the outstanding Letter of Credit).
 
(c) Automatic Renewals . If any Letter of Credit shall provide for the automatic renewal of the expiry date thereof unless the respective Issuing Bank gives notice that such expiry date shall not be renewed, then the respective Issuing Bank shall allow such Letter of Credit to be renewed unless it shall have received, at least five days prior to the date on which such notice of nonrenewal must be delivered under such Letter of Credit (or such shorter period acceptable to the respective Issuing Bank) (i) notice from the Administrative Agent that such Issuing Bank is not authorized to renew such Letter of Credit (or Letters of Credit generally), or (ii) notice from any Account Party that it does not want the Issuing Bank to renew such Letter of Credit. An Issuing Bank shall not allow any Letter of Credit to be automatically renewed if it has received notice from the Administrative Agent, as described in the preceding sentence, that it is not authorized to do so anytime prior to the date five days prior to the date on which the notice of nonrenewal must be delivered under such Letter of Credit.
 
(d) Limitations on Issuance, Extension, Renewal and Amendment . As between each Issuing Bank, on the one hand, and the Agents and the Banks, on the other hand, each Issuing Bank shall be justified and fully protected (i) in issuing or renewing a proposed Letter of Credit (other than by the automatic renewal thereof) if such Issuing Bank has received notice from the Administrative Agent that such Issuing Bank is authorized to issue or renew such Letter of Credit, and (ii) in allowing a Letter of Credit to be automatically renewed if such Issuing Bank has not received notice from the Administrative Agent as provided in Section 2.02(c) hereof that it is not authorized to do so at any time prior to the date five days prior to the date on which the notice of nonrenewal must be delivered under such Letter of Credit, in either case, notwithstanding any subsequent notices to such Issuing Bank, any knowledge of a Default, any
 
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knowledge of failure of any condition specified in Article III hereof to be satisfied, any other knowledge of such Issuing Bank, or any other event, condition or circumstance whatsoever. Each Issuing Bank may amend, modify or supplement Letters of Credit or Letter of Credit Agreements, or waive compliance with any condition of issuance, renewal or payment, without the consent of, and without liability to, any Agent or any Bank, provided that any such amendment, modification or supplement that extends the expiration date or increases the Available Amount of or the amount available to be drawn on an outstanding Letter of Credit shall be subject to Section 2.01 . With respect to each Letter of Credit that remains outstanding at any time after the Expiration Date and that provides by its terms for automatic renewal, the respective Issuing Bank shall notify the beneficiary thereof, in accordance with the terms specified for such notice in such Letter of Credit, of such Issuing Bank’s election not to renew such Letter of Credit.
 
(e) Letter of Credit Participating Interests . Concurrently with the issuance of each Letter of Credit (and upon the Effective Date, with respect to each Existing Letter of Credit, and without any further action by any party to this Agreement), the respective Issuing Bank automatically shall be deemed, irrevocably and unconditionally, to have sold, assigned, transferred and conveyed to each other Bank, and each other Bank automatically shall be deemed, irrevocably and unconditionally, severally to have purchased, acquired, accepted and assumed from such Issuing Bank, without recourse to, or representation or warranty by, such Issuing Bank, an undivided interest, in a proportion equal to such Bank’s Pro Rata Share, in all of such Issuing Bank’s rights and obligations in, to or under such Letter of Credit, the related Letter of Credit Agreement, all reimbursement obligations with respect to such Letter of Credit, and all Collateral, guarantees and other rights from time to time directly or indirectly securing the foregoing (such interest of each Bank being referred to herein as a “ Letter of Credit Participating Interest ”, it being understood that the Letter of Credit Participating Interest of such Issuing Bank is the interest not otherwise attributable to the Letter of Credit Participating Interests of the other Banks). Each Bank irrevocably and unconditionally agrees to the immediately preceding sentence, such agreement being herein referred to as such Bank’s “ Letter of Credit Participating Interest Commitment ”. Amounts, other than Letter of Credit Advances made by a Bank other than the Issuing Banks and other than Letter of Credit commissions under Section 2.05(c)(i) , payable from time to time under or in connection with a Letter of Credit or Letter of Credit Agreement shall be for the sole account of the Issuing Banks. On the date that any assignee becomes a party to this Agreement in accordance with Section 9.07 hereof, Letter of Credit Participating Interests in all outstanding Letters of Credit held by the Bank from which such assignee acquired its interest hereunder shall be proportionately reallocated between such assignee and such assignor Bank (and, to the extent such assignor Bank is an Issuing Bank, the assignee Bank shall be deemed to have acquired a Letter of Credit Participating Interest from such Issuing Bank to such extent). Notwithstanding any other provision hereof, each Bank hereby agrees that its obligation to participate in each Letter of Credit, its obligation to make the payments specified in Section 2.02(f) , and the right of each Issuing Bank to receive such payments in the manner specified therein, are each absolute, irrevocable and unconditional and shall not be affected by any event, condition or circumstance whatever. The failure of any Bank to make any such payment shall not relieve any other Bank of its funding obligation hereunder on the date due, but no Bank shall be responsible for the failure of any other Bank to meet its funding obligations hereunder.
 
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(f) Payment by Banks on Account of Unreimbursed Draws . If an Issuing Bank makes a payment under any Letter of Credit and is not reimbursed in full therefor in accordance with Section 2.03(a) , such Issuing Bank may notify the Administrative Agent thereof (which notice may be by telephone), and the Administrative Agent shall forthwith notify each Bank (which notice may be by telephone promptly confirmed in writing) thereof. No later than the Administrative Agent’s close of business on the date such notice is given (if notice is given by 2:00 P.M. Charlotte, North Carolina time) or 10:00 A.M. Charlotte, North Carolina time the following day (if notice is given after 2:00 P.M. Charlotte, North Carolina time or in the case of any Bank whose Applicable Lending Office is located in Europe), each Bank will pay to the Administrative Agent, for the account of such Issuing Bank, in immediately available funds, an amount equal to such Bank’s Pro Rata Share of the unreimbursed portion of such payment by such Issuing Bank. Amounts received by the Administrative Agent for the account of such Issuing Bank shall be forthwith transferred, in immediately available funds, to such Issuing Bank. If and to the extent that any Bank fails to make such payment to the Administrative Agent for the account of such Issuing Bank on such date, such Bank shall pay such amount on demand, together with interest, for such Issuing Bank’s own account, for each day from and including the date such payment is due from such Bank to such Issuing Bank to but not including the date of repayment to such Issuing Bank (before and after judgment) at a rate per annum for each day (i) from and including the date such payment is due from such Bank to such Issuing Bank to and including the second Business Day thereafter equal to the Federal Funds Rate and (ii) thereafter equal to the Base Rate. For avoidance of doubt, it is understood and agreed by the Banks that Letters of Credit issued prior to the Expiration Date may, by their terms, remain outstanding after the Expiration Date and that the obligations of the Banks to make payments under this Section 2.02(f) shall continue from and after the Expiration Date until the expiration or termination of all Letters of Credit, subject to and in accordance with the terms hereof.
 
(g) Letter of Credit Advances . The term “ Letter of Credit Advance ” is used in this Agreement in accordance with the meanings set forth in this Section 2.02(g) . The making of any payment by an Issuing Bank under a Letter of Credit is sometimes referred to herein as the making of a Letter of Credit Advance by such Issuing Bank in the amount of such payment. The making of any payment by a Bank for the account of an Issuing Bank under Section 2.02(f) on account of an unreimbursed drawing on a Letter of Credit is sometimes referred to herein as the making of a Letter of Credit Advance to the Applicable Account Party by such Bank. The making of such a Letter of Credit Advance by a Bank with respect to an unreimbursed drawing on a Letter of Credit shall reduce, by a like amount, the outstanding Letter of Credit Advance of the Issuing Bank with respect to such unreimbursed drawing.
 
(h) Letter of Credit Reports . Each Issuing Bank will furnish to the Administrative Agent prompt written notice of each issuance or renewal of a Letter of Credit (including the Available Amount and expiration date thereof), amendment to a Letter of Credit, cancellation of a Letter of Credit and payment on a Letter of Credit. The Administrative Agent will furnish (A) to each Bank prior to the fifteenth Business Day of each calendar quarter a written report summarizing issuance, renewal and expiration dates of Letters of Credit issued or renewed during the preceding calendar quarter and payments and reductions in Available Amount during such calendar quarter on all Letters of Credit and (B) to each Bank prior to the fifteenth Business Day of each calendar quarter a written report setting forth the average daily aggregate Available Amount during the preceding calendar quarter of all Letters of Credit.
 
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2.03 Repayment of Advances .
 
(a) Account Parties’ Reimbursement Obligation .
 
(i) Each Account Party hereby agrees to reimburse each Issuing Bank (by making payment to the Administrative Agent for the account of each Issuing Bank in accordance with Section 2.07 ) in the amount of each payment made by each Issuing Bank under any Letter of Credit issued for such Account Party’s account, such reimbursement to be made on the date such payment under such Letter of Credit is made by the Issuing Bank (but not earlier than one Business Day after notice of the drawing giving rise to such payment under such Letter of Credit is given to such Account Party). Such reimbursement obligation shall be payable without further notice, protest or demand, all of which are hereby waived, and an action therefor shall immediately accrue. To the extent such payment by such Account Party is not timely made as provided in the first sentence of this clause (i), (x) such Account Party hereby agrees to pay to the Administrative Agent, for the respective accounts of each Issuing Bank and the Banks which have funded their respective shares of such amount remaining unpaid by such Account Party, on demand, interest at a rate per annum equal to the Base Rate plus 2%, for each day from and including the date on which the Applicable Account Party is to reimburse such Issuing Bank to, but excluding, the date such obligation is paid in full, and (y) each Account Party shall be deemed to have delivered an irrevocable and continuing Letter of Instruction to the Administrative Agent (which each Account Party hereby irrevocably authorizes the Administrative Agent to date the date that such payment to the Administrative Agent is due and payable and to deliver to the Persons identified therein) instructing the Administrative Agent to obtain, receive and apply at or after such time such part of the Collateral or the proceeds thereof as is equivalent to such reimbursement obligation and any interest thereon that may accrue prior to such application.
 
(ii) The obligation of each Account Party to reimburse each Issuing Bank for any payment made by each Issuing Bank under any Letter of Credit, and the obligation of each Bank under Section 2.02(f) with respect thereto, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, the applicable Letter of Credit Agreement and any other applicable agreement or instrument under all circumstances, including, without limitation, the following circumstances:
 
(A) any lack of validity or enforceability of any Loan Document, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (all of the foregoing being, collectively, the “ L/C Related Documents ”);
 
(B) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of any Account Party or any other Person in respect of any L/C Related Document or any other
 
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amendment or waiver of or any consent to departure from all or any of the L/C Related Documents;
 
(C) the existence of any claim, set-off, defense or other right that any Account Party or any other Person may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for which any such beneficiary or any such transferee may be acting), any Issuing Bank or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction;
 
(D) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;
 
(E) payment by any Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit;
 
(F) any exchange, release or non-perfection of any Collateral, or any release or amendment or waiver of or consent to departure from the Guaranty or any other guarantee, for all or any of the obligations of any Account Party or any other Person in respect of the L/C Related Documents; or
 
(G) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Account Party or a guarantor.
 
(b) Rescission . If any amount received by an Issuing Bank on account of any Letter of Credit Advance shall be avoided, rescinded or otherwise returned or paid over by such Issuing Bank for any reason at any time, whether before or after the termination of this Agreement (or such Issuing Bank believes in good faith that such avoidance, rescission, return or payment is required, whether or not such matter has been adjudicated), each Bank will (except to the extent a corresponding amount received by such Bank on account of its Letter of Credit Advance relating to the same payment on a Letter of Credit has been avoided, rescinded or otherwise returned or paid over by such Bank), promptly upon notice from the Administrative Agent or such Issuing Bank, pay over to the Administrative Agent for the account of such Issuing Bank its Pro Rata Share of such amount, together with its Pro Rata Share of any interest or penalties payable with respect thereto.
 
2.04 Termination or Reduction of the LC Commitment Amounts . The Parent may, upon at least three Business Days’ notice to the Administrative Agent, terminate in whole or reduce in part the unused portion of the LC Commitment Amounts; provided , however , that each partial reduction (i) shall be in an aggregate amount of $10,000,000 or an integral multiple of
 
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$1,000,000 in excess thereof and (ii) shall be made ratably among the Banks in accordance with their LC Commitment Amounts.
 
2.05 Fees .
 
(a) Commitment Fee . The Account Parties jointly and severally agree to pay to the Administrative Agent for the account of the Banks a commitment fee, from the Effective Date in the case of each Initial Bank and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Bank in the case of each other Bank until the Expiration Date, payable in arrears quarterly on the last Business Day of each March, June, September and December commencing December 31, 2004 and on the Expiration Date, at a rate equal to 0.10% per annum on the average daily Unused LC Commitment Amount of each Bank during such quarter (or shorter period); provided , however , that no commitment fee shall accrue on the LC Commitment Amount of a Defaulting Bank so long as such Bank shall be a Defaulting Bank.
 
(b) Administrative Agent’s Fees . The Account Parties jointly and severally agree to pay to the Administrative Agent for its own account such fees as may from time to time be agreed between the Parent and the Administrative Agent.
 
(c) Letter of Credit Fees, Etc.
 
(i) The Account Parties jointly and severally agree to pay to the Administrative Agent for the account of each Bank a commission, payable in arrears quarterly on the last Business Day of each March, June, September and December commencing December 31, 2004, and on the Expiration Date, on such Bank’s Pro Rata Share of the average daily aggregate Available Amount during such quarter (or shorter period) of all Letters of Credit outstanding from time to time at a rate equal to 0.30% per annum.
 
(ii) The Account Parties jointly and severally agree to pay (x) to Wachovia, in its capacity as an Issuing Bank and for its own account, the facing fee referred to the Fee Letter, on the terms set forth therein, and (y) each Issuing Bank’s customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, relating to letters of credit as are from time to time in effect. With respect to each Existing Letters of Credit, Wachovia shall be entitled to receive the fees and other amounts provided for under this Section 2.05(c)(ii) (to the extent not previously paid to Wachovia pursuant to the Existing Reimbursement Agreement) as if the Existing Letters of Credit were issued hereunder on the Effective Date.
 
2.06 Increased Costs, Etc.
 
(a) If, due to either (i) the introduction of or any change in or in the interpretation of, in each case after the date hereof, any law or regulation or (ii) the compliance with any guideline or request issued after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Bank of agreeing to issue or of issuing or maintaining or participating in Letters of Credit or the making
 
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of Letter of Credit Advances (excluding, for purposes of this Section 2.06 , any such increased costs resulting from (x) Taxes or Other Taxes (as to which Section 2.08 shall govern) and (y) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Bank is organized or has its Applicable Lending Office or any political subdivision thereof), then the Account Parties jointly and severally agree to pay, from time to time, within five days after demand by such Bank (with a copy of such demand to the Administrative Agent), which demand shall include a statement of the basis for such demand and a calculation in reasonable detail of the amount demanded, to the Administrative Agent for the account of such Bank additional amounts sufficient to compensate such Bank for such increased cost. A certificate as to the amount of such increased cost, submitted to the Account Parties by such Bank, shall be conclusive and binding for all purposes, absent manifest error.
 
(b) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation, in each case after the date hereof, or (ii) the compliance with any guideline or request issued after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the amount of capital required or expected to be maintained by any Bank or any corporation controlling such Bank as a result of or based upon the existence of such Bank’s commitment to lend hereunder and other commitments of such type, then, within five days after demand by such Bank or such corporation (with a copy of such demand to the Administrative Agent), which demand shall include a statement of the basis for such demand and a calculation in reasonable detail of the amount demanded, the Account Parties jointly and severally agree to pay to the Administrative Agent for the account of such Bank, from time to time as specified by such Bank, additional amounts sufficient to compensate such Bank in the light of such circumstances, to the extent that such Bank reasonably determines such increase in capital to be allocable to the existence of such Bank’s commitment to issue or participate in Letters of Credit hereunder or to the issuance or maintenance of or participation in any Letters of Credit. A certificate as to such amounts submitted to the Account Parties by such Bank shall be conclusive and binding for all purposes, absent manifest error.
 
(c) Each Bank shall promptly notify the Account Parties and the Administrative Agent of any event of which it has actual knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Bank’s good faith judgment, otherwise disadvantageous to such Bank) to mitigate or avoid any obligation by the Account Parties to pay any amount pursuant to Section 2.06(a) or 2.06(b) above or pursuant to Section 2.08 (and, if any Bank has given notice of any such event and thereafter such event ceases to exist, such Bank shall promptly so notify the Account Parties and the Administrative Agent). Without limiting the foregoing, each Bank will designate a different Applicable Lending Office if such designation will avoid (or reduce the cost to the Account Parties of) any event described in the preceding sentence and such designation will not, in such Bank’s good faith judgment, be otherwise disadvantageous to such Bank.
 
(d) Notwithstanding the provisions of Section 2.06(a) , 2.06(b) or 2.08 (and without limiting Section 2.06(c) above), if any Bank fails to notify the Account Parties of any event or circumstance that will entitle such Bank to compensation pursuant to Section 2.06(a) , 2.06(b) or 2.08 within 120 days after such Bank obtains actual knowledge of such event or circumstance,
 
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then such Bank shall not be entitled to compensation from the Account Parties for any amount arising prior to the date which is 120 days before the date on which such Bank notifies the Account Parties of such event or circumstance. For avoidance of doubt, it is noted that the term “Bank” as used in this Section 2.06 and in other Sections of this Agreement includes the Issuing Banks in its capacity as such.
 
2.07 Payments and Computations .
 
(a) The Account Parties shall make each payment hereunder irrespective of any right of counterclaim or set-off (except as otherwise provided in Section 2.11 ), not later than 11:00 A.M. (Charlotte, North Carolina time) on the day when due, in U.S. dollars, to the Administrative Agent at the Administrative Agent’s Account in same day funds, with payments being received by the Administrative Agent after such time being deemed to have been received on the next succeeding Business Day. The Administrative Agent will promptly thereafter cause like funds to be distributed (i) if such payment by such Account Party is in respect of principal, interest, commitment fees or any other amount then payable hereunder to more than one Bank, to such Banks for the account of their respective Applicable Lending Offices ratably in accordance with the amounts of such respective amount then payable to such Banks and (ii) if such payment by such Account Party is in respect of any amount then payable hereunder to one Bank, to such Bank for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.07(d) , from and after the effective date of such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder in respect of the interest assigned thereby to the Bank assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves.
 
(b) Each Account Party hereby authorizes each Bank, if an Event of Default under Section 6.01(a) has occurred and is continuing, to charge from time to time against any or all of such Account Party’s accounts with such Bank any amount that resulted in such Event of Default.
 
(c) All computations of interest on Letter of Credit Advances (and any other amount payable by reference to the Base Rate) when the Base Rate is determined by reference to Wachovia’s prime rate shall be made by the Administrative Agent on the basis of a year of 365 days or, if applicable, 366 days; all other computations of interest, fees and Letter of Credit commissions shall be made by the Administrative Agent on the basis of a year of 360 days. All such computations shall be made for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, fees or commissions are payable. Each determination by the Administrative Agent of an interest rate, fee or commission hereunder shall be conclusive and binding for all purposes, absent manifest error.
 
(d) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fee, as the case may be.
 
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2.08 Taxes .
 
(a) Any and all payments by any Loan Party hereunder shall be made, in accordance with Section 2.07 , free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and each Agent, taxes that are imposed on its overall net income by the United States and taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction under the laws of which such Bank or such Agent, as the case may be, is organized or any political subdivision thereof and, in the case of each Bank, taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction of such Bank’s Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder being herein referred to as “ Taxes ”). If any Loan Party shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or to any Bank or any Agent, (i) the sum payable by such Loan Party shall be increased as may be necessary so that after such Loan Party and the Administrative Agent have made all required deductions (including deductions applicable to additional sums payable under this Section 2.08 ) such Bank or such Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Party shall make all such deductions and (iii) such Loan Party shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.
 
(b) In addition, each Loan Party shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment made hereunder or from the execution, delivery or registration of, performance under, or otherwise with respect to, this Agreement or any other Loan Document (herein referred to as “ Other Taxes ”).
 
(c) Each Loan Party shall indemnify each Bank and each Agent for and hold them harmless against the full amount of Taxes and Other Taxes, and for the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.08 , imposed on or paid by such Bank or such Agent (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification payment shall be made within 30 days from the date such Bank or such Agent (as the case may be) makes written demand therefor.
 
(d) Within 30 days after the date of any payment of Taxes, each Loan Party shall furnish to the Administrative Agent, at its address referred to in Section 9.02 , the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder by or on behalf of a Loan Party through an account or branch outside the United States or by or on behalf of a Loan Party by a payor that is not a United States person, if such Loan Party determines that no Taxes are payable in respect thereof, such Loan Party shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of this Section 2.08(d) or Section 2.08(e) , the terms “United States” and “United States person” shall have the meanings specified in Section 7701(a)(9) and 7701(a)(10) of the Internal Revenue Code, respectively.
 
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(e) Each Bank organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Bank or each Issuing Bank, as the case may be, and on the date of the Assignment and Acceptance pursuant to which it becomes a Bank in the case of each other Bank, and from time to time thereafter as requested in writing by the Parent (but only so long thereafter as such Bank remains lawfully able to do so), provide each of the Administrative Agent and the Parent with two original Internal Revenue Service forms W-8BEN or W-8ECI or (in the case of a Bank that has certified in writing to the Administrative Agent that it is not a “bank” as defined in Section 881(c)(3)(A) of the Internal Revenue Code) form W-8 (and, if such Bank delivers a form W-8, a certificate representing that such Bank is not a “bank” for purposes of Section 881(c)(3)(A) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Bank is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or, in the case of a Bank providing a form W-8, certifying that such Bank is a foreign corporation, partnership, estate or trust. If the forms provided by a Bank at the time such Bank first becomes a party to this Agreement indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Bank provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such forms; provided , however , that if, at the effective date of the Assignment and Acceptance pursuant to which a Bank becomes a party to this Agreement, the Bank assignor was entitled to payments under Section 2.08(a) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Bank assignee on such date. If any form or document referred to in this Section 2.08(e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form W-8BEN, W-8ECI or W-8 (and the related certificate described above), that the Bank reasonably considers to be confidential, the Bank shall give notice thereof to the Parent and shall not be obligated to include in such form or document such confidential information.
 
(f) For any period with respect to which a Bank which may lawfully do so has failed to provide the Parent with the appropriate form described in Section 2.08(e) above ( other than if such failure is due to a change in law occurring after the date on which a form originally was required to be provided or if such form otherwise is not required under Section 2.08(e) above), such Bank shall not be entitled to indemnification under Sections 2.08(a) or 2.08(c) with respect to Taxes imposed by the United States by reason of such failure; provided , however , that should a Bank become subject to Taxes because of its failure to deliver a form required hereunder, the Parent shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes.
 
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(g) Each Bank represents and warrants to the Account Parties that, as of the date such Bank becomes a party to this Agreement, such Bank is entitled to receive payments hereunder from the Account Parties without deduction or withholding for or on account of any Taxes.
 
2.09 Sharing of Payments, Etc. If any Bank shall obtain at any time any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise, other than as a result of an assignment pursuant to Section 9.07 ) (a) on account of Obligations due and payable to such Bank hereunder at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Bank at such time to (ii) the aggregate amount of the Obligations due and payable to all Banks hereunder at such time) of payments on account of the Obligations due and payable to all Banks hereunder at such time obtained by all the Banks at such time or (b) on account of Obligations owing (but not due and payable) to such Bank hereunder at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing to such Bank at such time to (ii) the aggregate amount of the Obligations owing (but not due and payable) to all Banks hereunder at such time) of payments on account of the Obligations owing (but not due and payable) to all Banks hereunder at such time obtained by all of the Banks at such time, such Bank shall forthwith purchase from the other Banks such interests or participating interests in the Obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of them; provided , however , that if all or any portion of such excess payment is thereafter recovered from such purchasing Bank, such purchase from each other Bank shall be rescinded and such other Bank shall repay to the purchasing Bank the purchase price to the extent of such Bank’s ratable share (according to the proportion of (i) the purchase price paid to such Bank to (ii) the aggregate purchase price paid to all Banks) of such recovery together with an amount equal to such Bank’s ratable share (according to the proportion of (i) the amount of such other Bank’s required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. Each Account Party agrees that any Bank so purchasing an interest or participating interest from another Bank pursuant to this Section 2.09 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such interest or participating interest, as the case may be, as fully as if such Bank were the direct creditor of such Account Party in the amount of such interest or participating interest, as the case may be.
 
2.10 Use of Letters of Credit . The Letters of Credit shall be used for the general corporate purposes of the Account Parties and their respective Subsidiaries.
 
2.11 Defaulting Banks .
 
(a) In the event that, at any one time, (i) any Bank shall be a Defaulting Bank, (ii) such Defaulting Bank shall owe a Defaulted Amount to any Agent or any of the other Banks and (iii) any Account Party shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Bank, then the Administrative Agent may, on its behalf or on behalf of such other Banks and to the fullest extent permitted by applicable law, apply at such time the amount so paid by such Account Party to or for the account of such Defaulting Bank to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. In the event that the Administrative Agent
 
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shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Banks, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent and such other Banks and, if the amount of such payment made by such Account Party shall at such time be insufficient to pay all Defaulted Amounts owing at such time to the Administrative Agent, such other Agents and such other Banks, in the following order of priority:
 
(i) first , to the Agents for any Defaulted Amounts then owing to the Agents;
 
(ii) second , to the Issuing Banks for any amount then due and payable to them, in their capacity as such, by such Defaulting Bank, ratably in accordance with such amounts then due and payable to the Issuing Banks; and
 
(iii) third , to any other Banks for any Defaulted Amounts then owing to such other Banks, ratably in accordance with such respective Defaulted Amounts then owing to such other Banks.
 
Any portion of such amount paid by such Account Party for the account of such Defaulting Bank remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this Section 2.11(a) , shall be applied by the Administrative Agent as specified in Section 2.11(b) .
 
(b) In the event that, at any one time, (i) any Bank shall be a Defaulting Bank, (ii) such Defaulting Bank shall not owe a Defaulted Amount and (iii) any Account Party, any Agent or other Bank shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Bank, then such Account Party or such Agent or such other Bank shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow and the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this Section 2.11(b) shall be deposited by the Administrative Agent in an account with Wachovia in the name and under the control of the Administrative Agent, but subject to the provisions of this Section 2.11(b) . The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be Wachovia’s standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this Section 2.11(b) . The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Advances required to be made by such Defaulting Bank and to pay any amount payable by such Defaulting Bank hereunder and under the other Loan Documents to the Administrative Agent or any other Bank, as and when such Advances or amounts are required to be made or paid and, if
 
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the amount so held in escrow shall at any time be insufficient to make and pay all such Advances and amounts required to be made or paid at such time, in the following order of priority:
 
(i) first , to the Agents for any amounts then due and payable by such Defaulting Bank to the Agents hereunder;
 
(ii) second , to the Issuing Banks for any amount then due and payable to them, in their capacity as such, by such Defaulting Bank, ratably in accordance with such amounts then due and payable to such Issuing Banks; and
 
(iii) third , to any other Banks for any amount then due and payable by such Defaulting Bank to such other Banks hereunder, ratably in accordance with such respective amounts then due and payable to such other Banks.
 
In the event that any Bank that is a Defaulting Bank shall, at any time, cease to be a Defaulting Bank, any funds held by the Administrative Agent in escrow at such time with respect to such Bank shall be distributed by the Administrative Agent to such Bank and applied by such Bank to the Obligations owing to such Bank at such time under this Agreement and the other Loan Documents ratably in accordance with the respective amounts of such Obligations outstanding at such time.
 
(c) The rights and remedies against a Defaulting Bank under this Section 2.11 are in addition to other rights and remedies that any Agent or any Bank may have against such Defaulting Bank with respect to any Defaulted Amount.
 
2.12 Replacement of Affected Bank . At any time any Bank is an Affected Bank, the Account Parties may replace such Affected Bank as a party to this Agreement with one or more other Banks and/or Eligible Assignees, and upon notice from the Account Parties such Affected Bank shall assign pursuant to an Assignment and Acceptance, and without recourse or warranty, its LC Commitment Amount, its Letter of Credit Advances, its obligations to fund Letter of Credit payments, its participation in, and its rights and obligations with respect to, Letters of Credit, and all of its other rights and obligations hereunder to such other Banks and/or Eligible Assignees for a purchase price equal to the sum of the principal amount of the Letter of Credit Advances so assigned, all accrued and unpaid interest thereon, such Affected Bank’s ratable share of all accrued and unpaid fees payable pursuant to Section 2.05 and all other Obligations owed to such Affected Bank hereunder.
 
2.13 Certain Provisions Relating to the Issuing Banks and Letters of Credit .
 
(a) Letter of Credit Agreements . The representations, warranties and covenants by the Account Parties under, and the rights and remedies of each Issuing Bank under, any Letter of Credit Agreement relating to any Letter of Credit are in addition to, and not in limitation or derogation of, representations, warranties and covenants by the Account Parties under, and rights and remedies of each Issuing Bank and the Banks under, this Agreement and applicable law. Each Account Party acknowledges and agrees that all rights of each Issuing Bank under any Letter of Credit Agreement shall inure to the benefit of each Bank to the extent of its Letter of Credit Participating Interest Commitment and Letter of Credit Advances as fully as if such Bank
 
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was a party to such Letter of Credit Agreement. In the event of any inconsistency between the terms of this Agreement and any Letter of Credit Agreement, this Agreement shall prevail.
 
(b) Certain Provisions . The Issuing Banks shall have no duties or responsibilities to any Agent or any Bank except those expressly set forth in this Agreement, and no implied duties or responsibilities on the part of the Issuing Banks shall be read into this Agreement or shall otherwise exist. The duties and responsibilities of the Issuing Banks to the Banks and the Agents under this Agreement and the other Loan Documents shall be mechanical and administrative in nature, and the Issuing Banks shall not have a fiduciary relationship in respect of any Agent, any Bank or any other Person. No Issuing Bank shall be liable for any action taken or omitted to be taken by it under or in connection with this Agreement or any Loan Document or Letter of Credit, except to the extent resulting from its gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction. The Issuing Banks shall not be under any obligation to ascertain, inquire or give any notice to any Agent or any Bank relating to (i) the performance or observance of any of the terms or conditions of this Agreement or any other Loan Document on the part of any Account Party, (ii) the business, operations, condition (financial or otherwise) or prospects of the Account Parties or any other Person, or (iii) the existence of any Default. The Issuing Banks shall not be under any obligation, either initially or on a continuing basis, to provide any Agent or any Bank with any notices, reports or information of any nature, whether in its possession presently or hereafter, except for such notices, reports and other information expressly required by this Agreement to be so furnished. The Issuing Banks shall not be responsible for the execution, delivery, effectiveness, enforceability, genuineness, validity or adequacy of this Agreement or any Loan Document.
 
(c) Administration . Each Issuing Bank may rely upon any notice or other communication of any nature (written, electronic or oral, including but not limited to telephone conversations and transmissions through each Issuing Bank’s remote access system, whether or not such notice or other communication is made in a manner permitted or required by this Agreement or any other Loan Document) purportedly made by or on behalf of the proper party or parties, and each Issuing Bank shall not have any duty to verify the identity or authority of any Person giving such notice or other communication. Each Issuing Bank may consult with legal counsel (including, without limitation, its in-house counsel or in-house or other counsel for the Account Parties), independent public accountants and any other experts selected by it from time to time, and each Issuing Bank shall not be liable for any action taken or omitted to be taken in good faith in accordance with the advice of such counsel, accountants or experts. Whenever an Issuing Bank shall deem it necessary or desirable that a matter be proved or established with respect to any Account Party, any Agent or any Bank, such matter may be established by a certificate of such Account Party, such Agent or such Bank, as the case may be, and such Issuing Bank may conclusively rely upon such certificate. An Issuing Bank shall not be deemed to have any knowledge or notice of the occurrence of any Default unless such Issuing Bank has received notice from a Bank, an Agent or an Account Party referring to this Agreement, describing such Default, and stating that such notice is a “notice of default”.
 
(d) Indemnification of Issuing Banks by Banks . Each Bank hereby agrees to reimburse and indemnify each Issuing Bank and each of its directors, officers, employees and agents (to the extent not reimbursed by the Account Parties and without limitation of the obligations of the Account Parties to do so), in accordance with its Pro Rata Share, from and
 
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against any and all amounts, losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature (including, without limitation, the reasonable fees and disbursements of counsel (other than in-house counsel) for each Issuing Bank or such other Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not each Issuing Bank or such other Person shall be designated a party thereto) that may at any time be imposed on, incurred by or asserted against each Issuing Bank, in its capacity as such, or such other Person, as a result of, or arising out of, or in any way related to or by reason of, this Agreement, any other Loan Document or any Letter of Credit, any transaction from time to time contemplated hereby or thereby, or any transaction financed in whole or in part or directly or indirectly with the proceeds of any Letter of Credit, provided , that no Bank shall be liable for any portion of such amounts, losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements to the extent resulting from the gross negligence or willful misconduct of an Issuing Bank or such other Person, as finally determined by a court of competent jurisdiction.
 
(e) Issuing Banks in their Individual Capacity . With respect to its commitments and the obligations owing to it, each Issuing Bank shall have the same rights and powers under this Agreement and each other Loan Document as any other Bank and may exercise the same as though it were not an Issuing Bank, and the term “Banks” and like terms shall include each Issuing Bank in its individual capacity as such. Each Issuing Bank and its affiliates may, without liability to account to any Person, make loans to, accept deposits from, acquire debt or equity interests in, act as trustee under indentures of, act as agent under other credit facilities for, and engage in any other business with, any Account Party and any stockholder, subsidiary or affiliate of any Account Party, as though such Issuing Bank were not an Issuing Bank hereunder.
 
2.14 Downgrade Event with Respect to a Bank .
 
(a) If a Downgrade Event shall occur with respect to (i) any Downgraded Bank or (ii) any other Bank and, as a result thereof, such other Bank becomes a Downgraded Bank, then the Administrative Agent may, by notice to such Downgraded Bank and the Parent within 45 days after such Downgrade Event (any such notice, a “ Downgrade Notice ”), request that the Account Parties use reasonable efforts to replace such Bank as a party to this Agreement pursuant to Section 2.12 . If such Bank is not so replaced within 45 days after receipt by the Account Parties of such Downgrade Notice, then (x) if no Default exists and such Downgraded Bank has not exercised its right to remain a Bank hereunder pursuant to clause (y) below, the following shall occur concurrently:
 
(i) the Committed Facility shall be reduced by the amount of the LC Commitment Amount of such Downgraded Bank,
 
(ii) the Account Parties shall prepay all amounts owed to such Downgraded Bank hereunder or in connection herewith,
 
(iii) if, upon the reduction of the Committed Facility under clause (i) above and the payment under clause (ii) above, the sum of the principal amount of all Advances plus the Available Amount of all Letters of Credit (valuing the Available Amount of, and Letter of Credit Advances of the Issuing Banks in
 
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 	respect of, any Non-Dollar Letter of Credit at the Dollar Equivalent thereof as of the time of such calculation) would exceed the amount of the Committed Facility, then the Account Parties will immediately eliminate such excess by paying Advances and/or causing the Available Amount of one or more Letters of Credit to be reduced, and	
 
(iv) upon completion of the events described in clauses (i), (ii) and (iii) above, such Downgraded Bank shall cease to be a party to this Agreement;
 
or (y) if a Default exists or, not later than 30 days after receipt of such Downgrade Notice, such Downgraded Bank notifies the Account Parties, the Issuing Banks and the Administrative Agent that such Downgraded Bank elects to provide (in a manner reasonably satisfactory to Administrative Agent) cash collateral to the Administrative Agent for (or if such Downgraded Bank is unable, without regulatory approval, to provide cash collateral, a letter of credit reasonably satisfactory to Administrative Agent covering) its contingent obligations to reimburse each Issuing Bank for any payment under any Letter of Credit as provided in Section 2.02(f) (its “ LC Participation Obligations ”), such Downgraded Bank shall be obligated to (and each Bank agrees that in such circumstances it will) deliver to the Administrative Agent (I) immediately, cash collateral (or, as aforesaid, a letter of credit) in an amount equal to its LC Participation Obligations and (II) from time to time thereafter (so long as it is a Downgraded Bank), cash collateral (or, as aforesaid, a letter of credit) sufficient to cover any increase in its LC Participation Obligations as a result of any proposed issuance of or increase in a Letter of Credit. Any funds provided by a Downgraded Bank for such purpose shall be maintained in segregated deposit accounts in the name of the Issuing Banks at the Administrative Agent’s principal offices in the United States (each a “ Downgrade Account ”). The funds so deposited in any Downgrade Account (or any drawing under such a letter of credit) shall be used only in accordance with the following provisions of this Section 2.14 .
 
(b) If any Downgraded Bank shall be required to fund its participation in a payment under a Letter of Credit pursuant to Section   2.02(f) , then the Administrative Agent shall apply the funds deposited in the applicable Downgrade Account by such Downgraded Bank (or any drawing under such a letter of credit) to fund such participation. The deposit of funds in a Downgrade Account by any Downgraded Bank (or any drawing under such a letter of credit) shall not constitute a Letter of Credit Advance (and the Downgraded Bank shall not be entitled to interest on such funds except as provided in Section 2.14(c) below) unless and until (and then only to the extent that) such funds (or any drawing under such a letter of credit) are used by the Administrative Agent to fund the participation of such Downgraded Bank pursuant to the first sentence of this Section 2.14(b) .
 
(c) Funds in a Downgrade Account shall be invested in such investments as may be agreed between the Administrative Agent and the applicable Downgraded Bank, and the income from such investments shall be distributed to such Downgraded Bank from time to time (but not less often than monthly) as agreed between the Administrative Agent and such Downgraded Bank. The Administrative Agent will (i) from time to time, upon request by a Downgraded Bank, release to such Downgraded Bank any amount on deposit in the applicable Downgrade Account in excess of the LC Participation Obligations of such Downgraded Bank (or, if applicable, not draw under any such letter of credit in excess of the L/C Participation Obligations
 
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of such Downgraded Bank) and (ii) upon the earliest to occur of (A) the effective date of any replacement of such Downgraded Bank as a party hereto pursuant to an Assignment and Acceptance, (B) the termination of such Downgraded Bank’s LC Commitment Amount pursuant to Section 2.14(a) or (C) the first Business Day after receipt by the Administrative Agent of evidence (reasonably satisfactory to the Administrative Agent) that such Bank is no longer a Downgraded Bank, release to such Bank all amounts on deposit in the applicable Downgrade Account (or, if applicable, return such letter of credit to such Bank for cancellation).
 
(d) At any time any Downgraded Bank is required to maintain cash collateral with the Administrative Agent pursuant to this Section 2.14 , the Issuing Banks shall have no obligation to issue or increase any Letter of Credit unless such Downgraded Bank has provided sufficient funds as cash collateral to the Administrative Agent to cover all LC Participation Obligations of such Downgraded Bank (including in respect of the Letter of Credit to be issued or increased).
 
2.15 Non-Dollar Letters of Credit .
 
(a) The Account Parties, the Administrative Agent, the Issuing Banks and the Banks (i) agree that an Issuing Bank may (in its sole discretion), with the prior approval of the Administrative Agent, issue Letters of Credit (“ Non-Dollar Letters of Credit ”) in currencies other than U.S. dollars and (ii) further agree as set forth in the following subsections of this Section 2.15 with respect to such Non-Dollar Letters of Credit.
 
(b) The Account Parties agree that their reimbursement obligations under Section 2.03(a) and any resulting Letter of Credit Advance, in each case in respect of a drawing under any Non-Dollar Letter of Credit, (i) shall be payable in Dollars at the Dollar Equivalent of such obligation in the currency in which such Non-Dollar Letter of Credit was issued (determined on the date of payment by the Account Parties or, in the event of payment by the Banks pursuant to Section 2.02(f) , on the date of such payment by the Banks), and (ii) shall bear interest at a rate per annum equal to the Base Rate plus 2%, for each day from and including the date on which the Applicable Account Party is to reimburse an Issuing Bank pursuant to Section 2.03(a) to but excluding the date such obligation is paid in full.
 
(c) Each Bank agrees that its obligation to pay an Issuing Bank such Bank’s Pro Rata Share of the unreimbursed portion of any payment by such Issuing Bank under Section 2.02(f) in respect of a drawing under any Non-Dollar Letter of Credit shall be payable in Dollars at the Dollar Equivalent of such obligation in the currency in which such Non-Dollar Letter of Credit was issued (calculated on the date of payment), and any such amount which is not paid when due shall bear interest at a rate per annum equal to the Overnight Rate plus , beginning on the third Business Day after such amount was due, 2%.
 
(d) For purposes of determining whether there is availability for the Account Parties to request any Advance or to request the issuance or extension of, or any increase in, any Letter of Credit, the Dollar Equivalent amount of the Available Amount of each Non-Dollar Letter of Credit shall be calculated as of the date such Advance is to be made or such Letter of Credit is to be issued, extended or increased.
 
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(e) For purposes of determining the letter of credit fee under Section 2.05(c) , the Dollar Equivalent amount of the Available Amount of any Non-Dollar Letter of Credit shall be determined on each of (i) the date of an issuance, extension or change in the Available Amount of such Non-Dollar Letter of Credit, (ii) the date of any payment by an Issuing Bank in respect of a drawing under such Non-Dollar Letter of Credit, (iii) the last Business Day of each March, June, September and December and (iv) each day on which the LC Commitment Amounts are to be reduced pursuant to Section 2.04 (it being understood that no requested reduction shall be permitted to the extent that, after making a calculation pursuant to this Section 2.15(e) , such reduction would be greater than the unused portion of the LC Commitment Amounts).
 
(f) If, on the last Business Day of each March, June, September and December, the sum of the principal amount of all Advances plus the Available Amount of all Letters of Credit (valuing the Available Amount of, and Letter of Credit Advances in respect of, any Non-Dollar Letter of Credit at the Dollar Equivalent thereof as of such day) would exceed the amount of the Committed Facility, then the Account Parties will immediately eliminate such excess by paying Advances and/or causing the Available Amount of one or more Letters of Credit to be reduced.
 
(g) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due in respect of any Non-Dollar Letter of Credit in one currency into another currency, the rate of exchange used shall be that at which, in accordance with its normal banking procedures, Wachovia in its capacity as an Issuing Bank could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of any Account Party in respect of any such sum due from it to any Issuing Bank or any Bank hereunder shall, notwithstanding any judgment in a currency (the “ Judgment Currency ”) other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement and the applicable Non-Dollar Letter of Credit (the “ Agreement Currency ”), be discharged only to the extent that on the Business Day following receipt by such Issuing Bank or such Bank of any sum adjudged to be so due in the Judgment Currency, such Issuing Bank or such Bank may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to such Issuing Bank or such Bank in the Agreement Currency, the Applicable Account Party agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Issuing Bank or such Bank, as applicable, against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to such Issuing Bank or such Bank in such currency, each Issuing Bank and each Bank agrees to return the amount of any excess to the Applicable Account Party (or to any other Person who may be entitled thereto under applicable law).
 
(h) For purposes of this Section 2.15 , “ Dollar Equivalent ” means, in relation to an amount denominated in a currency other than U.S. dollars, the amount of U.S. dollars which could be purchased with such amount by Wachovia in its capacity as an Issuing Bank in accordance with its customary procedures (and giving effect to any transaction costs) at the quoted foreign exchange spot rate of Wachovia in its capacity as an Issuing Bank at the time of determination; and “ Overnight Rate ” means, for any day, the rate of interest per annum at which overnight deposits in the applicable currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by Wachovia in its capacity as an Issuing Bank to major banks in the London or other applicable offshore
 
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interbank market. The Overnight Rate for any day which is not a Business Day (or on which dealings are not carried on in the applicable offshore interbank market) shall be the Overnight Rate for the immediately preceding Business Day.
 
2.16 Collateral .
 
(a) Pursuant to the Security Documents and as collateral security for the payment and performance of the Obligations, the Account Parties shall grant and convey, or cause to be granted and conveyed, to the Administrative Agent for its benefit and the benefit of the Banks, a Lien and security interest in, to and upon the Collateral, prior and superior to all other Liens. Each Account Party shall cause the Collateral to be charged or pledged and be made subject to the Security Documents (in form and substance acceptable to the Administrative Agent) necessary for the perfection of the Lien and security interest in, to and upon the Collateral and for the exercise by the Administrative Agent and the Banks of their rights and remedies hereunder and thereunder.
 
(b) (i) On the Business Day immediately preceding the proposed date of issuance or renewal of a Letter of Credit under Section 2.02(a) , (ii) within ten (10) Business Days after the end of each calendar month, and (iii) at and as of such other times as the Administrative Agent or the Required Banks may reasonably request in its (or their) sole discretion, the Account Parties shall deliver or cause to be delivered to the Administrative Agent a certificate executed by the Parent, in the form of Exhibit B or otherwise in a form reasonably satisfactory to the Administrative Agent (which form may vary depending on the frequency of the delivery of such certificate), setting forth the Letter of Credit Outstandings, the Collateral Value of the Collateral by category and in the aggregate, and such other information as the Administrative Agent may reasonably request (such certificate, a “ Collateral Value Report ”). Such certificate shall be subject to review and verification by the Administrative Agent, it being understood and agreed that the Administrative Agent shall have the right to redetermine the Collateral Value of the Collateral in accordance with the terms and provisions of this Agreement and the Security Documents.
 
ARTICLE III
 
CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT
 
3.01 Conditions Precedent to Effective Date . The occurrence of the Effective Date, and the obligation of the Issuing Banks to issue any Letter of Credit on the Effective Date, is subject to the satisfaction of the following conditions precedent:
 
(a) The Administrative Agent shall have received the following, each dated the Effective Date (unless otherwise specified), in form and substance reasonably satisfactory to the Administrative Agent (unless otherwise specified) and in sufficient copies for each Bank:
 
(i) Copies of (x) the Pledge and Security Agreement, duly completed and executed by each Account Party that is a party thereto, (y) the State Street Control Agreements, each duly completed and executed by State Street and by the Account Party that is a party thereto, and (z) the State Street Custodial Agreements.
 
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(ii) Certified copies of the resolutions of the Board of Directors of each Loan Party approving the transactions contemplated by the Loan Documents and each Loan Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with transactions contemplated by the Loan Documents and each Loan Document to which it is or is to be a party.
 
(iii) A copy of a certificate of the Secretary of State or other appropriate official of the jurisdiction of incorporation of each Loan Party, dated reasonably near the Effective Date, certifying as to the good standing (or existence) of such Loan Party.
 
(iv) A certificate of each Loan Party, signed on behalf of such Loan Party by its President or a Vice President (or equivalent officer if such Loan Party has no Vice President) and its Secretary or any Assistant Secretary (the statements made in which certificate shall be true on and as of the Effective Date), certifying as to (1) a true and correct copy of the constitutional documents of such Loan Party as in effect on the date on which the resolutions referred to in Section 3.01(a)(ii) were adopted and on the Effective Date, (2) the due incorporation and good standing or valid existence of such Loan Party as a corporation organized under the laws of the jurisdiction of its incorporation, and the absence of any proceeding for the dissolution or liquidation of such Loan Party, (3) the truth of the representations and warranties contained in the Loan Documents as though made on and as of the Effective Date and (4) the absence of any event occurring and continuing, or resulting from the Effective Date, that constitutes a Default.
 
(v) A certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign each Loan Document to which it is or is to be a party and the other documents to be delivered hereunder and thereunder.
 
(vi) Favorable opinions of (1) Maples and Calder, Cayman Islands counsel for the Parent, in substantially the form of Exhibit C-1 hereto and as to such other matters as any Bank through the Administrative Agent may reasonably request, (2) Mayer, Brown, Rowe & Maw LLP, New York counsel for the Loan Parties, in substantially the form of Exhibit C-2 hereto and as to such other matters as any Bank through the Administrative Agent may reasonably request, and (3) Conyers Dill & Pearman, Bermuda counsel for ACE Bermuda, Tempest Life and Tempest, in substantially the form of Exhibit C-3 hereto and as to such other matters as any Bank through the Administrative Agent may reasonably request.
 
(b) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (x) would be reasonably expected to have a Material Adverse Effect or (y) would reasonably be expected to materially adversely affect the legality, validity or
 
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enforceability of any Loan Document or the other transactions contemplated by the Loan Documents.
 
(c) No development or change shall have occurred after December 31, 2003, and no information shall have become known after such date, that has had or would reasonably be expected to have a Material Adverse Effect.
 
(d) The Account Parties shall have paid all accrued fees of the Administrative Agent and the Banks and all accrued expenses of the Administrative Agent (including the accrued fees and expenses of counsel to the Administrative Agent and local counsel on behalf of all of the Banks), in each case to the extent then due and payable.
 
(e) The Administrative Agent shall have received evidence satisfactory to it that all obligations of any Account Party outstanding under the Existing Reimbursement Agreement and Existing Unsecured Reimbursement Agreement (other than fees and expenses of Wachovia’s counsel) and the Bilateral Agreements have been repaid and satisfied in full.
 
3.02 Conditions Precedent to Each Issuance, Extension or Increase of a Letter of Credit . The obligation of the Issuing Banks to issue, extend or increase a Letter of Credit (including any issuance on the Effective Date) shall be subject to the further conditions precedent that on the date of such issuance, extension or increase (a) the following statements shall be true (and each request for issuance, extension, or increase, and the acceptance by the Account Party that requested such issuance, extension or increase shall constitute a representation and warranty by such Account Party that both on the date of such notice and on the date of such issuance, extension or increase such statements are true):
 
(i) the representations and warranties contained in each Loan Document are correct in all material respects on and as of such date, before and after giving effect to such issuance, extension or increase, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific date other the date of such issuance, extension or increase, in which case as of such specific date ( provided , however , that the representation and warranty contained in the last sentence of Section 4.01(g) shall be excluded from this clause (i) at all times after (but shall be included on and as of) the Effective Date); and
 
(ii) no Default has occurred and is continuing, or would result from such issuance, extension or increase;
 
and (b) the Administrative Agent shall have received such other approvals, opinions or documents as any Bank or any Issuing Bank through the Administrative Agent may reasonably request.
 
3.03 Determinations Under Section 3.01 . For purposes of determining compliance with the conditions specified in Section 3.01 , each Bank shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Banks unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents
 
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shall have received notice from such Bank prior to the Effective Date specifying its objection thereto, provided that such Bank has been given at least one Business Day’s notice that the final form of such document or matter is available for its review.
 
ARTICLE IV
 
REPRESENTATIONS AND WARRANTIES
 
4.01 Representations and Warranties of the Account Parties . Each Account Party represents and warrants as follows:
 
(a) Each Loan Party and each of its Material Subsidiaries (i) is duly organized or formed, validly existing and, to the extent such concept applies, in good standing under the laws of the jurisdiction of its incorporation or formation, (ii) is duly qualified and in good standing as a foreign corporation or other entity in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not be reasonably likely to have a Material Adverse Effect and (iii) has all requisite power and authority (including, without limitation, all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted, except where the failure to have any license, permit or other approval would not be reasonably likely to have a Material Adverse Effect. All of the outstanding Equity Interests in each Account Party (other than the Parent) have been validly issued, are fully paid and non-assessable and (except for any Preferred Securities issued after the date of this Agreement) are owned, directly or indirectly, by the Parent free and clear of all Liens.
 
(b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all Subsidiaries of each Loan Party as of the Effective Date.
 
(c) The execution, delivery and performance by each Loan Party of each Loan Document to which it is or is to be a party and the consummation of the transactions contemplated by the Loan Documents, are within such Loan Party’s corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party’s constitutional documents, (ii) violate any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which would be reasonably likely to have a Material Adverse Effect.
 
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(d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of any Loan Document to which it is or is to be a party or the other transactions contemplated by the Loan Documents, or (ii) the exercise by the Administrative Agent or any Bank of its rights under the Loan Documents, except for the authorizations, approvals, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect, subject to bankruptcy, insolvency and similar laws of general application relating to creditors’ rights and to general principles of equity.
 
(e) This Agreement has been, and each other Loan Document when delivered hereunder will have been, duly executed and delivered by each Loan Party party thereto. This Agreement is, and each other Loan Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party party thereto, enforceable against such Loan Party in accordance with its terms.
 
(f) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or, to such Loan Party’s knowledge, threatened before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect or (ii) would reasonably be expected to affect the legality, validity or enforceability of any Loan Document or the transactions contemplated by the Loan Documents.
 
(g) The Consolidated balance sheet of the Parent and its Subsidiaries as at December 31, 2003, and the related Consolidated statements of income and of cash flows of the Parent and its Subsidiaries for the fiscal year then ended, accompanied by an unqualified opinion of PricewaterhouseCoopers LLP, independent public accountants, and the Consolidated balance sheet of the Parent and its Subsidiaries as at June 30, 2004, and the related Consolidated statements of income and cash flows of the Parent and its Subsidiaries for the six months then ended, duly certified by the Chief Financial Officer of the Parent, copies of which have been furnished to each Bank, fairly present, subject, in the case of said balance sheet as at June 30, 2004, and said statements of income and cash flows for the six months then ended, to year-end audit adjustments, the Consolidated financial condition of the Parent and its Subsidiaries as at such dates and the Consolidated results of operations of the Parent and its Subsidiaries for the periods ended on such dates, all in accordance with GAAP applied on a consistent basis (subject, in the case of the June 30, 2004 balance sheet and statements of income and cash flows, to the absence of footnotes). Since December 31, 2003, there has been no Material Adverse Change.
 
(h) The Parent has delivered to the Administrative Agent a true and correct copy of each State Street Custodial Agreement as in effect as of the date of this Agreement. Each State Street Custodial Agreement is in full force and effect and no default or event of default by any Account Party exists thereunder.
 
(i) No written information, exhibit or report furnished by or on behalf of any Loan Party to any Agent or any Bank in connection with the negotiation and syndication of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a
 
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material fact or omitted to state a material fact necessary to make the statements made therein not misleading as at the date it was dated (or if not dated, so delivered).
 
(j) Margin Stock constitutes less than 25% of the value of those assets of any Account Party which are subject to any limitation on sale, pledge or other disposition hereunder. None of the Collateral constitutes or will constitute Margin Stock.
 
(k) Neither any Loan Party nor any of its Subsidiaries is an “investment company”, or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company”, as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances, nor the issuance of any Letters of Credit, nor the application of the proceeds or repayment thereof by any Account Party, nor the consummation of the other transactions contemplated by the Loan Documents, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder.
 
(l) Each Loan Party is, individually and together with its Subsidiaries, Solvent.
 
(m) Except to the extent that any and all events and conditions under clauses (i) through (v) below of this Section 4.01(m) in the aggregate are not reasonably expected to have a Material Adverse Effect:
 
(i) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan.
 
(ii) With respect to each scheme or arrangement mandated by a government other than the United States (a “ Foreign Government Scheme or Arrangement ”) and with respect to each employee benefit plan that is not subject to United States law maintained or contributed to by any Loan Party or with respect to which any Subsidiary of any Loan Party may have liability under applicable local law (a “ Foreign Plan ”):
 
(A) Any employer and employee contributions required by law or by the terms of any Foreign Government Scheme or Arrangement or any Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices.
 
(B) The fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the date hereof, with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles.
 
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(C) Each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities.
 
(iii) During the twelve-consecutive-month period to the date of the execution and delivery of this Agreement and prior to the request for any Letter of Credit to be issued hereunder, no steps have been taken to terminate any Pension Plan, no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA and no minimum funding waiver has been applied for or is in effect with respect to any Pension Plan. No condition exists or event or transaction has occurred or is reasonably expected to occur with respect to any Pension Plan which could result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty.
 
(iv) Each Pension Plan is in compliance in all respects with the applicable provisions of ERISA, the Internal Revenue Code and other federal or state laws.
 
(v) No assets of any Loan Party are or are deemed under applicable law to be “plan assets” within the meaning of Department of Labor Regulation §2510.3-101.
 
(n) In the ordinary course of its business, each Account Party reviews the effect of Environmental Laws on the operations and properties of such Account Party and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, and any actual or potential liabilities to third parties and any related costs and expenses). On the basis of this review, each Account Party has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a Material Adverse Effect. The operations and properties of each Loan Party and each of its Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits, except for non-compliances which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect; and there are no Environmental Actions pending or threatened against any Loan Party or its Subsidiaries, and no circumstances exist that could be reasonably likely to form the basis of any such Environmental Action, which (in either case), individually or in the aggregate with all other such pending or threatened actions and circumstances, would reasonably be expected to have a Material Adverse Effect.
 
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(o) Each Loan Party and each of its Subsidiaries has filed, has caused to be filed or has been included in all material federal tax returns and all other material tax returns required to be filed and has paid all taxes shown thereon to be due, together with applicable interest and penalties, except to the extent contested in good faith and by appropriate proceedings (in which case adequate reserves have been established therefor in accordance with GAAP).
 
(p) Set forth on Schedule II hereto is a list of all letters of credit that were issued (or deemed issued) under the Existing Reimbursement Agreement and that are outstanding as of the Effective Date.
 
ARTICLE V
 
COVENANTS OF THE ACCOUNT PARTIES
 
5.01 Affirmative Covenants . So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall have any Letter of Credit Participating Interest Commitment or commitment to issue a Letter of Credit hereunder, each Account Party will:
 
(a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with Environmental Laws, Environmental Permits, ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
 
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, all material taxes, assessments and governmental charges or levies imposed upon it or upon its property; provided , however , that neither any Account Party nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or levy that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained.
 
(c) Maintenance of Insurance . Maintain, and cause each of its Material Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Parent or such Material Subsidiary operates (it being understood that the foregoing shall not apply to maintenance of reinsurance or similar matters which shall be solely within the reasonable business judgment of the Parent and its Subsidiaries).
 
(d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Material Subsidiaries to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided , however , that (i) the Parent and its Subsidiaries may consummate any merger or amalgamation or consolidation permitted under Section 5.02(c) , (ii) no Subsidiary (other than an Account Party) shall be required to preserve and maintain its existence, legal structure, legal names or other rights (charter and statutory) if the Board of Directors of a direct or indirect parent of such
 
44

Subsidiary has determined that such action is not disadvantageous in any material respect to the Parent, such parent or the Banks, and (iii) neither the Parent nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the Board of Directors of the Parent or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Parent or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Parent, such Subsidiary or the Banks.
 
(e) Visitation Rights . At any reasonable time and from time to time upon not less than three Business Days prior notice, permit the Administrative Agent (upon request made by any Agent or any Bank), or any agents or representatives thereof, at the expense (so long as no Default has occurred and is continuing) of such Agent or such Bank, as the case may be, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Parent and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Parent and any of its Subsidiaries with any of their officers or directors and with, so long as a representative of the Parent is present, their independent certified public accountants; provided that neither the Parent nor any of its Subsidiaries shall be required to disclose any information that it reasonably determines is entitled to the protection of attorney-client privilege.
 
(f) Keeping of Books . Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Parent and each such Subsidiary sufficient to permit the preparation of financial statements in accordance with GAAP.
 
(g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect.
 
(h) Transactions with Affiliates . Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates (other than any such transactions between Loan Parties or wholly owned Subsidiaries of Loan Parties) on terms that are fair and reasonable and no less favorable than it would obtain in a comparable arm’s-length transaction with a Person not an Affiliate.
 
(i) Pari Passu Ranking . Ensure that at all times the claims of the Banks, the Issuing Banks and the Agents against it under the Loan Documents will rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for claims which are preferred by any bankruptcy, insolvency, liquidation or other similar laws of general application or are mandatorily preferred by law applying to insurance companies generally.
 
(j) Additional Collateral . Comply with the provisions of this Section regarding any new or additional Collateral. The Account Parties may from time to time add Collateral to the State Street Custodial Accounts without the necessity of executing or delivering any documents pursuant to this Agreement (but subject to the provisions of Section 5.02(g) ). The Account
 
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Parties may from time to time pledge new or additional Collateral contained in Custodial Accounts other than the State Street Custodial Accounts by executing and delivering to the Administrative Agent either a supplement to the Pledge and Security Agreement in the form attached thereto (in the case of any new Custodial Account maintained with State Street), or a new pledge and security agreement (in substantially the form of the Pledge and Security Agreement) or other pledge agreement, security agreement or charge (in the case of any new Custodial Account maintained with another Custodian), in form and substance reasonably satisfactory to the Administrative Agent, and by causing to be executed and delivered to the Administrative Agent a control agreement or such other Security Documents as the Administrative Agent shall reasonably require together with such other documents, certificates and opinions (including opinions as to the validity and perfection of the Administrative Agent’s Lien on such Collateral), in form and substance reasonably satisfactory to the Administrative Agent, as the Administrative Agent may reasonably request in connection therewith; and the applicable Account Parties will take such other action as the Administrative Agent may reasonably request to create in favor of the Administrative Agent a perfected security interest in and Lien on the Collateral being pledged pursuant to the documents described above.
 
(k) Custodial Account Statements . Cause to be delivered to the Administrative Agent, promptly upon receipt after the end of each calendar month, a monthly statement of each Custodial Account prepared by the Custodian thereof, showing the assets credited to such account as of the date of such statement.
 
5.02 Negative Covenants . So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall have any Letter of Credit Participating Interest Commitment or commitment to issue a Letter of Credit hereunder, each of the Account Parties will not, at any time:
 
(a) Liens, Etc . Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character (including, without limitation, accounts) whether now owned or hereafter acquired, or assign or permit any of its Subsidiaries to assign, any accounts or other right to receive income, except:
 
(i) Permitted Liens;
 
(ii) Liens described on Schedule 5.02(a) hereto;
 
(iii) purchase money Liens upon any property acquired or held by the Parent or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any property to be subject to such Liens, or Liens existing on any property at the time of acquisition or within 180 days following such acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided , however , that no such Lien shall extend to or cover any
 
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 	property other than the property being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced;	
 
(iv) Liens arising in connection with Capitalized Leases; provided that no such Lien shall extend to or cover any assets other than the assets subject to such Capitalized Leases;
 
(v) (A) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary and not created in contemplation of such event, (B) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Parent or any of it Subsidiaries in accordance with Section 5.02(c) and not created in contemplation of such event and (C) any Lien existing on any asset prior to the acquisition thereof by the Parent or any of its Subsidiaries and not created in contemplation of such acquisition;
 
(vi) Liens securing obligations under credit default swap transactions determined by reference to, or Contingent Obligations in respect of, Debt issued by the Parent or one of its Subsidiaries; such Debt not to exceed an aggregate principal amount of $550,000,000;
 
(vii) Liens arising in the ordinary course of its business which (A) do not secure Debt and (B) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business;
 
(viii) Liens on cash and Approved Investments securing Hedge Agreements arising in the ordinary course of business;
 
(ix) other Liens securing Debt or other obligations outstanding in an aggregate principal or face amount not to exceed at any time 5% of Consolidated Net Worth;
 
(x) Liens consisting of deposits made by the Parent or any insurance Subsidiary with any insurance regulatory authority or other statutory Liens or Liens or claims imposed or required by applicable insurance law or regulation against the assets of the Parent or any insurance Subsidiary, in each case in favor of policyholders of the Parent or such insurance Subsidiary or an insurance regulatory authority and in the ordinary course of the Parent’s or such insurance Subsidiary’s business;
 
(xi) Liens on Investments and cash balances of the Parent or any insurance Subsidiary (other than capital stock of any Subsidiary) securing obligations of the Parent or any insurance Subsidiary in respect of (i) letters of credit obtained in the ordinary course of business (including, without limitation, Liens created by the Security Documents) and/or (ii) trust arrangements formed in the ordinary course of business for the benefit of cedents to secure reinsurance recoverables owed to them by the Parent or any insurance Subsidiary;
 
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(xii) the replacement, extension or renewal of any Lien permitted by clause (ii) or (v) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount (other than in respect of fees, expenses and premiums, if any) or change in any direct or contingent obligor) of the Debt secured thereby;
 
(xiii) Liens securing obligations owed by any Loan Party to any other Loan Party or owed by any Subsidiary of the Parent (other than a Loan Party) to the Parent or any other Subsidiary;
 
(xiv) Liens incurred in the ordinary course of business in favor of financial intermediaries and clearing agents pending clearance of payments for investment or in the nature of set-off, banker’s lien or similar rights as to deposit accounts or other funds;
 
(xv) judgment or judicial attachment Liens, provided that the enforcement of such Liens is effectively stayed;
 
(xvi) Liens arising in connection with Securitization Transactions; provided that the aggregate principal amount of the investment or claim held at any time by all purchasers, assignees or other transferees of (or of interests in) receivables and other rights to payment in all Securitization Transactions (together with the aggregate principal amount of any other obligations secured by such Liens) shall not exceed U.S. $750,000,000;
 
(xvii) Liens on securities arising out of repurchase agreements with a term of not more than three months entered into with “Lenders” (as such term is defined in the JPMorgan Credit Agreement) or their Affiliates or with securities dealers of recognized standing; provided that the aggregate amount of all assets of the Parent and its Subsidiaries subject to such agreements shall not at any time exceed $1,000,000,000. For purposes of this clause (xvii), “ JPMorgan Credit Agreement ” shall mean the Three-Year Credit Agreement dated as of April 2, 2004 among the Parent, ACE Bermuda, Tempest, and ACE INA Holdings Inc., as borrowers, various financial institutions, and JPMorgan Chase Bank, as administrative agent, as amended, modified, supplemented or restated from time to time; and
 
(xviii) Liens securing up to an aggregate amount of $200,000,000 of obligations of the Parent or any wholly owned Subsidiary, arising out of catastrophe bond financing.
 
Notwithstanding the foregoing provisions of this Section 5.02(a) or any other provision of this Agreement or any other Loan Document, in no event shall any Account Party create, incur, assume or suffer to exist any Lien on or with respect to the Collateral or any portion thereof other than (w) the Liens created in favor of the Administrative Agent under the Security Documents, (x) Liens described in clause (a) of the definition of Permitted Liens, (y) Liens described in clause (xv) above, and (z) Liens in favor of any Custodian pursuant to such
 
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Custodian’s standard Custodial Agreements securing payment of such Custodian’s customary fees, commissions and charges (the Liens described in clauses (w), (x), (y) and (z), collectively, “ Permitted Collateral Liens ”).
 
(b) Change in Nature of Business . Make any material change in the nature of the business of the Parent and its Material Subsidiaries, taken as a whole, as carried on at the date hereof.
 
(c) Mergers, Etc . Merge into or amalgamate or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries to do so, except that:
 
(i) any Subsidiary of the Parent may merge into or amalgamate or consolidate with any other Subsidiary of the Parent, provided that, in the case of any such merger, amalgamation or consolidation, the Person formed by such merger, amalgamation or consolidation shall be a wholly owned Subsidiary of the Parent, provided further that, in the case of any such merger, amalgamation or consolidation to which an Account Party is a party, the Person formed by such merger, amalgamation or consolidation shall be such Account Party;
 
(ii) any Subsidiary of any Account Party may merge into or amalgamate or consolidate with any other Person or permit any other Person to merge into, amalgamate or consolidate with it; provided that the Person surviving such merger, amalgamation or consolidation shall be a wholly owned Subsidiary of the Account Party;
 
(iii) in connection with any sale or other disposition permitted under Section 5.02(d) , any Subsidiary of the Parent may merge into or amalgamate or consolidate with any other Person or permit any other Person to merge into or amalgamate or consolidate with it; and
 
(iv) the Parent or any Account Party may merge into or amalgamate or consolidate with any other Person; provided that, in the case of any such merger, amalgamation or consolidation, the Person formed by such merger, amalgamation or consolidation shall be the Parent or such Account Party, as the case may be;
 
provided , however , that in each case, immediately after giving effect thereto, no event shall occur and be continuing that constitutes a Default.
 
(d) Sales, Etc., of Assets . Sell, lease, transfer or otherwise dispose of, or permit any other Account Party to sell, lease, transfer or otherwise dispose of, all or substantially all of its assets (excluding sales of investment securities in the ordinary course of business); provided , however , that the provisions of Section 5.02(g) shall apply independent of this Section 5.02(d) .
 
(e) Restricted Payments . Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such, make any distribution of assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent Persons thereof) as such or issue or sell any
 
49

Equity Interests or accept any capital contributions, or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in the Parent or to issue or sell any Equity Interests therein, if in any case referred to above, a Default shall have occurred and be continuing at the time of such action or would result therefrom.
 
(f) Accounting Changes . Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as permitted by GAAP.
 
(g) Collateral . Permit (i) the Letter of Credit Outstandings to exceed the aggregate Collateral Value at any time or (ii) the average rating (calculated on a weighted average basis) of the securities included within the calculation of the aggregate Collateral Value to be less than “A-” (with rating methodologies to be taken into account in the manner set forth in Schedule III ). The Account Parties may from time to time add Collateral to or sell, deliver, transfer or otherwise withdraw Collateral from any Custodial Account (including, without limitation, by trading of securities), but only so long as (i) immediately after giving effect thereto no Default or Event of Default would exist and (ii) with respect to the addition or termination (or removal as Collateral) of Custodial Accounts, the Account Parties comply with any applicable restrictions and conditions set forth in the Security Documents.
 
(h) Custodial Agreements . Make or permit any amendment or modification to any Custodial Agreement that is adverse in any material respect to the interests of the Account Parties or the Banks.
 
5.03 Reporting Requirements . So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall have any Letter of Credit Participating Interest Commitment or commitment to issue a Letter of Credit hereunder, the Parent will furnish to the Agents and the Banks:
 
(a) Default Notice . As soon as possible and in any event within five days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the chief financial officer of the Parent setting forth details of such Default, event, development or occurrence and the action that the Parent or the applicable Subsidiary has taken and proposes to take with respect thereto.
 
(b) Annual Financials .
 
(i) As soon as available and in any event within 90 days after the end of each Fiscal Year (or, if earlier, within five Business Days after such date as the Parent is required to file its annual report on Form 10-K for such Fiscal Year with the Securities and Exchange Commission), a copy of the annual Consolidated audit report for such year for the Parent and its Subsidiaries, including therein a Consolidated balance sheet of the Parent and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and cash flows of the Parent
 
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and its Subsidiaries for such Fiscal Year, all reported on in a manner reasonably acceptable to the Securities and Exchange Commission in each case and accompanied by an opinion of PricewaterhouseCoopers LLP or other independent public accountants of recognized standing reasonably acceptable to the Required Banks, together with (i) a certificate of the Chief Financial Officer, Chief Accounting Officer or Chief Compliance Officer of the Parent stating that no Default has occurred and is continuing, or if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken a proposes to take with respect thereto, and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Section 5.04 (which schedule shall include a statement as to the ratio of the aggregate Collateral Value to the Letter of Credit Outstandings as of the end of each calendar month during the period covered by such financial statements, to the extent not previously furnished to the Agents and the Banks).
 
(ii) As soon as available and in any event within 120 days after the end of each Fiscal Year, a copy of the annual Consolidated audit report for such year for each Subsidiary Guarantor and its Subsidiaries, including therein a Consolidated balance sheet of such Subsidiary Guarantor and its Subsidiaries as of the end of such Fiscal Year and a Consolidated statement of income and a Consolidated statement of cash flows of such Subsidiary Guarantor and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to the Required Banks of PricewaterhouseCoopers LLP or other independent public accountants of recognized standing acceptable to the Required Banks.
 
(c) Quarterly Financials . As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year (or, if earlier, within five Business Days after such date as the Parent is required to file its quarterly report on Form 10-Q for such fiscal quarter with the Securities and Exchange Commission), Consolidated balance sheets of the Parent and its Subsidiaries as of the end of such quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to the absence of footnotes and normal year-end audit adjustments) by the Chief Financial Officer, Chief Accounting Officer or Chief Compliance Officer of the Parent as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken and proposes to take with respect thereto and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining compliance with the covenants contained in Section 5.04 (which schedule shall include a
 
51

statement as to the ratio of the aggregate Collateral Value to the Letter of Credit Outstandings as of the end of each calendar month during the period covered by such financial statements).
 
(d) Litigation . Promptly after the commencement thereof, notice of all actions, suits, investigations, litigation and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(f) .
 
(e) Securities Reports . Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Parent sends to its stockholders generally, copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange.
 
(f) ERISA .
 
(i) ERISA Events . Promptly and in any event within 10 days after any Loan Party or any ERISA Affiliate institutes any steps to terminate any Pension Plan or becomes aware of the institution of any steps or any threat by the PBGC to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that any Loan Party or any ERISA Affiliate furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty, or any material increase in the contingent liability of any Loan Party or any ERISA Affiliate with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto.
 
(ii) Plan Annual Reports . Promptly upon request of any Agent or any Bank, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Pension Plan.
 
(iii) Multiemployer Plan Notices . Promptly and in any event within 15 Business Days after receipt thereof by any Loan Party or any ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of each notice concerning (A) the imposition of Withdrawal Liability by any such Multiemployer Plan, (B) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (C) the amount of liability incurred, or that may be incurred, by such Loan Party or any ERISA Affiliate in connection with any event described in clause (A) or (B); provided , however , that such notice and documentation shall not be required to be provided (except at the specific request of any Agent or any Bank, in which case such notice and documentation shall be promptly provided following such request) if such condition or event is not
 
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reasonably expected to result in any Loan Party or any ERISA Affiliate incurring any material liability, fine, or penalty.
 
(g) Statutory Statements . As soon as available and in any event within 20 days after submission, each statutory statement of the Loan Parties (or any of them) in the form submitted to the Supervisor of Insurance, the Insurance Division of the Bermuda Monetary Authority.
 
(h) Regulatory Notices, Etc . Promptly after any Responsible Officer of the Parent obtains knowledge thereof, (i) a copy of any notice from the Bermuda Minister of Finance or the Registrar of Companies or any other person of the revocation, the suspension or the placing of any restriction or condition on the registration as an insurer of any Account Party under the Bermuda Insurance Act 1978 (and related regulations) or of the institution of any proceeding or investigation which could result in any such revocation, suspension or placing of such a restriction or condition, (ii) copies of any correspondence by, to or concerning any Loan Party relating to an investigation conducted by the Bermuda Minister of Finance, whether pursuant to Section 132 of the Bermuda Companies Act 1981 (and related regulations) or otherwise and (iii) a copy of any notice of or requesting or otherwise relating to the winding-up or any similar proceeding of or with respect to any Loan Party.
 
(i) Other Information . Such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries as the Administrative Agent, or any Bank through the Administrative Agent, may from time to time reasonably request. Information required to be delivered pursuant to Sections 5.03(b) , 5.03(c) , and 5.03(e) shall be deemed to have been delivered on the date on which the Parent provides notice to the Administrative Agent that such information has been posted on the Parent’s website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux.searches.htm or at another website identified in such notice and accessible by the Banks without charge; provided that (x) such notice may be included in a certificate delivered pursuant to Section 5.03(b)(i)(A) or 5.01(c)(i) and (y) the Parent shall deliver paper copies of the information referred to in Sections 5.03(b) , 5.03(c) , and 5.03(e) to any Bank which requests such delivery.
 
5.04 Financial Covenants . So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall have any Letter of Credit Participating Interest Commitment or commitment to issue a Letter of Credit hereunder, the Parent will:
 
(a) Adjusted Consolidated Debt to Total Capitalization Ratio . Maintain at all times a ratio of Adjusted Consolidated Debt to Total Capitalization of not more than 0.35 to 1.0.
 
(b) Consolidated Net Worth . Maintain at all times Consolidated Net Worth in an amount not less than the Minimum Amount. For this purpose, the “ Minimum Amount ” is an amount equal to the sum of (i) the Base Amount plus (ii) (A) 25% of Consolidated Net Income for each fiscal quarter of the Parent, ending on or after the date on which the current Base Amount became effective and before the last day of the current Fiscal Year, for which such Consolidated Net Income is positive and (B) 50% of any increase in Consolidated Net Worth during such period attributable to the issuance of ordinary and preferred shares. The “ Base
 
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Amount ” shall be $6,000,000,000 as of December 31, 2003 and shall be reset on the last day of each Fiscal Year to equal the greater of (x) 70% of Consolidated Net Worth as of the last day of such Fiscal Year and (y) the Minimum Amount in effect immediately prior to such last day.
 
ARTICLE VI
 
EVENTS OF DEFAULT
 
6.01 Events of Default . If any of the following events (“Events of Default”) shall occur and be continuing:
 
(a) (i) any Account Party shall fail to pay any reimbursement obligation in respect of any Advance made by any Issuing Bank pursuant to a Letter of Credit when and as the same shall become due and payable, or (ii) any Account Party shall fail to make any payment of interest on such Advance or of any other amount payable by such Account Party under any Loan Document, in each case under this clause (ii) within five Business Days after the same becomes due and payable; or
 
(b) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or
 
(c) any Account Party shall fail to perform or observe any term, covenant or agreement contained in Section 2.10 , 5.01(d) (with respect to the Parent), 5.02 , 5.03(a) or 5.04 ; or
 
(d) any Account Party shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(e) if such failure shall remain unremedied for five Business Days after written notice thereof shall have been given to such Loan Party by any Agent or any Bank; or
 
(e) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for (i) in the case of any covenant contained in Section 5.02(g) , three Business Days after the earlier of the date on which (A) a Responsible Officer becomes aware of such failure or (B) written notice thereof shall have been given to such Loan Party by any Agent or any Bank, and (ii) in all other cases, 30 days after the earlier of the date on which (A) a Responsible Officer becomes aware of such failure or (B) written notice thereof shall have been given to such Loan Party by any Agent or any Bank; or
 
(f) the Parent or any of its Subsidiaries shall fail to pay any Material Financial Obligation (but excluding Debt outstanding hereunder) of the Parent or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Material Financial Obligation; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Material Financial Obligation and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such
 
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event or condition is to accelerate, or to permit the acceleration of, the maturity of such Material Financial Obligation or otherwise to cause, or to permit the holder thereof to cause, such Material Financial Obligation to mature; or any such Material Financial Obligation shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Material Financial Obligation shall be required to be made, in each case prior to the stated maturity thereof; or
 
(g) any Loan Party or any of its Significant Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Loan Party or any of its Significant Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any Loan Party or any of its Significant Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this Section 6.01(g) ; or
 
(h) any judgment or order for the payment of money in excess of $100,000,000 shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or
 
(i) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that would be reasonably likely to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or
 
(j) any provision in Article VII of this Agreement shall for any reason cease to be valid and binding on or enforceable against any Loan Party (other than as a result of a transaction permitted hereunder), or any such Loan Party shall so state in writing; or any Security Document shall for any reason (other than pursuant to the terms thereof) cease to create in favor of the Administrative Agent a valid and perfected first priority Lien on and security interest in the Collateral purported to be covered thereby; or the Administrative Agent shall cease for any reason to hold a perfected first priority Lien on and security interest in the Collateral; or
 
(k) a Change of Control shall occur; or
 
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(l) Any Loan Party or any ERISA Affiliate shall incur or shall be reasonably expected to incur liability in excess of $25,000,000 in the aggregate with respect to any Pension Plan or any Multiemployer Plan in connection with the occurrence of any of the following events or existence of any of the following conditions:
 
(i) Institution of any steps by any Loan Party, any ERISA Affiliate or any other Person, including, without limitation, the PBGC to terminate a Pension Plan if as a result of such termination a Loan Party or any ERISA Affiliate would reasonably expect to be required to make a contribution to such Pension Plan, or would reasonably expect to incur a liability or obligation; or
 
(ii) A contribution failure occurs with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA; or
 
(iii) Any condition shall exist or event shall occur with respect to a Pension Plan that is reasonably expected to result in any Loan Party or any ERISA Affiliate being required to furnish a bond or security to the PBGC or such Pension Plan, or incurring a liability or obligation; or
 
(m) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability or a default, within the meaning of Section 4219(c)(5) of ERISA, has occurred with respect to such Multiemployer Plan which could cause any Loan Party or any ERISA Affiliate to incur a payment obligation in excess of $25,000,000; or
 
(n) any Custodial Agreement is amended or modified in any manner that is inconsistent with the terms of the Loan Documents or that otherwise could reasonably be expected to have a Material Adverse Effect, or is terminated, or ceases to be in full force and effect or is declared by a court of competent jurisdiction to be null and void, invalid or unenforceable in any material respect, or any party thereto denies that it has any further liability or obligation thereunder; or
 
(o) any Account Party shall (i) change its name, identity or corporate structure, (ii) change its chief executive office from the location thereof listed on Annex A to the Pledge and Security Agreement, or (iii) change the jurisdiction of its incorporation or organization from the jurisdiction listed on Annex A to the Pledge and Security Agreement (whether by merger or otherwise), unless in each case such Account Party has (1) given twenty (20) days’ prior written notice to the Administrative Agent of its intention to do so, together with information regarding any such new location and such other information in connection with such proposed action as the Administrative Agent may reasonably request, and (2) delivered to the Administrative Agent ten (10) days prior to any such change or removal such documents, instruments and financing statements as may be required by the Administrative Agent, all in form and substance satisfactory to the Administrative Agent, paid all necessary filing and recording fees and taxes, and taken all other actions reasonably requested by the Administrative Agent (including, at the request of the Administrative Agent, delivery of opinions of counsel reasonably satisfactory to the Administrative Agent to the effect that all such actions have been taken), in order to perfect and maintain the Lien upon and security interest in the Collateral provided for in the Pledge and
 
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Security Agreement in accordance with the provisions of Section 3(c) thereof; provided that an Event of Default under this subsection shall not occur unless any failure of any Account Party to perform or observe any provision of this subsection shall remain unremedied for 30 days after the earlier of the date on which (y) a Responsible Officer becomes aware of such failure or (z) written notice thereof shall have been given to such Loan Party by any Agent or any Bank;
 
then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Banks, by notice to the Account Parties, declare the obligation of the Issuing Banks to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and/or (ii) shall at the request, or may with the consent, of the Required Banks, by notice to the Account Parties, declare all amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Account Parties, and/or (iii) shall at the request, or may with the consent, of the Required Banks, proceed to exercise the rights and remedies of the Administrative Agent and the Banks under the Loan Documents and applicable law, including, without limitation, by dating, delivering and acting upon Letters of Instruction; provided , however , that in the event of an actual or deemed entry of an order for relief with respect to any Account Party under the federal Bankruptcy Code, (x) the obligation of the Issuing Banks to issue Letters of Credit shall automatically be terminated, (y) all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Account Parties and (z) the obligation of the Account Parties to provide cash collateral under Section 6.02 shall automatically become effective.
 
6.02 Actions in Respect of the Letters of Credit upon Default . If any Event of Default shall have occurred and be continuing, the Administrative Agent may, or shall at the request of the Required Banks, after having taken any of the actions described in Section 6.01(ii) or otherwise, make demand upon the Account Parties to, and forthwith upon such demand the Account Parties will, pay to the Administrative Agent on behalf of the Banks in same day funds at the Administrative Agent’s office designated in such demand, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding as cash collateral. If at any time during the continuance of an Event of Default the Administrative Agent determines that such funds are subject to any right or claim of any Person other than the Administrative Agent and the Banks or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Account Parties will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional cash collateral, an amount equal to the excess of (a) such aggregate Available Amount over (b) the total amount of funds, if any, that the Administrative Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit, such funds shall be applied to reimburse the Issuing Banks or Banks, as applicable, to the extent permitted by applicable law.
 
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ARTICLE VII
 
THE GUARANTY
 
7.01 The Guaranty .
 
(a) Each Account Party hereby jointly and severally, unconditionally, absolutely and irrevocably guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of all Obligations of each of the other Account Parties under the Loan Documents including, without limitation, the principal of and interest on reimbursement obligations owing by such other Account Parties pursuant to this Agreement with respect to Letters of Credit. Upon failure by an Account Party to pay punctually any such amount, each other Account Party agrees to pay forthwith on demand the amount not so paid at the place and in the manner specified in this Agreement.
 
(b) Each Account Party (other than the Parent), and by its acceptance of this Guaranty, the Administrative Agent and each other Bank, hereby confirms that it is the intention of all such Persons that this Guaranty and the obligations of each Account Party hereunder not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or state law to the extent applicable to this Guaranty and the obligations of each Account Party (other than the Parent) hereunder. To effectuate the foregoing intention, the Administrative Agent, the other Banks and the Account Parties hereby irrevocably agree that the obligations of each Account Party (other than the Parent) under this Article VII at any time shall be limited to the maximum amount as will result in the obligations of such Account Party under this Guaranty not constituting a fraudulent transfer or conveyance.
 
7.02 Guaranty Unconditional . The obligations of each Account Party under this Article VII shall be unconditional, absolute and irrevocable and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by:
 
(i) any extension, renewal, settlement, compromise, waiver or release (including with respect to any Collateral) in respect of any obligation of any other obligor under any of the Loan Documents, by operation of law or otherwise;
 
(ii) any modification or amendment of or supplement to any of the Loan Documents;
 
(iii) any release, non-perfection or invalidity of any direct or indirect security for any obligation of any other obligor under any of the Loan Documents;
 
(iv) any change in the corporate existence, structure or ownership of any obligor, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any other obligor or its assets or any resulting release or discharge of any obligation of any other obligor contained in any of the Loan Documents;
 
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(v) the existence of any claim, set-off or other rights which any obligor may have at any time against any other obligor, the Administrative Agent, any Bank or any other corporation or person, whether in connection with any of the Loan Documents or any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim;
 
(vi) any invalidity or unenforceability relating to or against any other obligor for any reason of any of the Loan Documents, or any provision of applicable law or regulation purporting to prohibit the payment by any other obligor of principal interest or any other amount payable under any of the Loan Documents;
 
(vii) any law, regulation or order of any jurisdiction, or any other event, affecting any term of any obligation of the Banks’ rights with respect thereto; or
 
(viii) any other act or omission to act or delay of any kind by any obligor, the Administrative Agent, any Bank or any other corporation or person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to an Account Party’s obligations under this Article VII .
 
7.03 Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances . Each Account Party’s obligations under this Article VII shall remain in full force and effect until the commitments of the Banks hereunder shall have terminated, no Letters of Credit shall be outstanding and all amounts payable by the other Account Parties under the Loan Documents shall have been paid in full. If at any time any payment of the principal of or interest on any reimbursement obligation or any other amount payable by an Account Party under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Account Party or otherwise, each other Account Party’s obligations under this Article VII with respect to such payment shall be reinstated as though such payment had been due but not made at such time.
 
7.04 Waiver by the Account Parties . Each Account Party irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any corporation or person against any other obligor or any other corporation or person.
 
7.05 Subrogation . Each Account Party hereby unconditionally and irrevocably agrees not to exercise any rights that it may now have or hereafter acquire against any other Account Party, or any other insider guarantor that arise from the existence, payment, performance or enforcement of such Account Party’s obligations under or in respect of this Guaranty or any other Loan Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any Bank against any other Account Party, any other Loan Party or any other insider guarantor or any collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from
 
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any other Account Party, any other Loan Party or any other insider guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all amounts payable under this Guaranty shall have been paid in full in cash, no Letters of Credit shall be outstanding and the commitments of the Banks hereunder shall have expired or been terminated. If any amount shall be paid to any Account Party in violation of the immediately preceding sentence at any time prior to the latest of (a) the payment in full in cash of all amounts payable under this Guaranty, and (b) the Expiration Date, such amount shall be received and held in trust for the benefit of the Banks, shall be segregated from other property and funds of such Account Party and shall forthwith be paid or delivered to the Administrative Agent in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to all amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of the Loan Documents, or to be held as collateral for any amounts payable under this Guaranty thereafter arising. If (i) any Account Party shall make payment to any Bank of all or any amounts payable under this Guaranty, (ii) all amounts payable under this Guaranty shall have been paid in full in cash, and (iii) the Expiration Date shall have occurred, the Banks will, at such Account Party’s request and expense, execute and deliver to such Account Party appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to such Account Party of an interest in the obligations resulting from such payment made by such Account Party pursuant to this Guaranty.
 
7.06 Stay of Acceleration . If acceleration of the time for payment of any amount payable by any Account Party under any of the Loan Documents is stayed upon the insolvency, bankruptcy or reorganization of such Account Party, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the other Account Parties under this Article VII forthwith on demand by the Administrative Agent made at the request of the requisite proportion of the Banks.
 
7.07 Continuing Guaranty; Assignments . This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the latest of (i) the payment in full in cash of all amounts payable under this Guaranty and (ii) the Expiration Date, (b) be binding upon each Account Party, its successors and assigns and (c) inure to the benefit of and be enforceable by the Banks and their successors, transferees and assigns. Without limiting the generality of clause (c) of the immediately preceding sentence, any Bank may assign or otherwise transfer all or any portion of its rights and obligations under this Agreement (including, without limitation, all or any portion of its Letter of Credit Participating Interest Commitment and the Advances owing to it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Bank herein or otherwise, in each case as and to the extent provided in Section 9.07 .
 
ARTICLE VIII
 
THE AGENTS
 
8.01 Authorization and Action . Each Bank (in its capacity as a Bank) hereby appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to such
 
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Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents, no Agent shall be required to exercise any discretion or take any action, but shall be required to act (in the case of the Administrative Agent) or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Banks or all the Banks where unanimity is required, and such instructions shall be binding upon all Banks; provided , however , that no Agent shall be required to take any action that exposes such Agent to personal liability or that is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Bank prompt notice of each notice given to it by any Account Party pursuant to the terms of this Agreement.
 
8.02 Agents’ Reliance, Etc. Neither any Agent nor any of its respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Agent: (a) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations (whether written or oral) made in or in connection with the Loan Documents; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party; (d) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; and (e) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram or telecopy) reasonably believed by it to be genuine and signed or sent by the proper party or parties.
 
8.03 Agents and Affiliates . With respect to its LC Commitment Amounts, and the Advances, each Agent shall have the same rights and powers under the Loan Documents as any other Bank and may exercise the same as though it were not an Agent; and the term “Bank” or “Banks” shall, unless otherwise expressly indicated, include each Agent in its individual capacity. Each Agent and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person that may do business with or own securities of any Loan Party or any such Subsidiary, all as if such Agent were not an Agent and without any duty to account therefor to the Banks.
 
8.04 Bank Credit Decision . Each Bank acknowledges that it has, independently and without reliance upon any Agent or any other Bank and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon any Agent or any other
 
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Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.
 
8.05 Indemnification .
 
(a) Each Bank severally agrees to indemnify each Agent and its officers, directors, employees, agents, advisors and Affiliates (to the extent not promptly reimbursed by the Account Parties) from and against such Bank’s ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against such Agent or any such other Person in any way relating to or arising out of the Loan Documents or any action taken or omitted by such Agent under the Loan Documents; provided , however , that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent’s or other Person’s gross negligence or willful misconduct. Without limitation of the foregoing, each Bank agrees to reimburse each Agent promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Account Parties under Section 9.04 , to the extent that such Agent is not promptly reimbursed for such costs and expenses by the Account Parties.
 
(b) For purposes of this Section 8.05 , the Banks’ respective ratable shares of any amount shall be determined, at any time, according to the sum of (i) the aggregate principal amount of the Advances outstanding at such time and owing to the respective Banks, (ii) their respective Pro Rata Shares of the aggregate Available Amounts of all Letters of Credit outstanding at such time and (iii) their respective Unused LC Commitment Amounts at such time. The failure of any Bank to reimburse any Agent promptly upon demand for its ratable share of any amount required to be paid by the Banks to such Agent as provided herein shall not relieve any other Bank of its obligation hereunder to reimburse such Agent for its ratable share of such amount, but no Bank shall be responsible for the failure of any other Bank to reimburse such Agent for such other Bank’s ratable share of such amount. Without prejudice to the survival of any other agreement of any Bank hereunder, the agreement and obligations of each Bank contained in this Section 8.05 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents.
 
8.06 Successor Administrative Agent . Any Agent may resign at any time by giving written notice thereof to the Banks and the Parent. Upon any such resignation or removal of the Administrative Agent, the Required Banks shall have the right to appoint a successor Administrative Agent, subject (so long as no Event of Default exists) to the consent of the Parent (which consent shall not be unreasonably withheld). If no successor Administrative Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation or the Required Banks’ removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent such successor Administrative Agent shall succeed to and become vested with all the rights, powers,
 
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discretion, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. If within 45 days after written notice is given of the retiring Administrative Agent’s resignation or removal under this Section 8.06 no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 45 th day (i) the retiring Administrative Agent’s resignation or removal shall become effective, (ii) the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Banks shall thereafter perform all duties of the retiring Administrative Agent under the Loan Documents until such time, if any, as the Required Banks appoint a successor Administrative Agent as provided above. After any retiring Agent’s resignation or removal hereunder as Agent shall have become effective, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If Bank of America ceases to be a Bank hereunder, it shall be deemed to have resigned as Syndication Agent and no replacement shall be appointed.
 
8.07 Collateral Matters .
 
(a) The Administrative Agent is authorized on behalf of the Banks, without the necessity of any further notice to or consent from any of the Banks, from time to time to take any action with respect to any Collateral or Security Document that may be necessary or as it may deem to be appropriate to perfect, maintain and protect the security interests in and Liens on the Collateral granted pursuant to the Security Documents.
 
(b) The Banks irrevocably authorize the Administrative Agent to release any security interest in or Lien on the Collateral held by it pursuant to the Security Documents (i) upon the termination of the Issuing Bank’s obligation to issue Letters of Credit hereunder, the payment in full of the Obligations and the satisfaction and termination in full of all other Letter of Credit Outstandings, (ii) that is sold or disposed of as permitted hereunder or any other Loan Document or to which the requisite number or percentage of Banks have consented or (iii) otherwise pursuant to and in accordance with the provisions of any applicable Loan Document. Upon request by the Administrative Agent at any time, the Banks will confirm in writing the Administrative Agent’s authority to release Collateral pursuant to this Section 8.07(b) .
 
ARTICLE IX
 
MISCELLANEOUS
 
9.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, nor consent to any departure by any Loan Party therefrom, shall in any event be effective unless the same shall be in writing and signed by Wachovia in its capacity as an Issuing Bank and the Required Banks (and, in the case of an amendment, the Parent), and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided , however , that no amendment, waiver or consent shall:
 
(a) unless in writing and signed by all of the Banks (other than any Bank that is, at such time, a Defaulting Bank), do any of the following at any time: (i) waive any of
 
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the conditions specified in Section 3.01 or, in the case of the Effective Date, Section 3.02 , (ii) change the number of Banks or the percentage of (x) the LC Commitment Amounts, (y) the aggregate unpaid principal amount of the Advances or (z) the aggregate Available Amount of outstanding Letters of Credit that, in each case, shall be required for the Banks or any of them to take any action hereunder, (iii) reduce or limit the obligations of any Account Party under Section 7.01 or release such Account Party or otherwise limit such Account Party’s liability with respect to the obligations owing to the Agents and the Banks, (iv) amend this Section 9.01 or any of the definitions herein that would have such effect, (v) extend the Expiration Date, (vi) limit the liability of any Loan Party under any of the Loan Documents, or (vii) release any of the Collateral if such release would cause the aggregate Collateral Value to be less than the Letter of Credit Outstandings;
 
(b) unless in writing and signed by each affected Bank, do any of the following at any time: (i) increase the LC Commitment Amounts of the Banks or subject the Banks to any additional obligations, (ii) reduce the principal of, or interest on, any reimbursement obligation or any fees or other amounts payable hereunder, or increase any Bank’s LC Commitment Amount, or (iii) postpone any date fixed for any payment of principal of, or interest on, any reimbursement obligation or any fees or other amounts payable hereunder;
 
provided further that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the Banks required above to take such action, affect the rights or duties of such Agent under this Agreement or the other Loan Documents and no amendment, waiver or consent shall, unless in writing and signed by an Issuing Bank in addition to the Banks above required to take such action, affect the rights or duties of such Issuing Bank under this Agreement or the other Loan Documents.
 
9.02 Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telegraphic or telecopy communication) and mailed, telegraphed, telecopied or delivered, if to any Account Party, at its address set forth below on the signature pages hereof; if to any Initial Bank, at its Domestic Lending Office specified opposite its name on Part 2 of Schedule I hereto; if to any other Bank, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Bank; if to Wachovia (in its capacity as Issuing Bank) at its address at 401 Linden Street, Mail Code NC-6034, Winston-Salem, North Carolina 27101, Attn: International Operations — Standby Letter of Credit Department, Telecopy No. (336) 735-0952; and if to the Administrative Agent, at its address at Charlotte Plaza Building, 201 South College Street, 8 th Floor NC0680, Charlotte, North Carolina 28288, Attn: Syndication Agency Services, Telecopy No. (704) 383-0288, with a copy to Mark B. Felker, Managing Director, 301 South College Street, 5 th Floor NC0760, Charlotte, NC 28288, Telecopy No. (704) 383-7611; or, as to any party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telegraphed or telecopied, be effective when deposited in the mails, delivered to the telegraph company or transmitted by telecopier, respectively, except that notices and communications to the Administrative Agent pursuant to Article II , III or VIII shall not be effective until received by the Administrative Agent. Manual delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or of
 
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any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of an original executed counterpart thereof.
 
9.03 No Waiver; Remedies . No failure on the part of any Bank or any Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
 
9.04 Costs and Expenses .
 
(a) Each of the Account Parties agrees to pay on demand (i) all reasonable costs and expenses of the Agents, the Joint Lead Arrangers and Wachovia, in its capacity as an Issuing Bank, in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of a single counsel for the Administrative Agent and Wachovia in its capacity as an Issuing Bank with respect thereto, with respect to advising the Administrative Agent as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors’ rights generally and any proceeding ancillary thereto); and (ii) all reasonable costs and expenses of each Agent, each Issuing Bank and each Bank in connection with the enforcement of the Loan Documents (including, without limitation, in connection with the sale of, collection from, or other realization upon, the Collateral), whether in any action, suit or litigation, or any bankruptcy, insolvency or other similar proceeding affecting creditors’ rights generally (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent, each Issuing Bank and each Bank with respect thereto).
 
(b) Each of the Account Parties jointly and severally agrees to indemnify and hold harmless each Agent, each Joint Lead Arranger, each Issuing Bank, each Bank and each of their Affiliates and their respective officers, directors, employees, agents and advisors (each, an “ Indemnified Party ”) from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) this Agreement, the actual or proposed use of the proceeds of the Advances, the Loan Documents or any of the transactions contemplated thereby, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnified Party or any of its Affiliates. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 9.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors,
 
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shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated by the Loan Documents are consummated. Each of the Account Parties also agrees not to assert any claim against any Agent, any Joint Lead Arranger, any Bank or any of their Affiliates, or any of their respective officers, directors, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the credit facilities provided hereunder, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Loan Documents or any of the transactions contemplated by the Loan Documents.
 
(c) Without prejudice to the survival of any other agreement of any Loan Party hereunder or under any other Loan Document, the agreements and obligations of the Account Parties contained in Section 2.07 and this Section 9.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any of the other Loan Documents.
 
9.05 Right of Set-off . Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare amounts owing hereunder to be due and payable pursuant to the provisions of Section 6.01 , each Agent and each Bank and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Agent, such Bank or such Affiliate to or for the credit or the account of any Account Party against any and all of the Obligations of such Account Party now or hereafter existing under the Loan Documents, irrespective of whether such Agent or such Bank shall have made any demand under this Agreement and although such Obligations may be unmatured. Each Agent and each Bank agrees promptly to notify each Account Party after any such set-off and application; provided , however , that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Agent and each Bank and their respective Affiliates under this Section 9.05 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Agent, such Bank and their respective Affiliates may have.
 
9.06 Binding Effect . This Agreement shall become effective when it shall have been executed by each Account Party, each Issuing Bank and each Agent and the Administrative Agent shall have been notified by each Initial Bank that such Initial Bank has executed it and thereafter shall be binding upon and inure to the benefit of each Account Party, each Agent, each Issuing Bank and each Bank and their respective successors and assigns, except that no Account Party shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Banks.
 
9.07 Assignments and Participations .
 
(a) Each Bank may, and so long as no Default shall have occurred and be continuing, if demanded by any Account Party (following a demand by such Bank pursuant to Section 2.12 ) upon at least five Business Days notice to such Bank and the Administrative Agent, will, assign
 
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to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its LC Commitment Amount, its Letter of Credit Participating Interest Commitment and the Letter of Credit Advances owing to it); provided , however , that (i) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations of such Bank hereunder, except for any non-pro rata assignment made by a Downgraded Bank after a request by the Administrative Agent pursuant to Section 2.14 (and any subsequent non-pro rata assignment of the interest so assigned or by the Downgraded Bank) and any other non-pro rata assignment approved by the Administrative Agent and any Account Party, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was (x) a Bank or an Affiliate of any Bank, the aggregate amount of the LC Commitment Amounts being assigned to such Eligible Assignee pursuant to such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $1,000,000 unless it is an assignment of the entire amount of such assignor’s LC Commitment Amount, or (y) not a Bank or an Affiliate of any Bank, the aggregate amount of the LC Commitment Amounts being assigned to such Eligible Assignee pursuant to such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 unless it is an assignment of the entire amount of such assignor’s LC Commitment Amount, (iii) each such assignment shall be to an Eligible Assignee, (iv) each assignment made as a result of a demand by any Account Party pursuant to Section 2.12 shall be arranged by such Account Party after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Bank under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Bank under this Agreement, (v) no Bank shall be obligated to make any such assignment as a result of a demand by any Account Party pursuant to Section 2.12 unless and until such Bank shall have received one or more payments from either such Account Party or other Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances made by such Bank, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Bank under this Agreement, (vi) as a result of such assignment, no Account Party shall be subject to additional amounts under Section 2.06 or 2.08 and (vii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recordation fee of $3,500.
 
(b) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank, hereunder and (ii) the Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 2.06 , 2.08 and 9.04 to the extent any claim thereunder relates to an event arising prior to such assignment and any other rights that are expressly provided hereunder to survive) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Bank’s rights and obligations under this Agreement, such Bank shall cease to be a party hereto).
 
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(c) By executing and delivering an Assignment and Acceptance, each Bank assignor thereunder and each assignee thereunder confirm to and agree with each other and the other parties thereto and hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon any Agent, such assigning Bank or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Bank.
 
(d) The Administrative Agent, acting for this purpose (but only for this purpose) as the agent of the Account Parties, shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the LC Commitment Amount of, and principal amount of the Advances owing to, each Bank from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Account Parties, the Agents and the Banks shall treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by any Account Party or any Agent or any Bank at any reasonable time and from time to time upon reasonable prior notice.
 
(e) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and an assignee, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit A hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Parent and to the parties to such Assignment and Acceptance.
 
(f) Each Bank may sell participations to one or more Persons (other than any Loan Party or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its LC Commitment Amount, its Letter of Credit Participating Interest Commitment and the Advances owing to it; provided ,
 
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however , that (i) such Bank’s obligations under this Agreement (including, without limitation, its Letter of Credit Participating Interest Commitment) shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Account Parties, the Agents and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under this Agreement and (iv) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, reimbursement obligations or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the reimbursement obligations or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. Each Bank shall, as agent of the Account Parties solely for the purposes of this Section 9.07 , record in book entries maintained by such Bank, the name and amount of the participating interest of each Person entitled to receive payments in respect of any participating interests sold pursuant to this Section 9.07 .
 
(g) Any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07 , disclose to the assignee or participant or proposed assignee or participant any information relating to any Account Party furnished to such Bank by or on behalf of any Account Party; provided , however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Bank.
 
(h) Notwithstanding any other provision set forth in this Agreement, any Bank may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System.
 
9.08 Execution in Counterparts . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement.
 
9.09 No Liability of the Issuing Banks . Each Account Party assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither an Issuing Bank nor any of its officers, directors, employees or agents shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by such Issuing Bank against presentation of documents that do not strictly comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that such Account Party shall have a claim
 
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against such Issuing Bank, and such Issuing Bank shall be liable to such Account Party, to the extent of any direct, but not consequential, damages suffered by such Account Party that such Account Party proves were caused by (i) such Issuing Bank’s willful misconduct or gross negligence as determined in a final, non-appealable judgment by a court of competent jurisdiction in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) such Issuing Bank’s willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Banks may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary.
 
9.10 Confidentiality . Neither any Agent nor any Bank shall disclose any Confidential Information to any Person without the consent of the Parent, other than (a) to such Agent’s or such Bank’s Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective Eligible Assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) as requested or required by any state, federal or foreign authority or examiner regulating such Bank or pursuant to any request of any self-regulatory body having or claiming authority to regulate or oversee any aspect of a Bank’s business of that of any of its Affiliates and (d) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties received by it from such Bank. Notwithstanding anything herein to the contrary, the information subject to this Section 9.10 shall not include, and the Administrative Agent and each Bank may disclose to any and all Persons, without limitation of any kind, any information with respect to the “tax treatment” and “tax structure” (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby or by any of the other Loan Documents and all materials of any kind (including opinions or other tax analyses) that are provided to the Administrative Agent or such Bank relating to such tax treatment and tax structure (it being understood that this authorization is retroactively effective to the commencement of the first discussions between or among any of the parties regarding the transactions contemplated hereby or by any of the other Loan Documents); provided that with respect to any document or similar item that in either case contains information concerning such tax treatment or tax structure as well as other information, this sentence shall only apply to such portions of the document or similar item that relate to such tax treatment or tax structure.
 
9.11 Jurisdiction, Etc .
 
(a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be
 
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enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction.
 
(b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
 
(c) Each of the Account Parties hereby irrevocably appoints Mayer, Brown, Rowe & Maw LLP, with offices on the Effective Date at 1675 Broadway, New York, New York, 10019, USA as its agent to receive, accept and acknowledge for and on its behalf services of any and all legal process, summons, notices and documents which may be served in any such action or proceeding. If for any reason such agent shall cease to be available to act as such, the Account Parties agree to promptly designate a new agent satisfactory to the Administrative Agent in the Borough of Manhattan, The City of New York, to receive, accept and acknowledge for and on its behalf service of any and all legal process, summons, notices and documents which may be served in any such action or proceeding pursuant to the terms of this Section 9.11 . In the event that any Borrower shall fail to designate such new agent, service of process in any such action or proceeding may be made on such Account Party by the mailing of copies thereof by express or overnight mail or courier, postage prepaid, to such Account Party at its address set forth opposite its signature below.
 
9.12 Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
 
9.13 Waiver of Jury Trial . Each of the Account Parties, the Agents and the Banks irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to any of the Loan Documents, the Advances or the actions of any Agent or any Bank in the negotiation, administration, performance or enforcement thereof.
 
9.14 Disclosure of Information . Each Account Party agrees and consents to the Administrative Agent’s disclosure of information relating to this transaction to Gold Sheets and other similar bank trade publications. Such information will consist of deal terms and other information customarily found in such publications. The Parent shall have the right to review and approve any such disclosure made by the Administrative Agent before such disclosure is made (such approval not to be unreasonably withheld).
 
9.15 USA Patriot Act . Each Bank hereby notified the Account Parties that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “ Patriot Act ”), it is required to obtain, verify and record information that identifies each Account Party, which information includes the name and address of such Account
 
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Party and other information that will allow such Bank to identify such Account Party in accordance with the Patriot Act. Each Account Party shall provide such information promptly upon request from such Bank.
 
9.16 Certain Effective Date Matters . By their execution of this Agreement, (i) the Account Parties and the Banks that are parties to the Existing Reimbursement Agreement (which Banks constitute “Required Banks” under and as defined in the Existing Reimbursement Agreement) agree that the Existing Reimbursement Agreement shall terminate and be of no further force or effect on the Effective Date (except that any provision of any Existing Reimbursement Agreement that by its terms survives termination of such Existing Reimbursement Agreement shall remain in full force and effect), and (ii) the relevant Account Parties and the Issuing Banks agree that each Existing Letter of Credit shall become a Letter of Credit hereunder on the Effective Date, in each case without any further action by any Person.
 
[Remainder of page intentionally left blank]
 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

ACE LIMITED	
	
The Common Seal of ACE Limited was hereunto affixed in the presence of:	

Authorized Officer	

Authorized Officer	

ACE BERMUDA INSURANCE LTD.	
The Common Seal of ACE Bermuda Insurance Ltd. was hereunto affixed in the presence of:	

Authorized Officer	

Authorized Officer	

ACE TEMPEST LIFE REINSURANCE LTD.	
The Common Seal of ACE Tempest Life Reinsurance Ltd. was hereunto affixed in the presence of:	

Authorized Officer	

Authorized Officer	
 
Signature Page to Secured Reimbursement Agreement

	
ACE TEMPEST REINSURANCE LTD.	
The Common Seal of ACE Tempest Reinsurance Ltd. was hereunto affixed in the presence of:	

Authorized Officer	

Authorized Officer	
	
Address for each Account Party:
ACE Global Headquarters
17 Woodbourne Avenue
Hamilton HM08 Bermuda
Telecopy: (441) 296-0087	
 
Signature Page to Secured Reimbursement Agreement

			
WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent, as Issuing Bank and as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
BANK OF AMERICA, N.A., as Syndication Agent and as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
BARCLAYS BANK, PLC, as a Co-Documentation Agent, as an Issuing Bank and as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
CITIBANK, N.A., as a Co-Documentation Agent,
as an Issuing Bank and as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
JPMORGAN CHASE BANK, as a
Co-Documentation Agent and as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
DEUTSCHE BANK AG, NEW YORK BRANCH, as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
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HSBC BANK USA, NATIONAL ASSOCIATION as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
ING BANK N.V., LONDON BRANCH, as an
Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
THE ROYAL BANK OF SCOTLAND PLC, as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
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ABN AMRO BANK, N.V., as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
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KEYBANK NATIONAL ASSOCIATION, as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
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STATE STREET BANK AND TRUST COMPANY, as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
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BNP PARIBAS, as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
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THE BANK OF TOKYO-MITSUBISHI, LTD. NEW YORK BRANCH, as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
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COMERICA BANK, as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
LLOYDS TSB BANK PLC, as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
MELLON BANK, N.A., as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
NATIONAL AUSTRALIA BANK LIMITED, as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
NATIONAL CITY BANK, as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
WELLS FARGO BANK, NATIONAL ASSOCIATION, as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

			
THE BANK OF N.T. BUTTERFIELD & SON LIMITED, as an Initial Bank	
		
By:	 	 	
		
Title: 	 	 	
 
Signature Page to Secured Reimbursement Agreement

SCHEDULE I
 
LC COMMITMENT AMOUNTS

Wachovia Bank, National Association	  	$	37,100,000	
Bank of America, N.A.	  	$	37,100,000	
Barclays Bank PLC	  	$	35,200,000	
CitiBank, N.A.	  	$	35,200,000	
JPMorgan Chase Bank	  	$	35,200,000	
Deutsche Bank AG, New York Branch	  	$	29,600,000	
HSBC Bank USA, National Association	  	$	29,600,000	
ING Bank N.V., London Branch	  	$	29,600,000	
The Royal Bank of Scotland plc	  	$	29,600,000	
ABN AMRO Bank, N.V.	  	$	24,100,000	
KeyBank National Association	  	$	24,100,000	
State Street Bank and Trust Company	  	$	24,100,000	
BNP Paribas	  	$	14,800,000	
The Bank of Tokyo-Mitsubishi, Ltd. New York Branch	  	$	14,800,000	
Comerica Bank	  	$	14,800,000	
Lloyds TSB Bank plc	  	$	14,800,000	
Mellon Bank, N.A.	  	$	14,800,000	
National Australia Bank Limited	  	$	14,800,000	
National City Bank	  	$	14,800,000	
Wells Fargo Bank, National Association	  	$	14,800,000	
The Bank of N.T. Butterfield & Son Limited	  	$	11,100,000	
 	  			
Total	  	$	500,000,000	
 
1

SCHEDULE I – PART 2
 
DOMESTIC LENDING OFFICES

Wachovia Bank, National Association	  	Agency Management Group
301 South College Street, 5 th Floor
Charlotte, North Carolina 28288-0737
Attn: Mark Felker
Telephone: (704) 374-7074
Telecopy: (704) 383-7611	
		
Bank of America, N.A.	  	231 S. LaSalle Street
Chicago, Illinois 60697
Attn: Debra Basler
Telephone: (312) 828-3734
Telecopy: (312) 987-0889	
		
Barclays Bank PLC	  	P.O. Box 544
1 st Floor
54 Lombard Street
London EC3V 9EX England
Attn: Neil Holmes
Telephone: 44 (0) 20 7699 3125
Telecopy: 44 (0) 20 7699 2407
 
Copies to:
Barclays Capital
GSU, 5 North Colonade
Canary Wharf
London E14 4BB England
Attn: Graham Smart
Telephone: 44 (0) 20 7773 6450
Telecopy: 44 (0) 20 7773 6807	
CitiBank, N.A.	  	 	
		
JPMorgan Chase Bank	  	Financial Institutions Group
270 Park Avenue, 15 th Floor
New York, New York 10017
Attn: Helen Newcomb
Telephone: (212) 270-6260
Telecopy: (212) 270-1511	
		
Deutsche Bank AG, New York Branch	  	31 West 52 nd Street Mail Stop NYC01-2402
New York, New York 10019
Attn: Clinton M. Johnson
Telephone: (212) 469-8101
Telecopy: (212) 469-8366	
 
2

			
HSBC Bank USA, National Association	  	452 Fifth Avenue, 5 th Floor
New York, New York 10018
Attn: Kenneth J. Johnson
Telephone: (212) 525-2480
Telecopy: (212) 525-2479	
ING Bank N.V., London Branch	  	 	
The Royal Bank of Scotland plc	  	 	
		
ABN AMRO Bank, N.V.	  	540 West Madison Street, Suite 2621
Chicago, Illinois 60661
Attn: Credit Administration
Telecopy: (312) 992-5111
 
Copies to:
350 Park Avenue
New York, NY 10055
Telecopy: (212) 409-1718	
		
KeyBank National Association	  	127 Public Square, 6 th Floor
Cleveland, Ohio 44114
Attn: Mary K. Young
Telephone: (216) 689-4443
Telecopy: (216) 689-4981	
		
State Street Bank and Trust Company	  	Domestic Lending Office:
225 Franklin Street
Boston, Massachusetts 02110
 
Address for notices:
Lafayette Corporate Center
2 Avenue de Lafayette
Boston, Massachusetts 02111
Attn: Edward M. Anderson, VP
Telephone: (617) 662-3782
Telecopy: (617) 662-3778	
		
BNP Paribas	  	787 7 th Avenue, 28 th Floor
New York, New York 10019
Attn: Joshua Landau
Telephone: (212) 841-3823
Telecopy: (212) 841-2533	
The Bank of Tokyo-Mitsubishi, Ltd. New York Branch	  	 	
		
Comerica Bank	  	500 Woodward Avenue
Detroit, Michigan 48226-3331
Attn: Martin G. Ellis
Telephone: (313) 222-9443
Telecopy: (313) 222-5466	
 
3

			
Lloyds TSB Bank plc	  	1251 Avenue of the Americas, 39 th Floor
NY, NY 10020
Attn: Patricia Kilian, VP, Loans Administration
Telephone: (212) 930-8914
Telecopy: (212) 930-5098	
		
Mellon Bank, N.A.	  	One Mellon Center, Room 4505
Pittsburgh, Pennsylvania 15258-0001
Attn: Karla Maloof
Telephone: (412) 236-4147
Telecopy: (412) 234-8087	
		
National Australia Bank Limited	  	245 Park Avenue, 28 th Floor
New York, NY 10167
Attn: Mike McHugh
Telephone: (212) 916-9559
Telecopy: (212) 949-9515	
		
National City Bank	  	1 North Franklin, Suite 3600
Chicago, IL 60606
Attn: Gustavus Bahr
Telephone: (312) 384- 6904
Telecopy: (312) 384- 4618	
		
Wells Fargo Bank, National Association	  	90 So. 7 th Street
MAC N9305-075, 7 th Floor
Minneapolis, Minnesota 55402
Attn: Jason Paulnock
Telephone: (612) 667-4742
Telecopy: (612) 667-7251	
		
The Bank of N.T. Butterfield & Son Limited	  	65 Front Street
Hamilton HM DX, Bermuda
Attn: Jonathan Raynor, VP-Corporate Banking
Telephone: (441) 298-4774
Telecopy: (441) 296-2851	
 
4

SCHEDULE II
 
EXISTING LETTERS OF CREDIT
 
1.	Wachovia Letter of Credit No. SM207101	
Beneficiary: Accette Insurance Management
Amount: US $5,646,486.25
 
2.	Wachovia Letter of Credit No. SM200323	
Beneficiary: Pacific Employers Insurance
Amount: US $3,050,235.00
 
3.	Wachovia Letter of Credit No. SM419401	
Beneficiary: UNUM Life Insurance Company of America
Amount: US $148,607,168.00
 
4.	Wachovia Letter of Credit No. SM201865	
Beneficiary: Liberty Re (Bermuda) Limited
Amount: US $38,600,000.00
 
5.	Wachovia Letter of Credit No. SM206405	
Beneficiary: Houston Casualty Company
Amount: US $1,500,000
 
5

SCHEDULE III
 
METHODOLOGY FOR CALCULATION OF COLLATERAL VALUES
 
In order to be included in the calculation of aggregate Collateral Value (in addition to other requirements set forth in the Reimbursement Agreement and this Schedule), investments shall satisfy each of the criteria (including as to rating) under one of the categories listed below. In addition, the following conditions shall apply:
 
1. No portion of the Collateral (other than U.S. Government Securities) consisting of securities of a single issuer shall exceed 10% of the Collateral Value at any time.
 
2. No security shall be included in the calculation of aggregate Collateral Value unless it is listed on a national securities exchange or freely tradeable at readily established prices in over-the-counter transactions.
 
3. For purposes of this Schedule and each Collateral Value Report, all maturities are calculated from the relevant date of determination of the Collateral Value.
 
4. For purposes of calculating the average rating of the Collateral included in the calculation of the aggregate Collateral Value, (a) Moody’s ratings shall be converted to their respective S&P equivalents in accordance with established practice, and (b) commercial paper rated “A2” shall be deemed to be rated “A.”

Category of Investment/Security
	 	Eligible Percentage
	
Cash (denominated in U.S. Dollars)	 	100%	
Prime bank certificates of deposit issued by U.S. banks rated Aa3/AA - or better	 	95%	
U.S. Government Securities
Maturity 2 years or less
Maturity over 2 years	 	95% of Market
90% of Market	
Investment-grade municipal bonds (Rating Aaa/AAA – Baa3/BBB-)
Maturity 5 years or less
Maturity over 5 years	 	85% of Market
80% of Market	
Investment-grade corporate bonds (Rating Aa3/AA - or better, non-convertible, NYSE-traded)
Maturity 2 years or less
Maturity over 2 years	 	90% of Market
85% of Market	
Investment-grade corporate bonds (Rating A1/A+ to Baa3/BBB-, non-convertible, NYSE-traded)
Maturity 2 years or less
Maturity over 2 years	 	85% of Market
80% of Market	
Commercial paper (Rating A1-A2, P1-P2)	 	85% of Market	
 
6

SCHEDULE 4.01(B)
 
SUBSIDIARIES 

Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which Authorized
and Type of Business

ACE Limited	  	Cayman Islands	  	Publicly held	  	Bermuda, holding company	
				
ACE Bermuda Insurance Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance, reinsurance, general and long term; Mexico, reinsurance	
				
ACE PCC Insurance Limited	  	Guernsey	  	100%	  	Guernsey, protected cell rent-a-captive business	
				
Paget Reinsurance International Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance/reinsurance	
				
ACE Capital Title Reinsurance Company (EI# 06-1434264, NAIC# 50028, NY)	  	New York	  	100%	  	CA, MI, NY, TX, title insurance/reinsurance	
				
Oasis Investments Limited	  	Bermuda	  	67%	  	Bermuda, Investment Holding	
				
Oasis Investments 2 Ltd.	  	Bermuda	  	67%	  	Bermuda, holding company	
				
ACE Financial Solutions International, Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance management	
				
ACE European Markets Reinsurance Limited	  	Ireland	  	100%	  	Ireland, general and life reinsurance	
				
ACE European Markets Insurance Limited	  	Ireland	  	100%	  	EEA/Europe, direct non-life insurance, UK branch	
				
Corporate Officers & Directors Assurance Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance	
				
Oasis Real Estate Company Ltd.	  	Bermuda	  	100%	  	Bermuda, investment holding	
				
Scarborough Property Holdings Ltd.	  	Bermuda	  	40%	  	Bermuda, investment holding	
				
Sovereign Risk Insurance Limited	  	Bermuda	  	50%	  	Bermuda, insurance agent	
				
Tripar Partnership	  	Bermuda	  	98%
2% (CODA)	  	Bermuda, investment holding	
				
ACE Realty Holdings Limited	  	Bermuda	  	100%	  	Bermuda, investment holding	
				
Oasis Personnel Limited	  	Cayman Islands	  	100%	  	Cayman Islands, general services	
				
Shipowners Insurance and Guaranty Co. Limited	  	Bermuda	  	10% Series A
8% Series B	  	Bermuda, insurance	
				
Intrepid Re Holdings Limited	  	Bermuda	  	38.5%	  	Bermuda, holding	
 
1

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
Intrepid Re Limited	  	Bermuda	  	100%	  	Bermuda, Reinsurance	
				
Freisenbruch-Meyer Insurance Ltd.	  	Bermuda	  	40%	  	Bermuda, local and commercial insurance	
				
Freisenbruch-Meyer Insurance Services Ltd.	  	Bermuda	  	40%	  	Bermuda, local and commercial insurance	
				
Assured Guaranty Ltd. (formerly AGC Holdings Limited)	  	Bermuda	  	35% (remaining 65% is publicly held)	  	Bermuda, holding company	
				
Assured Guaranty Re International Ltd. (formerly ACE Capital Re International Ltd.)	  	Bermuda	  	100%	  	Bermuda, insurance/reinsurance, general and long term	
				
Assured Guaranty Barbados Holdings Ltd. (formerly ACE KRE Holdings Limited)	  	Barbados	  	100%	  	Barbados, investment holding	
				
Assured Guaranty Overseas US Holdings Inc. (formerly ACE Capital Re USA Holdings Incorporated)	  	Delaware	  	100%	  	Delaware, investment holding	
				
Assured Guaranty Re Overseas Ltd. (formerly ACE Capital Re Overseas Ltd.)	  	Bermuda	  	100%	  	Bermuda, insurance/reinsurance, general and long term	
				
Assured Guaranty Mortgage Insurance Company (formerly ACE Capital Mortgage Reinsurance Co.) (EI# 06-1384770, NAIC# 10021, NY)	  	New York	  	100%	  	New York, DC, mtg. guaranty insurance/reinsurance	
				
AG Intermediary Inc. (formerly ACE Capital Re Inc.)	  	New York	  	100%	  	New York, reinsurance intermediary	
				
Assured Guaranty Finance Overseas Ltd. (formerly ACE Finance Overseas Limited)	  	United Kingdom	  	100%	  	 	
				
Assured Guaranty US Holdings Inc.	  	Delaware	  	100%	  	Delaware, holding company	
				
AG Financial Products Inc. (formerly AGR Financial Products Inc.)	  	USA (Delaware)	  	100%	  	Delaware, financial products	
				
Assured Guaranty Corp. (formerly ACE Guaranty Corp.) (EI#52 - 1533088, NAIC #30180, MD)	  	Maryland	  	100%	  	US, insurance company	
				
Assured Guaranty (UK) Ltd. (formerly ACE Guaranty (UK) Ltd.)	  	United Kingdom	  	100%	  	UK, applying for license to be financial guaranty insurer	
				
ACE Risk Assurance Company (EI# 13-4027591, NAIC #10943, MD)	  	Maryland	  	100%	  	Maryland, reinsurance	
				
ACE Global Markets Limited	  	United Kingdom	  	100%	  	UK, investment holding	
 
2

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
ACE Group Holdings Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE Tarquin	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE Capital V Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s corporate member; capital provider	
				
ACE Leadenhall Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE Underwriting Agencies Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s managing agency	
				
ACE Trustees Limited	  	United Kingdom	  	100%	  	UK, investment holding	
ACE London Group Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE Capital Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s corporate member	
				
ACE Capital III Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s corporate member	
				
ACE Capital IV Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s corporate member; capital provider	
				
ACE London Holdings Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE Capital II Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s corporate member	
				
ACE London Investments Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE London Aviation Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s managing agent	
				
ACE London Underwriting Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s managing agent	
				
ACE Underwriting Services Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s service company	
				
AGM Underwriting Limited	  	United Kingdom	  	100%	  	UK, dormant	
				
ACE London Services Limited	  	United Kingdom	  	100%	  	UK, service company	
				
ACE Capital VI Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s corporate member	
				
ACE UK Limited	  	United Kingdom	  	77%	  	UK, investment holding	
				
ACE UK Holdings Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE (MI) Limited	  	United Kingdom	  	100%	  	UK, dormant	
				
ACE (MS) Limited	  	United Kingdom	  	100%	  	UK, dormant	
				
ACE UK Underwriting Limited	  	United Kingdom	  	100%	  	Lloyd’s managing agent	
				
ACE (PM) Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE UK Limited	  	United Kingdom	  	23%	  	UK, investment holding	
				
ACE Services Limited	  	Cayman Islands	  	100%	  	Cayman Islands, general services	
 
3

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
ACE Holdings (Gibraltar) Limited	  	Gibraltar	  	100%	  	Gilbraltar, Bermuda permit, investment holding	
				
ACE Gibraltar Limited	  	Gibraltar	  	51%	  	Gilbraltar, insurance intermediary	
				
ACE-ii Limited	  	United Kingdom	  	100%	  	dormant, to become internet company	
				
ACE-ii (Gibraltar) Limited	  	Gibraltar	  	100%	  	dormant,	
				
ACE Underwriting Services (Gibraltar) Limited	  	Gibraltar	  	100%	  	dormant,	
				
Arles Services Limited	  	Gibraltar	  	100%	  	dormant,	
				
CGA Group Limited	  	Bermuda	  	18.20%	  	Bermuda investment holding	
				
CGA Investment Management, Inc.	  	USA (Delaware)	  	100%	  	USA, investment	
				
Commercial Guaranty Assurance Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance	
				
Oasis Insurance Services Ltd.	  	Bermuda	  	100%	  	Bermuda, general services	
				
ACE Tempest Life Reinsurance Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance, reinsurance, general and long term (life, health, annuities)	
				
ACE Tempest Reinsurance Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance/reinsurance, long term; Puerto Rico, reinsurance	
				
Oasis Investments Limited	  	Bermuda	  	33%	  	Bermuda, investment holding	
				
Oasis Investments 2 Ltd.	  	Bermuda	  	33%	  	Bermuda, holding company	
				
St. George Holdings Ltd	  	Cayman Islands	  	10.71%	  	Cayman Islands, investment holding	
				
St. George Investments Ltd.	  	Cayman Islands	  	100%	  	Cayman Islands, investment holding	
				
ACE INA Holdings Inc.	  	USA (Delaware)	  	20%	  	USA, investment holding	
				
ACE Prime Holdings Inc.	  	USA (Delaware)	  	100%	  	USA, investment holding	
				
ACE INA Holdings Inc.	  	USA (Delaware)	  	80%	  	USA, investment holding	
				
ACE Seguros S.A.	  	Argentina	  	99.35%	  	Argentina, Insurance	
 
4

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
Huatai Insurance Company of China, Limited	  	China	  	6.129%
10% (ACE Tempest
Reinsurance Ltd.)
6% (ACE US Holdings, Inc.)	  	China, property and casualty insurer	
				
ACE Seguradora S.A.	  	Brazil	  	99.9%
0.1% (ACE Prime Holdings Inc.)	  	Brazil, insurance	
				
Servicios ACE INA S.A. de C.V.	  	Mexico	  	99.99%
.00002% (ACE Prime Holdings Inc.)	  	Mexico, service company	
				
ACE Tempest Re USA, Inc.	  	USA (Connecticut)	  	100%	  	CT, NJ, NY, OH, PA, SC, TX, reinsurance intermediary manager	
				
INA Corporation	  	USA (Pennsylvania)	  	100%	  	USA, investment holding company	
				
ACE INA Properties, Inc.	  	USA (Delaware)	  	100%	  	USA, holding company	
				
Conference Facilities, Inc.	  	USA (Pennsylvania)	  	100%	  	USA, owns & operates corporate facilities	
				
INA Tax Benefits Reporting, Inc.	  	USA (Delaware)	  	100%	  	USA, tax info & 3 rd party reporting	
				
INA Financial Corporation	  	USA (Delaware)	  	100%	  	USA, investment holding	
				
Brandywine Holdings Corporation	  	USA (Delaware)	  	100%	  	USA, holding company	
				
Brandywine Run-Off Services, Inc.	  	USA (Delaware)	  	100%	  	USA, management company for 1792	
				
Assurex Development Corporation	  	USA (Ohio)	  	11.011%	  	USA, provides loans to insurance agents	
				
Cravens, Dargan & Company, Pacific Coast	  	USA (Delaware)	  	100%	  	USA, managing general agency	
 
5

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
Cravens, Dargan & Company, Pacific Coast of Illinois, Inc.	  	USA (Illinois)	  	100%	  	USA, managing general agency	
				
Century Indemnity Company (EI# 05-6105395, NAIC #20710, PA)	  	USA (Pennsylvania)	  	100%	  	USA, insurance	
				
Century Reinsurance Company (EI# 06-0988117, NAIC #35130, PA)	  	USA (Pennsylvania)	  	100%	  	USA, reinsurance	
				
ACE American Reinsurance Company (EI# 23-1740414, NAIC#22705, PA)	  	USA (Pennsylvania)	  	100%	  	USA, reinsurance	
				
Brandywine Reinsurance Company S.A.-N.V.	  	Belgium	  	100%	  	Belgium, reinsurance	
				
The 1792 Company	  	USA (Delaware)	  	100%	  	USA, (former underwriting member of New York Insurance Exchange)	
				
Century International Reinsurance Company Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance & reinsurance	
				
INA Holdings Corporation	  	USA (Delaware)	  	100%	  	USA, holding company	
				
INATrust, fsb	  	Chartered by Office of Thrift Supervision	  	100%	  	USA, savings bank	
				
INA Reinsurance Company, Ltd.	  	Bermuda	  	100%	  	Bermuda, reinsurance	
				
ACE INA Financial Institution Solutions, Inc.	  	USA (Delaware)	  	100%	  	USA, floodplain determination &
other services to financial institutions	
				
American Lenders Facilities, Inc.	  	USA (California)	  	100%	  	USA, collection & loan servicing for third parties	
				
ESIS, Inc.	  	USA (Pennsylvania)	  	100%	  	USA, markets risk management
Programs	
				
NewMarkets Insurance Agency, Inc.	  	USA (Delaware)	  	100%	  	USA, managing general agency	
				
ACE INA Excess and Surplus Insurance Services, Inc.	  	USA (Georgia)	  	100%	  	USA, excess & surplus lines broker	
				
ACE INA Excess and Surplus Insurance Services, Inc.	  	USA (Pennsylvania)	  	100%	  	USA, excess & surplus lines broker	
 
6

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
ACE INA Excess and Surplus Insurance Services, Inc.	  	USA (California)	  	100%	  	USA, excess & surplus lines broker	
				
ACE INA Excess and Surplus Insurance Services, Inc.	  	USA (Illinois)	  	100%	  	USA, excess & surplus lines broker	
				
Excess and Surplus Insurance Services, Inc.	  	USA (Texas)	  	100%	  	USA, managing general agency	
				
ACE Financial Solutions, Inc.	  	USA (Delaware)	  	100%	  	USA, premium finance company	
				
Oasis US Inc.	  	USA (Delaware)	  	100%	  	USA, general services	
				
ACE Risk Solutions, Inc.	  	USA (NewYork)	  	100%	  	USA, reinsurance intermediary	
				
Indemnity Insurance Company of North America (EI# 06-1016108, NAIC #43575, PA)	  	USA (Pennsylvania)	  	100%	  	USA, Puerto Rico, USVI, insurance	
				
ACE Indemnity Insurance Company EI#92-0040526, NAIC #10030, PA)	  	USA (Pennsylvania)	  	100%	  	USA, insurance	
				
Allied Insurance Company (EI# 23-2021364, NAIC #36528, CA)	  	USA (California)	  	100%	  	USA, insurance	
				
ACE American Insurance Company (EI#95-2371728, NAIC# 22667, PA)	  	USA (Pennsylvania)	  	100%	  	USA, Korea, Puerto Rico USVI,
Guam, Bermuda permit,
Taiwan (life), insurance	
				
Pacific Employers Insurance Company (EI#95-1077060, NAIC# 22748, PA)	  	USA (Pennsylvania)	  	100%	  	USA, USVI, insurance	
				
ACE Insurance Company of Texas (EI# 74-1480965, NAIC #22721, 22920, TX)	  	USA (Texas)	  	100%	  	USA, insurance	
				
Illinois Union Insurance Company (EI# 36-2759195, NAIC #27960, IL)	  	USA (Illinois)	  	100%	  	USA, surplus lines insurer	
				
Rain and Hail Insurance Service Incorporated	  	USA (Iowa)	  	20%	  	 	
				
INAMAR Insurance Underwriting Agency, Inc.	  	USA (New Jersey)	  	100%	  	USA, insurance agency	
 
7

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
INAMAR Insurance Underwriting Agency, Inc. of Massachusetts	  	USA (Massachusetts)	  	100%	  	USA, general agency	
				
INAMAR Insurance Underwriting Agency, Inc. of Texas	  	USA (Texas)	  	100%	  	USA, general agency	
				
INAMAR Insurance Underwriting Agency, Inc. of Ohio	  	USA (Ohio)	  	100%	  	USA, general agency	
				
Insurance Company of North America (EI# 23-0723970, NAIC #22713, PA)	  	USA (Pennsylvania)	  	100%	  	USA, Guam, Northern Mariana
Islands, Philippines, Puerto Rico,
Taiwan (p/c), insurance	
				
Bankers Standard Insurance Company (EI# 75-1320184, NAIC #18279, PA)	  	USA (Pennsylvania)	  	100%	  	USA, insurance	
				
Bankers Standard Fire and Marine Company (EI#75-6014863, NAIC #20591, PA)	  	USA (Pennsylvania)	  	100%	  	USA, insurance	
				
ACE Property and Casualty Insurance Company (EI# 06-0237820, NAIC, #20699, PA)	  	USA (Pennsylvania)	  	100%	  	USA, Puerto Rico, insurance	
				
ACE Employers Insurance Company (EI# 23-2137343, NAIC #38741, PA)	  	USA (Pennsylvania)	  	100%	  	USA, insurance	
				
ACE Insurance Company of Ohio (EI#23-1859893, NAIC #22764, OH)	  	USA (Ohio)	  	100%	  	USA, insurance	
				
INA Surplus Insurance Company (EI# 52-1208598, NAIC #42072, PA)	  	USA (Pennsylvania)	  	100%	  	USA, reinsurance	
				
ACE Fire Underwriters Insurance Company (EI# 06-6032187, NAIC #20702, PA)	  	USA (Pennsylvania)	  	100%	  	USA, insurance	
				
Atlantic Employers Insurance Company (EI# 23-2173820, NAIC #38938, NJ)	  	USA (New Jersey)	  	100%	  	USA, insurance	
				
Cover-All Technologies, Inc.	  	USA (Delaware)	  	7.41%	  	USA, develop software products for insurance industry	
				
ALIC, Incorporated	  	USA (Texas)	  	100%	  	USA, general agency &
attorney-in-fact for ACE Lloyds	
 
8

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
ACE American Lloyds Insurance Company (Sponsored Lloyds Association) (EI# 75-1365570, NAIC #18511, TX)	  	USA (Texas)	  	100%	  	USA, Lloyds Association	
				
ACE Insurance Company of Illinois (EI# 36-2709121, NAIC #22691, IL)	  	USA (Illinois)	  	100%	  	USA, insurance	
				
ACE Insurance Company of the Midwest (EI# 06-0884361, NAIC #26417, IN)	  	USA (Indiana)	  	100%	  	USA, insurance	
				
ATR USA, LLC	  	USA (Connecticut)	  	100%	  	USA, reinsurance intermediary manager	
				
ACE Structured Products, Inc. (formerly INAPRO, Inc.)	  	USA (Delaware)	  	100%	  	USA, insurance management services & underwriting	
				
Recovery Services International, Inc.	  	USA (Delaware)	  	100%	  	USA, subrogation, collection &
recovery services	
				
RSI Health Care Recovery, Inc.	  	USA (Delaware)	  	100%	  	USA, subrogation, collection &
recovery services	
				
ACE INA International Holdings, Ltd.	  	USA (Delaware)	  	100%	  	USA, international insurance &
financial holding company	
				
ACE Insurance S.A.	  	Macau	  	99.94%	  	Macau, insurance	
				
ACE CIIC Holdings Limited	  	Cayman Islands	  	100%	  	Cayman Islands, holding company	
				
ACE CIIC Insurance Company Egypt S.A.E.	  	Egypt	  	51%	  	Egypt, insurance	
				
ACE European Holdings Limited	  	United Kingdom	  	100%	  	United Kingdom, holding company	
				
ACE Life Insurance Company S.A.E.	  	Egypt	  	99%	  	Egypt, life insurance	
				
ACE Synergy Insurance Berhad	  	Malaysia	  	51%	  	Malaysia, insurance	
				
ACE Insurance S.A.-N.V.	  	Belgium	  	.0523% 99.9477% (ACE INA Overseas Holdings, Inc.)	  	Europe, insurance/reinsurance	
 
9

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business

ACE Seguros S.A.	  	Chile	  	78.104% (AIIH)
12.235% (AFIA Finance Corporation, Agencia en Chile)
9.095% - (AFIA Finance Corp. Chile Limitada)	  	Chile, insurance	
				
ACE Seguros S.A.	  	Colombia	  	99.958%	  	Colombia, insurance	
				
ACE Seguros S.A.	  	Ecuador	  	100%	  	Ecuador, insurance	
				
ACE Seguros S.A.	  	Mexico	  	99.9%	  	Mexico, insurance/assumed reinsurance	
				
Brandywine Reinsurance Co. (UK) Ltd	  	United Kingdom	  	100%	  	UK, reinsurance	
				
ACE INA UK Limited	  	United Kingdom	  	100%	  	UK, Greece, insurance	
				
Eksupsiri Company Limited	  	Thailand	  	49%
50.99% (Nam Ek)	  	Thailand, holding company	
				
ACE Life Assurance Co. Ltd.	  	Thailand	  	75%
25% (Oriental)	  	Thailand, life insurance	
				
Nam Ek Company Limited	  	Thailand	  	49%	  	Thailand, holding company	
				
Chilena Consolidata Seguros Generales, S.A.	  	Chile	  	.65%	  	Chile, insurance	
				
ACE Insurance Limited	  	South Africa	  	100%	  	South Africa, insurance	
				
ACE Insurance Limited	  	New Zealand	  	100%	  	New Zealand, insurance/reinsurance	
				
ACE International Management Corporation	  	Pennsylvania	  	100%	  	Management Services	
				
Cover Direct, Inc.	  	USA (Delaware)	  	100%	  	Japan, direct marketing service
Company	
				
Victoria Hall Company Limited	  	Bermuda	  	20%	  	Bermuda, investment holding	
				
ACE INA G.B. Holdings, Ltd	  	USA (Delaware)	  	100%	  	Delaware, UK, insurance holding	
				
ACE INA Services U.K. Limited	  	United Kingdom	  	100%	  	UK, computer services for affiliates	
				
INACAP Sociedad Anonima	  	Nicaragua	  	100%	  	Nicaragua, holding company	
				
INACAP Reaseguros, Sociedad Anonima	  	Nicaragua	  	100%	  	Nicaragua, reinsurance broker	
 
10

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
Century Inversiones, S.A.	  	Panama	  	100%	  	Panama, reinsurance administrator	
				
Arabia ACE Insurance Company Limited E.C.	  	Bahrain	  	25%	  	Saudi Arabia, insurance & reinsurance	
				
ACE Insurance Limited	  	Australia	  	100%	  	Australia, Pakistan, Thailand, Solomon Islands, Vanuatu, insurance & reinsurance	
				
ACE INA Superannuation Pty. Limited	  	Australia	  	100%	  	Australia, corporate trustee for ACE Australia superannuation plan	
				
ACE Insurance Limited	  	Pakistan	  	100%	  	Pakistan, insurance	
				
ACE INA Overseas Insurance Company Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance/reinsurance, general and long term	
				
ACE Insurance Limited	  	Singapore	  	100%	  	Singapore, insurance	
				
ACE Insurance	  	Japan	  	100%	  	Japan, insurance/reinsurance	
				
ACE Songai Service Kabushikigaisha	  	Japan	  	100%	  	Japanese service company	
				
ACE INA Marketing Group C.A.	  	Venezuela	  	100%	  	Venezuela, services & direct marketing	
				
ACE INA Overseas Holdings, Inc.	  	USA (Delaware)	  	100%	  	Delaware, holding company	
				
INACAN Holdings, Ltd.	  	Canada	  	100%	  	Canada, insurance holding	
				
ACE INA Insurance	  	Canada	  	100%	  	Canada, insurance & reinsurance	
				
ACE INA Life Insurance	  	Canada	  	100%	  	Canada, life insurance	
				
ACE Insurance S.A.-N.V.	  	Belgium	  	99.9477%
.0523% (AIIH)	  	Europe, insurance/reinsurance	
				
ACE Insurance Company
(EI# 66-0437305, NAIC #30953, PR)	  	Puerto Rico	  	100%	  	Puerto Rico, insurance	
				
ACE Insurance Agency, Inc.	  	Puerto Rico	  	100%	  	Puerto Rico, general agent for ACE American Insurance Company	
				
ACE Insurance Limited	  	Hong Kong	  	100%	  	Hong Kong, insurance	
				
ACE Risk Management International Ltd. (formerly ACE INA Bermuda Insurance Managers Ltd.)	  	Bermuda	  	100%	  	Bermuda, management services for non-affiliates	
 
11

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
DELPANAMA S.A.	  	Panama	  	100%	  	Panama, holding company	
				
INAMEX S.A.	  	Mexico	  	100%	  	Mexico, reinsurance broker	
				
Maritime General Ins. Company Ltd	  	Trinidad	  	8.06%	  	Trinidad insurance	
				
Oriental Equity Holdings Limited	  	British Virgin Islands	  	100%	  	BVI, holding company	
				
ACE Life Assurance Co. Ltd.	  	Thailand	  	25%
75% (Eksupsiri)	  	Thailand, life insurance	
				
AFIA Finance Corporation	  	USA (Delaware)	  	100%	  	Delaware, insurance holding	
				
AFIA Venezolana C.A.	  	Venezuela	  	100%	  	Venezuela, inactive claims & settling agent	
				
ACE ICNA Italy Societa a Responsabilita Limitata	  	Italy	  	99.7%
0.3% (AIIH)	  	Italy, legal representative for CIGNA Insurance Company of Europe, S.A.-N.V.	
				
Siam Liberty Company Limited	  	Thailand	  	49% (AFC)
45% (Nam EK)	  	Thailand, broker, surveyor & claims settling agency	
				
ACE Servicios, S.A.	  	Argentina	  	100%	  	Argentina, service company	
				
AFIA Finance Corp. Chile Limitada	  	Chile	  	98%
2% (AIIH)	  	Chile, claims & settling agent	
				
Fire, Equity and General Insurance Company Limited	  	Nigeria	  	6.25%	  	Nigeria, insurance	
				
Inversiones Continental S.A. de C.V.	  	Honduras	  	1.29%	  	Honduras, insurance holding	
				
PT. ACE INA Insurance	  	Indonesia	  	80%	  	Indonesia, insurance	
				
PT. Adi Citra Mandiri	  	Indonesia	  	45%	  	Indonesia, service company	
				
RIYAD Insurance Co. Ltd.	  	Bermuda	  	80%	  	Bermuda, insurance	
				
Safire Private Ltd.	  	Singapore	  	100%	  	Singapore, management & computer service bureau	
				
AFIA (INA) Corporation, Limited	  	USA (Delaware)	  	100%	  	Delaware, holding company	
				
AFIA	  	Unincorporated
Association	  	60%	  	Association for international insurance	
				
AFIA (ACE) Corporation, Limited	  	USA (Delaware)	  	100%	  	Delaware, holding company	
				
AFIA	  	Unincorporated
Association	  	40%	  	Association for international insurance	
				
Compania Anonima de Seguros “AVILA”	  	Venezuela	  	0.6%	  	Venezuela, insurance	
 
12

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
INAVEN, C.A. “Venezuela”	  	Venezuela	  	100%	  	Venezuela, corporation	
				
La Positiva Compania Nacional de Seguros Sociedad Anonima	  	Peru	  	7.6869%	  	Peru, insurance	
				
Reaseguradora Nuevo Mundo S.A.	  	Panama	  	3.7246%	  	Panama, reinsurance	
				
Amazones Compania Anonima de Seguros	  	Ecuador	  	1.423%	  	Ecuador, insurance	
				
ACE US Holdings, Inc.	  	USA (Delaware)	  	100%	  	USA, investment holding	
				
ACE Financial Services International, Inc. (f/k/a ACE Financial Solutions International, Inc.)	  	USA (Delaware)	  	100%	  	USA, investment holding	
				
ACE USA, Inc.	  	USA (Delaware)	  	100%	  	USA, investment holding	
				
ASI Administrative Services Inc. (formerly ASI Administrative Services Holdings Inc. and CRC Creditor Resources Canada Ltd.)	  	Canada (Yukon)	  	100%	  	Canada, warranties business	
				
Industrial Underwriters Insurance Company (EI# 75-6015738, NAIC# 21075, TX)	  	USA (Texas)	  	100%	  	USA, insurance	
				
Rhea International Marketing (L), Inc.	  	Malaysia	  	60%	  	Malaysia, general services	
				
Westchester Fire Insurance Company (EI# 13-5481330, NAIC# 21121, NY)	  	USA (New York)	  	100%	  	USA, Bermuda permit, insurance	
				
Westchester Surplus Lines Insurance Company (EI# 58-2139927, NAIC #10172, GA)	  	USA (Georgia)	  	100%	  	USA, insurance	
				
Westchester Specialty Services, Inc.	  	USA (Florida)	  	100%	  	USA, warranties	
				
Westchester Specialty Insurance Services, Inc.	  	USA (Nevada)	  	100%	  	USA, insurance services, brokering, warranties	
				
WDH Corporation	  	USA (Ohio)	  	80%	  	USA, insurance services	
				
Dimension Service Corporation	  	USA (Ohio)	  	80%	  	USA, warranties	
				
Dimension Holdings Inc.	  	USA (Ohio)	  	80%	  	USA, insurance services	
				
ACE Financial Services Inc. (f/k/a Capital Re Corporation)	  	USA (Delaware)	  	100%	  	Delaware, insurance holding company	
				
Capital RE LLC	  	Turks & Caicos	  	100%	  	Turks & Caicos, holding company	
				
ACE (CR) Holdings	  	United Kingdom	  	100%	  	UK, holding co	
				
ACE Capital VII Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s capital vehicle	
				
ACE (RGB) Holdings Limited	  	United Kingdom	  	100%	  	UK, holding company	
				
ACE (CIDR) Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s agency	
				
Global Life Services Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s agency	
				
Ridge Underwriting Agencies Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s agency	
 
13

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
ACE Asset Management Inc.	  	Delaware	  	100%	  	DE, Bermuda permit corporation	
				
ACE (Barbados) Holdings Limited	  	Barbados	  	100%	  	Barbados, holding company	
 
14

SCHEDULE 5.02(A)
 
LIENS
 
1.	Lien arising under a Subordination Agreement dated as of October 27, 1998 among ACE US Holdings, Inc., ACE Limited and The Chase Manhattan Bank encumbering ACE US Holdings, Inc.’s rights under the Subordinated Loan Agreement dated as of October 27, 1998 among ACE US Holdings, Inc., ACE Bermuda Insurance Ltd. and United States Trust Company of New York, as trustee under the Indenture dated October 27, 1998 of ACE US Holdings, Inc.	
 
2.	Liens securing the Fourth Amendment and Restatement of Letter of Credit Facility Agreement dated November 14, 2003 among ACE Limited, ACE Bermuda Insurance Ltd., certain other financial institutions and Citibank International plc, as Agent and Security Trustee.	
 
1

EXHIBIT A
 
FORM OF ASSIGNMENT AND ACCEPTANCE
 
ASSIGNMENT AND ACCEPTANCE dated as of                  , 20      between                          (the “ Assignor ”) and                          (the “ Assignee ”), and [consented to and] accepted by Wachovia Bank, National Association, as administrative agent (the “ Administrative Agent ”)[, and ACE Limited (the “ Parent ”)].
 
W I T N E S S E T H
 
WHEREAS, this Assignment and Acceptance (the “ Agreement ”) relates to the Reimbursement Agreement dated as of September 22, 2004 among the Parent and other Account Parties party thereto, the Assignor and the other Banks party thereto, the Syndication Agent party thereto and the Administrative Agent, providing for a $500,000,000 secured letter of credit facility for the benefit of the Account Parties (as amended or otherwise modified from time to time, the “ Reimbursement Agreement ”);
 
WHEREAS, as provided under the Reimbursement Agreement, the Assignor has a commitment to participate in Letters of Credit and make Letter of Credit Advances to the Account Parties in an aggregate principal amount at any time outstanding not to exceed $                      ;
 
WHEREAS, Letters of Credit with a total amount available for drawing thereunder of $                      are outstanding at the date hereof;
 
WHEREAS, Letter of Credit Advances made to the Account Parties by the Assignor under the Reimbursement Agreement in the aggregate principal amount of $                      are outstanding at the date hereof; and
 
WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Reimbursement Agreement and the other Loan Documents in respect of a portion of its LC Commitment Amount thereunder in an amount equal to $                      (the “ Assigned Amount ”), together with a corresponding portion of its outstanding Letter of Credit Participating Interest, Letter of Credit Participating Interest Commitment, LC Participation Obligations, Letter of Credit Exposure, and Letter of Credit Advances, if any, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms.
 
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows:
 
1. Definitions . All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Reimbursement Agreement.
 
1

2. Assignment . The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Reimbursement Agreement and the other Loan Documents to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Reimbursement Agreement to the extent of the Assigned Amount, including the outstanding Letter of Credit Participating Interest Commitment and Letter of Credit Exposure, and the amount of the Letter of Credit Advances, if any, outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee[, the Administrative Agent and the Parent] and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Reimbursement Agreement with an LC Commitment Amount (in addition to any LC Commitment Amount theretofore held by it) equal to the Assigned Amount, and (ii) the LC Commitment Amount of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor shall be released from its obligations under the Reimbursement Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor.
 
3. Payments . As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof the amount heretofore agreed between them. 1 It is understood that commitment and Letter of Credit fees accrued to the date hereof in respect of the Assigned Amount are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Reimbursement Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party’s interest therein and shall promptly pay the same to such other party.
 
4. [Consent of the Administrative Agent and the Parent . Pursuant to the Reimbursement Agreement, this Agreement is conditioned upon the consent of the Administrative Agent and, so long as no Default has occurred and is continuing, the Parent. The execution of this Agreement by the Administrative Agent and, if applicable, the Parent is evidence of this consent.]
 
5. Non-Reliance on Assignor . The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition or statements of the Account Parties or any of their respective Subsidiaries, or the validity and enforceability of the obligations of the Account Parties or any of their respective Subsidiaries in respect of any Loan Document. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Account Parties and their respective Subsidiaries.

1	Amount should combine the principal amount of any Letter of Credit Advances made by the Assignor together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum.	
 
2

6. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
 
7. Counterparts . This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
 
[Remainder of page intentionally left blank.]
 
3

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

[ASSIGNOR]	
		
By:	 	 	
		
Title: 	 	 	
	
[ASSIGNEE]	
		
By:	 	 	
		
Title: 	 	 	
	
[ACE LIMITED]	
		
By:	 	 	
		
Title: 	 	 	
	
WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent	
		
By:	 	 	
		
Title: 	 	]	
 
4

EXHIBIT B
 
FORM OF COLLATERAL VALUE REPORT
 
                     , 200   
 
Wachovia Bank, National Association,
as Administrative Agent
Charlotte Plaza Building
201 South College Street, 8 th Floor NC0680
Charlotte, North Carolina 28288
Attn: Syndication Agency Services
 
Ladies and Gentlemen:
 
Reference is made to the Reimbursement Agreement dated as of September      , 2004 among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Life Reinsurance Ltd. and ACE Tempest Reinsurance Ltd., as Account Parties, the Banks party thereto, and Wachovia Bank, National Association, as Administrative Agent (as amended or otherwise modified from time to time, the “ Reimbursement Agreement ”). Terms defined in the Reimbursement Agreement are, unless otherwise defined herein or the context otherwise requires, used herein as defined therein.
 
This Collateral Value Report is delivered pursuant to Section 2.16(b) of the Reimbursement Agreement. The date of this Collateral Value Report is                      , 200    (the “ Report Date ”). Set forth below is the Collateral Value of the Collateral and certain other information required by Section 2.16(b) of the Reimbursement Agreement as of                      , 200    (the “ Valuation Date ”), calculated in accordance with the definition of Collateral Value contained in the Reimbursement Agreement and the other provisions of the Agreement (including Schedule III to the Reimbursement Agreement):

Type of Security
	  	Amount/
Market Value
	  	Eligible
Percentage
	 	Collateral Value
	
Cash Denominated in U.S. Dollars	  	 	  	100%	 	 	
Prime bank certificates of deposit issued by U.S. banks rated Aa3/AA - or better	  	 	  	95%	 	 	
U.S. Government and U.S. Government Agency Obligations	  	 	  	 	 	 	
Maturity 2 years or less
Maturity over 2 years	  	 	  	95% of Market
90% of Market	 	 	
Investment Grade Municipal Bonds (Rating Aaa-Baa3)	  	 	  	 	 	 	
Maturity 5 years or less
Maturity over 5 years	  	 	  	85% of Market
80% of Market	 	 	
 
1

								
Type of Security
	  	Amount/
Market Value
	  	Eligible
Percentage
	 	Collateral Value
	
Investment Grade Corporate Bonds (Rating Aa3 or better, Non-convertible, NYSE)	  	 	  	 	 	 	 	
Maturity 2 years or less
Maturity over 2 years	  	 	  	90% of Market
85% of Market	 	 	 	
Investment Grade Corporate Bonds (Rating Baa3 to A1, Non-convertible, NYSE)	  	 	  	 	 	 	 	
Maturity 2 years or less
Maturity over 2 years	  	 	  	85% of Market
80% of Market	 	 	 	
Commercial Paper (Rating A1-A2, P1-P2)	  	 	  	85% of Market	 	 	 	
Total	  	 	  	 	 	$	 	
 
Outstanding Letters of Credit

Beneficiary
	  	Date
	  	Undrawn Amount
	  	Unreimbursed
Drawings
	
 	  	 	  	$	 	  	$	 	

 	  	 	  	 	 	  	 	 	

Total	  	 	  	$	 	  	$	 	
 
Ratio of Aggregate Collateral Value to Letter of Credit Outstandings:                     
 
The Parent certifies that the foregoing information correctly sets forth the Collateral Value (in the aggregate and for each category of Collateral) and the Letter of Credit Outstandings as of the Valuation Date, that the Letter of Credit Outstandings do not exceed the aggregate Collateral Value as of the Valuation Date, and that nothing has come to the attention of the undersigned to cause the undersigned to believe that the Letter of Credit Outstandings exceed the aggregate Collateral Value as of the Report Date.

ACE LIMITED	
		
By:	 	 	
		
Name: 	 	 	
		
Title: 	 	 	
 
2

EXHIBIT E
 
FORM OF LETTER OF INSTRUCTION
 
                     , 200   
 
Wachovia Bank, National Association
as Administrative Agent
Charlotte Plaza Building
201 South College Street, 8 th Floor NC0680
Charlotte, North Carolina 28288
Attn: Syndication Agency Services
 
Ladies and Gentlemen:
 
Reference is made to the Control Agreement (as amended, modified, supplemented or restated from time to time, the “Control Agreement”), dated as of September      , 2004, among the undersigned, State Street Bank and Trust Company, as Custodian (in such capacity, the “Custodian”), and Wachovia Bank, National Association, as administrative agent (in such capacity, together with any successor in such capacity, the “Administrative Agent”). Terms defined in the Control Agreement are, unless otherwise defined herein or the context otherwise requires, used herein as defined therein.
 
We refer to the notification received from the Administrative Agent pursuant to Section 2.03(a) of the Reimbursement Agreement that requires us to make on the date of this letter a reimbursement payment (the “ Required Payment ”) with respect to a drawing under a Letter of Credit (as defined in the Reimbursement Agreement) issued under the Reimbursement Agreement. Pursuant to this notification and inasmuch as the Required Payment has not been made, we hereby irrevocably authorize and direct you to liquidate and receive the proceeds of Collateral (as defined in the Reimbursement Agreement) in an amount equal to the Required Payment plus interest thereon as provided in the Reimbursement Agreement.
 
We further irrevocably authorize and direct you to deliver this letter to the Custodian or any other person or entity (and we agree that the Custodian and any such other person or entity may rely hereon and is hereby irrevocably authorized and instructed to act in reliance hereon without further consent or authorization from us or any other Account Party) as you may deem to be appropriate to give effect to the authorization and direction contained herein.

Very truly yours,	
	
for and on behalf of	

 
 
Exhibit 10.2

REIMBURSEMENT AGREEMENT
 
among
 
ACE LIMITED
ACE BERMUDA INSURANCE LTD.
ACE TEMPEST LIFE REINSURANCE LTD.
ACE TEMPEST REINSURANCE LTD.,
as Account Parties,
 
THE BANKS NAMED HEREIN,
 
WACHOVIA BANK, NATIONAL ASSOCIATION,
as an Issuing Bank and as Administrative Agent
 
and
 
BANK OF AMERICA, N.A.,
as Syndication Agent
 
$850,000,000 Unsecured Letter of Credit Facility
 
WACHOVIA CAPITAL MARKETS, LLC
BANC OF AMERICA SECURITIES LLC
as Joint Book Runners and Joint Lead Arrangers
 
Dated as of September 22, 2004

TABLE OF CONTENTS

 	  	 	  	Page
	
ARTICLE I	  	 	
		
DEFINITIONS AND ACCOUNTING TERMS	  	 	
			
1.01	  	Certain Defined Terms	  	1	
1.02	  	Computation of Time Periods; Other Definitional Provisions	  	16	
1.03	  	Accounting Terms and Determinations	  	16	
		
 ARTICLE II	  	 	
		
AMOUNTS AND TERMS OF THE LETTERS OF CREDIT	  	 	
			
2.01	  	The Letters of Credit	  	17	
2.02	  	Issuance and Renewals and Drawings, Participations and Reimbursement with Respect to Letters of Credit	  	18	
2.03	  	Repayment of Advances	  	21	
2.04	  	Termination or Reduction of the LC Commitment Amounts	  	23	
2.05	  	Fees	  	23	
2.06	  	Increased Costs, Etc.	  	24	
2.07	  	Payments and Computations	  	25	
2.08	  	Taxes	  	26	
2.09	  	Sharing of Payments, Etc.	  	28	
2.10	  	Use of Letters of Credit	  	29	
2.11	  	Defaulting Banks	  	29	
2.12	  	Replacement of Affected Bank	  	31	
2.13	  	Certain Provisions Relating to the Issuing Banks and Letters of Credit	  	31	
2.14	  	Downgrade Event with Respect to a Bank	  	33	
2.15	  	Non–Dollar Letters of Credit	  	35	
2.16	  	Increase of LC Commitment Amounts	  	36	
		
 ARTICLE III	  	 	
		
CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT	  	 	
			
3.01	  	Conditions Precedent to Effective Date	  	37	
3.02	  	Conditions Precedent to Each Issuance, Extension or Increase of a Letter of Credit	  	39	
3.03	  	Determinations Under Section 3.01	  	39	
		
ARTICLE IV	  	 	
		
REPRESENTATIONS AND WARRANTIES	  	 	
			
4.01	  	Representations and Warranties of the Account Parties	  	40	
 
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 ARTICLE V	  	 	
		
COVENANTS OF THE ACCOUNT PARTIES	  	 	
			
5.01	  	Affirmative Covenants	  	43	
5.02	  	Negative Covenants	  	45	
5.03	  	Reporting Requirements	  	49	
5.04	  	Financial Covenants	  	52	
		
ARTICLE VI	  	 	
		
EVENTS OF DEFAULT	  	 	
			
6.01	  	Events of Default	  	52	
6.02	  	Actions in Respect of the Letters of Credit upon Default	  	54	
		
 ARTICLE VII	  	 	
		
THE GUARANTY	  	 	
			
7.01	  	The Guaranty	  	55	
7.02	  	Guaranty Unconditional	  	56	
7.03	  	Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances	  	56	
7.04	  	Waiver by the Account Parties	  	57	
7.05	  	Subrogation	  	57	
7.06	  	Stay of Acceleration	  	57	
7.07	  	Continuing Guaranty; Assignments	  	58	
		
 ARTICLE VIII	  	 	
		
THE AGENTS	  	 	
			
8.01	  	Authorization and Action	  	58	
8.02	  	Agents’ Reliance, Etc.	  	58	
8.03	  	Agents and Affiliates	  	59	
8.04	  	Bank Credit Decision	  	59	
8.05	  	Indemnification	  	59	
8.06	  	Successor Administrative Agent	  	60	
		
 ARTICLE IX	  	 	
		
MISCELLANEOUS	  	 	
			
9.01	  	Amendments, Etc.	  	60	
9.02	  	Notices, Etc.	  	61	
9.03	  	No Waiver; Remedies	  	62	
9.04	  	Costs and Expenses	  	62	
 
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9.05	  	Right of Set-off	  	63	
9.06	  	Binding Effect	  	63	
9.07	  	Assignments and Participations	  	63	
9.08	  	Execution in Counterparts	  	66	
9.09	  	No Liability of the Issuing Banks	  	66	
9.10	  	Confidentiality	  	67	
9.11	  	Jurisdiction, Etc.	  	67	
9.12	  	Governing Law	  	68	
9.13	  	Waiver of Jury Trial	  	68	
9.14	  	Disclosure of Information	  	68	
9.15	  	USA Patriot Act	  	68	
9.16	  	Certain Effective Date Matters	  	69	
 
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Schedule I	 	LC Commitment Amounts	
Schedule I – Part 2	 	Domestic Lending Offices	
Schedule II	 	Existing Letters of Credit	
Schedule 4.01(b)	 	Subsidiaries	
Schedule 5.02(a)	 	Liens	
		
Exhibit A	 	Form of Assignment and Acceptance	
Exhibit B-1	 	Form of Opinion of Maples and Calder	
Exhibit B-2	 	Form of Opinion of Mayer, Brown, Rowe & Maw LLP	
Exhibit B-3	 	Form of Opinion of Conyers, Dill & Pearman	
Exhibit C	 	Form of Letter regarding Existing Letters of Credit	
 
iv

REIMBURSEMENT AGREEMENT
 
REIMBURSEMENT AGREEMENT dated as of September 22, 2004, among ACE Limited, a Cayman Islands company (the “ Parent ”), ACE Bermuda Insurance Ltd., a Bermuda company (“ ACE Bermuda ”), ACE Tempest Life Reinsurance Ltd., a Bermuda company (“ Tempest Life ”), and ACE Tempest Reinsurance Ltd., a Bermuda company (“ Tempest ”) (ACE Bermuda, Tempest Life and Tempest, together with the Parent, the “ Account Parties ” and individually an “ Account Party ”), the banks, financial institutions and other institutional lenders listed on the signature pages hereof as the Initial Banks (the “ Initial Banks ”), Wachovia Bank, National Association (“ Wachovia ”), as an Issuing Bank (as hereinafter defined), Bank of America, N.A. (“ Bank of America ”), as syndication agent, (the “ Syndication Agent ”), Barclays Bank PLC (“ Barclays ”), as co-documentation agent, CitiBank, N.A. (“ CitiBank ”), as co-documentation agent, JPMorgan Chase Bank, as co-documentation agent (“ Chase ” and, together with Barclays and CitiBank, the “ Documentation Agents ”), and Wachovia, as administrative agent (together with any successor administrative agent appointed pursuant to Article VIII , the “ Administrative Agent ” and, together with the Syndication Agent and Documentation Agents, the “ Agents ”) for the Banks.
 
PRELIMINARY STATEMENTS:
 
The Account Parties have requested that the Issuing Banks and the Banks make available to the Account Parties a credit facility in an amount up to $850,000,000 to provide for the issuance of letters of credit for the account of one or more of the Account Parties. The Issuing Banks and the Banks have indicated their willingness to agree to make such letters of credit available on the terms and conditions of this Agreement.
 
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows:
 
ARTICLE I
 
DEFINITIONS AND ACCOUNTING TERMS
 
1.01 Certain Defined Terms . As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): 
 
“ Account Parties ” has the meaning specified in the recital of parties to this Agreement.
 
“ ACE Bermuda ” has the meaning specified in the recital of parties to this Agreement.
 
“ ACE INA ” means ACE INA Holdings Inc., a Delaware corporation.
 
“ Additional Bank ” has the meaning specified in Section 2.16(a) .
 
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“ Adjusted Consolidated Debt ” means, at any time, an amount equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) to the extent exceeding an amount equal to 15% of Total Capitalization, the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Preferred Securities).
 
“ Administrative Agent ” has the meaning specified in the recital of parties to this Agreement.
 
“ Administrative Agent’s Account ” means the account of the Administrative Agent maintained by the Administrative Agent at Wachovia Bank, National Association, Charlotte Plaza Building, 201 South College Street, 8 th Floor NC0680, Charlotte, North Carolina 28288, Account No. 5000000027444, Re: ACE Ltd., Attn: Syndication Agency Services, or such other account as the Administrative Agent shall specify in writing to the Banks.
 
“ Advance ” means a Letter of Credit Advance.
 
“ Affected Bank ” means any Bank that (i) has made, or notified any Account Party that an event or circumstance has occurred which may give rise to, a demand for compensation under Section 2.06(a) or (b) or Section 2.08 (but only so long as the event or circumstance giving rise to such demand or notice is continuing) or (ii) is a Downgraded Bank.
 
“ Affiliate ” means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term “control” (including the terms “controlling”, “controlled by” and “under common control with”) of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Interests of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise.
 
“ Agents ” has the meaning specified in the recital of parties to this Agreement.
 
“ Agreement Currency ” has the meaning specified in Section 2.15(g) .
 
“ Applicable Account Party ” with respect to any outstanding or proposed Letter of Credit means the Account Party for the account of which such Letter of Credit was or is proposed to be issued.
 
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“ Applicable Commitment Fee Percentage ” means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:

Public Debt Rating
S&P/Moody’s
	  	Applicable Commitment Fee
Percentage
	
Level 1
A+/A1 and above	  	0.060%	
Level 2
A/A2	  	0.080%	
Level 3
A-/A3	  	0.100%	
Level 4
BBB+/Baa1	  	0.125%	
Level 5
Lower than Level 4	  	0.150%	
 
“ Applicable Lending Office ” means, with respect to each Bank, such Bank’s Domestic Lending Office.
 
“ Applicable Margin ” means, as of any date, with respect to either Type of Letter of Credit, a percentage per annum determined by reference to such Type and the Public Debt Rating in effect on such date as set forth below:

Public Debt Rating
S&P/Moody’s
	  	Applicable Margin
for Intercompany
Letters of Credit
	  	Applicable Margin
for Third Party
Letters of Credit
	
Level 1
A+/A1 and above	  	0.300%	  	0.350%	
Level 2
A/A2	  	0.400%	  	0.425%	
Level 3
A-/A3	  	0.450%	  	0.475%	
Level 4
BBB+/Baa1	  	0.500%	  	0.525%	
Level 5
Lower than Level 4	  	0.600%	  	0.625%	
 
provided , however , that at all times during which the Available Amount with respect to Intercompany Letters of Credit exceeds $200,000,000, then for purposes of Section 2.05(c)(i) the Applicable Margin for the portion of the Available Amount of such Intercompany Letters of Credit in excess of $200,000,000 shall be determined as if such Letters of Credit were Third Party Letters of Credit.
 
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“ Approved Investment ” means any Investment that was made by the Parent or any of its Subsidiaries pursuant to investment guidelines set forth by the board of directors of the Parent which are consistent with past practices.
 
“ Assignment and Acceptance ” means an assignment and acceptance entered into by a Bank and an Eligible Assignee, and accepted by the Administrative Agent, in accordance with Section 9.07 and in substantially the form of Exhibit A hereto.
 
“ Available Amount ” of any Letter of Credit means, at any time, the maximum amount available to be drawn under such Letter of Credit at such time or at any future time (assuming compliance at such time or such future time with all conditions to drawing) (including without limitation amounts which have been the subject of drawings by the applicable beneficiary but which have not yet been paid by an Issuing Bank).
 
“ Bank of America ” has the meaning specified in the recital of parties to this Agreement.
 
“ Bankruptcy Law ” means Title 11, U.S. Code, or any similar foreign, federal or state law for the relief of debtors.
 
“ Banks ” means the Initial Banks and each Person that shall become a Bank hereunder pursuant to Section 2.16(a) or Section 9.07(a) , (b) and (c) for so long as such Initial Bank or Person, as the case may be, shall be a party to this Agreement.
 
“ Barclays ” has the meaning specified in the recital of parties to this Agreement.
 
“ Base Amount ” has the meaning set forth in Section 5.04(b) .
 
“ Base Rate ” means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the rate of interest announced publicly by Wachovia in Charlotte, North Carolina from time to time, as Wachovia’s prime rate (which may not be its best lending rate) or, if higher on the day in question, ½ of 1% above the Federal Funds Rate.
 
“ Bilateral Agreements ” means (i) the Insurance and Reinsurance Letters of Credit Agreement dated November 20, 2003 issued by Barclays relating to the Lloyd’s Dollar Trust Funds of Syndicate 2488; and (ii) the Insurance Letters of Credit – Master Agreement dated April 20, 1994 between Tempest (then known as Tempest Reinsurance Company Limited) and CitiBank.
 
“ Business Day ” means a day of the year on which banks are not required or authorized by law to close in Charlotte, North Carolina, New York, New York, London, England or Bermuda.
 
“ Capitalized Leases ” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.
 
“ Change of Control ” means the occurrence of any of the following: (a) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities
 
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Exchange Act of 1934), directly or indirectly, of Voting Interests of the Parent (or other securities convertible into such Voting Interests) representing 30% or more of the combined voting power of all Voting Interests of the Parent or (b) a majority of the board of directors of the Parent shall not be Continuing Members.
 
“ CitiBank ” has the meaning specified in the recital of parties to this Agreement.
 
“ Committed Facility ” means, at any time, the aggregate amount of the Banks’ LC Commitment Amounts at such time.
 
“ Confidential Information ” means information that any Loan Party furnishes to any Agent or any Bank, but does not include any such information that is or becomes generally available to the public other than as a result of a breach by any Agent or any Bank of its obligations hereunder or that is or becomes available to such Agent or such Bank from a source other than the Loan Parties that is not, to the best of such Agent’s or such Bank’s knowledge, acting in violation of a confidentiality agreement with a Loan Party.
 
“ Consolidated ” refers to the consolidation of accounts in accordance with GAAP.
 
“ Consolidated Net Income ” means, for any period, the net income of the Parent and its Consolidated Subsidiaries, determined on a Consolidated basis for such period.
 
“ Consolidated Net Worth ” means at any date the Consolidated stockholders’ equity of the Parent and its Consolidated Subsidiaries determined as of such date, provided that such determination for purposes of Section 5.04 shall be made without giving effect to adjustments pursuant to Statement No. 115 of the Financial Accounting Standards Board of the United States of America.
 
“ Contingent Obligation ” means, with respect to any Person, any obligation or arrangement of such Person to guarantee or intended to guarantee any Debt, leases, dividends or other payment obligations (“ primary obligations ”) of any other Person (the “ primary obligor ”) in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement or (c) any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided , however , that Contingent Obligations shall not include any obligations of any such Person arising under insurance contracts entered into in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the
 
5

primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith.
 
“ Continuing Member ” means a member of the Board of Directors of the Parent who either (i) was a member of the Parent’s Board of Directors on the date of execution and delivery of this Agreement by the Parent and has been such continuously thereafter or (ii) became a member of such Board of Directors after such date and whose election or nomination for election was approved by a vote of the majority of the Continuing Members then members of the Parent’s Board of Directors.
 
“ Debenture ” means debt securities issued by ACE INA or the Parent to a Special Purpose Trust in exchange for proceeds of Preferred Securities and common securities of such Special Purpose Trust.
 
“ Debt ” of any Person means, without duplication for purposes of calculating financial ratios, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of such Person’s business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under Capitalized Leases (excluding imputed interest), (f) all obligations of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests (except for obligations to pay for Equity Interests within customary settlement periods) in such Person or any other Person or any warrants, rights or options to acquire such capital stock (excluding payments under a contract for the forward sale of ordinary shares of such Person issued in a public offering), valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person and (i) all indebtedness and other payment obligations referred to in clauses (a) through (h) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligations; provided , however , that the amount of Debt of such Person under clause (i) above shall, if such Person has not assumed or otherwise become liable for any such Debt, be limited to the lesser of the principal amount of such Debt or the fair market value of all property of such Person securing such Debt; provided further that “Debt” shall not include obligations in respect of insurance or reinsurance contracts entered into in the ordinary course of business or any obligations of such Person (1) to purchase securities (or other property) which arise out of or in connection with the sale of the same or substantially similar securities (or other property) or (2) to return collateral consisting of securities arising out of or in connection
 
6

with the loan of the same or substantially similar securities; provided further that, solely for purposes of Section 5.04 and the definitions of “Adjusted Consolidated Debt” and “Total Capitalization”, “Debt” shall not include (x) any contingent obligations of any Person under or in connection with acceptance, letter of credit or similar facilities or (y) obligations of the Parent or ACE INA under any Debentures or under any subordinated guaranty of any Preferred Securities or obligations of a Special Purpose Trust under any Preferred Securities.
 
“ Default ” means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both.
 
“ Defaulted Amount ” means, with respect to any Bank at any time, any amount required to be paid by such Bank to any Agent or any other Bank hereunder or under any other Loan Document at or prior to such time that has not been so paid as of such time, including, without limitation, any amount required to be paid by such Bank to (a) an Issuing Bank pursuant to Section 2.02(f) to purchase a portion of a Letter of Credit Advance made by such Issuing Bank and (b) any Agent or any Issuing Bank pursuant to Section 8.05 to reimburse such Agent or such Issuing Bank for such Bank’s ratable share of any amount required to be paid by the Banks to such Agent or such Issuing Bank as provided therein.
 
“ Defaulting Bank ” means, at any time, any Bank that, at such time, (a) owes a Defaulted Amount or (b) shall take any action or be the subject of any action or proceeding of a type described in Section 6.01(g) .
 
“ Documentation Agents ” has the meaning specified in the recital of parties to this Agreement.
 
“ Dollar Equivalent ” has the meaning specified in Section 2.15(h) .
 
“ Domestic Lending Office ” means, with respect to any Bank, the office of such Bank specified as its “Domestic Lending Office” opposite its name on Part 2 of Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Bank, as the case may be, or such other office of such Bank as such Bank may from time to time specify to any Account Party and the Administrative Agent.
 
“ Downgrade Account ” has the meaning specified in Section 2.14(a) .
 
“ Downgrade Event ” means, with respect to any Bank, a reduction of the credit rating for the senior unsecured unsupported long-term debt of such Bank (or, if no such rating exists, then a reduction of the long-term issuer credit rating of such Bank) by S&P or Moody’s.
 
“ Downgrade Notice ” has the meaning specified in Section 2.14(a) .
 
“ Downgraded Bank ” means any Bank which has a credit rating of less than A- (in the case of S&P) or A3 (in the case of Moody’s) for its senior unsecured unsupported long-term debt or which does not have any credit rating on such debt from one of S&P or Moody’s; provided, that if at any time such Bank has no such senior unsecured unsupported long-term debt rating from either rating service but does have a long-term issuer credit rating from either or both
 
7

services, then such Bank shall not be considered a Downgraded Bank so long as such long-term issuer credit rating remains at or above A- (in the case of S&P) or A3 (in the case of Moody’s).
 
“ Effective Date ” means the first date on which the conditions set forth in Article III shall have been satisfied.
 
“ Eligible Assignee ” means (i) a Bank, (ii) an Affiliate of a Bank, or (iii) a commercial bank, a savings bank or other financial institution that is approved by the Administrative Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected pursuant to Section 9.07 , the Parent (such approvals not to be unreasonably withheld or delayed); provided , however , that neither any Loan Party nor any Affiliate of a Loan Party shall qualify as an Eligible Assignee under this definition.
 
“ Environmental Action ” means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or Hazardous Material or arising from alleged injury or threat to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief.
 
“ Environmental Law ” means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment, injunction, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials.
 
“ Environmental Permit ” means any permit, approval, identification number, license or other authorization required under any Environmental Law.
 
“ Equity Interests ” means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.
 
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.
 
“ ERISA Affiliate ” means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any Loan Party, or under common control with any Loan Party, within the meaning of Section 414 of the Internal Revenue Code or Section 4001 of ERISA.
 
8

“ Events of Default ” has the meaning specified in Section 6.01 .
 
“ Existing Letters of Credit ” means, collectively, the letters of credit outstanding on the Effective Date issued by (i) Wachovia pursuant to the Existing Reimbursement Agreement, and (ii) CitiBank and Barclays pursuant to the Bilateral Agreements, which letters of credit are listed on Schedule II hereto.
 
“ Existing Reimbursement Agreement ” means the Reimbursement Agreement, dated as of September 25, 2003, among the Account Parties, the banks and other lenders named therein, Bank of America, The Bank of Nova Scotia, Bank One, NA and Deutsche Bank AG, New York Branch, as Co-Syndication Agents, and Wachovia, as Issuing Bank and as Administrative Agent, as amended, providing for a $500,000,000 unsecured letter of credit facility for the benefit of the Account Parties.
 
“ Existing Secured Reimbursement Agreement ” means the Reimbursement Agreement, dated as of September 25, 2003, among the Account Parties, the banks and other lenders named therein, Bank of America, The Bank of Nova Scotia, Bank One, NA and Deutsche Bank AG, New York Branch, as Co-Syndication Agents, and Wachovia, as Issuing Bank and as Administrative Agent, as amended, providing for a $500,000,000 secured letter of credit facility for the benefit of the Account Parties.
 
“ Expiration Date ” shall mean September 22, 2007.
 
“ Federal Funds Rate ” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it.
 
“ Fee Letter ” means the fee letter dated August 18, 2004 among the Parent, Wachovia and Wachovia Capital Markets, LLC, as amended.
 
“ Fiscal Year ” means the fiscal year of the Parent and its Consolidated Subsidiaries ending on December 31 in any calendar year.
 
“ Foreign Government Scheme or Arrangement ” has the meaning specified in Section 4.01(l)(ii) .
 
“ Foreign Plan ” has the meaning specified in Section 4.01(l)(ii) .
 
“ GAAP ” has the meaning specified in Section 1.03 .
 
“ Guaranty ” means the undertaking by each of the Account Parties under Article VII .
 
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“ Hazardous Materials ” means (a) petroleum or petroleum products, by-products or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law.
 
“ Hedge Agreements ” means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other hedging agreements.
 
“ Indemnified Party ” has the meaning specified in Section 9.04(b) .
 
“ Initial Banks ” has the meaning specified in the recital of parties to this Agreement.
 
“ Intercompany Letter of Credit ” means a Letter of Credit issued for the account of any Account Party (whether alone or jointly with any one or more other wholly owned Subsidiaries of the Parent) in favor of one or more beneficiaries each of which is a wholly owned Subsidiary of the Parent (whether or not any such beneficiary is an Account Party hereunder).
 
“ Internal Revenue Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder.
 
“ Investment ” in any Person means any loan or advance to such Person, any purchase or other acquisition of any Equity Interests or Debt or the assets comprising a division or business unit or a substantial part or all of the business of such Person, any capital contribution to such Person or any other direct or indirect investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (h) or (i) of the definition of “Debt” in respect of such Person; provided , however , that any purchase by any Loan Party or any Subsidiary of any catastrophe-linked instruments which are (x) issued for the purpose of transferring traditional reinsurance risk to the capital markets and (y) purchased by such Loan Party or Subsidiary in accordance with its customary reinsurance underwriting procedures, or the entry by any Loan Party or any Subsidiary into swap instruments relating to such instruments in accordance with such procedures, shall be deemed to be the entry by such Person into a reinsurance contract and shall not be deemed to be an Investment by such Person.
 
“ Issuing Banks ” means Wachovia, CitiBank, Barclays and any other Bank that has been appointed by the Parent, has accepted such appointment and has been approved in writing by the Administrative Agent (which approval shall not be unreasonably withheld).
 
“ Joint Lead Arrangers ” means Wachovia Capital Markets, LLC and Banc of America Sercurities, LLC, collectively.
 
“ JPMorgan Credit Agreement ” has the meaning specified in Section 5.02(a)(xvii) .
 
“ Judgment Currency ” has the meaning specified in Section 2.15(g) .
 
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“ LC Commitment Amount ” means, with respect to any Bank at any time, the amount set forth opposite such Bank’s name on Schedule I hereto under the caption “LC Commitment Amount” or, if such Bank has entered into one or more Assignment and Acceptances or has become a Bank, or has increased its LC Commitment pursuant to Section 2.16 , set forth for such Bank in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) as such Bank’s “LC Commitment Amount”, as such amount may be reduced at or prior to such time pursuant to Section 2.04 .
 
“ LC Participation Obligations ” has the meaning specified in Section 2.14(a) .
 
“ L/C Related Documents ” has the meaning specified in Section 2.03(a)(ii) .
 
“ Letter of Credit Advance ” has the meaning specified in Section 2.02(g) .
 
“ Letter of Credit Agreement ” has the meaning specified in Section 2.02(a) .
 
“ Letter of Credit Exposure ” at any time means the sum at such time of (a) the aggregate outstanding amount of Letter of Credit Advances, (b) the aggregate Available Amounts of all outstanding Letters of Credit (including, without limitation, all outstanding Existing Letters of Credit) and (c) the aggregate Available Amounts of all Letters of Credit which have been requested by an Account Party to be issued hereunder but have not yet been so issued.
 
“ Letter of Credit Participating Interest ” has the meaning specified in Section 2.02(e) .
 
“ Letter of Credit Participating Interest Commitment ” has the meaning specified in Section 2.02(e) .
 
“ Letter of Credit Participating Interest Percentage ” means, for any Bank, a fraction, expressed as a percentage, the numerator of which is such Bank’s LC Commitment Amount and the denominator of which is the aggregate LC Commitment Amounts of all the Banks.
 
“ Letters of Credit ” has the meaning specified in Section 2.01 .
 
“ Lien ” means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property.
 
“ Loan Documents ” means (i) this Agreement, (ii) the Fee Letter and (iii) each Letter of Credit Agreement, in each case as amended from time to time.
 
“ Loan Parties ” means the Account Parties.
 
“ Mandatorily Convertible Preferred Securities ” means units comprised of (i) Preferred Securities or preferred shares of Parent and (ii) a contract for the sale of ordinary shares of the Parent.
 
“ Margin Stock ” has the meaning specified in Regulation U.
 
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“ Material Adverse Change ” means any material adverse change in the business, financial condition, operations or properties of the Parent and its Subsidiaries, taken as a whole.
 
“ Material Adverse Effect ” means a material adverse effect on (a) the business, condition, operations or properties of the Parent and its Subsidiaries, taken as a whole, (b) the rights and remedies of the Administrative Agent, any Issuing Bank or any Bank under any Loan Document or (c) the ability of the Loan Parties, taken as a whole, to perform their obligations under the Loan Documents.
 
“ Material Financial Obligation ” means a principal amount of Debt and/or payment obligations in respect of any Hedge Agreement of the Parent and/or one or more of its Subsidiaries arising in one or more related or unrelated transactions exceeding in the aggregate $50,000,000.
 
“ Material Subsidiary ” means (i) any Subsidiary of the Parent that has more than $10,000,000 in assets or that had more than $10,000,000 of revenue during the most recent period of four fiscal quarters for which financial statements are available, and (ii) any Subsidiary that is the direct or indirect parent company of any Subsidiary that qualified as a “Material Subsidiary” under clause (i) above.
 
“ Minimum Amount ” has the meaning set forth in Section 5.04(b) .
 
“ Moody’s ” means Moody’s Investors Service, Inc.
 
“ Multiemployer Plan ” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions.
 
“ Net Proceeds ” means, with respect to any issuance of Equity Interests by any Person, the amount of cash received by such Person in connection with such transaction after deducting therefrom the aggregate, without duplication, of the following amounts to the extent properly attributable to such transaction: (a) reasonable brokerage commissions, attorneys’ fees, finder’s fees, financial advisory fees, accounting fees, underwriting fees, investment banking fees, and other similar commissions, and fees and expenses and disbursements of any of the foregoing, in each case to the extent paid or payable by such Person; (b) printing and related expenses of filing and recording or registration fees or charges or similar fees or charges paid by such Person; and (c) taxes paid or payable by such Person to any governmental authority or regulatory body as a result of such transaction.
 
“ Non-Dollar Letters of Credit ” has the meaning specified in Section 2.15(a) .
 
“ Other Taxes ” has the meaning specified in Section 2.08(b) .
 
“ Overnight Rate ” has the meaning specified in Section 2.15(h) .
 
“ Parent ” has the meaning specified in the recital of parties to this Agreement.
 
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“ Patriot Act ” has the meaning specified in Section 9.15 .
 
“ PBGC ” means the Pension Benefit Guaranty Corporation (or any successor).
 
“ Pension Plan ” means a “pension plan”, as such term is defined in section 3(2) of ERISA, which is subject to title IV of ERISA (other than any “multiemployer plan” as such term is defined in section 4001(a)(3) of ERISA), and to which any Loan Party or any ERISA Affiliate may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA.
 
“ Permitted Liens ” means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced or which are being contested in good faith by appropriate proceedings: (a) Liens for taxes, assessments and governmental charges or levies not yet due and payable; (b) Liens imposed by law, such as materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 90 days; (c) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes.
 
“ Person ” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.
 
“ Preferred Interests ” means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person’s property and assets, whether by dividend or upon liquidation.
 
“ Preferred Securities ” means (i) preferred securities issued by a Special Purpose Trust which shall provide, among other things, that dividends shall be payable only out of proceeds of interest payments on the Debentures, or (ii) other instruments that may be treated in whole or in part as equity for rating agency purposes while being treated as debt for tax purposes.
 
“ Pro Rata ” means from and to the Banks in accordance with their respective Letter of Credit Participating Interest Percentages.
 
“ Pro Rata Share ” means, for any Bank, its share determined Pro Rata, in accordance with the definition of the term “Pro Rata.”
 
“ Public Debt Rating ” means, as of any date, the higher rating that has been most recently announced by either S&P or Moody’s, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Parent; provided that if at any time the difference between the ratings of such type most recently announced by S&P and Moody’s is more than one rating grade, the Public Debt Rating shall be the rating that is one grade below the higher of such
 
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two ratings. For purposes of the foregoing, (a) if only one of S&P and Moody’s shall have in effect a rating for any class of non-credit enhanced long-term senior unsecured debt issued by the Parent, the Public Debt Rating shall be the available rating; (b) if neither S&P nor Moody’s shall have in effect a rating for any class of non-credit enhanced long-term senior unsecured debt issued by the Parent, the Public Debt Rating shall be the rating which is three rating levels below the Parent’s S&P financial strength rating at such time, provided that, in the event that the Parent’s S&P financial strength rating is affirmed at (i) A+, the applicable Level will be Level 2 and (ii) A+ and on credit watch/review with negative implications, the applicable Level will be Level 3; (c) if any rating established by S&P or Moody’s shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change; and (d) if S&P or Moody’s shall change the basis on which ratings are established, each reference herein to ratings announced by S&P or Moody’s, as the case may be, shall refer to the then equivalent rating by S&P or Moody’s, as the case may be.
 
“ Redeemable ” means, with respect to any Equity Interest, any Debt or any other right or obligation, any such Equity Interest, Debt, right or obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder.
 
“ Register ” has the meaning specified in Section 9.07(d) .
 
“ Regulation U ” means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.
 
“ Required Banks ” means, at any time, Banks owed or holding at least a majority in interest of the sum of (a) aggregate principal amount of the Letter of Credit Advances outstanding at such time and (b) the aggregate Available Amount of all Letters of Credit outstanding at such time, or, if no such principal amount and no Letters of Credit are outstanding at such time, Banks having LC Commitment Amounts constituting at least a majority in interest of the aggregate of the LC Commitment Amounts; provided , however , that if any Bank shall be a Defaulting Bank at such time, there shall be excluded from the determination of Required Banks at such time (A) the aggregate principal amount of the interest of such Bank in Letter of Credit Advances and outstanding at such time, (B) such Bank’s Pro Rata Share of the aggregate Available Amount of all Letters of Credit outstanding at such time and (C) the Unused LC Commitment Amount of such Bank at such time.
 
“ Responsible Officer ” means the Chairman, Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer, Treasurer or General Counsel of the Parent.
 
“ S&P ” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.
 
“ Secured Letter of Credit Facility ” means the $500,000,000 secured letter of credit facility for the benefit of the Account Parties evidenced by the Reimbursement Agreement, dated as of even date herewith, among the Account Parties, the banks and other lenders named therein, Bank of America, as Syndication Agent, Barclays and CitiBank, as Issuing Banks, and
 
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Wachovia, as an Issuing Bank and as Administrative Agent (as amended or otherwise modified from time to time).
 
“ Securitization Transaction ” means any sale, assignment or other transfer by Parent or any Subsidiary of any accounts receivable, premium finance loan receivables, lease receivables or other payment obligations owing to Parent or such Subsidiary or any interest in any of the foregoing, together in each case with any collections and other proceeds thereof, any collection or deposit accounts related thereto, and any collateral, guaranties or other property or claims in favor of Parent or such Subsidiary supporting or securing payment by the obligor thereon of, or otherwise related to, any such receivables.
 
“ Significant Subsidiary ” means a Subsidiary of Parent that is a “significant subsidiary” of the Parent under Regulation S-X promulgated by the Securities and Exchange Commission.
 
“ Solvent ” and “ Solvency ” mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
 
“ Special Purpose Trust ” means a special purpose business trust established by the Parent or ACE INA of which the Parent or ACE INA will hold all the common securities, which will be the issuer of the Preferred Securities, and which will loan to the Parent or ACE INA (such loan being evidenced by the Debentures) the net proceeds of the issuance and sale of the Preferred Securities and common securities of such Special Purpose Trust.
 
“ Subsidiary ” of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries.
 
“ Subsidiary Guarantors ” means the Account Parties (other than the Parent).
 
“ Syndication Agent ” has the meaning specified in the recital of parties to this Agreement.
 
“ Taxes ” has the meaning specified in Section 2.08(a) .
 
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“ Tempest ” has the meaning specified in the recital of parties to this Agreement.
 
“ Tempest Life ” has the meaning specified in the recital of parties to this Agreement.
 
“ Third Party Letter of Credit ” means a Letter of Credit other than an Intercompany Letter of Credit.
 
“ Total Capitalization ” means, at any time, an amount (without duplication) equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) Consolidated stockholders equity of the Parent and its Subsidiaries plus (without duplication) (iii) the then issued and outstanding amount of Preferred Securities (including Mandatorily Convertible Preferred Securities) and (without duplication) Debentures.
 
“ Type ”, with respect to any Letter of Credit, means and refers to whether such Letter of Credit is an Intercompany Letter of Credit or a Third Party Letter of Credit.
 
“ Unused LC Commitment Amount ” means, with respect to any Bank at any time, (a) such Bank’s LC Commitment Amount at such time minus (b) such Bank’s Pro Rata Share of (i) the aggregate Available Amount of all Letters of Credit hereunder (including, without limitation, all Existing Letters of Credit) and (ii) the aggregate principal amount of all Letter of Credit Advances made by the Issuing Banks pursuant to Section 2.02(g) and outstanding at such time (whether held by the Issuing Banks or the Banks).
 
“ Voting Interests ” means shares of capital stock issued by a corporation, or equivalent Equity Interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency.
 
“ Wachovia ” has the meaning specified in the recital of parties to this Agreement.
 
“ Welfare Plan ” means a welfare plan, as defined in Section 3(1) of ERISA, that is maintained for employees of any Loan Party or in respect of which any Loan Party could have liability.
 
“ Withdrawal Liability ” has the meaning specified in Part I of Subtitle E of Title IV of ERISA.
 
1.02 Computation of Time Periods; Other Definitional Provisions . In this Agreement and the other Loan Documents in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”. References in the Loan Documents to any agreement or contract “as amended” shall mean and be a reference to such agreement or contract as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms.
 
1.03 Accounting Terms and Determinations . Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in 
 
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accordance with generally accepted accounting principles as in effect from time to time in the United States of America (“ GAAP ”), applied on a basis consistent (except for changes concurred in by the Parent’s independent public accountants) with the most recent audited consolidated financial statements of the Parent and its Subsidiaries delivered to the Banks; provided that, if the Parent notifies the Administrative Agent that the Parent wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Administrative Agent notifies the Parent that the Required Banks wish to amend Article V for such purpose), then the Parent’s compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective (and, concurrently with the delivery of any financial statements required to be delivered hereunder, the Parent shall provide a statement of reconciliation conforming such financial information to such generally accepted accounting principles as previously in effect), until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Parent and the Required Banks. 
 
ARTICLE II
 
AMOUNTS AND TERMS OF
THE LETTERS OF CREDIT
 
2.01 The Letters of Credit . Each Issuing Bank agrees, on the terms and subject to the conditions herein set forth, to issue standby letters of credit (the “ Letters of Credit ”) for the account of any Account Party on any Business Day from time to time during the period from the Effective Date to the Expiration Date. From and after the Effective Date, the Existing Letters of Credit shall be Letters of Credit hereunder. Letters of Credit may be issued as Intercompany Letters of Credit or Third Party Letters of Credit, subject to the terms and conditions of this Agreement. No Issuing Bank shall have any obligation to issue, and no Account Party will request the issuance of, any Letter of Credit hereunder if either (a) the aggregate Available Amounts of all Letters of Credit issued by such Issuing Bank would exceed, after giving effect to such issuance, the maximum amount set forth in a letter agreement between such Issuing Bank and the Parent, on behalf of the Account Parties, or (b) any Bank’s Pro Rata Share of the Available Amount of such Letter of Credit exceeds, immediately before the time of such issuance, an amount equal to such Bank’s Pro Rata Share of the total Unused LC Commitment Amounts of the Banks at such time (as such amount shall be advised by the Administrative Agent to the respective Issuing Bank as contemplated by Section 2.02 ). Unless all the Banks consent otherwise in writing, no Issuing Bank shall have any obligation to issue, and no Account Party shall request the issuance of, any Letter of Credit hereunder if the Available Amount of such Letter of Credit exceeds, immediately before the time of such issuance, an amount equal to the total Unused LC Commitment Amounts of the Banks at such time (as such amount shall be advised by the Administrative Agent to the respective Issuing Bank as contemplated by Section 2.02 ). No Issuing Bank shall have any obligation to issue, and no Account Party shall request the issuance of, any Letter of Credit except within the following limitations: (i) subject to the provisions of Section 2.15 , each Letter of Credit shall be denominated in U.S. dollars, (ii) each Letter of Credit shall be payable only against sight drafts (and not time drafts) and (iii) no Letter of Credit shall have an expiration date (including all rights of the Applicable Account Party or the beneficiary to require renewal) later than one year after the date of issuance thereof,
 
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but a Letter of Credit may by its terms be automatically renewable annually unless the respective Issuing Bank notifies the beneficiary thereof of its election not to renew such Letter of Credit (which such Issuing Bank agrees to do on and subject to the terms of Section 2.02(d) ). No Issuing Bank shall have any obligation to issue any letter of credit which is unsatisfactory in form, substance or beneficiary to such Issuing Bank in the exercise of its reasonable judgment consistent with its customary practice. Letters of Credit may be issued for the account of any Subsidiary of the Parent that is not an Account Party hereunder, provided that the Parent shall be a joint applicant and account party with respect to any such Letter of Credit.
 
2.02 Issuance and Renewals and Drawings, Participations and Reimbursement with Respect to Letters of Credit .
 
(a) Request for Issuance . An Account Party may from time to time request, upon at least three Business Days’ notice (given not later than 11:00 A.M. Charlotte, North Carolina time on the last day permitted therefor), an Issuing Bank issue or renew (other than any automatic renewal thereof) a Letter of Credit by:
 
(i) delivering to such Issuing Bank, with a copy to the Administrative Agent, either (x) a written request to such effect or (y) a request made in electronic form through such Issuing Bank’s remote access system and in accordance with the terms and conditions (including any written agreements between such Issuing Bank and any Account Party) applicable thereto, in each case specifying the date on which such Letter of Credit is to be issued (which shall be a Business Day), the expiration date thereof, the Available Amount thereof, the name and address of the beneficiary thereof and the form thereof, and in each case with a copy of such request (or, in the case of clause (y) above, a written or electronic summary thereof) to the Administrative Agent; and
 
(ii) in the case of the issuance of a Letter of Credit, delivering to such Issuing Bank, with a copy to the Administrative Agent, a completed agreement and application with respect to such Letter of Credit as such Issuing Bank may specify for use in connection with such requested Letter of Credit (a “ Letter of Credit Agreement ”), together with such other certificates, documents and other papers or information as are specified in such Letter of Credit Agreement or as may be required pursuant to such Issuing Bank’s customary practices for the issuance of letters of credit (including requirements relating to requests made through such Issuing Bank’s remote access system).
 
If the limitation set forth in Section 2.01(b) is satisfied and if the Required Banks have not given notice to the Administrative Agent to cease issuing or renewing Letters of Credit as contemplated by this Agreement, the Administrative Agent shall promptly notify the respective Issuing Bank (in writing or by telephone immediately confirmed in writing) that such Issuing Bank is authorized to issue or renew, as the case may be, such Letter of Credit. An Issuing Bank shall not issue or renew, as the case may be, any Letter of Credit (other than by the automatic renewal thereof) unless it shall have received notice from the Administrative Agent that it is authorized to do so as described in the preceding sentence. If such Issuing Bank issues or renews a Letter of Credit, it shall deliver the original of such Letter of Credit to the beneficiary thereof
 
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or as the Applicable Account Party shall otherwise direct, and shall promptly notify the Administrative Agent thereof and furnish a copy thereof to the Administrative Agent. Each Issuing Bank may issue Letters of Credit through any of its branches or Affiliates (whether domestic or foreign) that issue letters of credit, and each Account Party authorizes and directs each Issuing Bank to select the branch or Affiliate that will issue or process any Letter of Credit.
 
(b) Request for Extension or Increase . An Account Party may from time to time request an Issuing Bank extend the expiration date of an outstanding Letter of Credit issued for its account or increase (or, with the consent of the beneficiary, decrease) the Available Amount of or the amount available to be drawn on such Letter of Credit by delivering to such Issuing Bank, with a copy to the Administrative Agent, either (i) a written request to such effect or (ii) a request made in electronic form through such Issuing Bank’s remote access system. Such extension or increase shall for all purposes hereunder (including for purposes of Section 2.02(a) ) be treated as though such Account Party had requested issuance of a replacement Letter of Credit (except only that such Issuing Bank may, if it elects, issue a notice of extension or increase in lieu of issuing a new Letter of Credit in substitution for the outstanding Letter of Credit).
 
(c) Automatic Renewals . If any Letter of Credit shall provide for the automatic renewal of the expiry date thereof unless the respective Issuing Bank gives notice that such expiry date shall not be renewed, then the respective Issuing Bank shall allow such Letter of Credit to be renewed unless it shall have received, at least five days prior to the date on which such notice of nonrenewal must be delivered under such Letter of Credit (or such shorter period acceptable to the respective Issuing Bank) (i) notice from the Administrative Agent that such Issuing Bank is not authorized to renew such Letter of Credit (or Letters of Credit generally), or (ii) notice from any Account Party that it does not want the Issuing Bank to renew such Letter of Credit. An Issuing Bank shall not allow any Letter of Credit to be automatically renewed if it has received notice from the Administrative Agent, as described in the preceding sentence, that it is not authorized to do so anytime prior to the date five days prior to the date on which the notice of nonrenewal must be delivered under such Letter of Credit.
 
(d) Limitations on Issuance, Extension, Renewal and Amendment . As between each Issuing Bank, on the one hand, and the Agents and the Banks, on the other hand, each Issuing Bank shall be justified and fully protected (i) in issuing or renewing a proposed Letter of Credit (other than by the automatic renewal thereof) if such Issuing Bank has received notice from the Administrative Agent that such Issuing Bank is authorized to issue or renew such Letter of Credit, and (ii) in allowing a Letter of Credit to be automatically renewed if such Issuing Bank has not received notice from the Administrative Agent as provided in Section 2.02(c) hereof that it is not authorized to do so at any time prior to the date five days prior to the date on which the notice of nonrenewal must be delivered under such Letter of Credit, in either case, notwithstanding any subsequent notices to such Issuing Bank, any knowledge of a Default, any knowledge of failure of any condition specified in Article III hereof to be satisfied, any other knowledge of such Issuing Bank, or any other event, condition or circumstance whatsoever. Each Issuing Bank may amend, modify or supplement Letters of Credit or Letter of Credit Agreements, or waive compliance with any condition of issuance, renewal or payment, without the consent of, and without liability to, any Agent or any Bank, provided that any such amendment, modification or supplement that extends the expiration date or increases the Available Amount of or the amount available to be drawn on an outstanding Letter of Credit
 
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shall be subject to Section 2.01 . With respect to each Letter of Credit that remains outstanding at any time after the Expiration Date and that provides by its terms for automatic renewal, the respective Issuing Bank shall notify the beneficiary thereof, in accordance with the terms specified for such notice in such Letter of Credit, of such Issuing Bank’s election not to renew such Letter of Credit.
 
(e) Letter of Credit Participating Interests . Concurrently with the issuance of each Letter of Credit (and upon the Effective Date, with respect to each Existing Letter of Credit, and without any further action by any party to this Agreement), the respective Issuing Bank automatically shall be deemed, irrevocably and unconditionally, to have sold, assigned, transferred and conveyed to each other Bank, and each other Bank automatically shall be deemed, irrevocably and unconditionally, severally to have purchased, acquired, accepted and assumed from such Issuing Bank, without recourse to, or representation or warranty by, such Issuing Bank, an undivided interest, in a proportion equal to such Bank’s Pro Rata Share, in all of such Issuing Bank’s rights and obligations in, to or under such Letter of Credit, the related Letter of Credit Agreement, all reimbursement obligations with respect to such Letter of Credit, and all collateral, guarantees and other rights from time to time directly or indirectly securing the foregoing (such interest of each Bank being referred to herein as a “ Letter of Credit Participating Interest ”, it being understood that the Letter of Credit Participating Interest of such Issuing Bank is the interest not otherwise attributable to the Letter of Credit Participating Interests of the other Banks). Each Bank irrevocably and unconditionally agrees to the immediately preceding sentence, such agreement being herein referred to as such Bank’s “ Letter of Credit Participating Interest Commitment ”. Amounts, other than Letter of Credit Advances made by a Bank other than the Issuing Banks and other than Letter of Credit commissions under Section 2.05(c)(i) , payable from time to time under or in connection with a Letter of Credit or Letter of Credit Agreement shall be for the sole account of the Issuing Banks. On the date that any assignee becomes a party to this Agreement in accordance with Section 9.07 hereof, Letter of Credit Participating Interests in all outstanding Letters of Credit held by the Bank from which such assignee acquired its interest hereunder shall be proportionately reallocated between such assignee and such assignor Bank (and, to the extent such assignor Bank is an Issuing Bank, the assignee Bank shall be deemed to have acquired a Letter of Credit Participating Interest from such Issuing Bank to such extent). Notwithstanding any other provision hereof, each Bank hereby agrees that its obligation to participate in each Letter of Credit, its obligation to make the payments specified in Section 2.02(f) , and the right of each Issuing Bank to receive such payments in the manner specified therein, are each absolute, irrevocable and unconditional and shall not be affected by any event, condition or circumstance whatever. The failure of any Bank to make any such payment shall not relieve any other Bank of its funding obligation hereunder on the date due, but no Bank shall be responsible for the failure of any other Bank to meet its funding obligations hereunder.
 
(f) Payment by Banks on Account of Unreimbursed Draws . If an Issuing Bank makes a payment under any Letter of Credit and is not reimbursed in full therefor in accordance with Section 2.03(a) , such Issuing Bank may notify the Administrative Agent thereof (which notice may be by telephone), and the Administrative Agent shall forthwith notify each Bank (which notice may be by telephone promptly confirmed in writing) thereof. No later than the Administrative Agent’s close of business on the date such notice is given (if notice is given by 2:00 P.M. Charlotte, North Carolina time) or 10:00 A.M. Charlotte, North Carolina time the
 
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following day (if notice is given after 2:00 P.M. Charlotte, North Carolina time or in the case of any Bank whose Applicable Lending Office is located in Europe), each Bank will pay to the Administrative Agent, for the account of such Issuing Bank, in immediately available funds, an amount equal to such Bank’s Pro Rata Share of the unreimbursed portion of such payment by such Issuing Bank. Amounts received by the Administrative Agent for the account of such Issuing Bank shall be forthwith transferred, in immediately available funds, to such Issuing Bank. If and to the extent that any Bank fails to make such payment to the Administrative Agent for the account of such Issuing Bank on such date, such Bank shall pay such amount on demand, together with interest, for such Issuing Bank’s own account, for each day from and including the date such payment is due from such Bank to such Issuing Bank to but not including the date of repayment to such Issuing Bank (before and after judgment) at a rate per annum for each day (i) from and including the date such payment is due from such Bank to such Issuing Bank to and including the second Business Day thereafter equal to the Federal Funds Rate and (ii) thereafter equal to the Base Rate. For avoidance of doubt, it is understood and agreed by the Banks that Letters of Credit issued prior to the Expiration Date may, by their terms, remain outstanding after the Expiration Date and that the obligations of the Banks to make payments under this Section 2.02(f) shall continue from and after the Expiration Date until the expiration or termination of all Letters of Credit, subject to and in accordance with the terms hereof.
 
(g) Letter of Credit Advances . The term “ Letter of Credit Advance ” is used in this Agreement in accordance with the meanings set forth in this Section 2.02(g) . The making of any payment by an Issuing Bank under a Letter of Credit is sometimes referred to herein as the making of a Letter of Credit Advance by such Issuing Bank in the amount of such payment. The making of any payment by a Bank for the account of an Issuing Bank under Section 2.02(f) on account of an unreimbursed drawing on a Letter of Credit is sometimes referred to herein as the making of a Letter of Credit Advance to the Applicable Account Party by such Bank. The making of such a Letter of Credit Advance by a Bank with respect to an unreimbursed drawing on a Letter of Credit shall reduce, by a like amount, the outstanding Letter of Credit Advance of the Issuing Bank with respect to such unreimbursed drawing.
 
(h) Letter of Credit Reports . Each Issuing Bank will furnish to the Administrative Agent prompt written notice of each issuance or renewal of a Letter of Credit (including the Available Amount and expiration date thereof), amendment to a Letter of Credit, cancellation of a Letter of Credit and payment on a Letter of Credit. The Administrative Agent will furnish (A) to each Bank prior to the fifteenth Business Day of each calendar quarter a written report summarizing issuance, renewal and expiration dates of Letters of Credit issued or renewed during the preceding calendar quarter and payments and reductions in Available Amount during such calendar quarter on all Letters of Credit and (B) to each Bank prior to the fifteenth Business Day of each calendar quarter a written report setting forth the average daily aggregate Available Amount during the preceding calendar quarter of all Letters of Credit.
 
2.03 Repayment of Advances .
 
(a) Account Parties’ Reimbursement Obligation .
 
(i) Each Account Party hereby agrees to reimburse each Issuing Bank (by making payment to the Administrative Agent for the account of each Issuing
 
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 	Bank in accordance with Section 2.07 ) in the amount of each payment made by each Issuing Bank under any Letter of Credit issued for such Account Party’s account, such reimbursement to be made on the date such payment under such Letter of Credit is made by the Issuing Bank (but not earlier than one Business Day after notice of the drawing giving rise to such payment under such Letter of Credit is given to such Account Party). Such reimbursement obligation shall be payable without further notice, protest or demand, all of which are hereby waived, and an action therefor shall immediately accrue. To the extent such payment by such Account Party is not timely made as provided in the first sentence of this clause (i), such Account Party hereby agrees to pay to the Administrative Agent, for the respective accounts of each Issuing Bank and the Banks which have funded their respective shares of such amount remaining unpaid by such Account Party, on demand, interest at a rate per annum equal to the Base Rate plus 2%, for each day from and including the date on which the Applicable Account Party is to reimburse such Issuing Bank to, but excluding, the date such obligation is paid in full.	
 
(ii) The obligation of each Account Party to reimburse each Issuing Bank for any payment made by each Issuing Bank under any Letter of Credit, and the obligation of each Bank under Section 2.02(f) with respect thereto, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, the applicable Letter of Credit Agreement and any other applicable agreement or instrument under all circumstances, including, without limitation, the following circumstances:
 
(A) any lack of validity or enforceability of any Loan Document, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (all of the foregoing being, collectively, the “ L/C Related Documents ”);
 
(B) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of any Account Party or any other Person in respect of any L/C Related Document or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents;
 
(C) the existence of any claim, set-off, defense or other right that any Account Party or any other Person may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for which any such beneficiary or any such transferee may be acting), any Issuing Bank or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction;
 
(D) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
 
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 	any respect or any statement therein being untrue or inaccurate in any respect;	
 
(E) payment by any Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit;
 
(F) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from the Guaranty or any other guarantee, for all or any of the obligations of any Account Party or any other Person in respect of the L/C Related Documents; or
 
(G) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Account Party or a guarantor.
 
(b) Rescission . If any amount received by an Issuing Bank on account of any Letter of Credit Advance shall be avoided, rescinded or otherwise returned or paid over by such Issuing Bank for any reason at any time, whether before or after the termination of this Agreement (or such Issuing Bank believes in good faith that such avoidance, rescission, return or payment is required, whether or not such matter has been adjudicated), each Bank will (except to the extent a corresponding amount received by such Bank on account of its Letter of Credit Advance relating to the same payment on a Letter of Credit has been avoided, rescinded or otherwise returned or paid over by such Bank), promptly upon notice from the Administrative Agent or such Issuing Bank, pay over to the Administrative Agent for the account of such Issuing Bank its Pro Rata Share of such amount, together with its Pro Rata Share of any interest or penalties payable with respect thereto.
 
2.04 Termination or Reduction of the LC Commitment Amounts . The Parent may, upon at least three Business Days’ notice to the Administrative Agent, terminate in whole or reduce in part the unused portion of the LC Commitment Amounts; provided , however , that each partial reduction (i) shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) shall be made ratably among the Banks in accordance with their LC Commitment Amounts.
 
2.05 Fees .
 
(a) Commitment Fee . The Account Parties jointly and severally agree to pay to the Administrative Agent for the account of the Banks a commitment fee, from the Effective Date in the case of each Initial Bank and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Bank in the case of each other Bank until the Expiration Date, payable in arrears quarterly on the last Business Day of each March, June, September and December commencing December 31, 2004 and on the Expiration Date, at the rate of the Applicable Commitment Fee Percentage on the average daily Unused LC Commitment Amount of each Bank during such quarter (or shorter period); provided , however ,
 
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that no commitment fee shall accrue on the LC Commitment Amount of a Defaulting Bank so long as such Bank shall be a Defaulting Bank.
 
(b) Administrative Agent’s Fees . The Account Parties jointly and severally agree to pay to the Administrative Agent for its own account such fees as may from time to time be agreed between the Parent and the Administrative Agent.
 
(c) Letter of Credit Fees, Etc.
 
(i) The Account Parties jointly and severally agree to pay to the Administrative Agent for the account of each Bank a commission, payable in arrears quarterly on the last Business Day of each March, June, September and December commencing December 31, 2004, and on the Expiration Date, on such Bank’s Pro Rata Share of the average daily aggregate Available Amount during such quarter (or shorter period) of all Letters of Credit of each Type outstanding from time to time at the rate equal to the then Applicable Margin with respect to such Type of Letters of Credit.
 
(ii) The Account Parties jointly and severally agree to pay (x) to Wachovia, in its capacity as an Issuing Bank and for its own account, the facing fee referred to the Fee Letter, on the terms set forth therein, and (y) each Issuing Bank’s customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, relating to letters of credit as are from time to time in effect. With respect to each Existing Letters of Credit, the respective Issuing Bank shall be entitled to receive the fees and other amounts provided for under this Section 2.05(c)(ii) (to the extent not previously paid to such Issuing Bank pursuant to the Existing Reimbursement Agreement or the Bilateral Agreements) as if the Existing Letters of Credit were issued hereunder on the Effective Date.
 
2.06 Increased Costs, Etc.
 
(a) If, due to either (i) the introduction of or any change in or in the interpretation of, in each case after the date hereof, any law or regulation or (ii) the compliance with any guideline or request issued after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Bank of agreeing to issue or of issuing or maintaining or participating in Letters of Credit or the making of Letter of Credit Advances (excluding, for purposes of this Section 2.06 , any such increased costs resulting from (x) Taxes or Other Taxes (as to which Section 2.08 shall govern) and (y) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Bank is organized or has its Applicable Lending Office or any political subdivision thereof), then the Account Parties jointly and severally agree to pay, from time to time, within five days after demand by such Bank (with a copy of such demand to the Administrative Agent), which demand shall include a statement of the basis for such demand and a calculation in reasonable detail of the amount demanded, to the Administrative Agent for the account of such Bank additional amounts sufficient to compensate such Bank for such increased cost. A certificate as to the amount of
 
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such increased cost, submitted to the Account Parties by such Bank, shall be conclusive and binding for all purposes, absent manifest error.
 
(b) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation, in each case after the date hereof, or (ii) the compliance with any guideline or request issued after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the amount of capital required or expected to be maintained by any Bank or any corporation controlling such Bank as a result of or based upon the existence of such Bank’s commitment to lend hereunder and other commitments of such type, then, within five days after demand by such Bank or such corporation (with a copy of such demand to the Administrative Agent), which demand shall include a statement of the basis for such demand and a calculation in reasonable detail of the amount demanded, the Account Parties jointly and severally agree to pay to the Administrative Agent for the account of such Bank, from time to time as specified by such Bank, additional amounts sufficient to compensate such Bank in the light of such circumstances, to the extent that such Bank reasonably determines such increase in capital to be allocable to the existence of such Bank’s commitment to issue or participate in Letters of Credit hereunder or to the issuance or maintenance of or participation in any Letters of Credit. A certificate as to such amounts submitted to the Account Parties by such Bank shall be conclusive and binding for all purposes, absent manifest error.
 
(c) Each Bank shall promptly notify the Account Parties and the Administrative Agent of any event of which it has actual knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Bank’s good faith judgment, otherwise disadvantageous to such Bank) to mitigate or avoid any obligation by the Account Parties to pay any amount pursuant to Section 2.06(a) or 2.06(b) above or pursuant to Section 2.08 (and, if any Bank has given notice of any such event and thereafter such event ceases to exist, such Bank shall promptly so notify the Account Parties and the Administrative Agent). Without limiting the foregoing, each Bank will designate a different Applicable Lending Office if such designation will avoid (or reduce the cost to the Account Parties of) any event described in the preceding sentence and such designation will not, in such Bank’s good faith judgment, be otherwise disadvantageous to such Bank.
 
(d) Notwithstanding the provisions of Section 2.06(a) , 2.06(b) or 2.08 (and without limiting Section 2.06(c) above), if any Bank fails to notify the Account Parties of any event or circumstance that will entitle such Bank to compensation pursuant to Section 2.06(a) ,  2.06(b)  or  2.08  within 120 days after such Bank obtains actual knowledge of such event or circumstance, then such Bank shall not be entitled to compensation from the Account Parties for any amount arising prior to the date which is 120 days before the date on which such Bank notifies the Account Parties of such event or circumstance. For avoidance of doubt, it is noted that the term “Bank” as used in this Section 2.06 and in other Sections of this Agreement includes the Issuing Banks in its capacity as such.
 
2.07 Payments and Computations .
 
(a) The Account Parties shall make each payment hereunder irrespective of any right of counterclaim or set-off (except as otherwise provided in Section 2.11 ), not later than
 
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11:00 A.M. (Charlotte, North Carolina time) on the day when due, in U.S. dollars, to the Administrative Agent at the Administrative Agent’s Account in same day funds, with payments being received by the Administrative Agent after such time being deemed to have been received on the next succeeding Business Day. The Administrative Agent will promptly thereafter cause like funds to be distributed (i) if such payment by such Account Party is in respect of principal, interest, commitment fees or any other amount then payable hereunder to more than one Bank, to such Banks for the account of their respective Applicable Lending Offices ratably in accordance with the amounts of such respective amount then payable to such Banks and (ii) if such payment by such Account Party is in respect of any amount then payable hereunder to one Bank, to such Bank for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.07(d) , from and after the effective date of such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder in respect of the interest assigned thereby to the Bank assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves.
 
(b) Each Account Party hereby authorizes each Bank, if an Event of Default under Section 6.01(a) has occurred and is continuing, to charge from time to time against any or all of such Account Party’s accounts with such Bank any amount that resulted in such Event of Default.
 
(c) All computations of interest on Letter of Credit Advances (and any other amount payable by reference to the Base Rate) when the Base Rate is determined by reference to Wachovia’s prime rate shall be made by the Administrative Agent on the basis of a year of 365 days or, if applicable, 366 days; all other computations of interest, fees and Letter of Credit commissions shall be made by the Administrative Agent on the basis of a year of 360 days. All such computations shall be made for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, fees or commissions are payable. Each determination by the Administrative Agent of an interest rate, fee or commission hereunder shall be conclusive and binding for all purposes, absent manifest error.
 
(d) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fee, as the case may be.
 
2.08 Taxes .
 
(a) Any and all payments by any Loan Party hereunder shall be made, in accordance with Section 2.07 , free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and each Agent, taxes that are imposed on its overall net income by the United States and taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction under the laws of which such Bank or such Agent, as the case may be, is organized or any political subdivision thereof and, in
 
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the case of each Bank, taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction of such Bank’s Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder being herein referred to as “ Taxes ”). If any Loan Party shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or to any Bank or any Agent, (i) the sum payable by such Loan Party shall be increased as may be necessary so that after such Loan Party and the Administrative Agent have made all required deductions (including deductions applicable to additional sums payable under this Section 2.08 ) such Bank or such Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Party shall make all such deductions and (iii) such Loan Party shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.
 
(b) In addition, each Loan Party shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment made hereunder or from the execution, delivery or registration of, performance under, or otherwise with respect to, this Agreement or any other Loan Document (herein referred to as “ Other Taxes ”).
 
(c) Each Loan Party shall indemnify each Bank and each Agent for and hold them harmless against the full amount of Taxes and Other Taxes, and for the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.08 , imposed on or paid by such Bank or such Agent (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification payment shall be made within 30 days from the date such Bank or such Agent (as the case may be) makes written demand therefor.
 
(d) Within 30 days after the date of any payment of Taxes, each Loan Party shall furnish to the Administrative Agent, at its address referred to in Section 9.02 , the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder by or on behalf of a Loan Party through an account or branch outside the United States or by or on behalf of a Loan Party by a payor that is not a United States person, if such Loan Party determines that no Taxes are payable in respect thereof, such Loan Party shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of this Section 2.08(d) or Section 2.08(e) , the terms “United States” and “United States person” shall have the meanings specified in Section 7701(a)(9) and 7701(a)(10) of the Internal Revenue Code, respectively.
 
(e) Each Bank organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Bank or each Issuing Bank, as the case may be, and on the date of the Assignment and Acceptance pursuant to which it becomes a Bank in the case of each other Bank, and from time to time thereafter as requested in writing by the Parent (but only so long thereafter as such Bank remains lawfully able to do so), provide each of the Administrative Agent and the Parent with two original Internal Revenue Service forms W-8BEN or W-8ECI or (in the case of a Bank that has certified in writing to the Administrative Agent that it is not a “bank” as defined in Section
 
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881(c)(3)(A) of the Internal Revenue Code) form W-8 (and, if such Bank delivers a form W-8, a certificate representing that such Bank is not a “bank” for purposes of Section 881(c)(3)(A) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Bank is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or, in the case of a Bank providing a form W-8, certifying that such Bank is a foreign corporation, partnership, estate or trust. If the forms provided by a Bank at the time such Bank first becomes a party to this Agreement indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Bank provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such forms; provided , however , that if, at the effective date of the Assignment and Acceptance pursuant to which a Bank becomes a party to this Agreement, the Bank assignor was entitled to payments under Section 2.08(a) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Bank assignee on such date. If any form or document referred to in this Section 2.08(e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form W-8BEN, W-8ECI or W-8 (and the related certificate described above), that the Bank reasonably considers to be confidential, the Bank shall give notice thereof to the Parent and shall not be obligated to include in such form or document such confidential information.
 
(f) For any period with respect to which a Bank which may lawfully do so has failed to provide the Parent with the appropriate form described in Section 2.08(e) above ( other than if such failure is due to a change in law occurring after the date on which a form originally was required to be provided or if such form otherwise is not required under Section 2.08(e) above), such Bank shall not be entitled to indemnification under Sections 2.08(a) or 2.08(c) with respect to Taxes imposed by the United States by reason of such failure; provided , however , that should a Bank become subject to Taxes because of its failure to deliver a form required hereunder, the Parent shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes.
 
(g) Each Bank represents and warrants to the Account Parties that, as of the date such Bank becomes a party to this Agreement, such Bank is entitled to receive payments hereunder from the Account Parties without deduction or withholding for or on account of any Taxes.
 
2.09 Sharing of Payments, Etc. If any Bank shall obtain at any time any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise, other than as a result of an assignment pursuant to Section 9.07 ) (a) on account of obligations due and payable to such Bank hereunder at such time in excess of its ratable share (according to the proportion of (i) the amount of such obligations due and payable to such Bank at such time to (ii) the aggregate amount of the obligations due and payable to all Banks hereunder at such time)
 
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of payments on account of the obligations due and payable to all Banks hereunder at such time obtained by all the Banks at such time or (b) on account of obligations owing (but not due and payable) to such Bank hereunder at such time in excess of its ratable share (according to the proportion of (i) the amount of such obligations owing to such Bank at such time to (ii) the aggregate amount of the obligations owing (but not due and payable) to all Banks hereunder at such time) of payments on account of the obligations owing (but not due and payable) to all Banks hereunder at such time obtained by all of the Banks at such time, such Bank shall forthwith purchase from the other Banks such interests or participating interests in the obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of them; provided , however , that if all or any portion of such excess payment is thereafter recovered from such purchasing Bank, such purchase from each other Bank shall be rescinded and such other Bank shall repay to the purchasing Bank the purchase price to the extent of such Bank’s ratable share (according to the proportion of (i) the purchase price paid to such Bank to (ii) the aggregate purchase price paid to all Banks) of such recovery together with an amount equal to such Bank’s ratable share (according to the proportion of (i) the amount of such other Bank’s required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. Each Account Party agrees that any Bank so purchasing an interest or participating interest from another Bank pursuant to this Section 2.09 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such interest or participating interest, as the case may be, as fully as if such Bank were the direct creditor of such Account Party in the amount of such interest or participating interest, as the case may be.
 
2.10 Use of Letters of Credit . The Letters of Credit shall be used for the general corporate purposes of the Account Parties and their respective Subsidiaries.
 
2.11 Defaulting Banks .
 
(a) In the event that, at any one time, (i) any Bank shall be a Defaulting Bank, (ii) such Defaulting Bank shall owe a Defaulted Amount to any Agent or any of the other Banks and (iii) any Account Party shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Bank, then the Administrative Agent may, on its behalf or on behalf of such other Banks and to the fullest extent permitted by applicable law, apply at such time the amount so paid by such Account Party to or for the account of such Defaulting Bank to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. In the event that the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Banks, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent and such other Banks and, if the amount of such payment made by such Account Party shall at such time be insufficient to pay all Defaulted Amounts owing at such time to the Administrative Agent, such other Agents and such other Banks, in the following order of priority:
 
(i) first , to the Agents for any Defaulted Amounts then owing to the Agents;
 
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(ii) second , to the Issuing Banks for any amount then due and payable to them, in their capacity as such, by such Defaulting Bank, ratably in accordance with such amounts then due and payable to the Issuing Banks; and
 
(iii) third , to any other Banks for any Defaulted Amounts then owing to such other Banks, ratably in accordance with such respective Defaulted Amounts then owing to such other Banks.
 
Any portion of such amount paid by such Account Party for the account of such Defaulting Bank remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this Section 2.11(a) , shall be applied by the Administrative Agent as specified in Section 2.11(b) .
 
(b) In the event that, at any one time, (i) any Bank shall be a Defaulting Bank, (ii) such Defaulting Bank shall not owe a Defaulted Amount and (iii) any Account Party, any Agent or other Bank shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Bank, then such Account Party or such Agent or such other Bank shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow and the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this Section 2.11(b) shall be deposited by the Administrative Agent in an account with Wachovia in the name and under the control of the Administrative Agent, but subject to the provisions of this Section 2.11(b) . The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be Wachovia’s standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this Section 2.11(b) . The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Advances required to be made by such Defaulting Bank and to pay any amount payable by such Defaulting Bank hereunder and under the other Loan Documents to the Administrative Agent or any other Bank, as and when such Advances or amounts are required to be made or paid and, if the amount so held in escrow shall at any time be insufficient to make and pay all such Advances and amounts required to be made or paid at such time, in the following order of priority:
 
(i) first , to the Agents for any amounts then due and payable by such Defaulting Bank to the Agents hereunder;
 
(ii) second , to the Issuing Banks for any amount then due and payable to them, in their capacity as such, by such Defaulting Bank, ratably in accordance with such amounts then due and payable to such Issuing Banks; and
 
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(iii) third , to any other Banks for any amount then due and payable by such Defaulting Bank to such other Banks hereunder, ratably in accordance with such respective amounts then due and payable to such other Banks.
 
In the event that any Bank that is a Defaulting Bank shall, at any time, cease to be a Defaulting Bank, any funds held by the Administrative Agent in escrow at such time with respect to such Bank shall be distributed by the Administrative Agent to such Bank and applied by such Bank to the obligations owing to such Bank at such time under this Agreement and the other Loan Documents ratably in accordance with the respective amounts of such obligations outstanding at such time.
 
(c) The rights and remedies against a Defaulting Bank under this Section 2.11 are in addition to other rights and remedies that any Agent or any Bank may have against such Defaulting Bank with respect to any Defaulted Amount.
 
2.12 Replacement of Affected Bank . At any time any Bank is an Affected Bank, the Account Parties may replace such Affected Bank as a party to this Agreement with one or more other Banks and/or Eligible Assignees, and upon notice from the Account Parties such Affected Bank shall assign pursuant to an Assignment and Acceptance, and without recourse or warranty, its LC Commitment Amount, its Letter of Credit Advances, its obligations to fund Letter of Credit payments, its participation in, and its rights and obligations with respect to, Letters of Credit, and all of its other rights and obligations hereunder to such other Banks and/or Eligible Assignees for a purchase price equal to the sum of the principal amount of the Letter of Credit Advances so assigned, all accrued and unpaid interest thereon, such Affected Bank’s ratable share of all accrued and unpaid fees payable pursuant to Section 2.05 and all other obligations owed to such Affected Bank hereunder.
 
2.13 Certain Provisions Relating to the Issuing Banks and Letters of Credit .
 
(a) Letter of Credit Agreements . The representations, warranties and covenants by the Account Parties under, and the rights and remedies of each Issuing Bank under, any Letter of Credit Agreement relating to any Letter of Credit are in addition to, and not in limitation or derogation of, representations, warranties and covenants by the Account Parties under, and rights and remedies of each Issuing Bank and the Banks under, this Agreement and applicable law. Each Account Party acknowledges and agrees that all rights of each Issuing Bank under any Letter of Credit Agreement shall inure to the benefit of each Bank to the extent of its Letter of Credit Participating Interest Commitment and Letter of Credit Advances as fully as if such Bank was a party to such Letter of Credit Agreement. In the event of any inconsistency between the terms of this Agreement and any Letter of Credit Agreement, this Agreement shall prevail.
 
(b) Certain Provisions . The Issuing Banks shall have no duties or responsibilities to any Agent or any Bank except those expressly set forth in this Agreement, and no implied duties or responsibilities on the part of the Issuing Banks shall be read into this Agreement or shall otherwise exist. The duties and responsibilities of the Issuing Banks to the Banks and the Agents under this Agreement and the other Loan Documents shall be mechanical and administrative in nature, and the Issuing Banks shall not have a fiduciary relationship in respect of any Agent, any Bank or any other Person. No Issuing Bank shall be liable for any action taken or omitted to be
 
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taken by it under or in connection with this Agreement or any Loan Document or Letter of Credit, except to the extent resulting from its gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction. The Issuing Banks shall not be under any obligation to ascertain, inquire or give any notice to any Agent or any Bank relating to (i) the performance or observance of any of the terms or conditions of this Agreement or any other Loan Document on the part of any Account Party, (ii) the business, operations, condition (financial or otherwise) or prospects of the Account Parties or any other Person, or (iii) the existence of any Default. The Issuing Banks shall not be under any obligation, either initially or on a continuing basis, to provide any Agent or any Bank with any notices, reports or information of any nature, whether in its possession presently or hereafter, except for such notices, reports and other information expressly required by this Agreement to be so furnished. The Issuing Banks shall not be responsible for the execution, delivery, effectiveness, enforceability, genuineness, validity or adequacy of this Agreement or any Loan Document.
 
(c) Administration . Each Issuing Bank may rely upon any notice or other communication of any nature (written, electronic or oral, including but not limited to telephone conversations and transmissions through each Issuing Bank’s remote access system, whether or not such notice or other communication is made in a manner permitted or required by this Agreement or any other Loan Document) purportedly made by or on behalf of the proper party or parties, and each Issuing Bank shall not have any duty to verify the identity or authority of any Person giving such notice or other communication. Each Issuing Bank may consult with legal counsel (including, without limitation, its in-house counsel or in-house or other counsel for the Account Parties), independent public accountants and any other experts selected by it from time to time, and each Issuing Bank shall not be liable for any action taken or omitted to be taken in good faith in accordance with the advice of such counsel, accountants or experts. Whenever an Issuing Bank shall deem it necessary or desirable that a matter be proved or established with respect to any Account Party, any Agent or any Bank, such matter may be established by a certificate of such Account Party, such Agent or such Bank, as the case may be, and such Issuing Bank may conclusively rely upon such certificate. An Issuing Bank shall not be deemed to have any knowledge or notice of the occurrence of any Default unless such Issuing Bank has received notice from a Bank, an Agent or an Account Party referring to this Agreement, describing such Default, and stating that such notice is a “notice of default”.
 
(d) Indemnification of Issuing Banks by Banks . Each Bank hereby agrees to reimburse and indemnify each Issuing Bank and each of its directors, officers, employees and agents (to the extent not reimbursed by the Account Parties and without limitation of the obligations of the Account Parties to do so), in accordance with its Pro Rata Share, from and against any and all amounts, losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature (including, without limitation, the reasonable fees and disbursements of counsel (other than in-house counsel) for each Issuing Bank or such other Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not each Issuing Bank or such other Person shall be designated a party thereto) that may at any time be imposed on, incurred by or asserted against each Issuing Bank, in its capacity as such, or such other Person, as a result of, or arising out of, or in any way related to or by reason of, this Agreement, any other Loan Document or any Letter of Credit, any transaction from time to time contemplated hereby or thereby, or any transaction financed in whole or in part or directly or indirectly with the proceeds
 
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of any Letter of Credit, provided , that no Bank shall be liable for any portion of such amounts, losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements to the extent resulting from the gross negligence or willful misconduct of an Issuing Bank or such other Person, as finally determined by a court of competent jurisdiction.
 
(e) Issuing Banks in their Individual Capacity . With respect to its commitments and the obligations owing to it, each Issuing Bank shall have the same rights and powers under this Agreement and each other Loan Document as any other Bank and may exercise the same as though it were not an Issuing Bank, and the term “Banks” and like terms shall include each Issuing Bank in its individual capacity as such. Each Issuing Bank and its affiliates may, without liability to account to any Person, make loans to, accept deposits from, acquire debt or equity interests in, act as trustee under indentures of, act as agent under other credit facilities for, and engage in any other business with, any Account Party and any stockholder, subsidiary or affiliate of any Account Party, as though such Issuing Bank were not an Issuing Bank hereunder.
 
2.14 Downgrade Event with Respect to a Bank .
 
(a) If a Downgrade Event shall occur with respect to (i) any Downgraded Bank or (ii) any other Bank and, as a result thereof, such other Bank becomes a Downgraded Bank, then the Administrative Agent may, by notice to such Downgraded Bank and the Parent within 45 days after such Downgrade Event (any such notice, a “ Downgrade Notice ”), request that the Account Parties use reasonable efforts to replace such Bank as a party to this Agreement pursuant to Section 2.12 . If such Bank is not so replaced within 45 days after receipt by the Account Parties of such Downgrade Notice, then (x) if no Default exists and such Downgraded Bank has not exercised its right to remain a Bank hereunder pursuant to clause (y) below, the following shall occur concurrently:
 
(i) the Committed Facility shall be reduced by the amount of the LC Commitment Amount of such Downgraded Bank,
 
(ii) the Account Parties shall prepay all amounts owed to such Downgraded Bank hereunder or in connection herewith,
 
(iii) if, upon the reduction of the Committed Facility under clause (i) above and the payment under clause (ii) above, the sum of the principal amount of all Advances plus the Available Amount of all Letters of Credit (valuing the Available Amount of, and Letter of Credit Advances of the Issuing Banks in respect of, any Non-Dollar Letter of Credit at the Dollar Equivalent thereof as of the time of such calculation) would exceed the amount of the Committed Facility, then the Account Parties will immediately eliminate such excess by paying Advances and/or causing the Available Amount of one or more Letters of Credit to be reduced, and
 
(iv) upon completion of the events described in clauses (i), (ii) and (iii) above, such Downgraded Bank shall cease to be a party to this Agreement;
 
or (y) if a Default exists or, not later than 30 days after receipt of such Downgrade Notice, such Downgraded Bank notifies the Account Parties, the Issuing Banks and the Administrative Agent
 
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that such Downgraded Bank elects to provide (in a manner reasonably satisfactory to Administrative Agent) cash collateral to the Administrative Agent for (or if such Downgraded Bank is unable, without regulatory approval, to provide cash collateral, a letter of credit reasonably satisfactory to Administrative Agent covering) its contingent obligations to reimburse each Issuing Bank for any payment under any Letter of Credit as provided in Section 2.02(f) (its “ LC Participation Obligations ”), such Downgraded Bank shall be obligated to (and each Bank agrees that in such circumstances it will) deliver to the Administrative Agent (I) immediately, cash collateral (or, as aforesaid, a letter of credit) in an amount equal to its LC Participation Obligations and (II) from time to time thereafter (so long as it is a Downgraded Bank), cash collateral (or, as aforesaid, a letter of credit) sufficient to cover any increase in its LC Participation Obligations as a result of any proposed issuance of or increase in a Letter of Credit. Any funds provided by a Downgraded Bank for such purpose shall be maintained in segregated deposit accounts in the name of the Issuing Banks at the Administrative Agent’s principal offices in the United States (each a “ Downgrade Account ”). The funds so deposited in any Downgrade Account (or any drawing under such a letter of credit) shall be used only in accordance with the following provisions of this Section 2.14 .
 
(b) If any Downgraded Bank shall be required to fund its participation in a payment under a Letter of Credit pursuant to Section 2.02(f) , then the Administrative Agent shall apply the funds deposited in the applicable Downgrade Account by such Downgraded Bank (or any drawing under such a letter of credit) to fund such participation. The deposit of funds in a Downgrade Account by any Downgraded Bank (or any drawing under such a letter of credit) shall not constitute a Letter of Credit Advance (and the Downgraded Bank shall not be entitled to interest on such funds except as provided in Section 2.14(c) below) unless and until (and then only to the extent that) such funds (or any drawing under such a letter of credit) are used by the Administrative Agent to fund the participation of such Downgraded Bank pursuant to the first sentence of this Section 2.14(b) .
 
(c) Funds in a Downgrade Account shall be invested in such investments as may be agreed between the Administrative Agent and the applicable Downgraded Bank, and the income from such investments shall be distributed to such Downgraded Bank from time to time (but not less often than monthly) as agreed between the Administrative Agent and such Downgraded Bank. The Administrative Agent will (i) from time to time, upon request by a Downgraded Bank, release to such Downgraded Bank any amount on deposit in the applicable Downgrade Account in excess of the LC Participation Obligations of such Downgraded Bank (or, if applicable, not draw under any such letter of credit in excess of the L/C Participation Obligations of such Downgraded Bank) and (ii) upon the earliest to occur of (A) the effective date of any replacement of such Downgraded Bank as a party hereto pursuant to an Assignment and Acceptance, (B) the termination of such Downgraded Bank’s LC Commitment Amount pursuant to Section 2.14(a) or (C) the first Business Day after receipt by the Administrative Agent of evidence (reasonably satisfactory to the Administrative Agent) that such Bank is no longer a Downgraded Bank, release to such Bank all amounts on deposit in the applicable Downgrade Account (or, if applicable, return such letter of credit to such Bank for cancellation).
 
(d) At any time any Downgraded Bank is required to maintain cash collateral with the Administrative Agent pursuant to this Section 2.14 , the Issuing Banks shall have no obligation to issue or increase any Letter of Credit unless such Downgraded Bank has provided sufficient
 
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funds as cash collateral to the Administrative Agent to cover all LC Participation Obligations of such Downgraded Bank (including in respect of the Letter of Credit to be issued or increased).
 
2.15 Non-Dollar Letters of Credit .
 
(a) The Account Parties, the Administrative Agent, the Issuing Banks and the Banks (i) agree that an Issuing Bank may (in its sole discretion), with the prior approval of the Administrative Agent, issue Letters of Credit (“ Non-Dollar Letters of Credit ”) in currencies other than U.S. dollars and (ii) further agree as set forth in the following subsections of this Section 2.15 with respect to such Non-Dollar Letters of Credit.
 
(b) The Account Parties agree that their reimbursement obligations under Section 2.03(a) and any resulting Letter of Credit Advance, in each case in respect of a drawing under any Non-Dollar Letter of Credit, (i) shall be payable in Dollars at the Dollar Equivalent of such obligation in the currency in which such Non-Dollar Letter of Credit was issued (determined on the date of payment by the Account Parties or, in the event of payment by the Banks pursuant to Section 2.02(f) , on the date of such payment by the Banks), and (ii) shall bear interest at a rate per annum equal to the Base Rate plus 2%, for each day from and including the date on which the Applicable Account Party is to reimburse an Issuing Bank pursuant to Section 2.03(a) to but excluding the date such obligation is paid in full.
 
(c) Each Bank agrees that its obligation to pay an Issuing Bank such Bank’s Pro Rata Share of the unreimbursed portion of any payment by such Issuing Bank under Section 2.02(f) in respect of a drawing under any Non-Dollar Letter of Credit shall be payable in Dollars at the Dollar Equivalent of such obligation in the currency in which such Non-Dollar Letter of Credit was issued (calculated on the date of payment), and any such amount which is not paid when due shall bear interest at a rate per annum equal to the Overnight Rate plus , beginning on the third Business Day after such amount was due, 2%.
 
(d) For purposes of determining whether there is availability for the Account Parties to request any Advance or to request the issuance or extension of, or any increase in, any Letter of Credit, the Dollar Equivalent amount of the Available Amount of each Non-Dollar Letter of Credit shall be calculated as of the date such Advance is to be made or such Letter of Credit is to be issued, extended or increased.
 
(e) For purposes of determining the letter of credit fee under Section 2.05(c) , the Dollar Equivalent amount of the Available Amount of any Non-Dollar Letter of Credit shall be determined on each of (i) the date of an issuance, extension or change in the Available Amount of such Non-Dollar Letter of Credit, (ii) the date of any payment by an Issuing Bank in respect of a drawing under such Non-Dollar Letter of Credit, (iii) the last Business Day of each March, June, September and December and (iv) each day on which the LC Commitment Amounts are to be reduced pursuant to Section 2.04 (it being understood that no requested reduction shall be permitted to the extent that, after making a calculation pursuant to this Section 2.15(e) , such reduction would be greater than the unused portion of the LC Commitment Amounts).
 
(f) If, on the last Business Day of each March, June, September and December, the sum of the principal amount of all Advances plus the Available Amount of all Letters of Credit
 
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(valuing the Available Amount of, and Letter of Credit Advances in respect of, any Non-Dollar Letter of Credit at the Dollar Equivalent thereof as of such day) would exceed the amount of the Committed Facility, then the Account Parties will immediately eliminate such excess by paying Advances and/or causing the Available Amount of one or more Letters of Credit to be reduced.
 
(g) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due in respect of any Non-Dollar Letter of Credit in one currency into another currency, the rate of exchange used shall be that at which, in accordance with its normal banking procedures, Wachovia in its capacity as an Issuing Bank could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of any Account Party in respect of any such sum due from it to any Issuing Bank or any Bank hereunder shall, notwithstanding any judgment in a currency (the “ Judgment Currency ”) other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement and the applicable Non-Dollar Letter of Credit (the “ Agreement Currency ”), be discharged only to the extent that on the Business Day following receipt by such Issuing Bank or such Bank of any sum adjudged to be so due in the Judgment Currency, such Issuing Bank or such Bank may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to such Issuing Bank or such Bank in the Agreement Currency, the Applicable Account Party agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Issuing Bank or such Bank, as applicable, against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to such Issuing Bank or such Bank in such currency, each Issuing Bank and each Bank agrees to return the amount of any excess to the Applicable Account Party (or to any other Person who may be entitled thereto under applicable law).
 
(h) For purposes of this Section 2.15 , “ Dollar Equivalent ” means, in relation to an amount denominated in a currency other than U.S. dollars, the amount of U.S. dollars which could be purchased with such amount by Wachovia in its capacity as an Issuing Bank in accordance with its customary procedures (and giving effect to any transaction costs) at the quoted foreign exchange spot rate of Wachovia in its capacity as an Issuing Bank at the time of determination; and “ Overnight Rate ” means, for any day, the rate of interest per annum at which overnight deposits in the applicable currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by Wachovia in its capacity as an Issuing Bank to major banks in the London or other applicable offshore interbank market. The Overnight Rate for any day which is not a Business Day (or on which dealings are not carried on in the applicable offshore interbank market) shall be the Overnight Rate for the immediately preceding Business Day.
 
2.16 Increase of LC Commitment Amounts .
 
(a) From time to time subsequent to the Effective Date, the Account Parties jointly may, upon at least five days’ notice to the Administrative Agent (which shall promptly provide a copy of such notice to the Banks), propose to increase the aggregate amount of the LC Commitment Amounts by an amount which (i) is not less than $25,000,000, or an integral multiple of $1,000,000 in excess thereof, with respect to any such request nor (ii) when aggregated with all prior increases in the LC Commitment Amounts pursuant to this
 
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Section 2.16 , is not in excess of $250,000,000. The Borrowers may increase the aggregate LC Commitment Amounts by (i) agreeing with any Bank to increase its LC Commitment Amount hereunder, (ii) having another bank or other banks reasonably satisfactory to the Administrative Agent (each, an “ Additional Bank ”) become party to this Agreement or (iii) a combination of the procedures described in clauses (i) and (ii) of this sentence.
 
(b) An increase in the aggregate amount of the LC Commitment Amounts pursuant to this Section 2.16 shall become effective upon the receipt by the Administrative Agent of an agreement in form and substance satisfactory to the Administrative Agent signed by the Account Parties, by each Additional Bank and by each other Bank whose LC Commitment Amount is to be increased, setting forth the new LC Commitment Amounts of such Banks and setting forth the agreement of each Additional Bank to become a party to this Agreement and to be bound by all the terms and provisions hereof, together with such evidence of appropriate corporate authorization on the part of the Account Parties with respect thereto and such opinions of counsel for the Account Parties with respect thereto as the Administrative Agent may reasonably request. At the time of any increase in the aggregate LC Commitment Amount pursuant to this Section 2.16 , the Account Parties shall represent (i) that, immediately before and after such increase is made, no Default has occurred and is continuing and (ii) that the representations and warranties of the Account Parties contained in the Loan Documents are true in all material respects on and as of the date such increase is made, except for such representations or warranties which by their terms are made as of a specified date, which shall be true and correct as of such specified date.
 
ARTICLE III
 
CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT
 
3.01 Conditions Precedent to Effective Date . The occurrence of the Effective Date, and the obligation of the Issuing Banks to issue any Letter of Credit on the Effective Date, is subject to the satisfaction of the following conditions precedent:
 
(a) The Administrative Agent shall have received the following, each dated the Effective Date (unless otherwise specified), in form and substance reasonably satisfactory to the Administrative Agent (unless otherwise specified) and in sufficient copies for each Bank:
 
(i) Certified copies of the resolutions of the Board of Directors of each Loan Party approving the transactions contemplated by the Loan Documents and each Loan Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with transactions contemplated by the Loan Documents and each Loan Document to which it is or is to be a party.
 
(ii) A copy of a certificate of the Secretary of State or other appropriate official of the jurisdiction of incorporation of each Loan Party, dated reasonably near the Effective Date, certifying as to the good standing (or existence) of such Loan Party.
 
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(iii) A certificate of each Loan Party, signed on behalf of such Loan Party by its President or a Vice President (or equivalent officer if such Loan Party has no Vice President) and its Secretary or any Assistant Secretary (the statements made in which certificate shall be true on and as of the Effective Date), certifying as to (1) a true and correct copy of the constitutional documents of such Loan Party as in effect on the date on which the resolutions referred to in Section 3.01(a)(i) were adopted and on the Effective Date, (2) the due incorporation and good standing or valid existence of such Loan Party as a corporation organized under the laws of the jurisdiction of its incorporation, and the absence of any proceeding for the dissolution or liquidation of such Loan Party, (3) the truth of the representations and warranties contained in the Loan Documents as though made on and as of the Effective Date and (4) the absence of any event occurring and continuing, or resulting from the Effective Date, that constitutes a Default.
 
(iv) A certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign each Loan Document to which it is or is to be a party and the other documents to be delivered hereunder and thereunder.
 
(v) Favorable opinions of (1) Maples and Calder, Cayman Islands counsel for the Parent, in substantially the form of Exhibit B-1 hereto and as to such other matters as any Bank through the Administrative Agent may reasonably request, (2) Mayer, Brown, Rowe & Maw LLP, New York counsel for the Loan Parties, in substantially the form of Exhibit B-2 hereto and as to such other matters as any Bank through the Administrative Agent may reasonably request, and (3) Conyers Dill & Pearman, Bermuda counsel for ACE Bermuda, Tempest Life and Tempest, in substantially the form of Exhibit B-3 hereto and as to such other matters as any Bank through the Administrative Agent may reasonably request.
 
(b) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (x) would be reasonably expected to have a Material Adverse Effect or (y) would reasonably be expected to materially adversely affect the legality, validity or enforceability of any Loan Document or the other transactions contemplated by the Loan Documents.
 
(c) No development or change shall have occurred after December 31, 2003, and no information shall have become known after such date, that has had or would reasonably be expected to have a Material Adverse Effect.
 
(d) The Account Parties shall have paid all accrued fees of the Administrative Agent and the Banks and all accrued expenses of the Administrative Agent (including the accrued fees and expenses of counsel to the Administrative Agent and local counsel on behalf of all of the Banks), in each case to the extent then due and payable.
 
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(e) The Administrative Agent shall have received evidence satisfactory to it that all obligations of any Account Party outstanding under the Existing Reimbursement Agreement and Existing Secured Reimbursement Agreement (other than fees and expenses of Wachovia’s counsel) and the Bilateral Agreements have been repaid and satisfied in full.
 
3.02 Conditions Precedent to Each Issuance, Extension or Increase of a Letter of Credit . The obligation of the Issuing Banks to issue, extend or increase a Letter of Credit (including any issuance on the Effective Date) shall be subject to the further conditions precedent that on the date of such issuance, extension or increase (a) the following statements shall be true (and each request for issuance, extension, or increase, and the acceptance by the Account Party that requested such issuance, extension or increase shall constitute a representation and warranty by such Account Party that both on the date of such notice and on the date of such issuance, extension or increase such statements are true):
 
(i) the representations and warranties contained in each Loan Document are correct in all material respects on and as of such date, before and after giving effect to such issuance, extension or increase, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific date other the date of such issuance, extension or increase, in which case as of such specific date ( provided , however , that the representation and warranty contained in the last sentence of Section 4.01(g) shall be excluded from this clause (i) at all times after (but shall be included on and as of) the Effective Date); and
 
(ii) no Default has occurred and is continuing, or would result from such issuance, extension or increase;
 
and (b) the Administrative Agent shall have received such other approvals, opinions or documents as any Bank or any Issuing Bank through the Administrative Agent may reasonably request.
 
3.03 Determinations Under Section 3.01 . For purposes of determining compliance with the conditions specified in Section 3.01 , each Bank shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Banks unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Bank prior to the Effective Date specifying its objection thereto, provided that such Bank has been given at least one Business Day’s notice that the final form of such document or matter is available for its review.
 
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ARTICLE IV
 
REPRESENTATIONS AND WARRANTIES
 
4.01 Representations and Warranties of the Account Parties . Each Account Party represents and warrants as follows:
 
(a) Each Loan Party and each of its Material Subsidiaries (i) is duly organized or formed, validly existing and, to the extent such concept applies, in good standing under the laws of the jurisdiction of its incorporation or formation, (ii) is duly qualified and in good standing as a foreign corporation or other entity in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not be reasonably likely to have a Material Adverse Effect and (iii) has all requisite power and authority (including, without limitation, all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted, except where the failure to have any license, permit or other approval would not be reasonably likely to have a Material Adverse Effect. All of the outstanding Equity Interests in each Account Party (other than the Parent) have been validly issued, are fully paid and non-assessable and (except for any Preferred Securities issued after the date of this Agreement) are owned, directly or indirectly, by the Parent free and clear of all Liens.
 
(b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all Subsidiaries of each Loan Party as of the Effective Date.
 
(c) The execution, delivery and performance by each Loan Party of each Loan Document to which it is or is to be a party and the consummation of the transactions contemplated by the Loan Documents, are within such Loan Party’s corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party’s constitutional documents, (ii) violate any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which would be reasonably likely to have a Material Adverse Effect.
 
(d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of any Loan Document to which it is or is to be a party or the other transactions contemplated by the Loan Documents, or (ii) the exercise by the Administrative Agent or any Bank of its rights under the Loan Documents, except for the authorizations, approvals, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect, subject to bankruptcy, insolvency and similar laws of general application relating to creditors’ rights and to general principles of equity.
 
(e) This Agreement has been, and each other Loan Document when delivered hereunder will have been, duly executed and delivered by each Loan Party party thereto. This
 
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Agreement is, and each other Loan Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party party thereto, enforceable against such Loan Party in accordance with its terms.
 
(f) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or, to such Loan Party’s knowledge, threatened before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect or (ii) would reasonably be expected to affect the legality, validity or enforceability of any Loan Document or the transactions contemplated by the Loan Documents.
 
(g) The Consolidated balance sheet of the Parent and its Subsidiaries as at December 31, 2003, and the related Consolidated statements of income and of cash flows of the Parent and its Subsidiaries for the fiscal year then ended, accompanied by an unqualified opinion of PricewaterhouseCoopers LLP, independent public accountants, and the Consolidated balance sheet of the Parent and its Subsidiaries as at June 30, 2004, and the related Consolidated statements of income and cash flows of the Parent and its Subsidiaries for the six months then ended, duly certified by the Chief Financial Officer of the Parent, copies of which have been furnished to each Bank, fairly present, subject, in the case of said balance sheet as at June 30, 2004, and said statements of income and cash flows for the six months then ended, to year-end audit adjustments, the Consolidated financial condition of the Parent and its Subsidiaries as at such dates and the Consolidated results of operations of the Parent and its Subsidiaries for the periods ended on such dates, all in accordance with GAAP applied on a consistent basis (subject, in the case of the June 30, 2004 balance sheet and statements of income and cash flows, to the absence of footnotes). Since December 31, 2003, there has been no Material Adverse Change.
 
(h) No written information, exhibit or report furnished by or on behalf of any Loan Party to any Agent or any Bank in connection with the negotiation and syndication of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading as at the date it was dated (or if not dated, so delivered).
 
(i) Margin Stock constitutes less than 25% of the value of those assets of any Account Party which are subject to any limitation on sale, pledge or other disposition hereunder.
 
(j) Neither any Loan Party nor any of its Subsidiaries is an “investment company”, or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company”, as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances, nor the issuance of any Letters of Credit, nor the application of the proceeds or repayment thereof by any Account Party, nor the consummation of the other transactions contemplated by the Loan Documents, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder.
 
(k) Each Loan Party is, individually and together with its Subsidiaries, Solvent.
 
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(l) Except to the extent that any and all events and conditions under clauses (i) through (v) below of this Section 4.01(l) in the aggregate are not reasonably expected to have a Material Adverse Effect:
 
(i) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan.
 
(ii) With respect to each scheme or arrangement mandated by a government other than the United States (a “ Foreign Government Scheme or Arrangement ”) and with respect to each employee benefit plan that is not subject to United States law maintained or contributed to by any Loan Party or with respect to which any Subsidiary of any Loan Party may have liability under applicable local law (a “ Foreign Plan ”):
 
(A) Any employer and employee contributions required by law or by the terms of any Foreign Government Scheme or Arrangement or any Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices.
 
(B) The fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the date hereof, with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles.
 
(C) Each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities.
 
(iii) During the twelve-consecutive-month period to the date of the execution and delivery of this Agreement and prior to the request for any Letter of Credit to be issued hereunder, no steps have been taken to terminate any Pension Plan, no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA and no minimum funding waiver has been applied for or is in effect with respect to any Pension Plan. No condition exists or event or transaction has occurred or is reasonably expected to occur with respect to any Pension Plan which could result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty.
 
(iv) Each Pension Plan is in compliance in all respects with the applicable provisions of ERISA, the Internal Revenue Code and other federal or state laws.
 
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(v) No assets of any Loan Party are or are deemed under applicable law to be “plan assets” within the meaning of Department of Labor Regulation §2510.3-101.
 
(m) In the ordinary course of its business, each Account Party reviews the effect of Environmental Laws on the operations and properties of such Account Party and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, and any actual or potential liabilities to third parties and any related costs and expenses). On the basis of this review, each Account Party has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a Material Adverse Effect. The operations and properties of each Loan Party and each of its Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits, except for non-compliances which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect; and there are no Environmental Actions pending or threatened against any Loan Party or its Subsidiaries, and no circumstances exist that could be reasonably likely to form the basis of any such Environmental Action, which (in either case), individually or in the aggregate with all other such pending or threatened actions and circumstances, would reasonably be expected to have a Material Adverse Effect.
 
(n) Each Loan Party and each of its Subsidiaries has filed, has caused to be filed or has been included in all material federal tax returns and all other material tax returns required to be filed and has paid all taxes shown thereon to be due, together with applicable interest and penalties, except to the extent contested in good faith and by appropriate proceedings (in which case adequate reserves have been established therefor in accordance with GAAP).
 
(o) Set forth on Schedule II hereto is a list of all letters of credit that were issued (or deemed issued) under the Existing Reimbursement Agreement and that are outstanding as of the Effective Date.
 
ARTICLE V
 
COVENANTS OF THE ACCOUNT PARTIES
 
5.01 Affirmative Covenants . So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall have any Letter of Credit Participating Interest Commitment or commitment to issue a Letter of Credit hereunder, each Account Party will:
 
(a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with Environmental Laws, Environmental Permits, ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
 
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(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, all material taxes, assessments and governmental charges or levies imposed upon it or upon its property; provided , however , that neither any Account Party nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or levy that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained.
 
(c) Maintenance of Insurance . Maintain, and cause each of its Material Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Parent or such Material Subsidiary operates (it being understood that the foregoing shall not apply to maintenance of reinsurance or similar matters which shall be solely within the reasonable business judgment of the Parent and its Subsidiaries).
 
(d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Material Subsidiaries to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided , however , that (i) the Parent and its Subsidiaries may consummate any merger or amalgamation or consolidation permitted under Section 5.02(c) , (ii) no Subsidiary (other than an Account Party) shall be required to preserve and maintain its existence, legal structure, legal names or other rights (charter and statutory) if the Board of Directors of a direct or indirect parent of such Subsidiary has determined that such action is not disadvantageous in any material respect to the Parent, such parent or the Banks, and (iii) neither the Parent nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the Board of Directors of the Parent or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Parent or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Parent, such Subsidiary or the Banks.
 
(e) Visitation Rights . At any reasonable time and from time to time upon not less than three Business Days prior notice, permit the Administrative Agent (upon request made by any Agent or any Bank), or any agents or representatives thereof, at the expense (so long as no Default has occurred and is continuing) of such Agent or such Bank, as the case may be, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Parent and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Parent and any of its Subsidiaries with any of their officers or directors and with, so long as a representative of the Parent is present, their independent certified public accountants; provided that neither the Parent nor any of its Subsidiaries shall be required to
 
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disclose any information that it reasonably determines is entitled to the protection of attorney-client privilege.
 
(f) Keeping of Books . Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Parent and each such Subsidiary sufficient to permit the preparation of financial statements in accordance with GAAP.
 
(g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect.
 
(h) Transactions with Affiliates . Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates (other than any such transactions between Loan Parties or wholly owned Subsidiaries of Loan Parties) on terms that are fair and reasonable and no less favorable than it would obtain in a comparable arm’s-length transaction with a Person not an Affiliate.
 
(i) Pari Passu Ranking . Ensure that at all times the claims of the Banks, the Issuing Banks and the Agents against it under the Loan Documents will rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for claims which are preferred by any bankruptcy, insolvency, liquidation or other similar laws of general application or are mandatorily preferred by law applying to insurance companies generally.
 
5.02 Negative Covenants . So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall have any Letter of Credit Participating Interest Commitment or commitment to issue a Letter of Credit hereunder, each of the Account Parties will not, at any time:
 
(a) Liens, Etc . Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character (including, without limitation, accounts) whether now owned or hereafter acquired, or assign or permit any of its Subsidiaries to assign, any accounts or other right to receive income, except:
 
(i) Permitted Liens;
 
(ii) Liens described on Schedule 5.02(a) hereto;
 
(iii) purchase money Liens upon any property acquired or held by the Parent or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any property to be subject to such Liens, or Liens existing on any property at the time of acquisition or within 180 days following such acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or
 
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extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided , however , that no such Lien shall extend to or cover any property other than the property being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced;
 
(iv) Liens arising in connection with Capitalized Leases; provided that no such Lien shall extend to or cover any assets other than the assets subject to such Capitalized Leases;
 
(v) (A) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary and not created in contemplation of such event, (B) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Parent or any of it Subsidiaries in accordance with Section 5.02(c) and not created in contemplation of such event and (C) any Lien existing on any asset prior to the acquisition thereof by the Parent or any of its Subsidiaries and not created in contemplation of such acquisition;
 
(vi) Liens securing obligations under credit default swap transactions determined by reference to, or Contingent Obligations in respect of, Debt issued by the Parent or one of its Subsidiaries; such Debt not to exceed an aggregate principal amount of $550,000,000;
 
(vii) Liens arising in the ordinary course of its business which (A) do not secure Debt and (B) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business;
 
(viii) Liens on cash and Approved Investments securing Hedge Agreements arising in the ordinary course of business;
 
(ix) other Liens securing Debt or other obligations outstanding in an aggregate principal or face amount not to exceed at any time 5% of Consolidated Net Worth;
 
(x) Liens consisting of deposits made by the Parent or any insurance Subsidiary with any insurance regulatory authority or other statutory Liens or Liens or claims imposed or required by applicable insurance law or regulation against the assets of the Parent or any insurance Subsidiary, in each case in favor of policyholders of the Parent or such insurance Subsidiary or an insurance regulatory authority and in the ordinary course of the Parent’s or such insurance Subsidiary’s business;
 
(xi) Liens on Investments and cash balances of the Parent or any insurance Subsidiary (other than capital stock of any Subsidiary) securing obligations of the Parent or any insurance Subsidiary in respect of (i) letters of credit obtained in the ordinary course of business and/or (ii) trust arrangements
 
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formed in the ordinary course of business for the benefit of cedents to secure reinsurance recoverables owed to them by the Parent or any insurance Subsidiary;
 
(xii) the replacement, extension or renewal of any Lien permitted by clause (ii) or (v) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount (other than in respect of fees, expenses and premiums, if any) or change in any direct or contingent obligor) of the Debt secured thereby;
 
(xiii) Liens securing obligations owed by any Loan Party to any other Loan Party or owed by any Subsidiary of the Parent (other than a Loan Party) to the Parent or any other Subsidiary;
 
(xiv) Liens incurred in the ordinary course of business in favor of financial intermediaries and clearing agents pending clearance of payments for investment or in the nature of set-off, banker’s lien or similar rights as to deposit accounts or other funds;
 
(xv) judgment or judicial attachment Liens, provided that the enforcement of such Liens is effectively stayed;
 
(xvi) Liens arising in connection with Securitization Transactions; provided that the aggregate principal amount of the investment or claim held at any time by all purchasers, assignees or other transferees of (or of interests in) receivables and other rights to payment in all Securitization Transactions (together with the aggregate principal amount of any other obligations secured by such Liens) shall not exceed U.S. $750,000,000;
 
(xvii) Liens on securities arising out of repurchase agreements with a term of not more than three months entered into with “Lenders” (as such term is defined in the JPMorgan Credit Agreement) or their Affiliates or with securities dealers of recognized standing; provided that the aggregate amount of all assets of the Parent and its Subsidiaries subject to such agreements shall not at any time exceed $1,000,000,000. For purposes of this clause (xvii), “ JPMorgan Credit Agreement ” shall mean the Three-Year Credit Agreement dated as of April 2, 2004 among the Parent, ACE Bermuda, Tempest, and ACE INA Holdings Inc., as borrowers, various financial institutions, and JPMorgan Chase Bank, as administrative agent, as amended, modified, supplemented or restated from time to time; and
 
(xviii) Liens securing up to an aggregate amount of $200,000,000 of obligations of the Parent or any wholly owned Subsidiary, arising out of catastrophe bond financing.
 
(b) Change in Nature of Business . Make any material change in the nature of the business of the Parent and its Material Subsidiaries, taken as a whole, as carried on at the date hereof.
 
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(c) Mergers, Etc . Merge into or amalgamate or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries to do so, except that:
 
(i) any Subsidiary of the Parent may merge into or amalgamate or consolidate with any other Subsidiary of the Parent, provided that, in the case of any such merger, amalgamation or consolidation, the Person formed by such merger, amalgamation or consolidation shall be a wholly owned Subsidiary of the Parent, provided further that, in the case of any such merger, amalgamation or consolidation to which an Account Party is a party, the Person formed by such merger, amalgamation or consolidation shall be such Account Party;
 
(ii) any Subsidiary of any Account Party may merge into or amalgamate or consolidate with any other Person or permit any other Person to merge into, amalgamate or consolidate with it; provided that the Person surviving such merger, amalgamation or consolidation shall be a wholly owned Subsidiary of the Account Party;
 
(iii) in connection with any sale or other disposition permitted under Section 5.02(d) , any Subsidiary of the Parent may merge into or amalgamate or consolidate with any other Person or permit any other Person to merge into or amalgamate or consolidate with it; and
 
(iv) the Parent or any Account Party may merge into or amalgamate or consolidate with any other Person; provided that, in the case of any such merger, amalgamation or consolidation, the Person formed by such merger, amalgamation or consolidation shall be the Parent or such Account Party, as the case may be;
 
provided , however , that in each case, immediately after giving effect thereto, no event shall occur and be continuing that constitutes a Default.
 
(d) Sales, Etc., of Assets . Sell, lease, transfer or otherwise dispose of, or permit any other Account Party to sell, lease, transfer or otherwise dispose of, all or substantially all of its assets (excluding sales of investment securities in the ordinary course of business).
 
(e) Restricted Payments . Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such, make any distribution of assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent Persons thereof) as such or issue or sell any Equity Interests or accept any capital contributions, or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in the Parent or to issue or sell any Equity Interests therein, if in any case referred to above, a Default shall have occurred and be continuing at the time of such action or would result therefrom.
 
(f) Accounting Changes . Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as permitted by GAAP.
 
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5.03 Reporting Requirements . So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall have any Letter of Credit Participating Interest Commitment or commitment to issue a Letter of Credit hereunder, the Parent will furnish to the Agents and the Banks:
 
(a) Default Notice . As soon as possible and in any event within five days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the chief financial officer of the Parent setting forth details of such Default, event, development or occurrence and the action that the Parent or the applicable Subsidiary has taken and proposes to take with respect thereto.
 
(b) Annual Financials .
 
(i) As soon as available and in any event within 90 days after the end of each Fiscal Year (or, if earlier, within five Business Days after such date as the Parent is required to file its annual report on Form 10-K for such Fiscal Year with the Securities and Exchange Commission), a copy of the annual Consolidated audit report for such year for the Parent and its Subsidiaries, including therein a Consolidated balance sheet of the Parent and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and cash flows of the Parent and its Subsidiaries for such Fiscal Year, all reported on in a manner reasonably acceptable to the Securities and Exchange Commission in each case and accompanied by an opinion of PricewaterhouseCoopers LLP or other independent public accountants of recognized standing reasonably acceptable to the Required Banks, together with (i) a certificate of the Chief Financial Officer, Chief Accounting Officer or Chief Compliance Officer of the Parent stating that no Default has occurred and is continuing, or if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken a proposes to take with respect thereto, and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Section 5.04 .
 
(ii) As soon as available and in any event within 120 days after the end of each Fiscal Year, a copy of the annual Consolidated audit report for such year for each Subsidiary Guarantor and its Subsidiaries, including therein a Consolidated balance sheet of such Subsidiary Guarantor and its Subsidiaries as of the end of such Fiscal Year and a Consolidated statement of income and a Consolidated statement of cash flows of such Subsidiary Guarantor and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to the Required Banks of PricewaterhouseCoopers LLP or other independent public accountants of recognized standing acceptable to the Required Banks.
 
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(c) Quarterly Financials . As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year (or, if earlier, within five Business Days after such date as the Parent is required to file its quarterly report on Form 10-Q for such fiscal quarter with the Securities and Exchange Commission), Consolidated balance sheets of the Parent and its Subsidiaries as of the end of such quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to the absence of footnotes and normal year-end audit adjustments) by the Chief Financial Officer, Chief Accounting Officer or Chief Compliance Officer of the Parent as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken and proposes to take with respect thereto and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining compliance with the covenants contained in Section 5.04 .
 
(d) Litigation . Promptly after the commencement thereof, notice of all actions, suits, investigations, litigation and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(f) .
 
(e) Securities Reports . Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Parent sends to its stockholders generally, copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange.
 
(f) ERISA .
 
(i) ERISA Events . Promptly and in any event within 10 days after any Loan Party or any ERISA Affiliate institutes any steps to terminate any Pension Plan or becomes aware of the institution of any steps or any threat by the PBGC to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that any Loan Party or any ERISA Affiliate furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty, or any material increase in the contingent liability of any Loan Party or any ERISA Affiliate with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto.
 
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(ii) Plan Annual Reports . Promptly upon request of any Agent or any Bank, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Pension Plan.
 
(iii) Multiemployer Plan Notices . Promptly and in any event within 15 Business Days after receipt thereof by any Loan Party or any ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of each notice concerning (A) the imposition of Withdrawal Liability by any such Multiemployer Plan, (B) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (C) the amount of liability incurred, or that may be incurred, by such Loan Party or any ERISA Affiliate in connection with any event described in clause (A) or (B); provided , however , that such notice and documentation shall not be required to be provided (except at the specific request of any Agent or any Bank, in which case such notice and documentation shall be promptly provided following such request) if such condition or event is not reasonably expected to result in any Loan Party or any ERISA Affiliate incurring any material liability, fine, or penalty.
 
(g) Statutory Statements . As soon as available and in any event within 20 days after submission, each statutory statement of the Loan Parties (or any of them) in the form submitted to the Supervisor of Insurance, the Insurance Division of the Bermuda Monetary Authority.
 
(h) Regulatory Notices, Etc . Promptly after any Responsible Officer of the Parent obtains knowledge thereof, (i) a copy of any notice from the Bermuda Minister of Finance or the Registrar of Companies or any other person of the revocation, the suspension or the placing of any restriction or condition on the registration as an insurer of any Account Party under the Bermuda Insurance Act 1978 (and related regulations) or of the institution of any proceeding or investigation which could result in any such revocation, suspension or placing of such a restriction or condition, (ii) copies of any correspondence by, to or concerning any Loan Party relating to an investigation conducted by the Bermuda Minister of Finance, whether pursuant to Section 132 of the Bermuda Companies Act 1981 (and related regulations) or otherwise and (iii) a copy of any notice of or requesting or otherwise relating to the winding-up or any similar proceeding of or with respect to any Loan Party.
 
(i) Other Information . Such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries as the Administrative Agent, or any Bank through the Administrative Agent, may from time to time reasonably request. Information required to be delivered pursuant to Sections 5.03(b) , 5.03(c) , and 5.03(e) shall be deemed to have been delivered on the date on which the Parent provides notice to the Administrative Agent that such information has been posted on the Parent’s website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux.searches.htm or at another website identified in such notice and accessible by the Banks without charge; provided that (x) such notice may be included in a certificate delivered pursuant to Section 5.03(b)(i)(A) or 5.01(c)(i) and (y) the Parent shall deliver paper copies of the information referred to in Sections 5.03(b) , 5.03(c) , and 5.03(e) to any Bank which requests such delivery.
 
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5.04 Financial Covenants . So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall have any Letter of Credit Participating Interest Commitment or commitment to issue a Letter of Credit hereunder, the Parent will:
 
(a) Adjusted Consolidated Debt to Total Capitalization Ratio . Maintain at all times a ratio of Adjusted Consolidated Debt to Total Capitalization of not more than 0.35 to 1.0.
 
(b) Consolidated Net Worth . Maintain at all times Consolidated Net Worth in an amount not less than the Minimum Amount. For this purpose, the “ Minimum Amount ” is an amount equal to the sum of (i) the Base Amount plus (ii) (A) 25% of Consolidated Net Income for each fiscal quarter of the Parent, ending on or after the date on which the current Base Amount became effective and before the last day of the current Fiscal Year, for which such Consolidated Net Income is positive and (B) 50% of any increase in Consolidated Net Worth during such period attributable to the issuance of ordinary and preferred shares. The “ Base Amount ” shall be $6,000,000,000 as of December 31, 2003 and shall be reset on the last day of each Fiscal Year to equal the greater of (x) 70% of Consolidated Net Worth as of the last day of such Fiscal Year and (y) the Minimum Amount in effect immediately prior to such last day.
 
ARTICLE VI
 
EVENTS OF DEFAULT
 
6.01 Events of Default . If any of the following events (“Events of Default”) shall occur and be continuing:
 
(a) (i) any Account Party shall fail to pay any reimbursement obligation in respect of any Advance made by any Issuing Bank pursuant to a Letter of Credit when and as the same shall become due and payable, or (ii) any Account Party shall fail to make any payment of interest on such Advance or of any other amount payable by such Account Party under any Loan Document, in each case under this clause (ii) within five Business Days after the same becomes due and payable; or
 
(b) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or
 
(c) any Account Party shall fail to perform or observe any term, covenant or agreement contained in Section 2.10 , 5.01(d) (with respect to the Parent), 5.02 , 5.03(a) or 5.04 ; or
 
(d) any Account Party shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(e) if such failure shall remain unremedied for five Business Days after written notice thereof shall have been given to such Loan Party by any Agent or any Bank; or
 
(e) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such
 
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failure shall remain unremedied for 30 days after the earlier of the date on which (i) a Responsible Officer becomes aware of such failure or (ii) written notice thereof shall have been given to such Loan Party by any Agent or any Bank; or
 
(f) the Parent or any of its Subsidiaries shall fail to pay any Material Financial Obligation (but excluding Debt outstanding hereunder) of the Parent or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Material Financial Obligation; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Material Financial Obligation and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Material Financial Obligation or otherwise to cause, or to permit the holder thereof to cause, such Material Financial Obligation to mature; or any such Material Financial Obligation shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Material Financial Obligation shall be required to be made, in each case prior to the stated maturity thereof; or
 
(g) any Loan Party or any of its Significant Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Loan Party or any of its Significant Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any Loan Party or any of its Significant Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this Section 6.01(g) ; or
 
(h) any judgment or order for the payment of money in excess of $100,000,000 shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or
 
(i) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that would be reasonably likely to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or
 
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(j) any provision in Article VII of this Agreement shall for any reason cease to be valid and binding on or enforceable against any Loan Party (other than as a result of a transaction permitted hereunder), or any such Loan Party shall so state in writing; or
 
(k) a Change of Control shall occur; or
 
(l) Any Loan Party or any ERISA Affiliate shall incur or shall be reasonably expected to incur liability in excess of $25,000,000 in the aggregate with respect to any Pension Plan or any Multiemployer Plan in connection with the occurrence of any of the following events or existence of any of the following conditions:
 
(i) Institution of any steps by any Loan Party, any ERISA Affiliate or any other Person, including, without limitation, the PBGC to terminate a Pension Plan if as a result of such termination a Loan Party or any ERISA Affiliate would reasonably expect to be required to make a contribution to such Pension Plan, or would reasonably expect to incur a liability or obligation; or
 
(ii) A contribution failure occurs with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA; or
 
(iii) Any condition shall exist or event shall occur with respect to a Pension Plan that is reasonably expected to result in any Loan Party or any ERISA Affiliate being required to furnish a bond or security to the PBGC or such Pension Plan, or incurring a liability or obligation; or
 
(m) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability or a default, within the meaning of Section 4219(c)(5) of ERISA, has occurred with respect to such Multiemployer Plan which could cause any Loan Party or any ERISA Affiliate to incur a payment obligation in excess of $25,000,000;
 
then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Banks, by notice to the Account Parties, declare the obligation of the Issuing Banks to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and/or (ii) shall at the request, or may with the consent, of the Required Banks, by notice to the Account Parties, declare all amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Account Parties; provided , however , that in the event of an actual or deemed entry of an order for relief with respect to any Account Party under the federal Bankruptcy Code, (x) the obligation of the Issuing Banks to issue Letters of Credit shall automatically be terminated, (y) all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Account Parties and (z) the obligation of the Account Parties to provide cash collateral under Section 6.02 shall automatically become effective.
 
6.02 Actions in Respect of the Letters of Credit upon Default . If any Event of Default shall have occurred and be continuing, the Administrative Agent may, or shall at the request of
 
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the Required Banks, after having taken any of the actions described in Section 6.01(ii) or otherwise, make demand upon the Account Parties to, and forthwith upon such demand the Account Parties will, pay to the Administrative Agent on behalf of the Banks in same day funds at the Administrative Agent’s office designated in such demand, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding as cash collateral. If at any time during the continuance of an Event of Default the Administrative Agent determines that such funds are subject to any right or claim of any Person other than the Administrative Agent and the Banks or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Account Parties will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional cash collateral, an amount equal to the excess of (a) such aggregate Available Amount over (b) the total amount of funds, if any, that the Administrative Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit, such funds shall be applied to reimburse the Issuing Banks or Banks, as applicable, to the extent permitted by applicable law.
 
ARTICLE VII
 
THE GUARANTY
 
7.01 The Guaranty .
 
(a) Each Account Party hereby jointly and severally, unconditionally, absolutely and irrevocably guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of all amounts payable by each of the other Account Parties under the Loan Documents including, without limitation, the principal of and interest (including, to the greatest extent permitted by law, post-petition interest) on reimbursement obligations owing by such other Account Parties pursuant to this Agreement with respect to Letters of Credit and fees, expenses, indemnities or any other obligations, whether now existing or hereafter incurred, created or arising and whether direct or indirect, absolute or contingent, or due or to become due. Upon failure by an Account Party to pay punctually any such amount, each other Account Party agrees to pay forthwith on demand the amount not so paid at the place and in the manner specified in this Agreement.
 
(b) Each Account Party (other than the Parent), and by its acceptance of this Guaranty, the Administrative Agent and each other Bank, hereby confirms that it is the intention of all such Persons that this Guaranty and the obligations of each Account Party hereunder not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or state law to the extent applicable to this Guaranty and the obligations of each Account Party (other than the Parent) hereunder. To effectuate the foregoing intention, the Administrative Agent, the other Banks and the Account Parties hereby irrevocably agree that the obligations of each Account Party (other than the Parent) under this Article VII at any time shall be limited to the maximum amount as will result in the obligations of such Account Party under this Guaranty not constituting a fraudulent transfer or conveyance.
 
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7.02 Guaranty Unconditional . The obligations of each Account Party under this Article VII shall be unconditional, absolute and irrevocable and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by:
 
(i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of any other obligor under any of the Loan Documents, by operation of law or otherwise;
 
(ii) any modification or amendment of or supplement to any of the Loan Documents;
 
(iii) any release, non-perfection or invalidity of any direct or indirect security for any obligation of any other obligor under any of the Loan Documents;
 
(iv) any change in the corporate existence, structure or ownership of any obligor, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any other obligor or its assets or any resulting release or discharge of any obligation of any other obligor contained in any of the Loan Documents;
 
(v) the existence of any claim, set-off or other rights which any obligor may have at any time against any other obligor, the Administrative Agent, any Bank or any other corporation or person, whether in connection with any of the Loan Documents or any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim;
 
(vi) any invalidity or unenforceability relating to or against any other obligor for any reason of any of the Loan Documents, or any provision of applicable law or regulation purporting to prohibit the payment by any other obligor of principal interest or any other amount payable under any of the Loan Documents;
 
(vii) any law, regulation or order of any jurisdiction, or any other event, affecting any term of any obligation of the Banks’ rights with respect thereto; or
 
(viii) any other act or omission to act or delay of any kind by any obligor, the Administrative Agent, any Bank or any other corporation or person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to an Account Party’s obligations under this Article VII .
 
7.03 Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances . Each Account Party’s obligations under this Article VII shall remain in full force and effect until the commitments of the Banks hereunder shall have terminated, no Letters of Credit shall be outstanding and all amounts payable by the other Account Parties under the Loan Documents shall have been paid in full. If at any time any payment of the principal of or interest on any reimbursement obligation or any other amount payable by an Account Party under the Loan
 
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Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Account Party or otherwise, each other Account Party’s obligations under this Article VII with respect to such payment shall be reinstated as though such payment had been due but not made at such time.
 
7.04 Waiver by the Account Parties . Each Account Party irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any corporation or person against any other obligor or any other corporation or person.
 
7.05 Subrogation . Each Account Party hereby unconditionally and irrevocably agrees not to exercise any rights that it may now have or hereafter acquire against any other Account Party, or any other insider guarantor that arise from the existence, payment, performance or enforcement of such Account Party’s obligations under or in respect of this Guaranty or any other Loan Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any Bank against any other Account Party, any other Loan Party or any other insider guarantor or any collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from any other Account Party, any other Loan Party or any other insider guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all amounts payable under this Guaranty shall have been paid in full in cash, no Letters of Credit shall be outstanding and the commitments of the Banks hereunder shall have expired or been terminated. If any amount shall be paid to any Account Party in violation of the immediately preceding sentence at any time prior to the latest of (a) the payment in full in cash of all amounts payable under this Guaranty, and (b) the Expiration Date, such amount shall be received and held in trust for the benefit of the Banks, shall be segregated from other property and funds of such Account Party and shall forthwith be paid or delivered to the Administrative Agent in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to all amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of the Loan Documents, or to be held as collateral for any amounts payable under this Guaranty thereafter arising. If (i) any Account Party shall make payment to any Bank of all or any amounts payable under this Guaranty, (ii) all amounts payable under this Guaranty shall have been paid in full in cash, and (iii) the Expiration Date shall have occurred, the Banks will, at such Account Party’s request and expense, execute and deliver to such Account Party appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to such Account Party of an interest in the obligations resulting from such payment made by such Account Party pursuant to this Guaranty.
 
7.06 Stay of Acceleration . If acceleration of the time for payment of any amount payable by any Account Party under any of the Loan Documents is stayed upon the insolvency, bankruptcy or reorganization of such Account Party, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the other Account Parties under this Article VII forthwith on demand by the Administrative Agent made at the request of the requisite proportion of the Banks.
 
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7.07 Continuing Guaranty; Assignments . This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the latest of (i) the payment in full in cash of all amounts payable under this Guaranty and (ii) the Expiration Date, (b) be binding upon each Account Party, its successors and assigns and (c) inure to the benefit of and be enforceable by the Banks and their successors, transferees and assigns. Without limiting the generality of clause (c) of the immediately preceding sentence, any Bank may assign or otherwise transfer all or any portion of its rights and obligations under this Agreement (including, without limitation, all or any portion of its Letter of Credit Participating Interest Commitment and the Advances owing to it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Bank herein or otherwise, in each case as and to the extent provided in Section 9.07 .
 
ARTICLE VIII
 
THE AGENTS
 
8.01 Authorization and Action . Each Bank (in its capacity as a Bank) hereby appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents, no Agent shall be required to exercise any discretion or take any action, but shall be required to act (in the case of the Administrative Agent) or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Banks or all the Banks where unanimity is required, and such instructions shall be binding upon all Banks; provided , however , that no Agent shall be required to take any action that exposes such Agent to personal liability or that is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Bank prompt notice of each notice given to it by any Account Party pursuant to the terms of this Agreement.
 
8.02 Agents’ Reliance, Etc . Neither any Agent nor any of its respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Agent: (a) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations (whether written or oral) made in or in connection with the Loan Documents; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party; (d) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; and (e) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent,
 
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certificate or other instrument or writing (which may be by telegram or telecopy) reasonably believed by it to be genuine and signed or sent by the proper party or parties.
 
8.03 Agents and Affiliates . With respect to its LC Commitment Amounts, and the Advances, each Agent shall have the same rights and powers under the Loan Documents as any other Bank and may exercise the same as though it were not an Agent; and the term “Bank” or “Banks” shall, unless otherwise expressly indicated, include each Agent in its individual capacity. Each Agent and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person that may do business with or own securities of any Loan Party or any such Subsidiary, all as if such Agent were not an Agent and without any duty to account therefor to the Banks.
 
8.04 Bank Credit Decision . Each Bank acknowledges that it has, independently and without reliance upon any Agent or any other Bank and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon any Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.
 
8.05 Indemnification .
 
(a) Each Bank severally agrees to indemnify each Agent and its officers, directors, employees, agents, advisors and Affiliates (to the extent not promptly reimbursed by the Account Parties) from and against such Bank’s ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against such Agent or any such other Person in any way relating to or arising out of the Loan Documents or any action taken or omitted by such Agent under the Loan Documents; provided , however , that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent’s or other Person’s gross negligence or willful misconduct. Without limitation of the foregoing, each Bank agrees to reimburse each Agent promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Account Parties under Section 9.04 , to the extent that such Agent is not promptly reimbursed for such costs and expenses by the Account Parties.
 
(b) For purposes of this Section 8.05 , the Banks’ respective ratable shares of any amount shall be determined, at any time, according to the sum of (i) the aggregate principal amount of the Advances outstanding at such time and owing to the respective Banks, (ii) their respective Pro Rata Shares of the aggregate Available Amounts of all Letters of Credit outstanding at such time and (iii) their respective Unused LC Commitment Amounts at such time. The failure of any Bank to reimburse any Agent promptly upon demand for its ratable share of any amount required to be paid by the Banks to such Agent as provided herein shall not relieve any other Bank of its obligation hereunder to reimburse such Agent for its ratable share of such amount, but no Bank shall be responsible for the failure of any other Bank to reimburse
 
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such Agent for such other Bank’s ratable share of such amount. Without prejudice to the survival of any other agreement of any Bank hereunder, the agreement and obligations of each Bank contained in this Section 8.05 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents.
 
8.06 Successor Administrative Agent . Any Agent may resign at any time by giving written notice thereof to the Banks and the Parent. Upon any such resignation or removal of the Administrative Agent, the Required Banks shall have the right to appoint a successor Administrative Agent, subject (so long as no Event of Default exists) to the consent of the Parent (which consent shall not be unreasonably withheld). If no successor Administrative Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation or the Required Banks’ removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent such successor Administrative Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. If within 45 days after written notice is given of the retiring Administrative Agent’s resignation or removal under this Section 8.06 no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 45 th day (i) the retiring Administrative Agent’s resignation or removal shall become effective, (ii) the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Banks shall thereafter perform all duties of the retiring Administrative Agent under the Loan Documents until such time, if any, as the Required Banks appoint a successor Administrative Agent as provided above. After any retiring Agent’s resignation or removal hereunder as Agent shall have become effective, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If Bank of America ceases to be a Bank hereunder, it shall be deemed to have resigned as Syndication Agent and no replacement shall be appointed.
 
ARTICLE IX
 
MISCELLANEOUS
 
9.01 Amendments, Etc . No amendment or waiver of any provision of this Agreement or any other Loan Document, nor consent to any departure by any Loan Party therefrom, shall in any event be effective unless the same shall be in writing and signed by Wachovia in its capacity as an Issuing Bank and the Required Banks (and, in the case of an amendment, the Parent), and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided , however , that no amendment, waiver or consent shall:
 
(a) unless in writing and signed by all of the Banks (other than any Bank that is, at such time, a Defaulting Bank), do any of the following at any time: (i) waive any of
 
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the conditions specified in Section 3.01 or, in the case of the Effective Date, Section 3.02 , (ii) change the number of Banks or the percentage of (x) the LC Commitment Amounts, (y) the aggregate unpaid principal amount of the Advances or (z) the aggregate Available Amount of outstanding Letters of Credit that, in each case, shall be required for the Banks or any of them to take any action hereunder, (iii) reduce or limit the obligations of any Account Party under Section 7.01 or release such Account Party or otherwise limit such Account Party’s liability with respect to the obligations owing to the Agents and the Banks, (iv) amend this Section 9.01 or any of the definitions herein that would have such effect, (v) extend the Expiration Date, or (vi) limit the liability of any Loan Party under any of the Loan Documents;
 
(b) unless in writing and signed by each affected Bank, do any of the following at any time: (i) increase the LC Commitment Amounts of the Banks or subject the Banks to any additional obligations, (ii) reduce the principal of, or interest on, any reimbursement obligation or any fees or other amounts payable hereunder, or increase any Bank’s LC Commitment Amount, or (iii) postpone any date fixed for any payment of principal of, or interest on, any reimbursement obligation or any fees or other amounts payable hereunder;
 
provided further that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the Banks required above to take such action, affect the rights or duties of such Agent under this Agreement or the other Loan Documents and no amendment, waiver or consent shall, unless in writing and signed by an Issuing Bank in addition to the Banks above required to take such action, affect the rights or duties of such Issuing Bank under this Agreement or the other Loan Documents.
 
9.02 Notices, Etc . All notices and other communications provided for hereunder shall be in writing (including telegraphic or telecopy communication) and mailed, telegraphed, telecopied or delivered, if to any Account Party, at its address set forth below on the signature pages hereof; if to any Initial Bank, at its Domestic Lending Office specified opposite its name on Part 2 of Schedule I hereto; if to any other Bank, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Bank; if to Wachovia (in its capacity as Issuing Bank) at its address at 401 Linden Street, Mail Code NC-6034, Winston-Salem, North Carolina 27101, Attn: International Operations — Standby Letter of Credit Department, Telecopy No. (336) 735-0952; and if to the Administrative Agent, at its address at Charlotte Plaza Building, 201 South College Street, 8 th Floor NC0680, Charlotte, North Carolina 28288, Attn: Syndication Agency Services, Telecopy No. (704) 383-0288, with a copy to Mark B. Felker, Managing Director, 301 South College Street, 5 th Floor NC0760, Charlotte, NC 28288, Telecopy No. (704) 383-7611; or, as to any party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telegraphed or telecopied, be effective when deposited in the mails, delivered to the telegraph company or transmitted by telecopier, respectively, except that notices and communications to the Administrative Agent pursuant to Article II , III or VIII shall not be effective until received by the Administrative Agent. Manual delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of an original executed counterpart thereof.
 
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9.03 No Waiver; Remedies . No failure on the part of any Bank or any Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
 
9.04 Costs and Expenses .
 
(a) Each of the Account Parties agrees to pay on demand (i) all reasonable costs and expenses of the Agents, the Joint Lead Arrangers and Wachovia, in its capacity as an Issuing Bank, in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of a single counsel for the Administrative Agent and Wachovia in its capacity as an Issuing Bank with respect thereto, with respect to advising the Administrative Agent as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors’ rights generally and any proceeding ancillary thereto); and (ii) all reasonable costs and expenses of each Agent, each Issuing Bank and each Bank in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, or any bankruptcy, insolvency or other similar proceeding affecting creditors’ rights generally (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent, each Issuing Bank and each Bank with respect thereto).
 
(b) Each of the Account Parties jointly and severally agrees to indemnify and hold harmless each Agent, each Joint Lead Arranger, each Issuing Bank, each Bank and each of their Affiliates and their respective officers, directors, employees, agents and advisors (each, an “ Indemnified Party ”) from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) this Agreement, the actual or proposed use of the proceeds of the Advances, the Loan Documents or any of the transactions contemplated thereby, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnified Party or any of its Affiliates. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 9.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated by the Loan Documents are consummated. Each of the Account Parties also agrees not to assert any claim against any Agent, any Joint Lead Arranger, any Bank or any of their Affiliates, or any of their respective
 
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officers, directors, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the credit facilities provided hereunder, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Loan Documents or any of the transactions contemplated by the Loan Documents.
 
(c) Without prejudice to the survival of any other agreement of any Loan Party hereunder or under any other Loan Document, the agreements and obligations of the Account Parties contained in Section 2.07 and this Section 9.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any of the other Loan Documents.
 
9.05 Right of Set-off . Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare amounts owing hereunder to be due and payable pursuant to the provisions of Section 6.01 , each Agent and each Bank and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Agent, such Bank or such Affiliate to or for the credit or the account of any Account Party against any and all of the obligations of such Account Party now or hereafter existing under the Loan Documents, irrespective of whether such Agent or such Bank shall have made any demand under this Agreement and although such obligations may be unmatured. Each Agent and each Bank agrees promptly to notify each Account Party after any such set-off and application; provided , however , that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Agent and each Bank and their respective Affiliates under this Section 9.05 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Agent, such Bank and their respective Affiliates may have.
 
9.06 Binding Effect . This Agreement shall become effective when it shall have been executed by each Account Party, each Issuing Bank and each Agent and the Administrative Agent shall have been notified by each Initial Bank that such Initial Bank has executed it and thereafter shall be binding upon and inure to the benefit of each Account Party, each Agent, each Issuing Bank and each Bank and their respective successors and assigns, except that no Account Party shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Banks.
 
9.07 Assignments and Participations .
 
(a) Each Bank may, and so long as no Default shall have occurred and be continuing, if demanded by any Account Party (following a demand by such Bank pursuant to Section 2.12 ) upon at least five Business Days notice to such Bank and the Administrative Agent, will, assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its LC Commitment Amount, its Letter of Credit Participating Interest Commitment and the Letter of Credit Advances owing to it); provided , however , that (i) each such assignment shall be of a uniform, and not a varying,
 
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percentage of all rights and obligations of such Bank hereunder, except for any non-pro rata assignment made by a Downgraded Bank after a request by the Administrative Agent pursuant to Section 2.14 (and any subsequent non-pro rata assignment of the interest so assigned or by the Downgraded Bank) and any other non-pro rata assignment approved by the Administrative Agent and any Account Party, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was (x) a Bank or an Affiliate of any Bank, the aggregate amount of the LC Commitment Amounts being assigned to such Eligible Assignee pursuant to such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $1,000,000 unless it is an assignment of the entire amount of such assignor’s LC Commitment Amount, or (y) not a Bank or an Affiliate of any Bank, the aggregate amount of the LC Commitment Amounts being assigned to such Eligible Assignee pursuant to such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 unless it is an assignment of the entire amount of such assignor’s LC Commitment Amount, (iii) each such assignment shall be to an Eligible Assignee, (iv) each assignment made as a result of a demand by any Account Party pursuant to Section 2.12 shall be arranged by such Account Party after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Bank under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Bank under this Agreement, (v) no Bank shall be obligated to make any such assignment as a result of a demand by any Account Party pursuant to Section 2.12 unless and until such Bank shall have received one or more payments from either such Account Party or other Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances made by such Bank, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Bank under this Agreement, (vi) as a result of such assignment, no Account Party shall be subject to additional amounts under Section 2.06 or 2.08 and (vii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recordation fee of $3,500.
 
(b) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank, hereunder and (ii) the Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 2.06 , 2.08 and 9.04 to the extent any claim thereunder relates to an event arising prior to such assignment and any other rights that are expressly provided hereunder to survive) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Bank’s rights and obligations under this Agreement, such Bank shall cease to be a party hereto).
 
(c) By executing and delivering an Assignment and Acceptance, each Bank assignor thereunder and each assignee thereunder confirm to and agree with each other and the other parties thereto and hereto as follows: (i) other than as provided in such Assignment and
 
64

Acceptance, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon any Agent, such assigning Bank or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Bank.
 
(d) The Administrative Agent, acting for this purpose (but only for this purpose) as the agent of the Account Parties, shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the LC Commitment Amount of, and principal amount of the Advances owing to, each Bank from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Account Parties, the Agents and the Banks shall treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by any Account Party or any Agent or any Bank at any reasonable time and from time to time upon reasonable prior notice.
 
(e) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and an assignee, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit A hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Parent and to the parties to such Assignment and Acceptance.
 
(f) Each Bank may sell participations to one or more Persons (other than any Loan Party or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its LC Commitment Amount, its Letter of Credit Participating Interest Commitment and the Advances owing to it; provided , however , that (i) such Bank’s obligations under this Agreement (including, without limitation, its Letter of Credit Participating Interest Commitment) shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations,
 
65

(iii) the Account Parties, the Agents and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under this Agreement and (iv) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, reimbursement obligations or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the reimbursement obligations or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. Each Bank shall, as agent of the Account Parties solely for the purposes of this Section 9.07 , record in book entries maintained by such Bank, the name and amount of the participating interest of each Person entitled to receive payments in respect of any participating interests sold pursuant to this Section 9.07 .
 
(g) Any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07 , disclose to the assignee or participant or proposed assignee or participant any information relating to any Account Party furnished to such Bank by or on behalf of any Account Party; provided , however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Bank.
 
(h) Notwithstanding any other provision set forth in this Agreement, any Bank may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System.
 
9.08 Execution in Counterparts . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement.
 
9.09 No Liability of the Issuing Banks . Each Account Party assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither an Issuing Bank nor any of its officers, directors, employees or agents shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by such Issuing Bank against presentation of documents that do not strictly comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that such Account Party shall have a claim against such Issuing Bank, and such Issuing Bank shall be liable to such Account Party, to the extent of any direct, but not consequential, damages suffered by such Account Party that such Account Party proves were caused by (i) such Issuing Bank’s willful misconduct or gross
 
66

negligence as determined in a final, non-appealable judgment by a court of competent jurisdiction in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) such Issuing Bank’s willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Banks may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary.
 
9.10 Confidentiality . Neither any Agent nor any Bank shall disclose any Confidential Information to any Person without the consent of the Parent, other than (a) to such Agent’s or such Bank’s Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective Eligible Assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) as requested or required by any state, federal or foreign authority or examiner regulating such Bank or pursuant to any request of any self-regulatory body having or claiming authority to regulate or oversee any aspect of a Bank’s business of that of any of its Affiliates and (d) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties received by it from such Bank. Notwithstanding anything herein to the contrary, the information subject to this Section 9.10 shall not include, and the Administrative Agent and each Bank may disclose to any and all Persons, without limitation of any kind, any information with respect to the “tax treatment” and “tax structure” (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby or by any of the other Loan Documents and all materials of any kind (including opinions or other tax analyses) that are provided to the Administrative Agent or such Bank relating to such tax treatment and tax structure (it being understood that this authorization is retroactively effective to the commencement of the first discussions between or among any of the parties regarding the transactions contemplated hereby or by any of the other Loan Documents); provided that with respect to any document or similar item that in either case contains information concerning such tax treatment or tax structure as well as other information, this sentence shall only apply to such portions of the document or similar item that relate to such tax treatment or tax structure.
 
9.11 Jurisdiction, Etc .
 
(a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any
 
67

action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction.
 
(b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
 
(c) Each of the Account Parties hereby irrevocably appoints Mayer, Brown, Rowe & Maw LLP, with offices on the Effective Date at 1675 Broadway, New York, New York, 10019, USA as its agent to receive, accept and acknowledge for and on its behalf services of any and all legal process, summons, notices and documents which may be served in any such action or proceeding. If for any reason such agent shall cease to be available to act as such, the Account Parties agree to promptly designate a new agent satisfactory to the Administrative Agent in the Borough of Manhattan, The City of New York, to receive, accept and acknowledge for and on its behalf service of any and all legal process, summons, notices and documents which may be served in any such action or proceeding pursuant to the terms of this Section 9.11 . In the event that any Borrower shall fail to designate such new agent, service of process in any such action or proceeding may be made on such Account Party by the mailing of copies thereof by express or overnight mail or courier, postage prepaid, to such Account Party at its address set forth opposite its signature below.
 
9.12 Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
 
9.13 Waiver of Jury Trial . Each of the Account Parties, the Agents and the Banks irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to any of the Loan Documents, the Advances or the actions of any Agent or any Bank in the negotiation, administration, performance or enforcement thereof.
 
9.14 Disclosure of Information . Each Account Party agrees and consents to the Administrative Agent’s disclosure of information relating to this transaction to Gold Sheets and other similar bank trade publications. Such information will consist of deal terms and other information customarily found in such publications. The Parent shall have the right to review and approve any such disclosure made by the Administrative Agent before such disclosure is made (such approval not to be unreasonably withheld).
 
9.15 USA Patriot Act . Each Bank hereby notified the Account Parties that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “ Patriot Act ”), it is required to obtain, verify and record information that identifies each Account Party, which information includes the name and address of such Account Party and other information that will allow such Bank to identify such Account Party in
 
68

accordance with the Patriot Act. Each Account Party shall provide such information promptly upon request from such Bank.
 
9.16 Certain Effective Date Matters . By their execution of this Agreement, (i) the Account Parties and the Banks that are parties to the Existing Reimbursement Agreement (which Banks constitute “Required Banks” under and as defined in the Existing Reimbursement Agreement), Tempest and CitiBank as parties to a Bilateral Agreement and Barclays as a party to a Bilateral Agreement (collectively, the “ Existing Agreements ”) agree that each Existing Agreement shall terminate and be of no further force or effect on the Effective Date (except that any provision of any Existing Agreement that by its terms survives termination of such Existing Agreement shall remain in full force and effect), (ii) the Parent, the Administrative Agent, Barclays, as an Issuing Bank, and, by execution and delivery of a letter agreement substantially in the form of Exhibit C, the Trustees of the Lloyd’s Dollar Trust Funds of Syndicate 2488 (the “ Trustees ”) agree that each letter of credit issued under the Bilateral Agreement to which Barclays is a party shall be deemed to have been issued, and to be outstanding, for the joint account of the Parent and the Trustees and (iii) the relevant Account Parties and the Issuing Banks agree that each Existing Letter of Credit shall become a Letter of Credit hereunder on the Effective Date, in each case without any further action by any Person.
 
[Remainder of page intentionally left blank]
 
69

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

ACE LIMITED	
	
The Common Seal of ACE Limited was hereunto affixed in the presence of:	

Authorized Officer	

Authorized Officer	
	
ACE BERMUDA INSURANCE LTD.	
The Common Seal of ACE Bermuda Insurance Ltd. was hereunto affixed in the presence of:	

Authorized Officer	

Authorized Officer	
	
ACE TEMPEST LIFE REINSURANCE LTD.	
The Common Seal of ACE Tempest Life Reinsurance Ltd. was hereunto affixed in the presence of:	

Authorized Officer	

Authorized Officer	
 
(signatures continued)
 
Signature Page to Unsecured Reimbursement Agreement

	
ACE TEMPEST REINSURANCE LTD.
The Common Seal of ACE Tempest Reinsurance Ltd. was hereunto affixed in the presence of:	

Authorized Officer	

Authorized Officer	
	
Address for each Account Party:
ACE Global Headquarters
17 Woodbourne Avenue
Hamilton HM08 Bermuda
Telecopy: (441) 296-0087	
 
(signatures continued)
 
Signature Page to Unsecured Reimbursement Agreement

			
WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent, as Issuing Bank and as an Initial Bank	
		
By: 	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
BANK OF AMERICA, N.A., as Syndication Agent and as an Initial Bank	
		
By: 	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
BARCLAYS BANK, PLC, as a Co-Documentation Agent, as an Issuing Bank and as an Initial Bank	
		
By: 	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
CITIBANK, N.A., as a Co-Documentation Agent,
as an Issuing Bank and as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
JPMORGAN CHASE BANK, as a
Co- Documentation Agent and as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
DEUTSCHE BANK AG, NEW YORK BRANCH, as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
HSBC BANK USA, NATIONAL ASSOCIATION as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
ING BANK N.V., LONDON BRANCH, as an
Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
THE ROYAL BANK OF SCOTLAND PLC, as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
ABN AMRO BANK, N.V., as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
KEYBANK NATIONAL ASSOCIATION, as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
STATE STREET BANK AND TRUST
COMPANY, as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
BNP PARIBAS, as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
THE BANK OF TOKYO-MITSUBISHI, LTD. NEW YORK BRANCH, as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
COMERICA BANK, as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
LLOYDS TSB BANK PLC, as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
MELLON BANK, N.A., as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
NATIONAL AUSTRALIA BANK LIMITED, as
an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
NATIONAL CITY BANK, as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
WELLS FARGO BANK, NATIONAL ASSOCIATION, as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

			
THE BANK OF N.T. BUTTERFIELD & SON LIMITED, as an Initial Bank	
		
By:	 	 	
		
Title:	 	 	
 
Signature Page to Unsecured Reimbursement Agreement

SCHEDULE I
 
LC COMMITMENT AMOUNTS

Wachovia Bank, National Association	  	$	62,900,000	
Bank of America, N.A.	  	$	62,900,000	
Barclays Bank PLC	  	$	59,800,000	
CitiBank, N.A.	  	$	59,800,000	
JPMorgan Chase Bank	  	$	59,800,000	
Deutsche Bank AG, New York Branch	  	$	50,400,000	
HSBC Bank USA, National Association	  	$	50,400,000	
ING Bank N.V., London Branch	  	$	50,400,000	
The Royal Bank of Scotland plc	  	$	50,400,000	
ABN AMRO Bank, N.V.	  	$	40,900,000	
KeyBank National Association	  	$	40,900,000	
State Street Bank and Trust Company	  	$	40,900,000	
BNP Paribas	  	$	25,200,000	
The Bank of Tokyo-Mitsubishi, Ltd. New York Branch	  	$	25,200,000	
Comerica Bank	  	$	25,200,000	
Lloyds TSB Bank plc	  	$	25,200,000	
Mellon Bank, N.A.	  	$	25,200,000	
National Australia Bank Limited	  	$	25,200,000	
National City Bank	  	$	25,200,000	
Wells Fargo Bank, National Association	  	$	25,200,000	
The Bank of N.T. Butterfield & Son Limited	  	$	18,900,000	
 	  			
Total	  	$	850,000,000	

SCHEDULE I – PART 2
 
DOMESTIC LENDING OFFICES

Wachovia Bank, National Association	  	Agency Management Group
301 South College Street, 5 th Floor
Charlotte, North Carolina 28288-0737
Attn: Mark Felker
Telephone: (704) 374-7074
Telecopy: (704) 383-7611	
		
Bank of America, N.A.	  	231 S. LaSalle Street
Chicago, Illinois 60697
Attn: Debra Basler
Telephone: (312) 828-3734
Telecopy: (312) 987-0889	
		
Barclays Bank PLC	  	P.O. Box 544
1 st Floor
54 Lombard Street
London EC3V 9EX England
Attn: Neil Holmes
Telephone: 44 (0) 20 7699 3125
Telecopy: 44 (0) 20 7699 2407
 
Copies to:
Barclays Capital
GSU, 5 North Colonade
Canary Wharf
London E14 4BB England
Attn: Graham Smart
Telephone: 44 (0) 20 7773 6450
Telecopy: 44 (0) 20 7773 6807	
		
CitiBank, N.A.	  	 	
		
JPMorgan Chase Bank	  	Financial Institutions Group
270 Park Avenue, 15 th Floor
New York, New York 10017
Attn: Helen Newcomb
Telephone: (212) 270-6260
Telecopy: (212) 270-1511	
		
Deutsche Bank AG, New York Branch	  	31 West 52 nd Street Mail Stop NYC01-2402
New York, New York 10019
Attn: Clinton M. Johnson
Telephone: (212) 469-8101
Telecopy: (212) 469-8366	

			
HSBC Bank USA, National Association	  	452 Fifth Avenue, 5 th Floor
New York, New York 10018
Attn: Kenneth J. Johnson
Telephone: (212) 525-2480
Telecopy: (212) 525-2479	
		
ING Bank N.V., London Branch	  	 	
		
The Royal Bank of Scotland plc	  	 	
		
ABN AMRO Bank, N.V.	  	540 West Madison Street, Suite 2621
Chicago, Illinois 60661
Attn: Credit Administration
Telecopy: (312) 992-5111
 
Copies to:
350 Park Avenue
New York, NY 10055
Telecopy: (212) 409-1718	
		
KeyBank National Association	  	127 Public Square, 6 th Floor
Cleveland, Ohio 44114
Attn: Mary K. Young
Telephone: (216) 689-4443
Telecopy: (216) 689-4981	
		
State Street Bank and Trust Company	  	Domestic Lending Office:
225 Franklin Street
Boston, Massachusetts 02110
 
Address for notices:
Lafayette Corporate Center
2 Avenue de Lafayette
Boston, Massachusetts 02111
Attn: Edward M. Anderson, VP
Telephone: (617) 662-3782
Telecopy: (617) 662-3778	
		
BNP Paribas	  	787 7 th Avenue, 28 th Floor
New York, New York 10019
Attn: Joshua Landau
Telephone: (212) 841-3823
Telecopy: (212) 841-2533	
		
The Bank of Tokyo-Mitsubishi, Ltd. New York Branch	  	 	
		
Comerica Bank	  	500 Woodward Avenue
Detroit, Michigan 48226-3331
Attn: Martin G. Ellis
Telephone: (313) 222-9443
Telecopy: (313) 222-5466	
 
2

			
Lloyds TSB Bank plc	  	1251 Avenue of the Americas, 39th Floor
NY, NY 10020
Attn: Patricia Kilian, VP, Loans Administration
Telephone: (212) 930-8914
Telecopy: (212) 930-5098	
		
Mellon Bank, N.A.	  	One Mellon Center, Room 4505
Pittsburgh, Pennsylvania 15258-0001
Attn: Karla Maloof
Telephone: (412) 236-4147
Telecopy: (412) 234-8087	
		
National Australia Bank Limited	  	245 Park Avenue, 28 th Floor
New York, NY 10167
Attn: Mike McHugh
Telephone: (212) 916-9559
Telecopy: (212) 949-9515	
		
National City Bank	  	1 North Franklin, Suite 3600
Chicago, IL 60606
Attn: Gustavus Bahr
Telephone: (312) 384- 6904
Telecopy: (312) 384- 4618	
		
Wells Fargo Bank, National Association	  	90 So. 7 th Street
MAC N9305-075, 7 th Floor
Minneapolis, Minnesota 55402
Attn: Jason Paulnock
Telephone: (612) 667-4742
Telecopy: (612) 667-7251	
		
The Bank of N.T. Butterfield & Son Limited	  	65 Front Street
Hamilton HM DX, Bermuda
Attn: Jonathan Raynor, VP-Corporate Banking
Telephone: (441) 298-4774
Telecopy: (441) 296-2851	
 
3

SCHEDULE II
 
EXISTING LETTERS OF CREDIT
 
1.	Wachovia Letter of Credit No. SM208430	
Beneficiary: Travelers Indemnity Company
Amount: US $3,994,681.00
 
2.	Wachovia Letter of Credit No. SM207678	
Beneficiary: AIG Global Trade & Political Risk Insurance Co.
Amount: US $5,831,454.30
 
3.	Wachovia Letter of Credit No. SM419119	
Beneficiary: Pacific Employers Insurance Company
Amount: US $4,485,547.00
 
4.	Wachovia Letter of Credit No. SM417961	
Beneficiary: Westchester Surplus Lines Insurance
Amount: US $452,148.40
 
5.	Wachovia Letter of Credit No. SM417966	
Beneficiary: Illinois Union Insurance Company
Amount: US $1,333,050.77
 
6.	Wachovia Letter of Credit No. SM421751	
Beneficiary: North Carolina Commissioner of Insurance
Amount: US $25,000,000.00
 
7.	Wachovia Letter of Credit No. SM206354	
Beneficiary: Century Indemnity Insurance Company
Amount: US $6,000.00
 
8.	Wachovia Letter of Credit No. SM206355	
Beneficiary: Westchester Surplus Lines Insurance Company
Amount: US $670,000.00
 
9.	Wachovia Letter of Credit No. SM206643	
Beneficiary: Travelers Casualty & Surety Insurance Co. of America
Amount: US $5,727,949.40
 
10.	Wachovia Letter of Credit No. SM419121	
Beneficiary: Protective Life Insurance Company
Amount: US $22,000,000.00

11.	Wachovia Letter of Credit No. SM419645	
Beneficiary: Royal Trust Corp of Canada in Trust for Provident Life & Accident
Amount: CAD 1,963,500
 
12.	Wachovia Letter of Credit No. SM419579	
Beneficiary: Hartford Steam Boiler
Amount: US $2,199,452.00
 
13.	Wachovia Letter of Credit No. SM421261	
Beneficiary: American Int’l Life Assurance Co. of America
Amount: US $7,000,733.00
 
14.	Wachovia Letter of Credit No. SM418289	
Beneficiary: Reliastar Life Insurance Company
Amount: US $9,582,548.00
 
15.	Wachovia Letter of Credit No. SM421259	
Beneficiary: AIG Life
Amount: US $21,452,166.00
 
16.	Wachovia Letter of Credit No. SM417967	
Beneficiary: ACE Guaranty
Amount: US $19,700,000.00
 
17.	Wachovia Letter of Credit No. SM419487	
Beneficiary: Reliastar Life Insurance Company
Amount: US $39,405,795.00
 
18.	Wachovia Letter of Credit No. SM200611	
Beneficiary: State Compensation Insurance Fund
Amount: US $61,220,438.00
 
19.	Wachovia Letter of Credit No. SM202228	
Beneficiary: AIG Global Trade & Political
Amount: US $1,430,200.00
 
20.	Wachovia Letter of Credit No. SM201521	
Beneficiary: ACE Property Casualty Insurance
Amount: US $301,000.00
 
21.	Wachovia Letter of Credit No. SM201520	
Beneficiary: Illinois Union Insurance Company
Amount: US $382,000.00
 
2

22.	Wachovia Letter of Credit No. SM201522	
Beneficiary: ACE Property Casualty Insurance Company
Amount: US $2,900,000.00
 
23.	Wachovia Letter of Credit No. SM201523	
Beneficiary: ACE Property Casualty Insurance Company
Amount: US $21,900,000.00
 
24.	Wachovia Letter of Credit No. SM204791	
Beneficiary: Pacific Employers Insurance Company
Amount: US $5,540,178.00
 
25.	Wachovia Letter of Credit No. SM422302	
Beneficiary: Liberty International Insurance Ltd.
Amount: HKD 42,500,000.00
 
26.	Wachovia Letter of Credit No. SM200454	
Beneficiary: Pacific Employers Insurance Company
Amount: US $1,636,220.00
 
27.	Wachovia Letter of Credit No. SM205298	
Beneficiary: Illinois Union Insurance Company
Amount: US $1,000,000.00
 
28.	Wachovia Letter of Credit No. SM205299	
Beneficiary: ACE American Insurance Company
Amount: US $1,308,447.00
 
29.	Wachovia Letter of Credit No. SM205102	
Beneficiary: Pacific Employers Insurance Company
Amount: US $2,492,563.00
 
30.	Wachovia Letter of Credit No. SM202814	
Beneficiary: Pacific Employers Insurance Company
Amount: US $5,500,000.00
 
31.	Wachovia Letter of Credit No. SM201338	
Beneficiary: ACE USA Companies
Amount: US $677,618.68
 
32.	Wachovia Letter of Credit No. SM202203	
Beneficiary: Zuellig Insurance Management Ltd.
Amount: HKD 42,500,000.00
 
3

33.	Wachovia Letter of Credit No. SM422299	
Beneficiary: Pacific Employers Insurance Company
Amount: US $3,000,000.00
 
34.	Wachovia Letter of Credit No. SM208401	
Beneficiary: ACE American Insurance Company
Amount: US $808,363.00
 
35.	Wachovia Letter of Credit No. SM209675	
Beneficiary: ACE American Insurance Company
Amount: US $64,345.95
 
36.	Wachovia Letter of Credit No. SM205103	
Beneficiary: The Manufacturers Life Insurance Co. of NY
Amount: US $2,000,000.00
 
37.	Wachovia Letter of Credit No. SM201398	
Beneficiary: Nationwide Financial Services (Bermuda) Ltd.
Amount: US $280,000.00
 
38.	Wachovia Letter of Credit No. SM201345	
Beneficiary: Censeco Variable Insurance Company
Amount: US $500,000.00
 
39.	Wachovia Letter of Credit No. SM201342	
Beneficiary: Jackson National Life Insurance Company
Amount: US $2,200,000.00
 
40.	Wachovia Letter of Credit No. SM201646	
Beneficiary: Allmerica Financial Life and Annuity Company
Amount: US $20,475,000.00
 
41.	Wachovia Letter of Credit No. SM206968	
Beneficiary: Delaware American Life Insurance Company
Amount: US $185,036.00
 
42.	Wachovia Letter of Credit No. SM206191	
Beneficiary: Merrill Lynch Life Insurance Co.
Amount: US $1,250,000.00
 
43.	Wachovia Letter of Credit No. SM206638	
Beneficiary: Equitable Life Assurance Society of the US
Amount: US $16,000,000.00
 
4

44.	Wachovia Letter of Credit No. SM203217	
Beneficiary: Manufacturers Life Insurance Company
Amount: US $18,500,000.00
 
45.	Barclays Letter of Credit No. LOC 02127	
Beneficiary: CitiBank NA as trustees of Syndicate 2488 SLTF
Amount: US $100,371,105
 
46.	Barclays Letter of Credit No. LOC 03088	
Beneficiary: CitiBank NA as trustees of Syndicate 2488 SLTF
Amount: US $44,031,933
 
47.	Barclays Letter of Credit No. LOC 04039	
Beneficiary: CitiBank NA as trustees of Syndicate 2488 CRTF
Amount: US $38,712,756
 
48.	Barclays Letter of Credit No. LOC 04040	
Beneficiary: CitiBank NA as trustees of Syndicate 2488 SLTF
Amount: US $16,884,800
 
49.	CitiBank Letter of Credit No. 0159208	
Beneficiary: HOME INSURANCE COMPANY, INC.
Amount: US $172,088.69
 
50.	CitiBank Letter of Credit No. 0159209	
Beneficiary: WESTCHESTER FIRE INSURANCE
Amount: US $148,033.40
 
51.	CitiBank Letter of Credit No. 0159223	
Beneficiary: TIG INSURANCE COMPANY
Amount: US $149,056.70
 
52.	CitiBank Letter of Credit No. 0159415	
Beneficiary: CHURCH INSURANCE COMPANY
Amount: US $8,120.19
 
53.	CitiBank Letter of Credit No. 0159588	
Beneficiary: FACTORY MUTUAL INSURANCE COMPANY
Amount: US $292,614.03
 
54.	CitiBank Letter of Credit No. 0159737	
Beneficiary: AMERICAN AGRICULTURAL INSURANCE
Amount: US $4,132.50
 
5

55.	CitiBank Letter of Credit No. 0159895	
Beneficiary: UNITED STATES FIRE
Amount: US $869,265.45
 
56.	CitiBank Letter of Credit No. 0159898	
Beneficiary: CHUBB AND SON INC FOR AND ON
Amount: US $229,884.20
 
57.	CitiBank Letter of Credit No. 0159912	
Beneficiary: ST PAUL FIRE AND MARINE
Amount: US $1,873,170.67
 
58.	CitiBank Letter of Credit No. 0159939	
Beneficiary: NEW YORK CENTRAL MUTUAL FIRE
Amount: US $11,019.58
 
59.	CitiBank Letter of Credit No. 0159973	
Beneficiary: FIRE INSURANCE EXCHANGE
Amount: US $5,630,749.68
 
60.	CitiBank Letter of Credit No. 0160008	
Beneficiary: ROYAL INDEMNITY COMPANY
Amount: US $2,531,800.00
 
61.	CitiBank Letter of Credit No. 0160263	
Beneficiary: CAMERON MUTUAL INSURANCE COMPANY
Amount: US $86,487.56
 
62.	CitiBank Letter of Credit No. 0160264	
Beneficiary: AAA MICHIGAN
Amount: US $1,500.00
 
63.	CitiBank Letter of Credit No. 0160303	
Beneficiary: HSB INDUSTRIAL RISK INSURERS
Amount: US $10,395,669.83
 
64.	CitiBank Letter of Credit No. 0160305	
Beneficiary: SOUTHERN FARM BUREAU PROPERTY
Amount: US $14,965.56
 
65.	CitiBank Letter of Credit No. 0160306	
Beneficiary: SHELTER MUTUAL INSURANCE COMPANY
Amount: US $675,830.44
 
6

66.	CitiBank Letter of Credit No. 0160308	
Beneficiary: COTTON STATES MUTUAL INSURANCE
Amount: US $10,560,479.04
 
67.	CitiBank Letter of Credit No. 0160309	
Beneficiary: AMERICAN FAMILY MUTUAL INSURANCE
Amount: US $324,701.30
 
68.	CitiBank Letter of Credit No. 0160311	
Beneficiary: UNION MUTUAL FIRE INSURANCE
Amount: US $342,996.93
 
69.	CitiBank Letter of Credit No. 0160312	
Beneficiary: GRE INSURANCE GROUP
Amount: US $837.50
 
70.	CitiBank Letter of Credit No. 0160313	
Beneficiary: SOUTH CAROLINA FARM BUREAU
Amount: US $2,850.00
 
71.	CitiBank Letter of Credit No. 0160314	
Beneficiary: GENERAL REINSURANCE CORPORATION
Amount: US $91,456.59
 
72.	CitiBank Letter of Credit No. 0160316	
Beneficiary: ASSOCIATED INTERNATIONAL INSURANCE
Amount: US $1,019,337.02
 
73.	CitiBank Letter of Credit No. 0160327	
Beneficiary: SOUTHERN GUARANTY
Amount: US $1,424,225.61
 
74.	CitiBank Letter of Credit No. 0160362	
Beneficiary: FARM BUREAU MUTUAL INSURANCE
Amount: US $3,420.00
 
75.	CitiBank Letter of Credit No. 0162400	
Beneficiary: ONE BEACON INSURANCE GROUP
Amount: US $694,925.46
 
76.	CitiBank Letter of Credit No. 0601120	
Beneficiary: AUSTIN MUTUAL INSURANCE COMPANY
Amount: US $2,932.64
 
7

77.	CitiBank Letter of Credit No. 0601121	
Beneficiary: FOLKSAMERICA REINSURANCE COMPANY
Amount: US $69,815.15
 
78.	CitiBank Letter of Credit No. 0601125	
Beneficiary: INSURANCE COMPANY OF THE WEST
Amount: US $44,596.07
 
79.	CitiBank Letter of Credit No. 0601126	
Beneficiary: ZEPHYR INSURANCE COMPANY
Amount: US $952,836.10
 
80.	CitiBank Letter of Credit No. 0601193	
Beneficiary: CITIZENS INSURANCE CO OF AMERICA
Amount: US $290,984.54
 
81.	CitiBank Letter of Credit No. 0601194	
Beneficiary: THE HANOVER INSURANCE COMPANY
Amount: US $766,253.75
 
82.	CitiBank Letter of Credit No. 0601197	
Beneficiary: AMERICAN AGRICULTURAL INS CO
Amount: US $131,993.00
 
83.	CitiBank Letter of Credit No. 0601235	
Beneficiary: ONYX INSURANCE GROUP
Amount: US $100,400.62
 
84.	CitiBank Letter of Credit No. 0601398	
Beneficiary: PUBLIC SERVICE MUTUAL INSURANCE
Amount: US $10,932.50
 
85.	CitiBank Letter of Credit No. 0601399	
Beneficiary: HARTFORD FIRE INSURANCE COMPANY
Amount: US $354,090.67
 
86.	CitiBank Letter of Credit No. 0601400	
Beneficiary: REPUBLIC UNDERWRITERS INSURANCE
Amount: US $17,217.20
 
87.	CitiBank Letter of Credit No. 0601402	
Beneficiary: HASTINGS MUTUAL INSURANCE COMPANY
Amount: US $2,900.00
 
8

88.	CitiBank Letter of Credit No. 0601403	
Beneficiary: ZURICH US
Amount: US $750,000.00
 
89.	CitiBank Letter of Credit No. 0601455	
Beneficiary: CAPACITY INSURANCE COMPANY
Amount: US $17,690.25
 
90.	CitiBank Letter of Credit No. 0601456	
Beneficiary: SOMPO JAPAN INSURANCE COMPANY
Amount: US $18,451.36
 
91.	CitiBank Letter of Credit No. 0601457	
Beneficiary: METROPOLITAN PROPERTY CASUALTY
Amount: US $63,241.56
 
92.	CitiBank Letter of Credit No. 0601458	
Beneficiary: INDUSTRIAL RISK INSURERS (97)
Amount: US $2,500,000.00
 
93.	CitiBank Letter of Credit No. 0601459	
Beneficiary: MISSISSIPPI FARM BUREAU MUTUAL I
Amount: US $10,968.21
 
94.	CitiBank Letter of Credit No. 0601460	
Beneficiary: GRANGE MUTUAL INSURANCE
Amount: US $105,325.30
 
95.	CitiBank Letter of Credit No. 0601461	
Beneficiary: EMPLOYERS MUTUAL CASUALTY COMPANY
Amount: US $27,221.41
 
96.	CitiBank Letter of Credit No. 0601462	
Beneficiary: HARLEYSVILLE INSURANCE COMPANIES
Amount: US $25,482.65
 
97.	CitiBank Letter of Credit No. 0601465	
Beneficiary: DONEGAL MUTUAL INSURANCE COMPANY
Amount: US $14,950.00
 
98.	CitiBank Letter of Credit No. 0601489	
Beneficiary: NEW AMERICA
Amount: US $227,475.00
 
9

99.	CitiBank Letter of Credit No. 0601527	
Beneficiary: FARMERS HOME MUTUAL INSURANCE CO
Amount: US $1,336.86
 
100.	CitiBank Letter of Credit No. 0601545	
Beneficiary: PACIFIC SPECIALTY INSURANCE CO
Amount: US $271,534.94
 
101.	CitiBank Letter of Credit No. 0601551	
Beneficiary: AMERICAN AGRICULTURAL INS CO
Amount: US $1,360,538.44
 
102.	CitiBank Letter of Credit No. 0601552	
Beneficiary: UPLAND MUTUAL INSURANCE INC
Amount: US $89,132.38
 
103.	CitiBank Letter of Credit No. 0601558	
Beneficiary: MUTUAL OF ENUMCLAW INSURANCE CO
Amount: US $112,500.00
 
104.	CitiBank Letter of Credit No. 0601605	
Beneficiary: HARBOR SPECIALTY INSURANCE CO
Amount: US $32,477.28
 
105.	CitiBank Letter of Credit No. 0601606	
Beneficiary: CLARENDON AMERICA INSURANCE CO
Amount: US $74,600.61
 
106.	CitiBank Letter of Credit No. 0601607	
Beneficiary: CLARENDON SELECT INSURANCE COMPANY
Amount: US $74,160.05
 
107.	CitiBank Letter of Credit No. 0601608	
Beneficiary: ACE PROPERTY CASUALTY INSURANCE
Amount: US $670,362.06
 
108.	CitiBank Letter of Credit No. 0601609	
Beneficiary: EMPIRE FIRE AND MARINE INS CO
Amount: US $159,940.04
 
109.	CitiBank Letter of Credit No. 0601630	
Beneficiary: AMERICAN GROWERS INSURANCE COMPANY
Amount: US $58,414.88
 
10

110.	CitiBank Letter of Credit No. 0601669	
Beneficiary: CLARENDON NATIONAL INSURANCE CO.
Amount: US $199,689.95
 
111.	CitiBank Letter of Credit No. 0601670	
Beneficiary: ACE AMERICAN INSURANCE COMPANY
Amount: US $44,852.60
 
112.	CitiBank Letter of Credit No. 0601677	
Beneficiary: CONTINENTAL CASUALTY COMPANY
Amount: US $100,000.00
 
113.	CitiBank Letter of Credit No. 0601683	
Beneficiary: EMPIRE FIRE AND MARINE INS CO
Amount: US $28,181.75
 
114.	CitiBank Letter of Credit No. 0601684	
Beneficiary: GENERAL REINSURANCE CORPORATION
Amount: US $118,807.43
 
115.	CitiBank Letter of Credit No. 0601708	
Beneficiary: CINCINNATI INSURANCE COMPANY
Amount: US $422.26
 
116.	CitiBank Letter of Credit No. 0601718	
Beneficiary: AUDUBON INSURANCE COMPANY
Amount: US $6,325.72
 
117.	CitiBank Letter of Credit No. 0601720	
Beneficiary: BRETHREN MUTUAL INSURANCE
Amount: US $1,533,452.12
 
118.	CitiBank Letter of Credit No. 0601805	
Beneficiary: HIGH POINT PREFERRED INSURANCE C
Amount: US $182,296.88
 
119.	CitiBank Letter of Credit No. 0601806	
Beneficiary: PHILADELPHIA INSURANCE COMPANY
Amount: US $194,310.43
 
120.	CitiBank Letter of Credit No. 0601807	
Beneficiary: STATE AUTOMOBILE MUTUAL INS. CO.
Amount: US $640,188.49
 
11

121.	CitiBank Letter of Credit No. 0601808	
Beneficiary: NC GRANGE MUTUAL INSURANCE
Amount: US $225,626.54
 
122.	CitiBank Letter of Credit No. 0601809	
Beneficiary: CENTRAL MUTUAL INSURANCE COMPANY
Amount: US $18,456.04
 
123.	CitiBank Letter of Credit No. 0601810	
Beneficiary: NATIONAL GRANGE MUTUAL INS. CO.
Amount: US $135,804.77
 
124.	CitiBank Letter of Credit No. 0601829	
Beneficiary: ARMED FORCES INSURANCE EXCHANGE
Amount: US $203,361.47
 
125.	CitiBank Letter of Credit No. 0601866	
Beneficiary: STATE FARM FIRE CASUALTY CO
Amount: US $303,935.38
 
126.	CitiBank Letter of Credit No. 0601873	
Beneficiary: LOUISIANA JOINT REINSURANCE
Amount: US $434,764.15
 
127.	CitiBank Letter of Credit No. 0601874	
Beneficiary: ACE PROPERTY CASUALTY INSURANCE
Amount: US $43,894.69
 
128.	CitiBank Letter of Credit No. 0601901	
Beneficiary: CALIFORNIA CASUALTY GROUP
Amount: US $279,062.00
 
129.	CitiBank Letter of Credit No. 0601903	
Beneficiary: PIEDMONT MUTUAL
Amount: US $50,000.00
 
130.	CitiBank Letter of Credit No. 0601904	
Beneficiary: EDGECOMBE FARMERS MUTUAL
Amount: US $7,500.00
 
131.	CitiBank Letter of Credit No. 0601907	
Beneficiary: ARCH SPECIALTY INSURANCE COMPANY
Amount: US $107,170.00
 
12

132.	CitiBank Letter of Credit No. 601464	
Beneficiary: LA SOCIETE DE PORTEFEUILLE
Amount: CAD $350,694.37
 
133.	CitiBank Letter of Credit No. 81932	
Beneficiary: ACE INSURANCE LTD
Amount: HKD $39,000,000.00
 
13

SCHEDULE 4.01(B)
 
SUBSIDIARIES

Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
ACE Limited	  	Cayman Islands	  	Publicly held	  	Bermuda, holding company	
				
ACE Bermuda Insurance Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance, reinsurance, general and long term; Mexico, reinsurance	
				
ACE PCC Insurance Limited	  	Guernsey	  	100%	  	Guernsey, protected cell rent-a-captive business	
				
Paget Reinsurance International Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance/reinsurance	
				
ACE Capital Title Reinsurance Company (EI# 06-1434264, NAIC# 50028, NY)	  	New York	  	100%	  	CA, MI, NY, TX, title insurance/reinsurance	
				
Oasis Investments Limited	  	Bermuda	  	67%	  	Bermuda, Investment Holding	
				
Oasis Investments 2 Ltd.	  	Bermuda	  	67%	  	Bermuda, holding company	
				
ACE Financial Solutions International, Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance management	
				
ACE European Markets Reinsurance Limited	  	Ireland	  	100%	  	Ireland, general and life reinsurance	
				
ACE European Markets Insurance Limited	  	Ireland	  	100%	  	EEA/Europe, direct non-life insurance, UK branch	
				
Corporate Officers & Directors Assurance Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance	
				
Oasis Real Estate Company Ltd.	  	Bermuda	  	100%	  	Bermuda, investment holding	
				
Scarborough Property Holdings Ltd.	  	Bermuda	  	40%	  	Bermuda, investment holding	
				
Sovereign Risk Insurance Limited	  	Bermuda	  	50%	  	Bermuda, insurance agent	
				
Tripar Partnership	  	Bermuda	  	98%
2% (CODA)	  	Bermuda, investment holding	
				
ACE Realty Holdings Limited	  	Bermuda	  	100%	  	Bermuda, investment holding	

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
Oasis Personnel Limited	  	Cayman Islands	  	100%	  	Cayman Islands, general services	
				
Shipowners Insurance and Guaranty Co. Limited	  	Bermuda	  	10% Series A
8% Series B	  	Bermuda, insurance	
				
Intrepid Re Holdings Limited	  	Bermuda	  	38.5%	  	Bermuda, holding	
				
Intrepid Re Limited	  	Bermuda	  	100%	  	Bermuda, Reinsurance	
				
Freisenbruch-Meyer Insurance Ltd.	  	Bermuda	  	40%	  	Bermuda, local and commercial insurance	
				
Freisenbruch-Meyer Insurance Services Ltd.	  	Bermuda	  	40%	  	Bermuda, local and commercial insurance	
				
Assured Guaranty Ltd.
(formerly AGC Holdings Limited)	  	Bermuda	  	35% (remaining 65% is publicly held)	  	Bermuda, holding company	
				
Assured Guaranty Re International Ltd. (formerly ACE Capital Re International Ltd.)	  	Bermuda	  	100%	  	Bermuda, insurance/reinsurance, general and long term	
				
Assured Guaranty Barbados Holdings Ltd. (formerly ACE KRE Holdings Limited)	  	Barbados	  	100%	  	Barbados, investment holding	
				
Assured Guaranty Overseas US Holdings Inc. (formerly ACE Capital Re USA Holdings Incorporated)	  	Delaware	  	100%	  	Delaware, investment holding	
				
Assured Guaranty Re Overseas Ltd. (formerly ACE Capital Re Overseas Ltd.)	  	Bermuda	  	100%	  	Bermuda, insurance/reinsurance, general and long term	
				
Assured Guaranty Mortgage Insurance Company (formerly ACE Capital Mortgage Reinsurance Co.)
(EI# 06-1384770, NAIC# 10021, NY)	  	New York	  	100%	  	New York, DC, mtg. guaranty insurance/reinsurance	
				
AG Intermediary Inc.
(formerly ACE Capital Re Inc.)	  	New York	  	100%	  	New York, reinsurance intermediary	
				
Assured Guaranty Finance Overseas Ltd. (formerly ACE Finance Overseas Limited)	  	United Kingdom	  	100%	  	 	
				
Assured Guaranty US Holdings Inc.	  	Delaware	  	100%	  	Delaware, holding company	
				
AG Financial Products Inc.
(formerly AGR Financial Products Inc.)	  	USA (Delaware)	  	100%	  	Delaware, financial products	
				
Assured Guaranty Corp. (formerly ACE Guaranty Corp.) (EI#52 - 1533088, NAIC #30180, MD)	  	Maryland	  	100%	  	US, insurance company	
 
15

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
Assured Guaranty (UK) Ltd.
(formerly ACE Guaranty (UK) Ltd.)	  	United Kingdom	  	100%	  	UK, applying for license to be financial guaranty insurer	
				
ACE Risk Assurance Company
(EI# 13-4027591, NAIC #10943, MD)	  	Maryland	  	100%	  	Maryland, reinsurance	
				
ACE Global Markets Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE Group Holdings Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE Tarquin	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE Capital V Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s corporate member; capital provider	
				
ACE Leadenhall Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE Underwriting Agencies Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s managing agency	
				
ACE Trustees Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE London Group Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE Capital Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s corporate member	
				
ACE Capital III Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s corporate member	
				
ACE Capital IV Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s corporate member; capital provider	
				
ACE London Holdings Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE Capital II Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s corporate member	
				
ACE London Investments Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE London Aviation Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s managing agent	
				
ACE London Underwriting Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s managing agent	
				
ACE Underwriting Services Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s service company	
				
AGM Underwriting Limited	  	United Kingdom	  	100%	  	UK, dormant	
				
ACE London Services Limited	  	United Kingdom	  	100%	  	UK, service company	
				
ACE Capital VI Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s corporate member	
				
ACE UK Limited	  	United Kingdom	  	77%	  	UK, investment holding	
 
16

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business

ACE UK Holdings Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE (MI) Limited	  	United Kingdom	  	100%	  	UK, dormant	
				
ACE (MS) Limited	  	United Kingdom	  	100%	  	UK, dormant	
				
ACE UK Underwriting Limited	  	United Kingdom	  	100%	  	Lloyd’s managing agent	
ACE (PM) Limited	  	United Kingdom	  	100%	  	UK, investment holding	
				
ACE UK Limited	  	United Kingdom	  	23%	  	UK, investment holding	
				
ACE Services Limited	  	Cayman Islands	  	100%	  	Cayman Islands, general services	
				
ACE Holdings (Gibraltar) Limited	  	Gibraltar	  	100%	  	Gilbraltar, Bermuda permit, investment holding	
				
ACE Gibraltar Limited	  	Gibraltar	  	51%	  	Gilbraltar, insurance intermediary	
				
ACE-ii Limited	  	United Kingdom	  	100%	  	dormant, to become internet company	
				
ACE-ii (Gibraltar) Limited	  	Gibraltar	  	100%	  	dormant,	
				
ACE Underwriting Services (Gibraltar) Limited	  	Gibraltar	  	100%	  	dormant,	
				
Arles Services Limited	  	Gibraltar	  	100%	  	dormant,	
				
CGA Group Limited	  	Bermuda	  	18.20%	  	Bermuda investment holding	
				
CGA Investment Management, Inc.	  	USA (Delaware)	  	100%	  	USA, investment	
				
Commercial Guaranty Assurance Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance	
				
Oasis Insurance Services Ltd.	  	Bermuda	  	100%	  	Bermuda, general services	
				
ACE Tempest Life Reinsurance Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance, reinsurance, general and long term (life, health, annuities)	
				
ACE Tempest Reinsurance Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance/reinsurance, long term; Puerto Rico, reinsurance	
				
Oasis Investments Limited	  	Bermuda	  	33%	  	Bermuda, investment holding	
				
Oasis Investments 2 Ltd.	  	Bermuda	  	33%	  	Bermuda, holding company	
				
St. George Holdings Ltd	  	Cayman Islands	  	10.71%	  	Cayman Islands, investment holding	
 
17

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business

St. George Investments Ltd.	  	Cayman Islands	  	100%	  	Cayman Islands, investment holding	
				
ACE INA Holdings Inc.	  	USA (Delaware)	  	20%	  	USA, investment holding	
				
ACE Prime Holdings Inc.	  	USA (Delaware)	  	100%	  	USA, investment holding	
				
ACE INA Holdings Inc.	  	USA (Delaware)	  	80%	  	USA, investment holding	
				
ACE Seguros S.A.	  	Argentina	  	99.35%	  	Argentina, Insurance	
				
Huatai Insurance Company of China, Limited	  	China	  	6.129%
10% (ACE Tempest Reinsurance Ltd.)
6% (ACE US Holdings, Inc.)	  	China, property and casualty insurer	
				
ACE Seguradora S.A.	  	Brazil	  	99.9%
0.1% (ACE Prime Holdings Inc.)	  	Brazil, insurance	
				
Servicios ACE INA S.A. de C.V.	  	Mexico	  	99.99%
.00002% (ACE Prime Holdings Inc.)	  	Mexico, service company	
				
ACE Tempest Re USA, Inc.	  	USA (Connecticut)	  	100%	  	CT, NJ, NY, OH, PA, SC, TX, reinsurance intermediary manager	
				
INA Corporation	  	USA (Pennsylvania)	  	100%	  	USA, investment holding company	
				
ACE INA Properties, Inc.	  	USA (Delaware)	  	100%	  	USA, holding company	
				
Conference Facilities, Inc.	  	USA (Pennsylvania)	  	100%	  	USA, owns & operates corporate facilities	
				
INA Tax Benefits Reporting, Inc.	  	USA (Delaware)	  	100%	  	USA, tax info & 3 rd party reporting	
				
INA Financial Corporation	  	USA (Delaware)	  	100%	  	USA, investment holding	
				
Brandywine Holdings Corporation	  	USA (Delaware)	  	100%	  	USA, holding company	
 
18

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business

Brandywine Run-Off Services, Inc.	  	USA (Delaware)	  	100%	  	USA, management company for 1792	
				
Assurex Development Corporation	  	USA (Ohio)	  	11.011%	  	USA, provides loans to insurance agents	
				
Cravens, Dargan & Company, Pacific Coast	  	USA (Delaware)	  	100%	  	USA, managing general agency	
				
Cravens, Dargan & Company, Pacific Coast of Illinois, Inc.	  	USA (Illinois)	  	100%	  	USA, managing general agency	
				
Century Indemnity Company
(EI# 05-6105395, NAIC #20710, PA)	  	USA (Pennsylvania)	  	100%	  	USA, insurance	
Century Reinsurance Company
(EI# 06-0988117, NAIC #35130, PA)	  	USA (Pennsylvania)	  	100%	  	USA, reinsurance	
ACE American Reinsurance Company
(EI# 23-1740414, NAIC#22705, PA)	  	USA (Pennsylvania)	  	100%	  	USA, reinsurance	
				
Brandywine Reinsurance Company S.A.-N.V.	  	Belgium	  	100%	  	Belgium, reinsurance	
				
The 1792 Company	  	USA (Delaware)	  	100%	  	USA, (former underwriting member of New York Insurance Exchange)	
				
Century International Reinsurance Company Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance & reinsurance	
INA Holdings Corporation	  	USA (Delaware)	  	100%	  	USA, holding company	
				
INATrust, fsb	  	Chartered by Office of Thrift Supervision	  	100%	  	USA, savings bank	
				
INA Reinsurance Company, Ltd.	  	Bermuda	  	100%	  	Bermuda, reinsurance	
				
ACE INA Financial Institution Solutions, Inc.	  	USA (Delaware)	  	100%	  	USA, floodplain determination &
other services to financial institutions	
				
American Lenders Facilities, Inc.	  	USA (California)	  	100%	  	USA, collection & loan servicing for third parties	
				
ESIS, Inc.	  	USA (Pennsylvania)	  	100%	  	USA, markets risk management
Programs	
 
19

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
NewMarkets Insurance Agency, Inc.	  	USA (Delaware)	  	100%	  	USA, managing general agency	
				
ACE INA Excess and Surplus Insurance Services, Inc.	  	USA (Georgia)	  	100%	  	USA, excess & surplus lines broker	
				
ACE INA Excess and Surplus Insurance Services, Inc.	  	USA (Pennsylvania)	  	100%	  	USA, excess & surplus lines broker	
				
ACE INA Excess and Surplus Insurance Services, Inc.	  	USA (California)	  	100%	  	USA, excess & surplus lines broker	
				
ACE INA Excess and Surplus Insurance Services, Inc.	  	USA (Illinois)	  	100%	  	USA, excess & surplus lines broker	
				
Excess and Surplus Insurance Services, Inc.	  	USA (Texas)	  	100%	  	USA, managing general agency	
				
ACE Financial Solutions, Inc.	  	USA (Delaware)	  	100%	  	USA, premium finance company	
				
Oasis US Inc.	  	USA (Delaware)	  	100%	  	USA, general services	
				
ACE Risk Solutions, Inc.	  	USA (NewYork)	  	100%	  	USA, reinsurance intermediary	
				
Indemnity Insurance Company of North America (EI# 06-1016108, NAIC #43575, PA)	  	USA (Pennsylvania)	  	100%	  	USA, Puerto Rico, USVI, insurance	
				
ACE Indemnity Insurance Company (EI#92-0040526, NAIC #10030, PA)	  	USA (Pennsylvania)	  	100%	  	USA, insurance	
				
Allied Insurance Company (EI# 23-2021364, NAIC #36528, CA)	  	USA (California)	  	100%	  	USA, insurance	
				
ACE American Insurance Company (EI#95-2371728, NAIC# 22667, PA)	  	USA (Pennsylvania)	  	100%	  	USA, Korea, Puerto Rico USVI,
Guam, Bermuda permit,
Taiwan (life), insurance	
				
Pacific Employers Insurance Company (EI#95-1077060, NAIC# 22748, PA)	  	USA (Pennsylvania)	  	100%	  	USA, USVI, insurance	
				
ACE Insurance Company of Texas (EI# 74-1480965, NAIC #22721, 22920, TX)	  	USA (Texas)	  	100%	  	USA, insurance	
 
20

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
Illinois Union Insurance Company (EI# 36-2759195, NAIC #27960, IL)	  	USA (Illinois)	  	100%	  	USA, surplus lines insurer	
				
Rain and Hail Insurance Service Incorporated	  	USA (Iowa)	  	20%	  	 	
				
INAMAR Insurance Underwriting Agency, Inc.	  	USA (New Jersey)	  	100%	  	USA, insurance agency	
				
INAMAR Insurance Underwriting Agency, Inc. of Massachusetts	  	USA (Massachusetts)	  	100%	  	USA, general agency	
				
INAMAR Insurance Underwriting Agency, Inc. of Texas	  	USA (Texas)	  	100%	  	USA, general agency	
				
INAMAR Insurance Underwriting Agency, Inc. of Ohio	  	USA (Ohio)	  	100%	  	USA, general agency	
				
Insurance Company of North America (EI# 23-0723970, NAIC #22713, PA)	  	USA (Pennsylvania)	  	100%	  	USA, Guam, Northern Mariana
Islands, Philippines, Puerto Rico,
Taiwan (p/c), insurance	
				
Bankers Standard Insurance Company (EI# 75-1320184, NAIC #18279, PA)	  	USA (Pennsylvania)	  	100%	  	USA, insurance	
				
Bankers Standard Fire and Marine Company (EI#75-6014863, NAIC #20591, PA)	  	USA (Pennsylvania)	  	100%	  	USA, insurance	
				
ACE Property and Casualty Insurance Company (EI# 06-0237820, NAIC, #20699, PA)	  	USA (Pennsylvania)	  	100%	  	USA, Puerto Rico, insurance	
				
ACE Employers Insurance Company (EI# 23-2137343, NAIC #38741, PA)	  	USA (Pennsylvania)	  	100%	  	USA, insurance	
				
ACE Insurance Company of Ohio (EI#23-1859893, NAIC #22764, OH)	  	USA (Ohio)	  	100%	  	USA, insurance	
				
INA Surplus Insurance Company (EI# 52-1208598, NAIC #42072, PA)	  	USA (Pennsylvania)	  	100%	  	USA, reinsurance	
				
ACE Fire Underwriters Insurance Company (EI# 06-6032187, NAIC #20702, PA)	  	USA (Pennsylvania)	  	100%	  	USA, insurance	
 
21

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
Atlantic Employers Insurance Company (EI# 23-2173820, NAIC #38938, NJ)	  	USA (New Jersey)	  	100%	  	USA, insurance	
				
Cover-All Technologies, Inc.	  	USA (Delaware)	  	7.41%	  	USA, develop software products for insurance industry	
				
ALIC, Incorporated	  	USA (Texas)	  	100%	  	USA, general agency &
attorney-in-fact for ACE Lloyds	
				
ACE American Lloyds Insurance Company (Sponsored Lloyds Association) (EI# 75-1365570, NAIC #18511, TX)	  	USA (Texas)	  	100%	  	USA, Lloyds Association	
				
ACE Insurance Company of Illinois (EI# 36-2709121, NAIC #22691, IL)	  	USA (Illinois)	  	100%	  	USA, insurance	
				
ACE Insurance Company of the Midwest (EI# 06-0884361, NAIC #26417, IN)	  	USA (Indiana)	  	100%	  	USA, insurance	
				
ATR USA, LLC	  	USA (Connecticut)	  	100%	  	USA, reinsurance intermediary manager	
				
ACE Structured Products, Inc. (formerly INAPRO, Inc.)	  	USA (Delaware)	  	100%	  	USA, insurance management services & underwriting	
				
Recovery Services International, Inc.	  	USA (Delaware)	  	100%	  	USA, subrogation, collection &
recovery services	
				
RSI Health Care Recovery, Inc.	  	USA (Delaware)	  	100%	  	USA, subrogation, collection &
recovery services	
				
ACE INA International Holdings, Ltd.	  	USA (Delaware)	  	100%	  	USA, international insurance &
financial holding company	
				
ACE Insurance S.A.	  	Macau	  	99.94%	  	Macau, insurance	
				
ACE CIIC Holdings Limited	  	Cayman Islands	  	100%	  	Cayman Islands, holding company	
				
ACE CIIC Insurance Company Egypt S.A.E.	  	Egypt	  	51%	  	Egypt, insurance	
 
22

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business

ACE European Holdings Limited	  	United Kingdom	  	100%	  	United Kingdom, holding company	
				
ACE Life Insurance Company S.A.E.	  	Egypt	  	99%	  	Egypt, life insurance	
				
ACE Synergy Insurance Berhad	  	Malaysia	  	51%	  	Malaysia, insurance	
				
ACE Insurance S.A.-N.V.	  	Belgium	  	.0523%
99.9477% (ACE INA Overseas Holdings, Inc.)	  	Europe,
insurance/reinsurance	
				
ACE Seguros S.A.	  	Chile	  	78.104% (AIIH)
12.235% (AFIA Finance Corporation, Agencia en Chile)
9.095% - (AFIA Finance Corp. Chile Limitada)	  	Chile, insurance	
				
ACE Seguros S.A.	  	Colombia	  	99.958%	  	Colombia, insurance	
				
ACE Seguros S.A.	  	Ecuador	  	100%	  	Ecuador, insurance	
				
ACE Seguros S.A.	  	Mexico	  	99.9%	  	Mexico, insurance/assumed reinsurance	
				
Brandywine Reinsurance Co. (UK) Ltd	  	United Kingdom	  	100%	  	UK, reinsurance	
				
ACE INA UK Limited	  	United Kingdom	  	100%	  	UK, Greece, insurance	
				
Eksupsiri Company Limited	  	Thailand	  	49%
50.99% (Nam Ek)	  	Thailand, holding company	
				
ACE Life Assurance Co. Ltd.	  	Thailand	  	75%
25% (Oriental)	  	Thailand, life insurance	
				
Nam Ek Company Limited	  	Thailand	  	49%	  	Thailand, holding company	
				
Chilena Consolidata Seguros Generales, S.A.	  	Chile	  	.65%	  	Chile, insurance	
				
ACE Insurance Limited	  	South Africa	  	100%	  	South Africa, insurance	
				
ACE Insurance Limited	  	New Zealand	  	100%	  	New Zealand, insurance/reinsurance	
				
ACE International Management Corporation	  	Pennsylvania	  	100%	  	Management Services	
				
Cover Direct, Inc.	  	USA (Delaware)	  	100%	  	Japan, direct marketing service
Company	
 
23

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business

Victoria Hall Company Limited	  	Bermuda	  	20%	  	Bermuda, investment holding	
				
ACE INA G.B. Holdings, Ltd	  	USA (Delaware)	  	100%	  	Delaware, UK, insurance holding	
				
ACE INA Services U.K. Limited	  	United Kingdom	  	100%	  	UK, computer services for affiliates	
				
INACAP Sociedad Anonima	  	Nicaragua	  	100%	  	Nicaragua, holding company	
				
INACAP Reaseguros, Sociedad Anonima	  	Nicaragua	  	100%	  	Nicaragua, reinsurance broker	
				
Century Inversiones, S.A.	  	Panama	  	100%	  	Panama, reinsurance administrator	
				
Arabia ACE Insurance Company Limited E.C.	  	Bahrain	  	25%	  	Saudi Arabia, insurance & reinsurance	
				
ACE Insurance Limited	  	Australia	  	100%	  	Australia, Pakistan, Thailand, Solomon Islands, Vanuatu, insurance & reinsurance	
				
ACE INA Superannuation Pty. Limited	  	Australia	  	100%	  	Australia, corporate trustee for ACE Australia superannuation plan	
				
ACE Insurance Limited	  	Pakistan	  	100%	  	Pakistan, insurance	
				
ACE INA Overseas Insurance Company Ltd.	  	Bermuda	  	100%	  	Bermuda, insurance/reinsurance, general and long term	
				
ACE Insurance Limited	  	Singapore	  	100%	  	Singapore, insurance	
				
ACE Insurance	  	Japan	  	100%	  	Japan, insurance/reinsurance	
				
ACE Songai Service Kabushikigaisha	  	Japan	  	100%	  	Japanese service company	
				
ACE INA Marketing Group C.A.	  	Venezuela	  	100%	  	Venezuela, services & direct marketing	
				
ACE INA Overseas Holdings, Inc.	  	USA (Delaware)	  	100%	  	Delaware, holding company	
				
INACAN Holdings, Ltd.	  	Canada	  	100%	  	Canada, insurance holding	
				
ACE INA Insurance	  	Canada	  	100%	  	Canada, insurance & reinsurance	
 
24

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	 	Jurisdictions in which
Authorized
and Type of Business

ACE INA Life Insurance	  	Canada	  	100%	 	Canada, life insurance	
				
ACE Insurance S.A.-N.V.	  	Belgium	  	99.9477%
.0523% (AIIH)	 	Europe, insurance/reinsurance	
				
ACE Insurance Company
(EI# 66-0437305, NAIC #30953, PR)	  	Puerto Rico	  	100%	 	Puerto Rico, insurance	
				
ACE Insurance Agency, Inc.	  	Puerto Rico	  	100%	 	Puerto Rico, general agent for ACE American Insurance Company	
				
ACE Insurance Limited	  	Hong Kong	  	100%	 	Hong Kong, insurance	
				
ACE Risk Management International Ltd. (formerly ACE INA Bermuda Insurance Managers Ltd.)	  	Bermuda	  	100%	 	Bermuda, management services for
non-affiliates	
				
DELPANAMA S.A.	  	Panama	  	100%	 	Panama, holding company	
				
INAMEX S.A.	  	Mexico	  	100%	 	Mexico, reinsurance broker	
				
Maritime General Ins. Company Ltd	  	Trinidad	  	8.06%	 	Trinidad insurance	
				
Oriental Equity Holdings Limited	  	British Virgin Islands	  	100%	 	BVI, holding company	
				
ACE Life Assurance Co. Ltd.	  	Thailand	  	25%
75% (Eksupsiri)	 	Thailand, life insurance	
				
AFIA Finance Corporation	  	USA (Delaware)	  	100%	 	Delaware, insurance holding	
				
AFIA Venezolana C.A.	  	Venezuela	  	100%	 	Venezuela, inactive claims & settling agent	
				
ACE ICNA Italy Societa a Responsabilita Limitata	  	Italy	  	99.7%
0.3% (AIIH)	 	Italy, legal representative for CIGNA Insurance Company of Europe, S.A.-N.V.	
				
Siam Liberty Company Limited	  	Thailand	  	49% (AFC)
45% (Nam EK)	 	Thailand, broker, surveyor & claims settling agency	
				
ACE Servicios, S.A.	  	Argentina	  	100%	 	Argentina, service company	
				
AFIA Finance Corp. Chile Limitada	  	Chile	  	98%
2% (AIIH)	 	Chile, claims & settling agent	
				
Fire, Equity and General Insurance Company Limited	  	Nigeria	  	6.25%	 	Nigeria, insurance	
				
Inversiones Continental S.A. de C.V.	  	Honduras	  	1.29%	 	Honduras, insurance holding	
 
25

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
PT. ACE INA Insurance	  	Indonesia	  	80%	  	Indonesia, insurance	
				
PT. Adi Citra Mandiri	  	Indonesia	  	45%	  	Indonesia, service company	
				
RIYAD Insurance Co. Ltd.	  	Bermuda	  	80%	  	Bermuda, insurance	
				
Safire Private Ltd.	  	Singapore	  	100%	  	Singapore, management & computer service bureau	
				
AFIA (INA) Corporation, Limited	  	USA (Delaware)	  	100%	  	Delaware, holding company	
				
AFIA	  	Unincorporated
Association	  	60%	  	Association for international insurance	
				
AFIA (ACE) Corporation, Limited	  	USA (Delaware)	  	100%	  	Delaware, holding company	
				
AFIA	  	Unincorporated
Association	  	40%	  	Association for international insurance	
				
Compania Anonima de Seguros “AVILA”	  	Venezuela	  	0.6%	  	Venezuela, insurance	
				
INAVEN, C.A. “Venezuela”	  	Venezuela	  	100%	  	Venezuela, corporation	
				
La Positiva Compania Nacional de Seguros Sociedad Anonima	  	Peru	  	7.6869%	  	Peru, insurance	
				
Reaseguradora Nuevo Mundo S.A.	  	Panama	  	3.7246%	  	Panama, reinsurance	
				
Amazones Compania Anonima de Seguros	  	Ecuador	  	1.423%	  	Ecuador, insurance	
				
ACE US Holdings, Inc.	  	USA (Delaware)	  	100%	  	USA, investment holding	
				
ACE Financial Services International, Inc.
(f/k/a ACE Financial Solutions International, Inc.)	  	USA (Delaware)	  	100%	  	USA, investment holding	
				
ACE USA, Inc.	  	USA (Delaware)	  	100%	  	USA, investment holding	
				
ASI Administrative Services Inc. (formerly ASI Administrative Services Holdings Inc. and CRC Creditor Resources Canada Ltd.)	  	Canada (Yukon)	  	100%	  	Canada, warranties business	
				
Industrial Underwriters Insurance Company
(EI# 75-6015738, NAIC# 21075, TX)	  	USA (Texas)	  	100%	  	USA, insurance	
				
Rhea International Marketing (L), Inc.	  	Malaysia	  	60%	  	Malaysia, general services	
				
Westchester Fire Insurance Company
(EI# 13-5481330, NAIC# 21121, NY)	  	USA
(New York)	  	100%	  	USA, Bermuda permit, insurance	
				
Westchester Surplus Lines Insurance Company
(EI# 58-2139927, NAIC #10172, GA)	  	USA (Georgia)	  	100%	  	USA, insurance	
				
Westchester Specialty Services, Inc.	  	USA (Florida)	  	100%	  	USA, warranties	
 
26

							
Name
	  	Jurisdiction of
Organization
	  	Percentage
Ownership
	  	Jurisdictions in which
Authorized
and Type of Business
	
Westchester Specialty Insurance Services, Inc.	  	USA (Nevada)	  	100%	  	USA, insurance services, brokering, warranties	
				
WDH Corporation	  	USA (Ohio)	  	80%	  	USA, insurance services	
				
Dimension Service Corporation	  	USA (Ohio)	  	80%	  	USA, warranties	
				
Dimension Holdings Inc.	  	USA (Ohio)	  	80%	  	USA, insurance services	
				
ACE Financial Services Inc. (f/k/a Capital Re Corporation)	  	USA (Delaware)	  	100%	  	Delaware, insurance holding company	
				
Capital RE LLC	  	Turks & Caicos	  	100%	  	Turks & Caicos, holding company	
				
ACE (CR) Holdings	  	United Kingdom	  	100%	  	UK, holding co	
				
ACE Capital VII Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s capital vehicle	
				
ACE (RGB) Holdings Limited	  	United Kingdom	  	100%	  	UK, holding company	
				
ACE (CIDR) Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s agency	
				
Global Life Services Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s agency	
				
Ridge Underwriting Agencies Limited	  	United Kingdom	  	100%	  	UK, Lloyd’s agency	
				
ACE Asset Management Inc.	  	Delaware	  	100%	  	DE, Bermuda permit corporation	
				
ACE (Barbados) Holdings Limited	  	Barbados	  	100%	  	Barbados, holding company	
 
27

SCHEDULE 5.02(A)
 
LIENS
 
1.	Lien arising under a Subordination Agreement dated as of October 27, 1998 among ACE US Holdings, Inc., ACE Limited and The Chase Manhattan Bank encumbering ACE US Holdings, Inc.’s rights under the Subordinated Loan Agreement dated as of October 27, 1998 among ACE US Holdings, Inc., ACE Bermuda Insurance Ltd. and United States Trust Company of New York, as trustee under the Indenture dated October 27, 1998 of ACE US Holdings, Inc.	
 
2.	Liens securing the Fourth Amendment and Restatement of Letter of Credit Facility Agreement dated November 14, 2003 among ACE Limited, ACE Bermuda Insurance Ltd., certain other financial institutions and Citibank International plc, as Agent and Security Trustee.	

EXHIBIT A
 
FORM OF ASSIGNMENT AND ACCEPTANCE
 
ASSIGNMENT AND ACCEPTANCE dated as of                  , 20          between                                      (the “ Assignor ”) and                                      (the “ Assignee ”), and [consented to and] accepted by Wachovia Bank, National Association, as administrative agent (the “ Administrative Agent ”)[, and ACE Limited (the “ Parent ”)].
 
W I T N E S S E T H
 
WHEREAS, this Assignment and Acceptance (the “ Agreement ”) relates to the Reimbursement Agreement dated as of September 22, 2004 among the Parent and other Account Parties party thereto, the Assignor and the other Banks party thereto, the Syndication Agent party thereto and the Administrative Agent, providing for a $850,000,000 unsecured letter of credit facility for the benefit of the Account Parties (as amended or otherwise modified from time to time, the “ Reimbursement Agreement ”);
 
WHEREAS, as provided under the Reimbursement Agreement, the Assignor has a commitment to participate in Letters of Credit and make Letter of Credit Advances to the Account Parties in an aggregate principal amount at any time outstanding not to exceed $                  ;
 
WHEREAS, Letters of Credit with a total amount available for drawing thereunder of $                  are outstanding at the date hereof;
 
WHEREAS, Letter of Credit Advances made to the Account Parties by the Assignor under the Reimbursement Agreement in the aggregate principal amount of $                  are outstanding at the date hereof; and
 
WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Reimbursement Agreement and the other Loan Documents in respect of a portion of its LC Commitment Amount thereunder in an amount equal to $                  (the “ Assigned Amount ”), together with a corresponding portion of its outstanding Letter of Credit Participating Interest, Letter of Credit Participating Interest Commitment, LC Participation Obligations, Letter of Credit Exposure, and Letter of Credit Advances, if any, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms.
 
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows:
 
1. Definitions . All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Reimbursement Agreement.

2. Assignment . The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Reimbursement Agreement and the other Loan Documents to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Reimbursement Agreement to the extent of the Assigned Amount, including the outstanding Letter of Credit Participating Interest Commitment and Letter of Credit Exposure, and the amount of the Letter of Credit Advances, if any, outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee[, the Administrative Agent and the Parent] and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Reimbursement Agreement with an LC Commitment Amount (in addition to any LC Commitment Amount theretofore held by it) equal to the Assigned Amount, and (ii) the LC Commitment Amount of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor shall be released from its obligations under the Reimbursement Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor.
 
3. Payments . As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof the amount heretofore agreed between them. 1 It is understood that commitment and Letter of Credit fees accrued to the date hereof in respect of the Assigned Amount are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Reimbursement Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party’s interest therein and shall promptly pay the same to such other party.
 
4. [Consent of the Administrative Agent and the Parent . Pursuant to the Reimbursement Agreement, this Agreement is conditioned upon the consent of the Administrative Agent and, so long as no Default has occurred and is continuing, the Parent. The execution of this Agreement by the Administrative Agent and, if applicable, the Parent is evidence of this consent.]
 
5. Non-Reliance on Assignor . The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition or statements of the Account Parties or any of their respective Subsidiaries, or the validity and enforceability of the obligations of the Account Parties or any of their respective Subsidiaries in respect of any Loan Document. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Account Parties and their respective Subsidiaries.

1	Amount should combine the principal amount of any Letter of Credit Advances made by the Assignor together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum.	

6. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
 
7. Counterparts . This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
 
[Remainder of page intentionally left blank.]

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

[ASSIGNOR]	 	 	
			
By:	 	 	 	 	
Title: 	 	 	 	 	
		
[ASSIGNEE]	 	 	
			
By:	 	 	 	 	
Title: 	 	 	 	 	
		
[ACE LIMITED]	 	 	
			
By:	 	 	 	 	
Title: 	 	 	 	 	
		
WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent	 	 	
			
By:	 	 	 	 	
Title: 	 	 	 	]	

EXHIBIT C
 
FORM OF LETTER REGARDING EXISTING LETTERS OF CREDIT
 
September 22, 2004
 
Ladies and Gentlemen:
 
Please refer to the unsecured Reimbursement Agreement, dated as of September 22, 2004, among ACE Limited (“ ACE Limited ”), ACE Bermuda Insurance Ltd., ACE Tempest Life Reinsurance Ltd. and ACE Tempest Reinsurance Ltd., as Account Parties, the Banks party thereto, and Wachovia Bank, National Association, as an Issuing Bank and as Administrative Agent (the “ Reimbursement Agreement ”). Terms defined in the Reimbursement Agreement are, unless otherwise defined herein or the context otherwise requires, used herein as defined therein.
 
The Trustees confirm that upon the effectiveness of the Reimbursement Agreement, (a) the Insurance and Reinsurance Letters of Credit Agreement, dated as of November 20, 2003, issued by Barclays relating to the Lloyd’s Dollar Trust Funds of Syndicate 2488 (the “ Existing Agreement ”) shall terminate and be of no further force or effect (except that any provision of the Existing Agreement that by its terms survives termination thereof shall remain in full force and effect); and (b) each outstanding letter of credit issued for the account of the Trustees under the Existing Agreement shall be deemed to have been issued, and to be outstanding, for the joint account of the Trustees and ACE Limited under the Reimbursement Agreement (and shall constitute a “Letter of Credit” under and as defined therein).
 
Very truly yours,
 
for and on behalf of
Trustees of the Lloyd’s Dollar Trust Funds of Syndicate 2488

Exhibit 31.1
 
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Evan Greenberg, certify that:
 
 	1)	I have reviewed this quarterly report on Form 10-Q of ACE Limited;	
 
 	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)) 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) 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
 
(c) 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.

Date: November 9, 2004	
	
/s/    Evan Greenberg	
Evan Greenberg
President and Chief Executive Officer	

Exhibit 31.2
 
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Philip V. Bancroft, certify that:
 
 	1)	I have reviewed this quarterly report on Form 10-Q of ACE Limited;	
 
 	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)) 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) 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
 
(c) 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.

Date: November 9, 2004	
	
/s/    Philip V. Bancroft	
Philip V. Bancroft
Chief Financial Officer	

Exhibit 32.1
 
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
The undersigned officer of ACE Limited (the “Corporation”) hereby certifies that the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, fully complies with the applicable reporting requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of ACE Limited.

			
Dated: November 9, 2004	 	 	 	/ S /    E VAN G REENBERG	
 	 	 	 	Evan Greenberg
President and
Chief Executive Officer	

Exhibit 32.2
 
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
The undersigned officer of ACE Limited (the “Corporation”) hereby certifies that the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, fully complies with the applicable reporting requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of ACE Limited.

			
Dated: November 9, 2004	 	 	 	/ S /    P HILIP V. B ANCROFT	
 	 	 	 	Philip V. Bancroft
Chief Financial Officer