Table of Contents

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, 2003
 
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 10, 2003 was 279,076,892.

Table of Contents
 ACE LIMITED
 
INDEX TO FORM 10-Q
 
 	 	 	  	Page No.
	
Part I.    	 	FINANCIAL INFORMATION	  	 	
			
Item 1.	 	Financial Statements:	  	 	
			
 	 	Consolidated Balance Sheets
September 30, 2003 (Unaudited) and December 31, 2002	  	3	
			
 	 	Consolidated Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2003 and 2002	  	4	
			
 	 	Consolidated Statements of Shareholders’ Equity (Unaudited)
Nine Months Ended September 30, 2003 and 2002	  	5	
			
 	 	Consolidated Statements of Comprehensive Income (Unaudited)
Nine Months Ended September 30, 2003 and 2002	  	7	
			
 	 	Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2003 and 2002	  	8	
			
 	 	Notes to Interim Consolidated Financial Statements (Unaudited)	  	9	
			
Item 2.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	33	
			
Item 3.	 	Quantitative and Qualitative Disclosures About Market Risk	  	60	
			
Item 4.	 	Controls and Procedures	  	61	
			
Part II.	 	OTHER INFORMATION	  	 	
			
Item 1.	 	Legal Proceedings	  	62	
			
Item 5.	 	Other Information	  	62	
			
Item 6.	 	Exhibits and Reports on Form 8-K	  	62	

2

Table of Contents
 ACE LIMITED
PART I    FINANCIAL INFORMATION
 
 Item 1.    Financial Statements
 
 ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 	  	September 30
2003
	 	 	December 31
2002
	 	
 	  	(Unaudited)	 	 	 	 	
 	  	(in thousands of U.S. dollars,
except share and per share data)	 	
Assets	  	 	 	 	 	 	 	 	
Investments and cash	  	 	 	 	 	 	 	 	
Fixed maturities, at fair value (amortized cost — $16,712,551 and $13,790,742)	  	$	17,412,949	 	 	$	14,419,741	 	
Equity securities, at fair value (cost — $371,492 and $442,266)	  	 	459,529	 	 	 	411,031	 	
Securities on loan, at fair value (amortized cost/cost — $548,778 and $285,569)	  	 	596,449	 	 	 	292,973	 	
Short-term investments, at fair value	  	 	2,519,956	 	 	 	1,884,760	 	
Other investments (cost — $625,498 and $621,715)	  	 	664,705	 	 	 	652,048	 	
Cash	  	 	431,121	 	 	 	663,355	 	
 	  				 				
Total investments and cash	  	 	22,084,709	 	 	 	18,323,908	 	
Accrued investment income	  	 	247,764	 	 	 	216,941	 	
Insurance and reinsurance balances receivable	  	 	2,821,444	 	 	 	2,653,990	 	
Accounts and notes receivable	  	 	181,367	 	 	 	250,956	 	
Reinsurance recoverable	  	 	14,032,408	 	 	 	13,991,453	 	
Deferred policy acquisition costs	  	 	998,423	 	 	 	831,580	 	
Prepaid reinsurance premiums	  	 	1,370,097	 	 	 	1,721,267	 	
Funds withheld	  	 	309,263	 	 	 	300,106	 	
Value of reinsurance business assumed	  	 	345,336	 	 	 	367,275	 	
Goodwill	  	 	2,710,830	 	 	 	2,716,860	 	
Deferred tax assets	  	 	1,102,612	 	 	 	1,287,983	 	
Other assets	  	 	1,030,245	 	 	 	788,618	 	
 	  				 				
Total assets	  	$	47,234,498	 	 	$	43,450,937	 	
 	  				 				
Liabilities	  	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	  	$	25,637,136	 	 	$	24,315,182	 	
Unearned premiums	  	 	6,243,098	 	 	 	5,585,524	 	
Future policy benefits for life and annuity contracts	  	 	479,291	 	 	 	442,264	 	
Funds withheld	  	 	247,473	 	 	 	214,535	 	
Insurance and reinsurance balances payable	  	 	1,874,466	 	 	 	1,870,264	 	
Contract holder deposit funds	  	 	75,957	 	 	 	89,843	 	
Securities lending collateral	  	 	607,555	 	 	 	301,016	 	
Accounts payable, accrued expenses and other liabilities	  	 	1,300,538	 	 	 	1,514,972	 	
Dividends payable	  	 	52,912	 	 	 	47,724	 	
Short-term debt	  	 	145,980	 	 	 	145,940	 	
Long-term debt	  	 	1,749,136	 	 	 	1,748,937	 	
Trust preferred securities	  	 	475,000	 	 	 	475,000	 	
 	  				 				
Total liabilities	  	 	38,888,542	 	 	 	36,751,201	 	
 	  				 				
Commitments and contingencies	  	 	 	 	 	 	 	 	
Mezzanine equity	  	 	—  	 	 	 	311,050	 	
 	  				 				
Shareholders’ equity	  	 	 	 	 	 	 	 	
Preferred Shares ($1.00 par value, 2,300,000 shares authorized, issued and outstanding)	  	 	2,300	 	 	 	—  	 	
Ordinary Shares ($0.041666667 par value, 500,000,000 shares authorized; 278,480,910 and 262,679,356 shares issued and outstanding)	  	 	11,603	 	 	 	10,945	 	
Additional paid-in capital	  	 	4,727,307	 	 	 	3,781,112	 	
Unearned stock grant compensation	  	 	(64,059	)	 	 	(42,576	)	
Retained earnings	  	 	3,000,430	 	 	 	2,199,313	 	
Deferred compensation obligation	  	 	18,967	 	 	 	18,631	 	
Accumulated other comprehensive income	  	 	668,375	 	 	 	439,892	 	
Ordinary Shares issued to employee trust	  	 	(18,967	)	 	 	(18,631	)	
 	  				 				
Total shareholders’ equity	  	 	8,345,956	 	 	 	6,388,686	 	
 	  				 				
Total liabilities, mezzanine equity and shareholders’ equity	  	$	47,234,498	 	 	$	43,450,937	 	

See accompanying notes to the interim consolidated financial statements
 
3

Table of Contents
 ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 2003 and 2002
(Unaudited)
 
 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	 	
 	  	2003
	 	 	2002
	 	 	2003
	 	 	2002
	 	
 	  	(in thousands of U.S. dollars, except per share data)	 	
Revenues	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross premiums written	  	$	3,450,912	 	 	$	3,528,725	 	 	$	10,968,594	 	 	$	9,575,826	 	
Reinsurance premiums ceded	  	 	(1,144,781	)	 	 	(1,305,938	)	 	 	(3,326,418	)	 	 	(3,491,633	)	
 	  				 				 				 				
Net premiums written	  	 	2,306,131	 	 	 	2,222,787	 	 	 	7,642,176	 	 	 	6,084,193	 	
Change in unearned premiums	  	 	91,394	 	 	 	(297,208	)	 	 	(866,527	)	 	 	(1,223,098	)	
 	  				 				 				 				
Net premiums earned	  	 	2,397,525	 	 	 	1,925,579	 	 	 	6,775,649	 	 	 	4,861,095	 	
Net investment income	  	 	214,689	 	 	 	199,740	 	 	 	633,048	 	 	 	600,679	 	
Other income (expense)	  	 	(3,088	)	 	 	(14,032	)	 	 	(8,516	)	 	 	(21,301	)	
Net realized gains (losses)	  	 	57,556	 	 	 	(235,282	)	 	 	124,028	 	 	 	(400,884	)	
 	  				 				 				 				
Total revenues	  	 	2,666,682	 	 	 	1,876,005	 	 	 	7,524,209	 	 	 	5,039,589	 	
 	  				 				 				 				
Expenses	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Losses and loss expenses	  	 	1,518,478	 	 	 	1,327,792	 	 	 	4,260,690	 	 	 	3,141,886	 	
Life and annuity benefits	  	 	44,524	 	 	 	59,697	 	 	 	136,582	 	 	 	106,004	 	
Policy acquisition costs	  	 	344,066	 	 	 	253,013	 	 	 	973,242	 	 	 	685,016	 	
Administrative expenses	  	 	293,355	 	 	 	250,668	 	 	 	840,315	 	 	 	677,597	 	
Interest expense	  	 	44,348	 	 	 	48,679	 	 	 	132,958	 	 	 	146,633	 	
 	  				 				 				 				
Total expenses	  	 	2,244,771	 	 	 	1,939,849	 	 	 	6,343,787	 	 	 	4,757,136	 	
 	  				 				 				 				
Income (loss) before income tax	  	 	421,911	 	 	 	(63,844	)	 	 	1,180,422	 	 	 	282,453	 	
Income tax expense (benefit)	  	 	66,946	 	 	 	(7,334	)	 	 	207,545	 	 	 	37,258	 	
 	  				 				 				 				
Net income (loss)	  	$	354,965	 	 	$	(56,510	)	 	$	972,877	 	 	$	245,195	 	
 	  				 				 				 				
Basic earnings (loss) per share	  	$	1.25	 	 	$	(0.24	)	 	$	3.53	 	 	$	0.87	 	
 	  				 				 				 				
Diluted earnings (loss) per share	  	$	1.22	 	 	$	(0.24	)	 	$	3.46	 	 	$	0.84	 	

See accompanying notes to the interim consolidated financial statements
 
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Table of Contents
 ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the nine months ended September 30, 2003 and 2002
(Unaudited)
 
 	  	2003
	 	 	2002
	 	
 	  	(in thousands of U.S. dollars)	 	
Preferred Shares	  	 	 	 	 	 	 	 	
Balance — beginning of period	  	$	—  	 	 	$	—  	 	
Shares issued	  	 	2,300	 	 	 	—  	 	
 	  				 				
Balance — end of period	  	 	2,300	 	 	 	—  	 	
 	  				 				
Ordinary Shares	  	 	 	 	 	 	 	 	
Balance — beginning of period	  	 	10,945	 	 	 	10,828	 	
Shares issued	  	 	563	 	 	 	36	 	
Exercise of stock options	  	 	110	 	 	 	81	 	
Issued under Employee Stock Purchase Plan (ESPP)	  	 	12	 	 	 	10	 	
Cancellation of shares	  	 	(27	)	 	 	(18	)	
 	  				 				
Balance — end of period	  	 	11,603	 	 	 	10,937	 	
 	  				 				
Additional paid-in capital	  	 	 	 	 	 	 	 	
Balance — beginning of period	  	 	3,781,112	 	 	 	3,710,698	 	
Ordinary Shares issued	  	 	47,628	 	 	 	36,509	 	
Exercise of stock options	  	 	36,394	 	 	 	40,642	 	
Ordinary Shares issued under ESPP	  	 	7,332	 	 	 	7,462	 	
Cancellation of Ordinary Shares	  	 	(21,320	)	 	 	(15,179	)	
Preferred Shares issued, net	  	 	554,587	 	 	 	—  	 	
Conversion of Mezzanine equity, net	  	 	310,465	 	 	 	—  	 	
Tax benefit on employee stock options	  	 	11,109	 	 	 	—  	 	
 	  				 				
Balance — end of period	  	 	4,727,307	 	 	 	3,780,132	 	
 	  				 				
Unearned stock grant compensation	  	 	 	 	 	 	 	 	
Balance — beginning of period	  	 	(42,576	)	 	 	(37,994	)	
Stock grants awarded	  	 	(47,112	)	 	 	(39,106	)	
Stock grants forfeited	  	 	3,687	 	 	 	7,830	 	
Amortization	  	 	21,942	 	 	 	21,880	 	
 	  				 				
Balance — end of period	  	 	(64,059	)	 	 	(47,390	)	
 	  				 				
Retained earnings	  	 	 	 	 	 	 	 	
Balance — beginning of period	  	 	2,199,313	 	 	 	2,321,576	 	
Net income	  	 	972,877	 	 	 	245,195	 	
Dividends declared on Ordinary Shares	  	 	(150,650	)	 	 	(128,491	)	
Dividends declared on Mezzanine equity	  	 	(9,773	)	 	 	(19,246	)	
Dividends declared on Preferred Shares	  	 	(11,337	)	 	 	—  	 	
 	  				 				
Balance — end of period	  	 	3,000,430	 	 	 	2,419,034	 	
 	  				 				
Deferred compensation obligation	  	 	 	 	 	 	 	 	
Balance — beginning of period	  	 	18,631	 	 	 	16,497	 	
Net change in period	  	 	336	 	 	 	2,133	 	
 	  				 				
Balance — end of period	  	$	18,967	 	 	$	18,630	 	

See accompanying notes to the interim consolidated financial statements
 
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Table of Contents
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (cont’d)
For the nine months ended September 30, 2003 and 2002
(Unaudited)
 
 	  	2003
	 	 	2002
	 	
 	  	(in thousands of U.S. dollars)	 	
Accumulated other comprehensive income	  	 	 	 	 	 	 	 	
Net unrealized appreciation (depreciation) on investments	  	 	 	 	 	 	 	 	
Balance — beginning of period	  	$	476,411	 	 	$	136,916	 	
Change in period, net of income tax	  	 	211,335	 	 	 	182,553	 	
 	  				 				
Balance — end of period	  	 	687,746	 	 	 	319,469	 	
 	  				 				
Minimum pension liability	  	 	 	 	 	 	 	 	
Balance — beginning of period	  	 	—  	 	 	 	—  	 	
Change in period, net of income tax	  	 	(40,054	)	 	 	—  	 	
 	  				 				
Balance — end of period	  	 	(40,054	)	 	 	—  	 	
 	  				 				
Cumulative translation adjustment	  	 	 	 	 	 	 	 	
Balance — beginning of period	  	 	(36,519	)	 	 	(35,317	)	
Change in period, net of income tax	  	 	57,202	 	 	 	653	 	
 	  				 				
Balance — end of period	  	 	20,683	 	 	 	(34,664	)	
 	  				 				
Accumulated other comprehensive income	  	 	668,375	 	 	 	284,805	 	
 	  				 				
Ordinary Shares issued to employee trust	  	 	 	 	 	 	 	 	
Balance — beginning of period	  	 	(18,631	)	 	 	(16,497	)	
Net change in period	  	 	(336	)	 	 	(2,133	)	
 	  				 				
Balance — end of period	  	 	(18,967	)	 	 	(18,630	)	
 	  				 				
Total shareholders’ equity	  	$	8,345,956	 	 	$	6,447,518	 	

See accompanying notes to the interim consolidated financial statements
 
6

Table of Contents
 ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the nine months ended September 30, 2003 and 2002
(Unaudited)
 
 	  	2003
	 	 	2002
	 	
 	  	(in thousands of U.S. dollars)	 	
Net income	  	$	972,877	 	 	$	245,195	 	
Other comprehensive income	  	 	 	 	 	 	 	 	
Net unrealized appreciation (depreciation) on investments	  	 	 	 	 	 	 	 	
Unrealized appreciation (depreciation) on investments	  	 	300,900	 	 	 	227,651	 	
Reclassification adjustment for net realized (gains) losses included in net income	  	 	(61,088	)	 	 	42,654	 	
 	  				 				
 	  	 	239,812	 	 	 	270,305	 	
Cumulative translation adjustment	  	 	81,594	 	 	 	4,150	 	
Minimum pension liability	  	 	(62,081	)	 	 	—  	 	
 	  				 				
Other comprehensive income, before income tax	  	 	259,325	 	 	 	274,455	 	
Income tax expense related to other comprehensive income items	  	 	(30,842	)	 	 	(91,249	)	
 	  				 				
Other comprehensive income	  	 	228,483	 	 	 	183,206	 	
 	  				 				
Comprehensive income	  	$	1,201,360	 	 	$	428,401	 	

See accompanying notes to the interim consolidated financial statements
 
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Table of Contents
 ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2003 and 2002
(Unaudited)
 
 	  	2003
	 	 	2002
	 	
 	  	(in thousands of U.S. dollars)	 	
Cash flows from operating activities	  	 	 	 	 	 	 	 	
Net income	  	$	972,877	 	 	$	245,195	 	
Adjustments to reconcile net income to net cash flows from (used for) operating activities:	  	 	 	 	 	 	 	 	
Net realized (gains) losses	  	 	(124,028	)	 	 	400,884	 	
Amortization of premium/discounts on fixed maturities	  	 	66,554	 	 	 	28,364	 	
Deferred income taxes	  	 	157,451	 	 	 	9,089	 	
Unpaid losses and loss expenses	  	 	1,205,295	 	 	 	866,239	 	
Unearned premiums	  	 	532,220	 	 	 	1,639,827	 	
Future policy benefits for life and annuity contracts	  	 	37,027	 	 	 	36,311	 	
Insurance and reinsurance balances payable	  	 	(177,348	)	 	 	411,633	 	
Accounts payable, accrued expenses and other liabilities	  	 	(134,845	)	 	 	(133,797	)	
Insurance and reinsurance balances receivable	  	 	(84,468	)	 	 	(670,472	)	
Reinsurance recoverable	  	 	(40,955	)	 	 	(490,922	)	
Deferred policy acquisition costs	  	 	(139,155	)	 	 	(135,932	)	
Prepaid reinsurance premiums	  	 	383,815	 	 	 	(423,506	)	
Funds withheld, net	  	 	27,656	 	 	 	71,901	 	
Value of reinsurance business assumed	  	 	21,939	 	 	 	(84,377	)	
Other	  	 	(64,898	)	 	 	(178,530	)	
 	  				 				
Net cash flows from operating activities	  	$	2,639,137	 	 	$	1,591,907	 	
 	  				 				
Cash flows from investing activities	  	 	 	 	 	 	 	 	
Purchases of fixed maturities	  	$	(14,490,369	)	 	$	(12,751,573	)	
Purchases of equity securities	  	 	(75,464	)	 	 	(154,835	)	
Sales of fixed maturities	  	 	11,099,741	 	 	 	11,468,572	 	
Sales of equity securities	  	 	107,873	 	 	 	110,377	 	
Maturities of fixed maturities	  	 	94,612	 	 	 	249,426	 	
Net realized gains (losses) on investment derivatives	  	 	18,502	 	 	 	(117,580	)	
Other	  	 	(60,469	)	 	 	(102,411	)	
Settlement of an acquisition-related lawsuit	  	 	—  	 	 	 	54,380	 	
 	  				 				
Net cash flows used for investing activities	  	$	(3,305,574	)	 	$	(1,243,644	)	
 	  				 				
Cash flows from financing activities	  	 	 	 	 	 	 	 	
Dividends paid on Ordinary Shares	  	$	(145,462	)	 	$	(122,846	)	
Dividends paid on Mezzanine equity	  	 	(9,773	)	 	 	(19,246	)	
Dividends paid on Preferred Shares	  	 	(11,337	)	 	 	—  	 	
Net proceeds from issuance of Preferred Shares	  	 	556,887	 	 	 	—  	 	
Net proceeds from (repayment of) short-term debt	  	 	40	 	 	 	(275,128	)	
Proceeds from exercise of options for Ordinary Shares	  	 	36,504	 	 	 	40,723	 	
Proceeds from Ordinary Shares issued under ESPP	  	 	7,344	 	 	 	7,472	 	
Repayment of trust preferred securities	  	 	—  	 	 	 	(400,000	)	
Net proceeds from long-term debt	  	 	—  	 	 	 	399,155	 	
 	  				 				
Net cash flows from (used for) financing activities	  	$	434,203	 	 	$	(369,870	)	
 	  				 				
Net decrease in cash	  	 	(232,234	)	 	 	(21,607	)	
Cash — beginning of period	  	 	663,355	 	 	 	671,381	 	
 	  				 				
Cash — end of period	  	$	431,121	 	 	$	649,774	 	

See accompanying notes to the interim consolidated financial statements
 
8

Table of Contents
 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, 2002.
 
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 15.
 
The following table summarizes the Company’s gross premiums written by geographic region for the nine months ended September 30, 2003 and 2002. 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, 2003	  	64	%	 	22	%	 	3	%	 	7	%	 	4	%	
September 30, 2002	  	64	%	 	22	%	 	2	%	 	8	%	 	4	%	
 
2.    New accounting pronouncements
 
In July 2003, the Accounting Standards Executive Committee issued Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (SOP 03-1). This Statement of Position provides guidance on accounting and reporting by insurance enterprises for certain nontraditional long-duration contracts and for separate accounts and is effective for financial statements for fiscal years beginning after December 15, 2003. At the date of initial application of this SOP, the Company is required to make various determinations, such as qualification for separate account treatment, classification of securities in separate account arrangements, significance of mortality and morbidity risk, adjustments to contract holder liabilities, and adjustments to estimated gross profits as defined in SFAS No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments”. The Company is currently evaluating the impact of adoption of SOP 03-1 on its consolidated financial statements.
 
In May 2003, Financial Accounting Standards Board (FASB) issued FAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (FAS 150), which establishes standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity. FAS 150 requires the classification of a financial instrument that is within its scope as a liability (or an asset in some circumstances). The adoption of FAS No. 150 did not impact the Company’s consolidated financial statements.
 
In April 2003, FASB issued FAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (FAS 149), which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as
 
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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
derivatives) and for hedging activities under FAS No. 133. FAS 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of FAS 149 did not have a material impact on the Company’s consolidated financial statements.
 
In January 2003, FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), which requires consolidation of all variable interest entities (VIE) by the primary beneficiary, as these terms are defined in FIN 46. In addition, it requires expanded disclosure for all VIEs. FIN 46 is effective immediately for VIEs created after January 31, 2003. On October 9, 2003, FASB deferred the effective date of FIN 46 for VIEs that existed prior to February 1, 2003, until the end of the first interim or annual period ending after December 15, 2003. Based on the guidance and interpretations issued to date, the Company does not expect the adoption of FIN 46 to have a material impact on its consolidated financial statements.
 
In December 2002, FASB issued FAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (FAS 148). FAS 148 provides alternative methods of transitioning for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. FAS 148 amends the disclosure requirements of FAS No. 123 (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 Accounting Principles Board Opinion No. 25 (APB 25).
 
Following is a summary of options issued and outstanding for the three and nine months ended September 30, 2003 and 2002:
 
 	  	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, 2003
	 	 	Three Months Ended
September 30, 2002
	 	
Balance — beginning of period	  	 	  	 	 	  	20,444,862	 	 	 	  	 	 	  	19,611,437	 	
Options granted	  	2013	  	$	32.86	  	203,000	 	 	2012	  	$	32.13	  	171,200	 	
Options exercised	  	2003-2010	  	$	33.12	  	(560,738	)	 	2003-2011	  	$	30.26	  	(167,613	)	
Options forfeited	  	2009-2013	  	$	37.74	  	(249,800	)	 	2008-2012	  	$	36.42	  	(143,622	)	
 	  	 	  	 	 	  			 	 	  	 	 	  			
Balance — end of period	  	 	  	 	 	  	19,837,324	 	 	 	  	 	 	  	19,471,402	 	

 	  	Nine Months Ended
September 30, 2003
	 	 	Nine Months Ended
September 30, 2002
	 	
Balance — beginning of period	  	 	  	 	 	  	19,312,287	 	 	 	  	 	 	  	17,070,630	 	
Options granted	  	2013	  	$	28.02	  	3,686,962	 	 	2012	  	$	42.97	  	5,037,742	 	
Options exercised	  	2003-2011	  	$	33.86	  	(2,632,109	)	 	2003-2011	  	$	41.13	  	(1,957,522	)	
Options forfeited	  	2003-2013	  	$	38.66	  	(529,816	)	 	2006-2012	  	$	32.11	  	(679,448	)	
 	  	 	  	 	 	  			 	 	  	 	 	  			
Balance — end of period	  	 	  	 	 	  	19,837,324	 	 	 	  	 	 	  	19,471,402	 	

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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
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, 2003 and 2002, had the compensation cost been determined in accordance with the fair value method recommended in FAS 123.
 
 	  	Three Months Ended	 	 	Nine Months Ended	 	
 	  	September 30
	 	 	September 30
	 	
 	  	2003
	 	 	2002
	 	 	2003
	 	 	2002
	 	
 	  	(in thousands of U.S. dollars, except per share data)	 	
Net income (loss) available to holders of Ordinary Shares:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As reported	  	$	343,751	 	 	$	(62,926	)	 	$	948,204	 	 	$	225,949	 	
Add: Stock-based compensation expense included in reported net income, net of income tax	  	$	5,401	 	 	$	4,301	 	 	$	18,105	 	 	$	17,259	 	
Deduct: Compensation expense, net of income tax	  	$	(13,070	)	 	$	(12,809	)	 	$	(39,898	)	 	$	(43,359	)	
Pro forma	  	$	336,082	 	 	$	(71,434	)	 	$	926,411	 	 	$	199,849	 	
Basic earnings (loss) per share:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As reported	  	$	1.25	 	 	$	(0.24	)	 	$	3.53	 	 	$	0.87	 	
Pro forma	  	$	1.22	 	 	$	(0.27	)	 	$	3.45	 	 	$	0.77	 	
Diluted earnings (loss) per share:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As reported	  	$	1.22	 	 	$	(0.24	)	 	$	3.46	 	 	$	0.84	 	
Pro forma	  	$	1.19	 	 	$	(0.27	)	 	$	3.38	 	 	$	0.74	 	
 
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, 2003 and 2002, respectively: dividend yield of 2.32 percent and 2.20 percent, expected volatility of 30.75 percent and 34.67 percent, risk free interest rate of 2.76 percent and 3.32 percent. The following weighted-average assumptions were used for the nine months ended September 30, 2003 and 2002, respectively: dividend yield of 2.45 percent and 1.41 percent, expected volatility of 32.67 percent and 35.26 percent, risk free interest rate of 2.35 percent and 4.04 percent. The expected life for both years is four years and the forfeiture rate is 5 percent and 7 percent for 2003 and 2002, respectively.
 
3.    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 profitability review performed in 2003, it was determined that two majority owned warranty program administration companies were not currently profitable. As a result of that review, updated forecasts supported indications that these companies would not under current market conditions achieve sufficient contract sales volumes to generate and sustain future profitable results. As a consequence of these revised expectations, the Company recognized a goodwill impairment loss of $6 million during the first quarter of 2003.
 
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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
4.    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 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, 2003 and 2002 are as follows:
 
 	  	Three Months Ended
September 30
	 	 	Nine Months Ended September
30
	 	
 	  	2003
	 	 	2002
	 	 	2003
	 	 	2002
	 	
 	  	(in thousands of U.S. dollars)	 	
Premiums written	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Direct	  	$	2,798,564	 	 	$	2,731,725	 	 	$	8,651,950	 	 	$	7,194,180	 	
Assumed	  	 	652,348	 	 	 	797,000	 	 	 	2,316,644	 	 	 	2,381,646	 	
Ceded	  	 	(1,144,781	)	 	 	(1,305,938	)	 	 	(3,326,418	)	 	 	(3,491,633	)	
 	  				 				 				 				
Net	  	$	2,306,131	 	 	$	2,222,787	 	 	$	7,642,176	 	 	$	6,084,193	 	
 	  				 				 				 				
Premiums earned	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Direct	  	$	2,957,712	 	 	$	2,225,720	 	 	$	8,558,501	 	 	$	6,068,443	 	
Assumed	  	 	701,051	 	 	 	721,531	 	 	 	1,875,242	 	 	 	1,809,927	 	
Ceded	  	 	(1,261,238	)	 	 	(1,021,672	)	 	 	(3,658,094	)	 	 	(3,017,275	)	
 	  				 				 				 				
Net	  	$	2,397,525	 	 	$	1,925,579	 	 	$	6,775,649	 	 	$	4,861,095	 	

The composition of the Company’s reinsurance recoverable at September 30, 2003 and December 31, 2002, is as follows:
 
 	  	September 30
2003
	 	 	December 31
2002
	 	
 	  	(in thousands of U.S. dollars)	 	
Reinsurance recoverable on paid losses and loss expenses	  	$	1,297,471	 	 	$	1,363,247	 	
Bad debt reserve on paid losses and loss expenses	  	 	(384,642	)	 	 	(377,804	)	
Reinsurance recoverable on future policy benefits	  	 	14,170	 	 	 	8,846	 	
Reinsurance recoverable on unpaid losses and loss expenses	  	 	13,656,234	 	 	 	13,558,623	 	
Bad debt reserve on unpaid losses and loss expenses	  	 	(550,825	)	 	 	(561,459	)	
 	  				 				
Net reinsurance recoverable	  	$	14,032,408	 	 	$	13,991,453	 	

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. The provision for unrecoverable reinsurance is required principally due to the failure of reinsurers to indemnify ACE, primarily because of disputes under reinsurance contracts and insolvencies. Provisions have been established for amounts estimated to be uncollectible.
 
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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
Following is a breakdown of the Company’s reinsurance recoverable on paid losses at September 30, 2003 and December 31, 2002:
 
 	  	September 30, 2003
	 	 	December 31, 2002
	 	
Category
	  	Amount
	  	Bad Debt
Reserve
	  	% of Total
Reserve
	 	 	Amount
	  	Bad Debt
Reserve
	  	% of Total
Reserve
	 	
 	  	(in millions of U.S. dollars)	 	
General collections	  	$	765	  	$	46	  	6.0	%	 	$	848	  	$	43	  	5.1	%	
Other	  	 	532	  	 	339	  	63.7	%	 	 	515	  	 	335	  	65.0	%	
 	  			  			  			 			  			  			
Total	  	$	1,297	  	$	385	  	29.7	%	 	$	1,363	  	$	378	  	27.7	%	

The general collections category represents amounts in the process of collection in the normal course of business. These are balances which the Company has no indication of dispute or credit-related issues. The Company provides bad debt reserves based primarily on the application of historical loss experience to credit categories.
 
The other category includes amounts recoverable that are in dispute or are from companies, which are in supervision, rehabilitation or liquidation. The Company’s estimation of this reserve considers the credit quality of the reinsurer and whether the Company has received collateral or other credit protections such as parental guarantees.
 
5.    Commitments, contingencies and guarantees
 
The Company invests in private equity partnerships with a carrying value of $83 million included in other investments. In connection with these investments, the Company has commitments that may require funding of up to $74 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.
 
The Company provides and reinsures financial guaranties issued to support public and private borrowing arrangements. Financial guaranty insurance provides an unconditional and irrevocable guaranty that indemnifies the insured against non-payment of principal and interest on an insured debt obligation when due. The Company’s potential liability in the event of non-payment by the issuer of the insured obligation is represented by its proportionate share of the aggregate outstanding principal and interest payable (insurance in force) on such insured obligation. In synthetic transactions, the Company guarantees payment obligations of counterparties under credit default swaps. The Company does not record a carrying value for future installment premiums on
 
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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
financial guaranties as they are recognized over the term of the contract. The net par outstanding exposure as at September 30, 2003 and December 31, 2002, of financial guaranty aggregate insured portfolios was $86 billion and $82 billion respectively, which includes credit default swap exposures of $23 billion and $21 billion, respectively.
 
6.    Credit facilities
 
In April 2003, the Company renewed, at substantially the same terms, its $500 million, 364-day revolving credit facility. This facility, together with the Company’s $250 million, five-year revolving credit facility, which was last renewed in May 2000, is available for general corporate purposes and each of the facilities may also be used as commercial paper back up. The five-year facility also permits the issuance of letters of credit (LOCs). At September 30, 2003, the outstanding LOCs issued under these facilities was $64 million. There were no other drawings or LOCs issued under these facilities.
 
At September 30, 2003, ACE Guaranty Corp. was party to a non-recourse credit facility which provides up to $175 million specifically supporting the company’s municipal portfolio and designed to provide rating agency qualified capital to support ACE Guaranty Corp.’s claims paying resources. During 2002, the facility’s expiry date was extended to November 2009. ACE Guaranty Corp. has not borrowed under this credit facility. In May 2003, ACE Guaranty Corp. entered into a $140 million, 364-day revolving credit facility that is available for general corporate purposes. ACE Guaranty Corp. has not borrowed under this credit facility.
 
In September 2003, the Company arranged a $500 million unsecured, one-year LOC facility for general business purposes, including the issuance of insurance and reinsurance letters of credit. This facility replaced an existing $500 million LOC facility, which was last renewed in September 2002. Usage under this facility was $264 million at September 30, 2003.
 
In September 2003, the Company also arranged a $500 million secured, three-year LOC facility for general business purposes, including the issuance of insurance and reinsurance letters of credit. This facility replaced an existing $350 million LOC facility, which was last renewed in September 2002. Usage under this facility was $283 million at September 30, 2003.
 
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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
7.    Debt
 
The following table outlines the Company’s debt at September 30, 2003 and December 31, 2002.
 
 	  	September 30
2003
	  	December 31
2002
	
 	  	(in millions of U.S. dollars)	
Short-term debt	  	 	 	  	 	 	
ACE INA commercial paper	  	$	146	  	$	146	
 	  			  			
Long-term debt	  	 	 	  	 	 	
ACE INA Notes due 2004	  	$	400	  	$	400	
ACE INA Notes due 2006	  	 	300	  	 	300	
ACE Limited Senior Notes due 2007	  	 	499	  	 	499	
ACE US Holdings Senior Notes due 2008	  	 	250	  	 	250	
ACE INA Subordinated Notes due 2009	  	 	200	  	 	200	
ACE INA Debentures due 2029	  	 	100	  	 	100	
 	  			  			
 	  	$	1,749	  	$	1,749	
 	  			  			
Trust Preferred Securities	  	 	 	  	 	 	
Capital Re LLC Monthly Income Preferred Securities due 2044	  	$	75	  	$	75	
ACE INA Trust Preferred Securities due 2029	  	 	100	  	 	100	
ACE INA Capital Securities due 2030	  	 	300	  	 	300	
 	  			  			
 	  	$	475	  	$	475	

8.    Mezzanine equity
 
In 2000, the Company publicly offered and issued 6,221,000 FELINE PRIDES for aggregate net proceeds of $311 million. Each FELINE PRIDE initially consisted of a unit referred to as an Income PRIDE. Each Income PRIDE consisted of (i) one 8.25 percent Cumulative Redeemable Preferred Share, Series A, liquidation preference $50 per share, and (ii) a purchase contract pursuant to which the holder of the Income PRIDE agreed to purchase from the Company, on May 16, 2003, $311 million of Ordinary Shares at the applicable settlement rate. On May 16, 2003, the Company issued approximately 11.8 million Ordinary Shares, in satisfaction of the purchase contracts underlying its FELINE PRIDES. In consideration, on June 16, 2003, all of its 8.25 percent Cumulative Redeemable Preferred Shares, Series A, were redeemed at a rate representing an issuance of 1.8991 Ordinary Shares per preferred share.
 
9.    Preferred shares
 
On May 30, 2003, the Company sold in a public offering 20 million depositary shares, each representing one-tenth of one of its 7.80 percent Cumulative Redeemable Preferred Shares, for $25 per depositary share. Underwriters exercised their over-allotment option, which resulted in the issuance of an additional three million depositary shares. Gross proceeds from the sale of the Preferred Shares were $575 million and related expenses were $18 million.
 
The shares have an annual dividend rate of 7.80 percent with the first quarterly dividend paid on September 1, 2003. The shares will not be convertible into or exchangeable for the Company’s Ordinary Shares. The Company may redeem these shares at any time after May 30, 2008 at a redemption value of $25.00 per depositary share or at any time under certain limited circumstances.
 
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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
10.    Defined benefit plans
 
In accordance with FAS No. 87, “Employers’ Accounting for Pensions”, the Company was required to record a minimum pension liability for underfunded plans representing the excess of the unfunded accumulated benefit obligation over the fair value of trust assets and previously recorded pension cost liabilities. The minimum pension liability is included in accounts payable, accrued expenses and other liabilities and in accumulated other comprehensive income. The principal cause of the accrual for additional minimum pension liability was a decline in the value of equity securities held by the pension trusts in Europe.
 
11.    Restricted stock awards
 
Under the Company’s long-term incentive plans, 1,707,389 restricted Ordinary Shares were awarded during the nine months ended September 30, 2003, to officers of the Company and its subsidiaries. These shares vest at various dates through September 2007.
 
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.
 
In addition, during the period, 11,165 restricted Ordinary Shares were awarded to outside directors under the terms of the 1995 Outside Directors Plan. These shares vest in May 2004.
 
12.    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
	 	
 	  	2003
	 	 	2002
	 	 	2003
	 	 	2002
	 	
 	  	(in thousands of U.S. dollars, except share and per share data)	 	
Numerator:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	  	$	354,965	 	 	$	(56,510	)	 	$	972,877	 	 	$	245,195	 	
Dividends on Mezzanine equity	  	 	—  	 	 	 	(6,416	)	 	 	(9,773	)	 	 	(19,246	)	
Dividends on preferred shares	  	 	(11,214	)	 	 	—  	 	 	 	(14,900	)	 	 	—  	 	
 	  				 				 				 				
Net income (loss) available to holders of Ordinary Shares	  	$	343,751	 	 	$	(62,926	)	 	$	948,204	 	 	$	225,949	 	
 	  				 				 				 				
Denominator:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Denominator for basic earnings (loss) per share:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding	  	 	275,404,544	 	 	 	260,264,791	 	 	 	268,474,758	 	 	 	259,810,039	 	
Dilutive effect of Mezzanine equity	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	3,137,944	 	
Effect of other dilutive securities	  	 	6,485,692	 	 	 	—  	 	 	 	5,731,326	 	 	 	7,247,792	 	
 	  				 				 				 				
Denominator for diluted earnings (loss) per share:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted weighted average shares outstanding and assumed conversions	  	 	281,890,236	 	 	 	260,264,791	 	 	 	274,206,084	 	 	 	270,195,775	 	
 	  				 				 				 				
Basic earnings (loss) per share	  	$	1.25	 	 	$	(0.24	)	 	$	3.53	 	 	$	0.87	 	
 	  				 				 				 				
Diluted earnings (loss) per share	  	$	1.22	 	 	$	(0.24	)	 	$	3.46	 	 	$	0.84	 	

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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
The denominator for diluted loss per share for the three months ended September 30, 2002 does not include the dilutive effect of FELINE PRIDES and 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. The dilutive effect of FELINE PRIDES for the three months ended September 30, 2002 is 1,614,340 shares. Other dilutive securities totaled 6,383,065 shares for the three months ended September 30, 2002.
 
13.    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.
 
ACE Prime Holdings and ACE Cap Re USA Holdings, and their respective subsidiaries are subject to income taxes imposed by U.S. authorities and file U.S. tax returns. 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, 2003 and 2002 is as follows:
 
 	  	Three Months Ended
September 30
	 	 	Nine Months Ended
September 30
	
 	  	2003
	  	2002
	 	 	2003
	  	2002
	
 	  	(in thousands of U.S. dollars)	
Current tax expense	  	$	26,375	  	$	23,312	 	 	$	50,094	  	$	28,169	
Deferred tax expense (benefit)	  	 	40,571	  	 	(30,646	)	 	 	157,451	  	 	9,089	
 	  			  				 			  			
Provision for income taxes	  	$	66,946	  	$	(7,334	)	 	$	207,545	  	$	37,258	

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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(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 nine months ended September 30, 2003 and 2002, is provided below.
 
 	  	Nine Months Ended
September 30
	 	
 	  	2003
	 	 	2002
	 	
 	  	(in thousands of U.S.
dollars)	 	
Expected tax provision at weighted average rate	  	$	202,144	 	 	$	33,331	 	
Permanent differences	  	 	 	 	 	 	 	 	
Tax-exempt interest	  	 	(11,621	)	 	 	(13,589	)	
Other	  	 	4,355	 	 	 	6,166	 	
Goodwill	  	 	1,575	 	 	 	—  	 	
Net withholding taxes	  	 	11,092	 	 	 	11,350	 	
 	  				 				
Total provision for income taxes	  	$	207,545	 	 	$	37,258	 	

The components of the net deferred tax asset at September 30, 2003 and December 31, 2002 are as follows:
 
 	  	September 30
2003
	  	December 31
2002
	
 	  	(in thousands of U.S. dollars)	
Deferred tax assets	  	 	 	  	 	 	
Loss reserve discount	  	$	512,791	  	$	500,061	
Unearned premium reserve	  	 	114,414	  	 	94,566	
Foreign tax credits	  	 	163,696	  	 	133,811	
Investments	  	 	113,236	  	 	123,410	
Bad debts	  	 	171,844	  	 	177,197	
Net operating loss carryforward	  	 	402,842	  	 	518,879	
Other	  	 	126,850	  	 	199,461	
 	  			  			
Total deferred tax assets	  	 	1,605,673	  	 	1,747,385	
 	  			  			
Deferred tax liabilities	  	 	 	  	 	 	
Deferred policy acquisition costs	  	 	155,787	  	 	148,811	
Unrealized appreciation on investments	  	 	171,796	  	 	135,627	
Other	  	 	39,886	  	 	39,372	
 	  			  			
Total deferred tax liabilities	  	 	367,469	  	 	323,810	
 	  			  			
Valuation allowance	  	 	135,592	  	 	135,592	
 	  			  			
Net deferred tax asset	  	$	1,102,612	  	$	1,287,983	

The valuation allowance of $136 million at September 30, 2003 and December 31, 2002, 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.
 
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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
At September 30, 2003, the Company has net operating loss carryforwards for U.S. federal income tax purposes of approximately $1.2 billion. 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.
 
14.    Subsidiary issuer information
 
The following tables present the condensed consolidating financial information for ACE Limited (the “Parent Guarantor”), ACE INA Holdings, Inc. and ACE Financial Services, Inc. (formerly Capital Re Corporation), (the “Subsidiary Issuers”) at September 30, 2003 and December 31, 2002 and for the three and nine months ended September 30, 2003 and 2002. The Subsidiary Issuers are direct or indirect wholly-owned subsidiaries of the Parent Guarantor. 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.
 
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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
Condensed Consolidating Balance Sheet at 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
	
Assets	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total investments and cash	 	$	59,693	  	$	9,305,252	 	 	$	1,180,455	 	 	$	11,539,309	 	 	$	—  	 	 	$	22,084,709	
Insurance and reinsurance balances receivable	 	 	—  	  	 	1,988,992	 	 	 	27,693	 	 	 	804,759	 	 	 	—  	 	 	 	2,821,444	
Reinsurance recoverable	 	 	—  	  	 	11,971,099	 	 	 	—  	 	 	 	2,061,309	 	 	 	—  	 	 	 	14,032,408	
Goodwill	 	 	—  	  	 	2,130,908	 	 	 	96,723	 	 	 	483,199	 	 	 	—  	 	 	 	2,710,830	
Investments in subsidiaries	 	 	8,642,675	  	 	—  	 	 	 	152,000	 	 	 	(152,000	)	 	 	(8,642,675	)	 	 	—  	
Due from subsidiaries and affiliates, net	 	 	267,941	  	 	(19,427	)	 	 	(53,674	)	 	 	73,101	 	 	 	(267,941	)	 	 	—  	
Other assets	 	 	57,845	  	 	4,278,963	 	 	 	181,507	 	 	 	1,066,792	 	 	 	—  	 	 	 	5,585,107	
 	 			  				 				 				 				 			
Total assets	 	$	9,028,154	  	$	29,655,787	 	 	$	1,584,704	 	 	$	15,876,469	 	 	$	(8,910,616	)	 	$	47,234,498	
 	 			  				 				 				 				 			
Liabilities	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	 	$	—  	  	$	18,078,932	 	 	$	94,043	 	 	$	7,464,161	 	 	$	—  	 	 	$	25,637,136	
Unearned premiums	 	 	—  	  	 	3,739,011	 	 	 	385,858	 	 	 	2,118,229	 	 	 	—  	 	 	 	6,243,098	
Future policy benefits for life and annuity contracts	 	 	—  	  	 	—  	 	 	 	—  	 	 	 	479,291	 	 	 	—  	 	 	 	479,291	
Short-term debt	 	 	—  	  	 	145,980	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	145,980	
Long-term debt	 	 	499,409	  	 	999,727	 	 	 	—  	 	 	 	250,000	 	 	 	—  	 	 	 	1,749,136	
Trust preferred securities	 	 	—  	  	 	400,000	 	 	 	75,000	 	 	 	—  	 	 	 	—  	 	 	 	475,000	
Other liabilities	 	 	182,789	  	 	2,721,810	 	 	 	144,853	 	 	 	1,109,449	 	 	 	—  	 	 	 	4,158,901	
 	 			  				 				 				 				 			
Total liabilities	 	 	682,198	  	 	26,085,460	 	 	 	699,754	 	 	 	11,421,130	 	 	 	—  	 	 	 	38,888,542	
 	 			  				 				 				 				 			
Total shareholders’ equity	 	 	8,345,956	  	 	3,570,327	 	 	 	884,950	 	 	 	4,455,339	 	 	 	(8,910,616	)	 	 	8,345,956	
 	 			  				 				 				 				 			
Total liabilities and shareholders’ equity	 	$	9,028,154	  	$	29,655,787	 	 	$	1,584,704	 	 	$	15,876,469	 	 	$	(8,910,616	)	 	$	47,234,498	

(1)	Includes all other subsidiaries of ACE Limited and intercompany eliminations.	
(2)	Includes ACE Limited parent company eliminations.	
 
20

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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
Condensed Consolidating Balance Sheet at December 31, 2002
(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	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total investments and cash	  	$	77,506	  	$	7,413,714	  	$	1,023,777	 	 	$	9,808,911	 	 	$	—  	 	 	$	18,323,908	
Insurance and reinsurance balances receivable	  	 	—  	  	 	1,729,439	  	 	28,252	 	 	 	896,299	 	 	 	—  	 	 	 	2,653,990	
Reinsurance recoverable	  	 	—  	  	 	11,616,228	  	 	11,420	 	 	 	2,363,805	 	 	 	—  	 	 	 	13,991,453	
Goodwill	  	 	—  	  	 	2,130,908	  	 	96,723	 	 	 	489,229	 	 	 	—  	 	 	 	2,716,860	
Investments in subsidiaries	  	 	7,095,429	  	 	—  	  	 	152,000	 	 	 	(152,000	)	 	 	(7,095,429	)	 	 	—  	
Due from subsidiaries and affiliates, net	  	 	162,314	  	 	50,967	  	 	(49,681	)	 	 	(1,286	)	 	 	(162,314	)	 	 	—  	
Other assets	  	 	42,703	  	 	4,235,625	  	 	210,477	 	 	 	1,275,921	 	 	 	—  	 	 	 	5,764,726	
 	  			  			  				 				 				 			
Total assets	  	$	7,377,952	  	$	27,176,881	  	$	1,472,968	 	 	$	14,680,879	 	 	$	(7,257,743	)	 	$	43,450,937	
 	  			  			  				 				 				 			
Liabilities	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unpaid losses and loss expenses	  	$	—  	  	$	17,057,979	  	$	75,960	 	 	$	7,181,243	 	 	$	—  	 	 	$	24,315,182	
Unearned premiums	  	 	—  	  	 	3,233,614	  	 	352,551	 	 	 	1,999,359	 	 	 	—  	 	 	 	5,585,524	
Future policy benefits for life and annuity contracts	  	 	—  	  	 	—  	  	 	—  	 	 	 	442,264	 	 	 	—  	 	 	 	442,264	
Short-term debt	  	 	—  	  	 	145,940	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	145,940	
Long-term debt	  	 	499,282	  	 	999,655	  	 	—  	 	 	 	250,000	 	 	 	—  	 	 	 	1,748,937	
Trust preferred securities	  	 	—  	  	 	400,000	  	 	75,000	 	 	 	—  	 	 	 	—  	 	 	 	475,000	
Other liabilities	  	 	178,934	  	 	2,574,801	  	 	160,238	 	 	 	1,124,381	 	 	 	—  	 	 	 	4,038,354	
 	  			  			  				 				 				 			
Total liabilities	  	 	678,216	  	 	24,411,989	  	 	663,749	 	 	 	10,997,247	 	 	 	—  	 	 	 	36,751,201	
 	  			  			  				 				 				 			
Mezzanine equity	  	 	311,050	  	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	311,050	
 	  			  			  				 				 				 			
Total shareholders’ equity	  	 	6,388,686	  	 	2,764,892	  	 	809,219	 	 	 	3,683,632	 	 	 	(7,257,743	)	 	 	6,388,686	
 	  			  			  				 				 				 			
Total liabilities, mezzanine equity and shareholders’ equity	  	$	7,377,952	  	$	27,176,881	  	$	1,472,968	 	 	$	14,680,879	 	 	$	(7,257,743	)	 	$	43,450,937	

(1)	Includes all other subsidiaries of ACE Limited and intercompany eliminations.	
(2)	Includes ACE Limited parent company eliminations.	
 
21

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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
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	 	
Other income (expense)	  	 	—  	  	 	(360	)	 	 	—  	  	 	(2,728	)	 	 	—  	 	 	 	(3,088	)	
Equity in earnings of subsidiaries	  	 	383,607	  	 	—  	 	 	 	—  	  	 	—  	 	 	 	(383,607	)	 	 	—  	 	
Net realized gains (losses) on investments	  	 	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	 	
Income tax expense	  	 	955	  	 	37,988	 	 	 	11,052	  	 	16,951	 	 	 	—  	 	 	 	66,946	 	
 	  			  				 			  				 				 				
Net income (loss)	  	$	354,965	  	$	67,654	 	 	$	27,156	  	$	287,707	 	 	$	(382,517	)	 	$	354,965	 	

Condensed Consolidating Statement of Operations
For the three months ended September 30, 2002
(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	  	$	—  	 	 	$	1,075,787	 	 	$	42,887	 	 	$	1,104,113	 	 	$	—  	 	 	$	2,222,787	 	
Net premiums earned	  	 	—  	 	 	 	863,326	 	 	 	29,613	 	 	 	1,032,640	 	 	 	—  	 	 	 	1,925,579	 	
Net investment income	  	 	12,872	 	 	 	76,737	 	 	 	11,703	 	 	 	106,491	 	 	 	(8,063	)	 	 	199,740	 	
Other income (expense)	  	 	—  	 	 	 	(14,516	)	 	 	—  	 	 	 	484	 	 	 	—  	 	 	 	(14,032	)	
Equity in earnings of subsidiaries	  	 	17,301	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(17,301	)	 	 	—  	 	
Net realized losses on investments	  	 	(55,564	)	 	 	(47,386	)	 	 	(33,012	)	 	 	(99,320	)	 	 	—  	 	 	 	(235,282	)	
Losses and loss expenses	  	 	—  	 	 	 	609,457	 	 	 	4,976	 	 	 	713,359	 	 	 	—  	 	 	 	1,327,792	 	
Life and annuity benefits	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	59,697	 	 	 	—  	 	 	 	59,697	 	
Policy acquisition costs and administrative expenses	  	 	20,174	 	 	 	235,300	 	 	 	13,487	 	 	 	235,601	 	 	 	(881	)	 	 	503,681	 	
Interest expense	  	 	8,619	 	 	 	35,742	 	 	 	3,017	 	 	 	5,227	 	 	 	(3,926	)	 	 	48,679	 	
Income tax expense (benefit)	  	 	2,326	 	 	 	(2,815	)	 	 	(7,103	)	 	 	258	 	 	 	—  	 	 	 	(7,334	)	
 	  				 				 				 				 				 				
Net income (loss)	  	$	(56,510	)	 	$	477	 	 	$	(6,073	)	 	$	26,153	 	 	$	(20,557	)	 	$	(56,510	)	

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

Table of Contents
ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
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	 	
Other income (expense)	  	 	—  	 	 	 	(1,809	)	 	 	—  	  	 	(6,707	)	 	 	—  	 	 	 	(8,516	)	
Equity in earnings of subsidiaries	  	 	1,072,991	 	 	 	—  	 	 	 	—  	  	 	—  	 	 	 	(1,072,991	)	 	 	—  	 	
Net realized gains (losses) on investments	  	 	(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	 	
Income tax expense	  	 	4,366	 	 	 	128,297	 	 	 	26,367	  	 	48,515	 	 	 	—  	 	 	 	207,545	 	
 	  				 				 			  				 				 				
Net income (loss)	  	$	972,877	 	 	$	243,708	 	 	$	67,992	  	$	757,161	 	 	$	(1,068,861	)	 	$	972,877	 	

Condensed Consolidating Statement of Operations
For the nine months ended September 30, 2002
(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	  	$	—  	 	 	$	2,887,006	 	 	$	88,637	 	 	$	3,108,550	 	 	$	—  	 	 	$	6,084,193	 	
Net premiums earned	  	 	—  	 	 	 	2,232,787	 	 	 	78,029	 	 	 	2,550,279	 	 	 	—  	 	 	 	4,861,095	 	
Net investment income	  	 	41,948	 	 	 	236,989	 	 	 	35,154	 	 	 	313,380	 	 	 	(26,792	)	 	 	600,679	 	
Other income (expense)	  	 	—  	 	 	 	(25,587	)	 	 	—  	 	 	 	4,286	 	 	 	—  	 	 	 	(21,301	)	
Equity in earnings of subsidiaries	  	 	358,254	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(358,254	)	 	 	—  	 	
Net realized losses on investments	  	 	(78,248	)	 	 	(81,859	)	 	 	(51,933	)	 	 	(188,844	)	 	 	—  	 	 	 	(400,884	)	
Losses and loss expenses	  	 	—  	 	 	 	1,557,630	 	 	 	10,818	 	 	 	1,573,438	 	 	 	—  	 	 	 	3,141,886	 	
Life and annuity benefits	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	106,004	 	 	 	—  	 	 	 	106,004	 	
Policy acquisition costs and administrative expenses	  	 	53,263	 	 	 	607,442	 	 	 	36,764	 	 	 	667,787	 	 	 	(2,643	)	 	 	1,362,613	 	
Interest expense	  	 	16,745	 	 	 	116,374	 	 	 	9,564	 	 	 	14,482	 	 	 	(10,532	)	 	 	146,633	 	
Income tax expense	  	 	6,751	 	 	 	23,330	 	 	 	(5,664	)	 	 	12,841	 	 	 	—  	 	 	 	37,258	 	
 	  				 				 				 				 				 				
Net income (loss)	  	$	245,195	 	 	$	57,554	 	 	$	9,768	 	 	$	304,549	 	 	$	(371,871	)	 	$	245,195	 	

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

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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(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	)	 	$	1,040,898	 	 	$	162,121	 	 	$	1,553,490	 	 	$	2,639,137	 	
 	  				 				 				 				 				
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 realized gains (losses) on investment derivatives	  	 	(9,222	)	 	 	—  	 	 	 	—  	 	 	 	27,724	 	 	 	18,502	 	
Other	  	 	—  	 	 	 	(39,167	)	 	 	—  	 	 	 	(21,302	)	 	 	(60,469	)	
 	  				 				 				 				 				
Net cash flows from (used for) investing activities	  	$	30,463	 	 	$	(2,018,683	)	 	$	(152,572	)	 	$	(1,164,782	)	 	$	(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	 	
Capitalization of subsidiaries	  	 	(697,393	)	 	 	667,617	 	 	 	—  	 	 	 	29,776	 	 	 	—  	 	
Dividends received from subsidiaries	  	 	306,000	 	 	 	—  	 	 	 	—  	 	 	 	(306,000	)	 	 	—  	 	
 	  				 				 				 				 				
Net cash flows from (used for) financing activities	  	$	109,026	 	 	$	667,657	 	 	$	—  	 	 	$	(342,480	)	 	$	434,203	 	
 	  				 				 				 				 				
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.	
 
24

Table of Contents
ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
Condensed Consolidating Statement of Cash Flows
For the nine months ended September 30, 2002
(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	  	$	(148,253	)	 	$	127,199	 	 	$	36,047	 	 	$	1,576,914	 	 	$	1,591,907	 	
 	  				 				 				 				 				
Cash flows from investing activities	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchases of fixed maturities	  	 	(149,170	)	 	 	(2,231,174	)	 	 	(480,079	)	 	 	(9,891,150	)	 	 	(12,751,573	)	
Purchases of equity securities	  	 	—  	 	 	 	(60,165	)	 	 	—  	 	 	 	(94,670	)	 	 	(154,835	)	
Sales of fixed maturities	  	 	342,097	 	 	 	1,842,602	 	 	 	436,144	 	 	 	8,847,729	 	 	 	11,468,572	 	
Sales of equity securities	  	 	—  	 	 	 	54,512	 	 	 	—  	 	 	 	55,865	 	 	 	110,377	 	
Maturities of fixed maturities	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	249,426	 	 	 	249,426	 	
Net realized losses on investment derivatives	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(117,580	)	 	 	(117,580	)	
Settlement of an acquisition-related lawsuit	  	 	—  	 	 	 	54,380	 	 	 	—  	 	 	 	—  	 	 	 	54,380	 	
Other	  	 	—  	 	 	 	—  	 	 	 	1,129	 	 	 	(103,540	)	 	 	(102,411	)	
 	  				 				 				 				 				
Net cash flows from (used for) investing activities	  	$	192,927	 	 	$	(339,845	)	 	$	(42,806	)	 	$	(1,053,920	)	 	$	(1,243,644	)	
 	  				 				 				 				 				
Cash flows from financing activities	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid on Ordinary Shares	  	 	(122,846	)	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(122,846	)	
Dividends paid on Mezzanine equity	  	 	(19,246	)	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(19,246	)	
Proceeds from short-term debt, net	  	 	—  	 	 	 	(383,109	)	 	 	(25,000	)	 	 	132,981	 	 	 	(275,128	)	
Proceeds from long-term debt	  	 	499,155	 	 	 	(100,000	)	 	 	—  	 	 	 	—  	 	 	 	399,155	 	
Advances to (from) affiliates	  	 	359,103	 	 	 	—  	 	 	 	9,891	 	 	 	(368,994	)	 	 	—  	 	
Repayment of trust preferred securities	  	 	—  	 	 	 	(400,000	)	 	 	—  	 	 	 	—  	 	 	 	(400,000	)	
Proceeds from exercise of options for Ordinary Shares	  	 	40,723	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	40,723	 	
Proceeds from Ordinary Shares issued under ESPP	  	 	7,472	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	7,472	 	
Capitalization of subsidiaries	  	 	(1,098,896	)	 	 	1,185,956	 	 	 	25,000	 	 	 	(112,060	)	 	 	—  	 	
Dividends received from subsidiaries	  	 	260,000	 	 	 	—  	 	 	 	—  	 	 	 	(260,000	)	 	 	—  	 	
 	  				 				 				 				 				
Net cash flows from (used for) financing activities	  	$	(74,535	)	 	$	302,847	 	 	$	9,891	 	 	$	(608,073	)	 	$	(369,870	)	
 	  				 				 				 				 				
Net increase (decrease) in cash	  	 	(29,861	)	 	 	90,201	 	 	 	3,132	 	 	 	(85,079	)	 	 	(21,607	)	
Cash — beginning of period	  	 	32,525	 	 	 	355,327	 	 	 	1,027	 	 	 	282,502	 	 	 	671,381	 	
 	  				 				 				 				 				
Cash — end of period	  	$	2,664	 	 	$	445,528	 	 	$	4,159	 	 	$	197,423	 	 	$	649,774	 	

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

Table of Contents
ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
15.    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, while Financial Services operates with major U.S. financial guaranty insurers, mortgage guaranty insurers in the U.S., U.K. and Australia, title insurers and European trade credit insurers. 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. 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, primary and excess casualty, energy, professional risk, marine, trade credit, accident and health, aviation and consumer-oriented products. ACE International provides insurance coverage on a worldwide basis.
 
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. 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 guaranty business of ACE Guaranty Corp. and ACE Capital Re International and the financial solutions business in the U.S. and Bermuda. The financial guaranty businesses serve the U.S. domestic and international financial guaranty insurance and reinsurance markets. Their principal business is the insurance and reinsurance of investment grade public finance and asset-backed debt issues (insured and ceded by the primary bond insurance companies), and insurance and reinsurance of credit-default swaps. In addition to financial guaranty business, the companies provide trade credit reinsurance and structured solutions to problems of financial and risk management through reinsurance and other forms of credit enhancement products, as well as mortgage guaranty reinsurance and title reinsurance. The financial solutions
 
26

Table of Contents
ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
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.
 
a)	The following tables summarize the operations by segment for the three and nine months ended September 30, 2003 and 2002.	
 
b)	For segment reporting purposes, certain items have been presented in a different manner than in the consolidated financial statements. For segment reporting purposes, net realized gains (losses) and the tax on net realized gains (losses) have been shown separately.	
 
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	 	 	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	)	
Interest expense	 	 	6,913	 	 	 	1,150	 	 	 	—  	 	 	34,649	 	 	 	42,712	 	 	 	1,636	 	 	 	44,348	 	
Income tax expense (benefit)	 	 	47,383	 	 	 	12,831	 	 	 	2,778	 	 	(13,436	)	 	 	49,556	 	 	 	10,934	 	 	 	60,490	 	
 	 				 				 			 				 				 				 				
Income (loss) excluding net realized gains (losses)	 	 	125,012	 	 	 	85,945	 	 	 	95,229	 	 	(59,041	)	 	 	241,581	 	 	 	56,720	 	 	 	303,865	 	
Net realized gains (losses)	 	 	7,893	 	 	 	4,382	 	 	 	10,306	 	 	5,386	 	 	 	27,967	 	 	 	29,589	 	 	 	57,556	 	
Tax effect of net realized gains (losses)	 	 	115	 	 	 	(427	)	 	 	58	 	 	—  	 	 	 	(254	)	 	 	(6,202	)	 	 	(6,456	)	
 	 				 				 			 				 				 				 				
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.	
 
27

Table of Contents
ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
Statement of Operations by Segment
For the three months ended September 30, 2002
(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	 	$	1,783,574	 	 	$	1,007,923	 	 	$	185,474	 	 	$	—  	 	 	$	2,976,971	 	 	$	493,225	 	 	$	3,470,196	 	
Net premiums written	 	 	869,008	 	 	 	689,318	 	 	 	131,008	 	 	 	—  	 	 	 	1,689,334	 	 	 	476,605	 	 	 	2,165,939	 	
Net premiums earned	 	 	654,003	 	 	 	647,308	 	 	 	194,307	 	 	 	—  	 	 	 	1,495,618	 	 	 	373,113	 	 	 	1,868,731	 	
Losses and loss expenses	 	 	452,643	 	 	 	445,900	 	 	 	101,069	 	 	 	—  	 	 	 	999,612	 	 	 	328,180	 	 	 	1,327,792	 	
Policy acquisition costs	 	 	54,493	 	 	 	140,860	 	 	 	37,339	 	 	 	—  	 	 	 	232,692	 	 	 	17,132	 	 	 	249,824	 	
Administrative expenses	 	 	86,031	 	 	 	107,031	 	 	 	10,174	 	 	 	29,894	 	 	 	233,130	 	 	 	15,912	 	 	 	249,042	 	
 	 				 				 				 				 				 				 				
Underwriting income (loss)	 	 	60,836	 	 	 	(46,483	)	 	 	45,725	 	 	 	(29,894	)	 	 	30,184	 	 	 	11,889	 	 	 	42,073	 	
 	 				 				 				 				 				 				 				
Life	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross premiums written	 	 	—  	 	 	 	—  	 	 	 	58,529	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	58,529	 	
Net premiums written	 	 	—  	 	 	 	—  	 	 	 	56,848	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	56,848	 	
Net premiums earned	 	 	—  	 	 	 	—  	 	 	 	56,848	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	56,848	 	
Life and annuity benefits	 	 	—  	 	 	 	—  	 	 	 	59,697	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	59,697	 	
Policy acquisition costs	 	 	—  	 	 	 	—  	 	 	 	3,189	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	3,189	 	
Administrative expenses	 	 	—  	 	 	 	—  	 	 	 	1,626	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	1,626	 	
Net investment income	 	 	—  	 	 	 	—  	 	 	 	6,927	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	6,927	 	
 	 				 				 				 				 				 				 				
Underwriting income (loss)	 	 	—  	 	 	 	—  	 	 	 	(737	)	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(737	)	
 	 				 				 				 				 				 				 				
Net investment income	 	 	101,500	 	 	 	28,519	 	 	 	19,298	 	 	 	(2,119	)	 	 	147,198	 	 	 	45,615	 	 	 	192,813	 	
Other income (expense)	 	 	(271	)	 	 	(230	)	 	 	554	 	 	 	(14,516	)	 	 	(14,463	)	 	 	431	 	 	 	(14,032	)	
Interest expense	 	 	7,595	 	 	 	493	 	 	 	—  	 	 	 	37,488	 	 	 	45,576	 	 	 	3,103	 	 	 	48,679	 	
Income tax expense (benefit)	 	 	41,661	 	 	 	(3,141	)	 	 	(1,432	)	 	 	(21,429	)	 	 	15,659	 	 	 	6,761	 	 	 	22,420	 	
 	 				 				 				 				 				 				 				
Income (loss) excluding net realized gains (losses)	 	 	112,809	 	 	 	(15,546	)	 	 	66,272	 	 	 	(62,588	)	 	 	101,684	 	 	 	48,071	 	 	 	149,018	 	
Net realized gains (losses)	 	 	(54,718	)	 	 	(21,011	)	 	 	(26,593	)	 	 	(55,564	)	 	 	(157,886	)	 	 	(77,396	)	 	 	(235,282	)	
Tax effect of net realized gains (losses)	 	 	3,712	 	 	 	7,161	 	 	 	29	 	 	 	—  	 	 	 	10,902	 	 	 	18,852	 	 	 	29,754	 	
 	 				 				 				 				 				 				 				
Net income (loss)	 	$	61,803	 	 	$	(29,396	)	 	$	39,708	 	 	$	(118,152	)	 	$	(45,300	)	 	$	(10,473	)	 	$	(56,510	)	

(1)	Includes ACE Limited, ACE INA Holdings and intercompany eliminations.	
(2)	Excludes life reinsurance business.	
 
28

Table of Contents
ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(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	)	
Interest expense	 	 	21,813	 	 	 	2,016	 	 	 	72	 	 	103,850	 	 	 	127,751	 	 	 	5,207	 	 	 	132,958	 	
Income tax expense (benefit)	 	 	128,957	 	 	 	60,643	 	 	 	10,287	 	 	(40,563	)	 	 	159,324	 	 	 	27,792	 	 	 	187,116	 	
 	 				 				 			 				 				 				 				
Income (loss) excluding net realized gains (losses)	 	 	379,284	 	 	 	220,653	 	 	 	266,827	 	 	(171,033	)	 	 	684,401	 	 	 	173,547	 	 	 	869,278	 	
Net realized gains (losses)	 	 	14,751	 	 	 	(7,053	)	 	 	26,482	 	 	(8,594	)	 	 	25,586	 	 	 	98,442	 	 	 	124,028	 	
Tax effect of net realized gains (losses)	 	 	183	 	 	 	4,745	 	 	 	598	 	 	—  	 	 	 	5,526	 	 	 	(25,955	)	 	 	(20,429	)	
 	 				 				 			 				 				 				 				
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.	
 
29

Table of Contents
ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
Statement of Operations by Segment
For the nine months ended September 30, 2002
(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	 	$	4,476,260	 	 	$	2,911,298	 	 	$	773,649	 	 	$	—  	 	 	$	8,161,207	 	 	$	1,299,179	 	 	$	9,460,386	 	
Net premiums written	 	 	2,100,172	 	 	 	1,919,904	 	 	 	682,840	 	 	 	—  	 	 	 	4,702,916	 	 	 	1,269,479	 	 	 	5,972,395	 	
Net premiums earned	 	 	1,732,934	 	 	 	1,721,892	 	 	 	459,133	 	 	 	—  	 	 	 	3,913,959	 	 	 	835,567	 	 	 	4,749,526	 	
Losses and loss expenses	 	 	1,176,275	 	 	 	1,082,973	 	 	 	192,748	 	 	 	—  	 	 	 	2,451,996	 	 	 	689,890	 	 	 	3,141,886	 	
Policy acquisition costs	 	 	146,821	 	 	 	382,383	 	 	 	83,008	 	 	 	—  	 	 	 	612,212	 	 	 	57,551	 	 	 	669,763	 	
Administrative expenses	 	 	243,604	 	 	 	281,486	 	 	 	26,054	 	 	 	79,214	 	 	 	630,358	 	 	 	42,979	 	 	 	673,337	 	
 	 				 				 				 				 				 				 				
Underwriting income (loss)	 	 	166,234	 	 	 	(24,950	)	 	 	157,323	 	 	 	(79,214	)	 	 	219,393	 	 	 	45,147	 	 	 	264,540	 	
 	 				 				 				 				 				 				 				
Life	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross premiums written	 	 	—  	 	 	 	—  	 	 	 	115,440	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	115,440	 	
Net premiums written	 	 	—  	 	 	 	—  	 	 	 	111,798	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	111,798	 	
Net premiums earned	 	 	—  	 	 	 	—  	 	 	 	111,569	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	111,569	 	
Life and annuity benefits	 	 	—  	 	 	 	—  	 	 	 	106,004	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	106,004	 	
Policy acquisition costs	 	 	—  	 	 	 	—  	 	 	 	15,253	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	15,253	 	
Administrative expenses	 	 	—  	 	 	 	—  	 	 	 	4,260	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	4,260	 	
Net investment income	 	 	—  	 	 	 	—  	 	 	 	19,124	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	19,124	 	
 	 				 				 				 				 				 				 				
Underwriting income	 	 	—  	 	 	 	—  	 	 	 	5,176	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	5,176	 	
 	 				 				 				 				 				 				 				
Net investment income	 	 	306,801	 	 	 	77,109	 	 	 	62,198	 	 	 	(5,044	)	 	 	441,064	 	 	 	140,491	 	 	 	581,555	 	
Other income (expense)	 	 	(291	)	 	 	3,592	 	 	 	554	 	 	 	(25,587	)	 	 	(21,732	)	 	 	431	 	 	 	(21,301	)	
Interest expense	 	 	24,286	 	 	 	1,414	 	 	 	227	 	 	 	110,348	 	 	 	136,275	 	 	 	10,358	 	 	 	146,633	 	
Income tax expense (benefit)	 	 	115,728	 	 	 	9,397	 	 	 	519	 	 	 	(59,993	)	 	 	65,651	 	 	 	23,702	 	 	 	89,353	 	
 	 				 				 				 				 				 				 				
Income (loss) excluding net realized gains (losses)	 	 	332,730	 	 	 	44,940	 	 	 	224,505	 	 	 	(160,200	)	 	 	436,799	 	 	 	152,009	 	 	 	593,984	 	
Net realized gains (losses)	 	 	(106,164	)	 	 	(32,186	)	 	 	(57,236	)	 	 	(78,248	)	 	 	(273,834	)	 	 	(127,050	)	 	 	(400,884	)	
Tax effect of net realized gains (losses)	 	 	15,433	 	 	 	9,939	 	 	 	189	 	 	 	—  	 	 	 	25,561	 	 	 	26,534	 	 	 	52,095	 	
 	 				 				 				 				 				 				 				
Net income (loss)	 	$	241,999	 	 	$	22,693	 	 	$	167,458	 	 	$	(238,448	)	 	$	188,526	 	 	$	51,493	 	 	$	245,195	 	

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

Table of Contents
ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
The following tables summarize the revenues of each segment by product offering for the three and nine months ended September 30, 2003 and 2002.
 
Net premiums earned by type  of premium
 
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	

Three Months Ended September 30, 2002	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	
						
 	  	Property &
Casualty
	  	Life, Accident
& Health
	  	Financial
Guaranty
	  	Financial
Solutions
	  	ACE
Consolidated
	
 	  	(in millions of U.S. dollars)	
Insurance — North American	  	$	635	  	$	19	  	$	—  	  	$	—  	  	$	654	
Insurance — Overseas General	  	 	478	  	 	169	  	 	—  	  	 	—  	  	 	647	
Global Reinsurance	  	 	194	  	 	57	  	 	—  	  	 	—  	  	 	251	
Financial Services	  	 	—  	  	 	—  	  	 	46	  	 	327	  	 	373	
 	  			  			  			  			  			
 	  	$	1,307	  	$	245	  	$	46	  	$	327	  	$	1,925	

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	

Nine Months Ended September 30, 2002	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	
						
 	  	Property &
Casualty
	  	Life, Accident
& Health
	  	Financial
Guaranty
	  	Financial
Solutions
	  	ACE
Consolidated
	
 	  	(in millions of U.S. dollars)	
Insurance — North American	  	$	1,671	  	$	62	  	$	—  	  	$	—  	  	$	1,733	
Insurance — Overseas General	  	 	1,275	  	 	447	  	 	—  	  	 	—  	  	 	1,722	
Global Reinsurance	  	 	459	  	 	112	  	 	—  	  	 	—  	  	 	571	
Financial Services	  	 	—  	  	 	—  	  	 	201	  	 	634	  	 	835	
 	  			  			  			  			  			
 	  	$	3,405	  	$	621	  	$	201	  	$	634	  	$	4,861	

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ACE LIMITED AND SUBSIDIARIES
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)
(Unaudited)
 
The following table summarizes the identifiable assets for the property and casualty underwriting operations, including the Financial Services segment, the life reinsurance operations and corporate holding companies, including ACE Limited and ACE INA Holdings at September 30, 2003 and December 31, 2002.
 
 	  	September 30
2003
	  	December 31
2002
	
 	  	(in millions of U.S. dollars)	
Property and casualty	  	$	44,016	  	$	40,651	
Life reinsurance	  	 	723	  	 	610	
Corporate	  	 	2,495	  	 	2,190	
 	  			  			
Total assets	  	$	47,234	  	$	43,451	

16.     Basis of presentation
 
Certain items in the prior year financial statements have been reclassified to conform with the current year presentation.
 
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 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, 2003. 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, 2002.
 
Safe Harbor Disclosure
 
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Any written or oral statements made by or on our behalf may include forward-looking statements which reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other factors (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 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 ability to collect reinsurance recoverable, credit developments of reinsurers and any delays with respect thereto;	
 
 	•	the occurrence of catastrophe 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;	
 
 	•	judicial decisions and rulings, new theories of liability and legal tactics;	
 
 	•	the impact of the September 11 tragedy and its aftermath on our insureds and reinsureds, on the insurance and reinsurance industry, and on the economy in general;	
 
 	•	uncertainties relating to governmental, legislative and regulatory policies, developments and treaties, which, among other things, could affect coverage and liability for asbestos claims, subject us to insurance regulation or taxation in additional jurisdictions, change the tax rate applicable to us 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;	
 
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 	•	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 investment portfolio and financing plans;	
 
 	•	changing rates of inflation and other economic conditions;	
 
 	•	the amount of dividends received from subsidiaries;	
 
 	•	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.
 
Critical Accounting Policies
 
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 fair value of our investment portfolio;	
 
 	•	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. In addition to the discussion that follows, more information regarding the estimates and assumptions required to arrive at these amounts 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, 2002.
 
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Results of Operations—Three and Nine Months Ended September 30, 2003 and 2002
 
Consolidated Operating Results
 
 	  	Three Months
Ended
September 30
	 	 	Nine Months
Ended
September 30
	 	
 	  	2003
	 	 	2002
	 	 	2003
	 	 	2002
	 	
 	  	(in millions of U.S. dollars)	 	
Gross premiums written	  	$	3,451	 	 	$	3,528	 	 	$	10,969	 	 	$	9,575	 	
Net premiums written	  	 	2,306	 	 	 	2,223	 	 	 	7,642	 	 	 	6,084	 	
					
Net premiums earned	  	 	2,397	 	 	 	1,925	 	 	 	6,775	 	 	 	4,861	 	
Losses and loss expenses	  	 	1,519	 	 	 	1,328	 	 	 	4,261	 	 	 	3,142	 	
Life and annuity benefits	  	 	45	 	 	 	60	 	 	 	137	 	 	 	106	 	
Policy acquisition costs	  	 	343	 	 	 	253	 	 	 	973	 	 	 	685	 	
Administrative expenses	  	 	293	 	 	 	250	 	 	 	840	 	 	 	678	 	
 	  				 				 				 				
Underwriting income	  	$	197	 	 	$	34	 	 	$	564	 	 	$	250	 	

Net investment income	  	 	216	 	 	 	199	 	 	 	633	 	 	 	600	 	
Net realized gains (losses)	  	 	57	 	 	 	(235	)	 	 	124	 	 	 	(401	)	
Other income (expense)	  	 	(3	)	 	 	(15	)	 	 	(8	)	 	 	(22	)	
Interest expense	  	 	45	 	 	 	48	 	 	 	133	 	 	 	146	 	
Income tax expense (benefit)	  	 	67	 	 	 	(8	)	 	 	207	 	 	 	36	 	
 	  				 				 				 				
Net income (loss)	  	$	355	 	 	$	(57	)	 	$	973	 	 	$	245	 	

Loss and loss expense ratio	  	 	64.6	%	 	 	71.0	%	 	 	64.2	%	 	 	66.1	%	
Policy acquisition cost ratio	  	 	14.4	%	 	 	13.4	%	 	 	14.5	%	 	 	14.1	%	
Administrative expense ratio	  	 	12.4	%	 	 	13.3	%	 	 	12.6	%	 	 	14.2	%	
Combined ratio	  	 	91.4	%	 	 	97.7	%	 	 	91.3	%	 	 	94.4	%	
 
Gross premiums written decreased two percent for the three months ended September 30, 2003, compared with the same period in 2002. For the nine months ended September 30, 2003, gross premiums written increased 15 percent. Gross premiums written reflect the premiums paid by our customers to secure insurance or reinsurance protection from us. Gross premiums written in our property and casualty businesses (P&C) increased 11 percent and 23 percent for the three and nine months ended September 30, 2003, respectively while our Financial Services business decreased 78 percent and 42 percent, respectively. Most of this decline was due to the absence of new loss portfolio transfer (LPT) and equity collateralized debt obligation (CDO) premiums for the quarter. As discussed later in this report, production in the Financial Services segment can fluctuate dramatically from period to period. Insurance and reinsurance rates in the P&C market increased steadily throughout 2002 and continued to do so in 2003. Property rates in the U.S. have stabilized, while property rates in Europe continue to increase. We believe the property catastrophe reinsurance market has also now stabilized due to the absorption of new capacity and adequate levels of pricing in most areas. We believe casualty rates will continue to rise for the remainder of 2003. Demand for our new product offerings has been good and this has also contributed to the growth in premiums in 2003. Terrorism coverage has been modest and largely limited to insureds that seek the coverage to meet third-party requirements.
 
Net premiums written, which reflect the premiums we retain after purchasing reinsurance protection, increased four percent for the three months ended September 30, 2003. For the nine months ended September 30, 2003, net premiums written increased 26 percent. Net premiums written in our P&C businesses increased 27 percent and 43 percent for the three and nine months ended September 30, 2003, respectively while our Financial Services business decreased 78 percent and 40 percent, respectively. Our P&C net premiums written are growing more than our P&C gross premiums written because we are retaining more of the business we write. This reflects a conscious decision on our part to focus on direct lines of business and to shift away from heavily reinsured program business.
 
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Net premiums earned, which reflect the portion of net premiums written that were recorded as revenues for the period, increased 25 percent and 39 percent for the three and nine months ended September 30, 2003, respectively. Net premiums earned in our P&C businesses increased 44 percent and 54 percent for the three and nine months ended September 30, 2003, respectively while our Financial Services business had decreases of 45 percent and 25 percent, respectively. The growth in P&C net premiums earned is a result of the growth in P&C net premiums written in 2003 and 2002.
 
Underwriting results for our P&C and Financial Services business are discussed by reference to 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. 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 loss and loss expense ratio declined for the three and nine months ended September 30, 2003. Our loss and loss expense ratio is impacted by changes in the mix of business written and level of catastrophe losses in a period. We have taken advantage of increasing rates and market opportunities and most of these opportunities are in the casualty insurance and reinsurance areas, where rate increases are accelerating. Casualty business is typically written at higher loss ratios than property business because the loss settlement period for casualty business is longer in duration, and thus we earn more investment income on premiums invested. We have also increased our loss ratio assumptions over the past year in some of our casualty lines in connection with increases we have made in our retained risk levels. The three months ended September 30, 2003 included $42 million of catastrophe losses compared with $100 million for the same quarter in 2002. Our loss and loss expense ratio is also influenced by the size of LPTs written in a particular quarter. LPTs are typically recorded at higher loss ratios than our other lines of business. For the three and nine months ended September 30, 2002, we recorded gross premiums written attributed to LPT business of $187 million and $212 million, respectively, compared with $4 million for the nine months ended September 30, 2003. Also impacting our loss and loss expense ratio is adverse prior period development. For the three months ended September 30, 2003 and 2002, we had adverse prior period development of $60 million and $55 million, respectively. For the nine months ended September 30, 2003 and 2002 adverse prior period development was $106 million and $120 million, respectively. Our segment discussions below contain more information about prior period development. 
 
Our policy acquisition costs include commissions, premium taxes, underwriting and other costs that vary with, and are primarily related to, the production of premium. The policy acquisition cost ratio increased for the three and nine months ended September 30, 2003 due to changes in the mix of business written. We have increased the volume of business generated from Global Reinsurance in ACE Tempest Re USA which typically incurs higher brokerage commissions than business generated in Bermuda or Europe. We have also purchased less reinsurance in the Insurance – North American segment, which has resulted in reduced ceding commissions. Administrative expenses include all other operating costs. Administrative expenses increased to support the growth in our business and partially due to the depreciation of the U.S. dollar, which had the effect of increasing administrative expenses for Insurance – Overseas General. The administrative expense ratio has improved for the three and nine months ended September 30, 2003 due to the significant increase in net premiums earned.
 
Net investment income increased for the three and nine months ended September 30, 2003, due to higher average invested assets, partially offset by a decline in the investment portfolio’s yield due to the impact of lower interest rates.
 
Increases in net premiums earned and lower catastrophe losses in 2003 contributed to the higher underwriting income. Our net income increased $412 million and $728 million for the three and nine months ended September 30, 2003, respectively. The increases in the current periods are due to higher underwriting
 
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income and the impact of net realized gains in the current year compared with net realized losses in the prior year. This increased net income by $256 million and $452 million for the three and nine months ended September 30, 2003, respectively.
 
Segment Operating Results — Three and Nine Months Ended September 30, 2003 and 2002
 
The performance of our management for the P&C and Financial Services segments are measured based on the results achieved in underwriting income and income excluding net realized gains (losses).
 
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) and errors and omissions coverages (E&O)), 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
	 	
 	  	2003
	 	 	2002
	 	 	2003
	 	 	2002
	 	
 	  	(in millions of U.S. dollars)	 	
Gross premiums written	  	$	1,819	 	 	$	1,783	 	 	$	5,131	 	 	$	4,476	 	
Net premiums written	  	 	1,065	 	 	 	869	 	 	 	2,967	 	 	 	2,100	 	
					
Net premiums earned	  	 	990	 	 	 	654	 	 	 	2,663	 	 	 	1,733	 	
Losses and loss expenses	  	 	712	 	 	 	453	 	 	 	1,861	 	 	 	1,176	 	
Policy acquisition costs	  	 	95	 	 	 	55	 	 	 	279	 	 	 	147	 	
Administrative expenses	  	 	103	 	 	 	86	 	 	 	293	 	 	 	244	 	
 	  				 				 				 				
Underwriting income	  	$	80	 	 	$	60	 	 	$	230	 	 	$	166	 	

Net investment income	  	 	100	 	 	 	101	 	 	 	306	 	 	 	306	 	
Other income (expense)	  	 	—  	 	 	 	—  	 	 	 	(6	)	 	 	—  	 	
Interest expense	  	 	7	 	 	 	7	 	 	 	22	 	 	 	24	 	
Income tax expense	  	 	48	 	 	 	41	 	 	 	129	 	 	 	115	 	
 	  				 				 				 				
Income excluding net realized gains (losses)	  	$	125	 	 	$	113	 	 	$	379	 	 	$	333	 	
Net realized gains (losses)	  	 	8	 	 	 	(55	)	 	 	15	 	 	 	(107	)	
Tax effect of net realized gains (losses)	  	 	—  	 	 	 	4	 	 	 	—  	 	 	 	16	 	
 	  				 				 				 				
Net income	  	$	133	 	 	$	62	 	 	$	394	 	 	$	242	 	

Loss and loss expense ratio	  	 	71.9	%	 	 	69.2	%	 	 	69.9	%	 	 	67.9	%	
Policy acquisition cost ratio	  	 	9.6	%	 	 	8.3	%	 	 	10.4	%	 	 	8.5	%	
Administrative expense ratio	  	 	10.4	%	 	 	13.2	%	 	 	11.0	%	 	 	14.0	%	
Combined ratio	  	 	91.9	%	 	 	90.7	%	 	 	91.3	%	 	 	90.4	%	
 
Insurance – North American increased gross premiums written two percent and 15 percent for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. This segment continues to benefit from a robust market for casualty lines of business, which represent a growing portion of this segment’s gross premiums written. Despite strong casualty premium production in 2003, the growth in gross premiums written has been moderate compared with levels experienced in prior quarters. This reflects both our decision to exit certain heavily reinsured program business in late 2002 and the stabilization of property rates. Renewal rates for property business in the U.S. were down slightly for the current quarter compared with the significant renewal rate increases experienced for the same quarter in 2002. Overall, property rates are generally at pricing levels that adequately compensate for the exposure being underwritten. During the current quarter,
 
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renewal rates on certain longer tail casualty lines, such as workers compensation, continued to rise but at a lower pace than in 2002. Casualty lines that had already experienced significant price increases, such as D&O and umbrella excess business, continued to experience solid rate increases during the current quarter. We expect demand for casualty business to remain strong for the remainder of 2003.
 
Net premiums written increased at a significantly higher rate than gross premiums written for the three and nine months ended September 30, 2003. Insurance – North American is retaining more of its gross premiums written in order to take advantage of improved market conditions for rates and terms and due to shifts in business mix. ACE Risk Management (ARM) has shifted its business mix away from the heavily reinsured program business and has increased retention of national account business. In addition, ACE Bermuda has grown its professional lines premiums, of which it retains approximately 90 percent. As a result, the retention ratio (the ratio of net premiums written to gross premiums written) for Insurance – North American increased to 58 percent for the nine months ended September 30, 2003, compared with 47 percent for the same period in 2002.
 
Insurance – North American’s insurance operations are organized into distinct divisions each offering specialized products and services targeted at specific markets.
 
ACE Westchester Specialty focuses on the wholesale distribution of excess, surplus and specialty P&C products, including wind and earthquake exposures, agri-business and inland marine coverage. ACE Westchester Specialty’s net premiums earned for the three and nine months ended September 30, 2003 increased $68 million and $166 million, respectively, compared with the same periods in 2002. These increases primarily reflect higher casualty writings due to the robust casualty market and growth in agri-business.
 
ARM, which offers custom coverage solutions for large companies and national accounts reported an increase of $94 million and $254 million for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. ARM’s increase in net premiums earned is driven by new business and increased retention ratios.
 
Diversified Risk, which writes D&O, E&O, and aerospace business, reported a $76 million and $215 million increase in net premiums earned for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. The primary drivers of this growth are the professional lines, which have been experiencing a favorable rate environment and more restrictive policy terms and conditions.
 
Specialty Property and Casualty (Specialty P&C) provides worldwide risk protection for U.S.-based multi-national companies. As a result of new business and higher renewal rates, Specialty P&C’s net premiums earned for the three and nine months ended September 30, 2003 increased $23 million and $67 million, respectively, compared with the same periods in 2002.
 
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ACE Bermuda, which specializes in providing professional lines and excess liability coverage, reported an increase in net premiums earned of $29 million and $111 million for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. ACE Bermuda benefited from both higher renewal rates and increased volume of new business.
 
ACE Casualty Risk was established in 2002 to offer casualty excess, umbrella and environmental liability products in the commercial market. ACE Casualty Risk reported increases in net premiums earned of $18 million and $47 million for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. ACE Casualty Risk’s increase in net premiums earned is a result of new umbrella liability business.
 
Insurance—North American’s other divisions include the Consumer Solutions group, the Accident and Health group, ACE USA Warranty, the run-off operations and our insurance-related service operations. Net premiums earned for these divisions increased $28 million and $70 million for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. Contributing to this increase was higher premium volume for the Accident and Health group, which commenced operations in 2001 and is experiencing strong demand for personal accident coverage. In addition, the Consumer Solutions group also reported strong increases in net premiums earned.
 
The loss and loss expense ratio increased slightly for the three and nine months ended September 30, 2003 compared with the same periods in 2002. Insurance – North American continues to increase its retention ratio and its writings of longer tail casualty business, which typically carries a higher loss and loss expense ratio than property business. Hurricane related losses were $20 million for the three and nine months ended September 30, 2003, compared with no such losses in 2002. These losses added 2.0 and 0.8 percentage points to Insurance – North American’s loss and loss expense ratio for the three months and nine months ended September 30, 2003, respectively. Additionally, Insurance – North American incurred adverse prior period development of $30 million and $26 million for the three months ended September 30, 2003 and 2002, respectively, contributing 3.0 and 4.0 percentage points to the loss and loss expense ratio. The 2003 development was primarily for a few large individual casualty case reserves for discontinued lines, partially offset by favorable prior period development on property business. For the nine months ended September 30, 2003 and 2002, Insurance – North American experienced adverse prior period development of $77 million and $44 million, respectively, primarily related to casualty lines contributing 2.9 and 2.5 percentage points to the loss and loss expense ratio.
 
The policy acquisition cost ratio increased for the three and nine months ended September 30, 2003 compared with the same periods in 2002 reflecting our decision to purchase less reinsurance, which has resulted in reduced ceding commissions for Insurance – North American. The administrative expense ratio declined due to the increase in net premiums earned. Administrative expenses increased mainly due to the increased costs associated with servicing the growth in Insurance – North American’s product lines.
 
Income excluding net realized gains (losses) increased 11 percent and 14 percent for the three and nine months ended September 30, 2003 as a result of higher underwriting income.
 
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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, our Lloyd’s operation. The Insurance – Overseas General segment writes a variety of insurance products including property, liability, financial lines (D&O and E&O), marine, A&H — principally being personal accident, aerospace and consumer-oriented products.
 
 	  	Three Months
Ended
September 30
	 	 	Nine Months
Ended
September 30
	 	
 	  	2003
	 	 	2002
	 	 	2003
	 	 	2002
	 	
 	  	(in millions of U.S. dollars)	 	
Gross premiums written	  	$	1,200	 	 	$	1,008	 	 	$	3,850	 	 	$	2,911	 	
Net premiums written	  	 	872	 	 	 	690	 	 	 	2,769	 	 	 	1,920	 	
					
Net premiums earned	  	 	882	 	 	 	647	 	 	 	2,556	 	 	 	1,722	 	
Losses and loss expenses	  	 	529	 	 	 	446	 	 	 	1,541	 	 	 	1,083	 	
Policy acquisition costs	  	 	170	 	 	 	140	 	 	 	485	 	 	 	382	 	
Administrative expenses	  	 	121	 	 	 	107	 	 	 	356	 	 	 	282	 	
 	  				 				 				 				
Underwriting income (loss)	  	$	62	 	 	$	(46	)	 	$	174	 	 	$	(25	)	

Net investment income	  	 	40	 	 	 	28	 	 	 	113	 	 	 	77	 	
Other income (expense)	  	 	(3	)	 	 	(1	)	 	 	(4	)	 	 	3	 	
Interest expense	  	 	1	 	 	 	1	 	 	 	2	 	 	 	2	 	
Income tax expense (benefit)	  	 	12	 	 	 	(4	)	 	 	60	 	 	 	9	 	
 	  				 				 				 				
Income (loss) excluding net realized gains (losses)	  	$	86	 	 	$	(16	)	 	$	221	 	 	$	44	 	
Net realized gains (losses)	  	 	4	 	 	 	(21	)	 	 	(7	)	 	 	(32	)	
Tax effect of net realized gains (losses)	  	 	—  	 	 	 	7	 	 	 	5	 	 	 	10	 	
 	  				 				 				 				
Net income (loss)	  	$	90	 	 	$	(30	)	 	$	219	 	 	$	22	 	

Loss and loss expense ratio	  	 	59.9	%	 	 	68.9	%	 	 	60.3	%	 	 	62.9	%	
Policy acquisition cost ratio	  	 	19.3	%	 	 	21.8	%	 	 	19.0	%	 	 	22.2	%	
Administrative expense ratio	  	 	13.7	%	 	 	16.5	%	 	 	13.9	%	 	 	16.3	%	
Combined ratio	  	 	92.9	%	 	 	107.2	%	 	 	93.2	%	 	 	101.4	%	
 
Insurance – Overseas General reported 19 percent and 32 percent increases in gross premiums written for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. ACE International and ACE Global Markets both experienced improved market conditions across most lines of business.
 
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. The A&H insurance operations provide coverage to individuals and groups outside of U.S. insurance markets. ACE International’s gross premiums written increased 24 percent to $849 million and 39 percent to $2.7 billion for the three and nine months ended September 30, 2003, respectively. The increases are driven by higher rates and new business across most regions and also due to the weakening of the U.S. dollar against the pound sterling, Euro and yen during the period. The depreciation of the U.S. dollar against the major currencies accounted for approximately 7 and 10 percentage points of the increase in gross premiums written for the three and nine months ended September 30, 2003, respectively. ACE Europe, which accounts for about 60 percent of ACE International’s gross premiums written, continues to experience rising rates and growth in new policies for casualty business. Additionally, ACE Europe’s A&H lines have contributed positive growth due to strong volume increases. Property rates in Europe are increasing at a slower rate, while casualty lines rate increases are
 
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accelerating. We expect no significant change in P&C rate momentum in Europe for the remainder of 2003. ACE Asia Pacific reported production growth for P&C lines due to increases in new business and A&H lines due to favorable results from direct marketing channels in Korea and Taiwan. ACE Latin America reported strong demand for A&H products in Mexico and Brazil, and growth in new P&C policies. ACE Far East production declined due primarily to the adverse effect of the SARS epidemic on travel accident insurance.
 
ACE Global Markets primarily underwrites P&C insurance through Lloyd’s Syndicate 2488 and ACE INA UK. The main lines of business include aviation, property, energy, professional lines, marine, political risk and A&H. ACE Global Markets’ gross premiums written increased eight percent to $351 million and 19 percent to $1.1 billion for the three and nine months ended September 30, 2003, respectively. The increase is driven by continued improvement in market conditions. However, price increases have begun to stabilize in a number of areas, with the notable exception of financial lines, where rates continue to rise. Better terms and conditions continue to be experienced in all product lines. The retention ratio at ACE Global Markets has increased to 72 percent for the nine months ended September 30, 2003, compared with 54 percent for the same period in 2002. This increase is due to the reinsurance premiums we incurred in 2002 associated with reinsurance arrangements put into place following a revision of our underwriting strategy and the rebuilding of our reinsurance cover following the September 11 tragedy. In late 2002, we received approval from the U.K. insurance regulator, the Financial Services Authority (FSA-U.K.), to use ACE INA UK as our London-based FSA-U.K.-regulated company to underwrite U.K. and Continental Europe insurance and reinsurance business. For the 2003 underwriting year, approximately 25 percent of ACE Global Markets’ gross premiums written has been underwritten through ACE INA UK, with most of this business emanating from the energy, financial lines and property classes.
 
The table below shows net premiums earned by each of the Insurance – Overseas General segment’s key components for the three and nine months ended September 30, 2003 and 2002.
 
 	  	Three Months
Ended
September 30
	  	Nine Months
Ended
September 30
	
 	  	2003
	  	2002
	  	2003
	  	2002
	
 	  	(in millions of U.S. dollars)	
ACE International	  	$	638	  	$	466	  	$	1,808	  	$	1,237	
ACE Global Markets	  	 	244	  	 	181	  	 	748	  	 	485	
 	  			  			  			  			
Net premiums earned	  	$	882	  	$	647	  	$	2,556	  	$	1,722	

ACE International’s increase in net premiums earned is attributed to P&C and A&H lines across all geographical regions, with the exception of ACE Far East where growth in net premiums written has been minimal. The increase in net premiums earned is principally driven by growth in net premiums written over the last several quarters and additionally the appreciation of foreign currencies against the U.S. dollar. ACE Global Markets’ increase in net premiums earned is a result of higher net premiums written across most of its product lines, particularly the financial lines, aviation, property and energy portfolios.
 
The loss and loss expense ratio for Insurance – Overseas General improved for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. The three months ended September 30, 2002 included $68 million of catastrophe losses related to the European floods. During the three months ended September 30, 2003, this segment incurred $10 million of catastrophe losses principally related to Hurricanes Fabian and Isabel. Adverse prior period development for the three months ended September 30, 2003 and 2002 was $35 million and $25 million, respectively. For the nine months ended September 30, 2003 and 2002, Insurance – Overseas General experienced adverse development of $46 million and $50 million, respectively. The development for the three and nine months ended September 30, 2003 relates primarily to ACE International’s casualty and consumer lines while the development for the three and nine months ended September 30, 2002 related to ACE Global Markets’ losses from satellite and other discontinued lines.
 
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The policy acquisition cost ratio for Insurance – Overseas General improved for the three and nine months ended September 30, 2003, primarily due to a change in business mix. The administrative expense ratio for Insurance – Overseas General improved due to the increase in net premiums earned. ACE International’s administrative expenses increased 17 percent for the three months ended September 30, 2003, due mainly to increased costs associated with supporting business growth across all regions of the world and the depreciation of the U.S. dollar.
 
Underwriting income increased $108 million and $199 million for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. The increase in underwriting income is primarily due to the increase in net premiums earned and a decrease in catastrophe losses of $58 million for the three and nine months ended September 30, 2003. Income excluding net realized gains (losses) increased significantly for the three and nine months ended September 30, 2003 driven by increased underwriting income and higher net investment income, partially offset by higher income tax expense.
 
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.
 
Property and Casualty Reinsurance
 
 	  	Three Months
Ended
September 30
	 	 	Nine Months
Ended
September 30
	 	
 	  	2003
	 	 	2002
	 	 	2003
	 	 	2002
	 	
 	  	(in millions of U.S. dollars)	 	
Gross premiums written	  	$	276	 	 	$	186	 	 	$	1,087	 	 	$	774	 	
Net premiums written	  	 	217	 	 	 	131	 	 	 	1,005	 	 	 	683	 	
					
Net premiums earned	  	 	274	 	 	 	194	 	 	 	791	 	 	 	459	 	
Losses and loss expenses	  	 	134	 	 	 	101	 	 	 	393	 	 	 	193	 	
Policy acquisition costs	  	 	56	 	 	 	37	 	 	 	153	 	 	 	83	 	
Administrative expenses	  	 	16	 	 	 	11	 	 	 	45	 	 	 	26	 	
 	  				 				 				 				
Underwriting income	  	$	68	 	 	$	45	 	 	$	200	 	 	$	157	 	

Net investment income	  	 	23	 	 	 	20	 	 	 	63	 	 	 	63	 	
Other income	  	 	1	 	 	 	1	 	 	 	2	 	 	 	1	 	
Interest expense	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	1	 	
Income tax expense (benefit)	  	 	3	 	 	 	(1	)	 	 	10	 	 	 	1	 	
 	  				 				 				 				
Income excluding net realized gains (losses)	  	$	89	 	 	$	67	 	 	$	255	 	 	$	219	 	
Net realized gains (losses)	  	 	9	 	 	 	(23	)	 	 	36	 	 	 	(44	)	
Tax effect of net realized gains (losses)	  	 	—  	 	 	 	—  	 	 	 	1	 	 	 	—  	 	
 	  				 				 				 				
Net income	  	$	98	 	 	$	44	 	 	$	292	 	 	$	175	 	

Loss and loss expense ratio	  	 	48.9	%	 	 	52.0	%	 	 	49.6	%	 	 	42.0	%	
Policy acquisition cost ratio	  	 	20.4	%	 	 	19.2	%	 	 	19.3	%	 	 	18.1	%	
Administrative expense ratio	  	 	5.7	%	 	 	5.2	%	 	 	5.7	%	 	 	5.6	%	
Combined ratio	  	 	75.0	%	 	 	76.4	%	 	 	74.6	%	 	 	65.7	%	
 
Gross premiums written for Global Reinsurance increased 48 percent and 40 percent for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. Over the past two years, the Global Reinsurance segment has expanded into a multi-line global reinsurer that offers a diversified portfolio of products to satisfy client demand. This shift has enabled it to take advantage of the improved P&C
 
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market, especially on the casualty side. Significant increases in production were recorded at ACE Tempest Re USA and ACE Tempest Re Europe as these units benefited from higher rates and increased volume for P&C lines first offered in 2002. ACE Tempest Re Bermuda is facing increased competition and lower rates on property catastrophe business following two years of rising prices, and additionally, the Terrorism Risk Insurance Act (TRIA) has reduced demand for its specialty catastrophe business.
 
Global Reinsurance’s net premiums written increased 66 percent and 47 percent for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. Retention ratios for this segment have increased to 79 percent and 93 percent for the three and nine months ended September 30, 2003, respectively, compared with 70 percent and 88 percent for the same periods in 2002. The increase in retention ratios reflects the decline in reinsurance purchased at ACE Tempest Re Europe and the increasing proportion of ACE Tempest Re USA business, which tends to be written at higher retention ratios than other business in this segment. ACE Tempest Re Europe increased its retention in order to take advantage of improved market conditions.
 
The table below shows net premiums earned by each of the Global Reinsurance segment’s key components for the three and nine months ended September 30, 2003 and 2002.
 
 	  	Three Months Ended
September 30
	  	Nine Months Ended
September 30
	
 	  	2003
	  	2002
	  	2003
	  	2002
	
 	  	(in millions of U.S. dollars)	
ACE Tempest Re USA	  	$	127	  	$	53	  	$	325	  	$	113	
ACE Tempest Re Europe	  	 	55	  	 	38	  	 	187	  	 	97	
ACE Tempest Re Bermuda	  	 	92	  	 	103	  	 	279	  	 	249	
 	  			  			  			  			
Net premiums earned	  	$	274	  	$	194	  	$	791	  	$	459	

Net premiums earned increased 41 percent and 72 percent for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. The increase in net premiums earned in all components is primarily due to the increase in traditional non-catastrophe P&C business. For the nine months ended September 30, 2003, 64 percent of net premiums earned was from traditional non-catastrophe P&C business compared with 43 percent for the same period in 2002.
 
The loss and loss expense ratio decreased for the three months ended September 30, 2003 compared with the same period in 2002. The decline is due to lower catastrophe losses for the three months ended September 30, 2003 — $12 million, compared with $32 million for the same quarter in 2002. For the nine months ended September 30, 2003, the loss and loss expense ratio increased primarily due to the growth in non-catastrophe P&C business at ACE Tempest Re USA and ACE Tempest Re Europe. Non-catastrophe P&C business typically has higher loss ratios in comparison with property catastrophe business (except in periods with high catastrophe losses), which is mainly written at ACE Tempest Re Bermuda. 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 experienced $3 million of favorable prior period development for the three months ended September 30, 2003, compared with $1 million of adverse prior period development for the same quarter in 2002. For the nine months ended September 30, 2003 and 2002, Global Reinsurance had favorable prior period development of $16 million and $1 million, respectively. The development is related to 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 policy acquisition cost ratio for Global Reinsurance increased due to higher volume for the segment and also the higher proportion of business generated from ACE Tempest Re USA. Business generated in the U.S. typically incurs higher brokerage commissions than business generated in Bermuda or Europe. The administrative expense ratio increased slightly due to increased staffing levels to support the growth in business.
 
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Global Reinsurance’s underwriting income increased 51 percent and 27 percent for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. The increases are primarily a result of higher net premiums earned in the current periods. We expect reduced underwriting margin initially (underwriting income divided by net premiums earned) for Global Reinsurance as its loss and loss expense ratio increases due to its shift of business towards non-catastrophe P&C. Over time, however, we expect income excluding net realized gains (losses) to increase reflecting growth in investment income due to higher average invested assets. Income excluding net realized gains (losses) for Global Reinsurance increased 33 percent and 16 percent for the three and nine months ended September 30, 2003, respectively. This increase is a result of higher underwriting income and net investment income, partially offset by higher income tax expense for the three and nine months ended September 30, 2003.
 
Life Reinsurance
 
Our strategic focus at ACE Life Re is to differentiate ourselves in this market, principally by providing 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, 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.
 
 	  	Three Months Ended
September 30
	 	    	Nine Months Ended
September 30
	 	
 	  	2003
	    	2002
	 	    	2003
	 	    	2002
	 	
 	  	(in millions of U.S. dollars)	 	
Gross premiums written	  	$	49	    	$	58	 	    	$	144	 	    	$	115	 	
Net premiums written	  	 	47	    	 	57	 	    	 	138	 	    	 	112	 	
Net premiums earned	  	 	46	    	 	57	 	    	 	136	 	    	 	112	 	
Life and annuity benefits	  	 	45	    	 	60	 	    	 	137	 	    	 	106	 	
Policy acquisition costs	  	 	5	    	 	3	 	    	 	11	 	    	 	15	 	
Administrative expenses	  	 	—  	    	 	2	 	    	 	2	 	    	 	5	 	
Net investment income	  	 	10	    	 	7	 	    	 	25	 	    	 	19	 	
 	  			    				    				    				
Income (loss) excluding net realized gains (losses)	  	$	6	    	$	(1	)	    	$	11	 	    	$	5	 	
Net realized gains (losses)	  	 	1	    	 	(4	)	    	 	(10	)	    	 	(13	)	
 	  			    				    				    				
Net income (loss)	  	$	7	    	$	(5	)	    	$	1	 	    	$	(8	)	

ACE Life Re’s gross premiums written decreased 16 percent for the three months ended September 30, 2003 primarily because premiums from new variable annuity and life (mortality) business were partially offset by the discontinuation of long-term group disability business. The three months ended September 30, 2002 included $54 million of long-term group disability business, $30 million of which is non-recurring. For the nine months ended September 30, 2003, ACE Life Re reported a 25 percent increase in gross premiums written compared with the same period in 2002, including $10 million from a non-recurring variable annuity transaction, recorded in the first quarter of 2003. The nine months ended September 30, 2002 included $105 million of non-recurring, long-term group disability business. Income (loss) excluding net realized gains (losses) improved for the three and nine months ended September 30, 2003 due to higher investment income and reduced policy benefits for the three months ended September 30, 2003. Investment income is higher because of a higher invested asset base, due to increased production for the nine months ended September 30, 2003.
 
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Financial Services
 
The Financial Services segment consists of two broad categories: financial guaranty business and financial solutions business. The financial guaranty business provides insurance and reinsurance of financial guaranty exposures, including municipal and non-municipal obligations, credit default swaps (CDSs), mortgage guaranty reinsurance, title cover, and trade credit reinsurance. The financial solutions business includes insurance and reinsurance solutions to complex risks that generally cannot be adequately addressed in the traditional insurance marketplace. Most financial solutions contracts are unique and specifically tailored for an individual client, but generally they are multi-year and contain some form of client participation. Both units write structured finance transactions which are recorded at higher loss and loss expense ratios than other business. These transactions are typically longer-term contracts where profit emerges over the term of the contract and rely on investment income as a component of profitability. Due to the nature of 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.
 
We also write retroactive contracts, including LPTs, which indemnify ceding companies for events that have occurred in prior years. While these types of contracts are generally written in the Financial Services segment, they can also be written in other segments, including the life reinsurance group. These contracts, which meet the established criteria for reinsurance accounting under GAAP, are recorded in the statement of operations when written and generally result in large one-time written and earned premiums with comparable incurred losses. These contracts, when written, can cause significant variances in gross premiums written, net premiums written, net premiums earned, net incurred losses, the loss and loss expense ratio and the policy acquisition cost ratio. At the time one of these contracts is written, we make certain assumptions with respect to the ultimate amount and timing of payments in order to establish loss and loss expense reserves. As with most loss reserves, the actual amount and timing of payments may result in loss and loss expenses which are greater or less than the reserves initially provided.
 
It is generally expected that losses ultimately paid under retroactive contracts will exceed the premiums received, in some cases by large margins. Premiums are based in part on time-value-of-money concepts because loss payments may occur over lengthy time periods. However, retroactive contracts do not have a significant impact on reported earnings in the period of inception. When writing a retroactive contract, the excess of the estimated ultimate losses over the premiums received is established as a deferred charge and amortized against income over the estimated future claim settlement period. We expect that these contracts will produce significant underwriting losses over time, but we also expect that this business will be profitable due to expected investment earnings on the premiums received.
 
Certain products we issue in the Financial Services segment — mainly those related to credit protection — meet the definition of a derivative under Financial Accounting Standards (FAS) No. 133 “Accounting for Derivative Instruments and Hedging Activities” (FAS 133), and must be recorded at fair value. These products consist primarily of CDSs. We recorded, in net realized gains (losses), a gain of $76 million for the nine months ended September 30, 2003, due principally to changes in the market value of these instruments and the reclassification of losses from net realized gains (losses) to losses and loss expenses as a result of recording loss reserves on certain contracts. This compares with a loss of $97 million for the same period in 2002. The level of such gains and losses is dependent upon a number of factors including changes in credit spreads, probability of default and other market factors. Net premiums earned relating to CDS transactions for the nine months ended September 30, 2003 were $127 million compared with $104 million for the same period in 2002. Net losses incurred relating to CDSs for the nine months ended September 30, 2003 were $98 million compared with $92 million for the same period in 2002.
 
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 	  	Three Months Ended
September 30
	 	  	Nine Months Ended
September 30
	 	
 	  	2003
	 	  	2002
	 	  	2003
	 	  	2002
	 	
 	  	(in millions of U.S. dollars)	 	
Gross premiums written	  	$	107	 	  	$	493	 	  	$	757	 	  	$	1,299	 	
Net premiums written	  	 	105	 	  	 	476	 	  	 	763	 	  	 	1,269	 	
					
Net premiums earned	  	 	205	 	  	 	373	 	  	 	629	 	  	 	835	 	
Losses and loss expenses	  	 	144	 	  	 	328	 	  	 	466	 	  	 	690	 	
Policy acquisition costs	  	 	17	 	  	 	18	 	  	 	45	 	  	 	58	 	
Administrative expenses	  	 	22	 	  	 	15	 	  	 	60	 	  	 	42	 	
 	  				  				  				  				
Underwriting income	  	$	22	 	  	$	12	 	  	$	58	 	  	$	45	 	

Net investment income	  	 	49	 	  	 	46	 	  	 	149	 	  	 	141	 	
Other income (expense)	  	 	(1	)	  	 	—  	 	  	 	—  	 	  	 	—  	 	
Interest expense	  	 	2	 	  	 	3	 	  	 	5	 	  	 	10	 	
Income tax expense	  	 	11	 	  	 	7	 	  	 	28	 	  	 	24	 	
 	  				  				  				  				
Income excluding net realized gains (losses)	  	$	57	 	  	$	48	 	  	$	174	 	  	$	152	 	
Net realized gains (losses)	  	 	29	 	  	 	(77	)	  	 	98	 	  	 	(127	)	
Tax effect of net realized gains (losses)	  	 	(6	)	  	 	19	 	  	 	(26	)	  	 	27	 	
 	  				  				  				  				
Net income (loss)	  	$	80	 	  	$	(10	)	  	$	246	 	  	$	52	 	

Loss and loss expense ratio	  	 	70.2	%	  	 	88.0	%	  	 	74.0	%	  	 	82.6	%	
Policy acquisition cost ratio	  	 	8.7	%	  	 	4.6	%	  	 	7.2	%	  	 	6.9	%	
Administrative expense ratio	  	 	10.6	%	  	 	4.2	%	  	 	9.6	%	  	 	5.1	%	
Combined ratio	  	 	89.5	%	  	 	96.8	%	  	 	90.8	%	  	 	94.6	%	
 
Gross premiums written decreased 78 percent and 42 percent for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. The Financial Services segment has significantly reduced guarantees of equity layer CDOs and experienced a sharp decline in LPT volume.
 
Gross premiums written for the financial guaranty operations decreased 24 percent to $112 million for the three months ended September 30, 2003, compared with $147 million for the same period in 2002. The decrease is primarily attributed to equity layer CDOs, which declined $110 million for the three months ended September 30, 2003 compared with the same period in 2002. We have significantly reduced writing this type of business due to presently unfavorable pricing terms. Municipal production increased as strong cession activity continued for the three months ended September 30, 2003. In addition, the financial guaranty operations continue to execute the strategy of writing direct business and recorded several transactions during the three months ended September 30, 2003. In the second quarter of 2003, the financial guaranty operations negotiated improved terms and reduced ceding commission costs on reinsurance treaty business, which positively impacted the policy acquisition cost ratio for the three months ended September 30, 2003. Underwriting income increased 14 percent to $16 million for the three months ended September 30, 2003, compared with $14 million for the same period in 2002. For the nine months ended September 30, 2003, financial guaranty gross premiums written increased 20 percent compared with the same period in 2002. Production increased across all lines except for the mortgage and equity layer CDO lines. Municipal business increased as low interest rates continue to drive strong issuance activity with volume in the new issue market reaching record levels. Additionally, the senior layer CDO business, non-municipal and trade credit lines posted strong production gains. The financial guaranty operations have ceased writing single name corporate credit default swaps due to current market conditions and in order to diversify its book of business. Mortgage production declined due to the higher level of refinancing activity in the U.S. mortgage market and additionally due to the natural run-off of older business. For the nine months ended September 30, 2003, the policy acquisition cost ratio increased due to a change in business mix whereby a greater portion of the business, specifically municipal, non-municipal and trade credit lines, incurs commission costs. Administrative expenses were greater as a result of an increase in staff needed to support the growing direct
 
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business in the financial guaranty operations. Underwriting income increased 15 percent to $46 million for the nine months ended September 30, 2003, compared with $40 million for the same period in 2002. The increase in underwriting income is primarily attributed to the increase in net premiums earned.
 
Gross premiums written for the financial solutions operations decreased to $(5) million and $405 million for the three and nine months ended September 30, 2003, respectively, compared with $346 million and $1 billion for the same periods in 2002. This unit wrote little new business in the three months ended September 30, 2003 and incurred negative premiums due to the assignment of an equity CDO. The three and nine months ended September 30, 2002 included gross premiums written attributed to LPTs of $187 million and $212 million, respectively, compared with $4 million for the current periods. Additionally, the prior year periods were bolstered by several large, multi-year prospective, structured programs sold. Net premiums earned for the three and nine months ended September 30, 2003 were $125 million and $389 million, respectively, compared with $327 million and $634 million for the same periods in 2002. The current year net premiums earned consist primarily of business written in prior periods. The financial solutions operations reported an increase in underwriting income of $8 million to $6 million and $7 million to $12 million for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. Underwriting income increased due to lower combined ratios in the current periods due to lower LPT business. The administrative expense ratio for the three and nine months ended September 30, 2003 increased as a result of lower net premiums earned and increased staffing costs.
 
The Financial Services segment experienced $2 million of favorable prior period development in the current quarter compared with $3 million of adverse prior period development for the same period in 2002. For the nine months ended September 30, 2003, this segment had $1 million of favorable prior period development, compared with $27 million of adverse prior period development for the same period in 2002. Financial Services’ reported an increase in income excluding realized gains (losses) for the three and nine months ended September 30, 2003, compared with the same period in 2002. The increase is a result of higher underwriting income and net investment income and also a reduction in interest expense. Net investment income increased due to higher average invested assets and interest expense decreased due to repayment of debt in the fourth quarter of 2002.
 
Net Investment Income
 
 	  	Three Months Ended
September 30
	 	  	Nine Months Ended
September 30
	 	
 	  	2003
	 	  	2002
	 	  	2003
	 	  	2002
	 	
 	  	(in millions of U.S. dollars)	 	
Insurance – North American	  	$	100	 	  	$	101	 	  	$	306	 	  	$	306	 	
Insurance – Overseas General	  	 	40	 	  	 	28	 	  	 	113	 	  	 	77	 	
Global Reinsurance – P&C	  	 	23	 	  	 	20	 	  	 	63	 	  	 	63	 	
Global Reinsurance – Life	  	 	10	 	  	 	7	 	  	 	25	 	  	 	19	 	
Financial Services	  	 	49	 	  	 	46	 	  	 	149	 	  	 	141	 	
Corporate and other	  	 	(6	)	  	 	(3	)	  	 	(23	)	  	 	(6	)	
 	  				  				  				  				
Net investment income	  	$	216	 	  	$	199	 	  	$	633	 	  	$	600	 	

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 nine percent and six percent for the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. The increased net investment income is due to the positive operating cash flows during 2003 and 2002 that resulted in a higher average invested asset base. This positive impact on investment income was partially offset by a decline in the investment portfolio’s yield due to the impact of lower interest rates on investment of new cash and reinvestment of maturing securities. The average yield on fixed maturities declined to 4.0 percent at September 30, 2003 compared with 4.4 percent at December 31, 2002.
 
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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 when derivatives, including financial futures and options, interest rate swaps and credit-default swaps, are marked to fair value or are settled. Changes in unrealized appreciation and depreciation, 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, 2003 and 2002.
 
 	  	Three Months Ended
September 30
	 	  	Nine Months Ended
September 30
	 	
 	  	2003
	 	  	2002
	 	  	2003
	 	  	2002
	 	
 	  	(in millions of U.S. dollars)	 	
Fixed maturities and short-term investments	  	$16	 	  	$   (16	)	  	$  77	 	  	$   (54	)	
Equity securities	  	1	 	  	(55	)	  	(53	)	  	(55	)	
Financial futures, options and interest rate swaps	  	13	 	  	(113	)	  	19	 	  	(197	)	
Fair value adjustment on credit derivatives	  	26	 	  	(51	)	  	76	 	  	(97	)	
Currency	  	3	 	  	(2	)	  	18	 	  	(1	)	
Other investments	  	(2	)	  	2	 	  	(13	)	  	3	 	
 	  			  			  			  			
Total net realized gains (losses)	  	$57	 	  	$(235	)	  	$124	 	  	$(401	)	

Given our total return objective for our investment portfolio, we may sell securities at a loss due to changes in the investment environment, our expectation that fair value may deteriorate further, our desire to reduce our exposure to an issuer or an industry, and changes in the credit quality of the security.
 
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). Our involvement with derivative instruments and transactions is primarily to offer protection to others or to mitigate our own risk; we do not consider such transactions to be speculative. For the three and nine months ended September 30, 2003, we recorded net realized gains of $39 million and $95 million, respectively on derivative transactions, compared with net realized losses of $164 million and $294 million for the same periods in 2002.
 
For the three and nine months ended September 30, 2003, we recorded net realized gains of $13 million and $19 million, respectively on financial futures and option contracts and interest rate swaps, compared with net realized losses of $113 million and $197 million for the same periods in 2002. The interest rate swaps are designed to reduce the negative impact of increases in interest rates on our fixed maturity portfolio. We recorded gains of $8 million on our Standard and Poor’s (S&P) equity index futures contracts as the S&P 500 equity index increased two percent during the current quarter. 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 has no impact on our book value.
 
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Our net realized gains (losses) for the three months ended September 30, 2003 included $6 million of write-downs of fixed maturity investments, $7 million of write-downs of equity securities and $4 million of write-downs of other investments as a result of conditions which caused us to conclude the decline in fair value of the investment was “other than temporary”. This compares with $33 million of write-downs of fixed maturity investments and $53 million of write-downs of equity securities in the same quarter last year. During the nine months ended September 30, 2003, we recognized losses for impairments of $25 million of fixed maturity investments, $61 million of equity securities and $20 million of other investments compared with $76 million of write-downs of fixed maturity investments and $54 million of write-downs of equity securities in the prior year. For the nine months ended September 30, 2003, we recorded net realized losses of $13 million on other investments, which included $20 million in impairments primarily on private equity partnerships.
 
The process of determining whether a decline in value is temporary or “other than temporary” is subjective and differs by type of security. In addition to issuer-specific financial information and general market or industry conditions, we also consider our ability and intent to hold the security to maturity or until market value recovers to a level in excess of cost. As a result of our periodic review process, we have determined that there currently is no need to sell any of these securities to fund anticipated payments. We have described below, by type of security, our process for reviewing our investments for possible impairment.
 
Fixed Maturities and Securities on Loan
 
We review all of our fixed income securities, including securities on loan, for potential impairment each quarter. Generally, we focus on those fixed-maturity securities with a market value of less than 80 percent of amortized cost for the previous nine months.
 
Outlined below are the main factors we use in evaluating a fixed income security for potential impairment:
 
 	•	the degree to which any appearance of impairment is attributable to an overall change in market conditions such as interest rates rather than changes in the individual factual circumstances and risk profile of the issuer;	
 
 	•	the performance of the relevant industry sector;	
 
 	•	whether an issuer is current in making principal and interest payments on the debt securities in question;	
 
 	•	the issuer’s financial condition and our assessment (using available market information) of its ability to make future scheduled principal and interest payments on a timely basis; and	
 
 	•	current financial strength or debt rating, analysis and guidance provided by rating agencies and analysts.	
 
Equity Securities and Securities on Loan
 
On a quarterly basis, these investments are also reviewed for impairment. In general, attention is focused on equity securities with a market value of less than 80 percent of cost for the previous nine months. Any equity that has been in a loss position for more than 12 months is considered impaired.
 
Outlined below are the main factors we use in evaluating an equity security for potential impairment:
 
 	•	whether the decline appears to be related to general market or industry conditions or is issuer-specific; and	
 
 	•	the financial condition and near-term prospects of the issuer, including specific events that may influence the issuer’s operations.	
 
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Other Investments
 
With respect to publicly and non-publicly traded venture capital investments, the portfolio managers, as well as our internal valuation committee, review and consider a variety of factors in determining the potential for loss impairment on a quarterly basis. Factors considered are:
 
 	•	the issuer’s most recent financing events;	
 
 	•	an analysis of whether fundamental deterioration has occurred; and	
 
 	•	the issuer’s progress, and whether it has been substantially less than expected. 	
 
The following table summarizes, for all securities in an unrealized loss position at September 30, 2003 (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.
 
 	  	September 30, 2003
Gross Unrealized Loss
	
 	  	Fair
value
	  	0-6
months
	  	7-12
months
	  	Over 12
months
	  	Total
	
 	  	(in millions of U.S. dollars)	
Fixed maturities	  	$	2,858	  	$	40	  	$	11	  	$	2	  	$	53	
Equities	  	 	70	  	 	2	  	 	1	  	 	1	  	 	4	
Other investments	  	 	75	  	 	—  	  	 	—  	  	 	—  	  	 	—  	
 	  			  			  			  			  			
Total	  	$	3,003	  	$	42	  	$	12	  	$	3	  	$	57	

Other Income and Expense Items
 
 	  	Three Months Ended
September 30
	 	  	Nine Months Ended
September 30
	 	
 	  	2003
	 	  	2002
	 	  	2003
	 	  	2002
	 	
 	  	(in millions of U.S. dollars)	 	
Other income (expense)	  	$	(3	)	  	$	(15	)	  	$	(8	)	  	$	(22	)	
 	  				  				  				  				
Interest expense	  	$	45	 	  	$	48	 	  	$	133	 	  	$	146	 	
 	  				  				  				  				
Income tax expense (benefit)	  	$	67	 	  	$	(8	)	  	$	207	 	  	$	36	 	

The majority of the $8 million in other expense for the nine months ended September 30, 2003 relates to goodwill impairments during the first quarter. Goodwill was re-tested for impairment during the three months ended March 31, 2003. Based on a profitability review, we recognized goodwill impairments of $6 million pertaining to two majority-owned warranty program administration companies.
 
The decrease in interest expense is a result of a reduction in outstanding trust preferred securities and short-term debt for the three and nine months ended September 30, 2003 compared with the same periods in 2002. During the nine months ended September 30, 2002, we repaid $400 million of trust preferred securities.
 
The increase in income tax expense is attributable to the increase in income in taxable jurisdictions for the three and nine months ended September 30, 2003. We reported an income tax benefit for the three months ended September 30, 2002 due to our net loss for that quarter. Our effective tax rate on income excluding net realized gains (losses) for the nine months ended September 30, 2003, was 18 percent, compared with 13 percent for the same period in 2002. Our effective tax rate is dependent upon the mix of earnings from different jurisdictions with various tax rates; a different geographic mix of actual earnings would change the effective tax rate. For the remainder of 2003, we expect that our effective tax rate will be in the 18-20 percent range.
 
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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, including the effect of interest rate swaps, is 3.4 years at September 30, 2003 compared with 3.1 years at December 31, 2002. Our other investments principally comprise direct investments, investments in investment funds and investments in limited partnerships.
 
The following table identifies our invested assets at fair value and cost/amortized cost, by type held, at September 30, 2003 and December 31, 2002.
 
 	  	September 30, 2003
	  	December 31, 2002
	
 	  	Fair Value
	  	Cost/
Amortized Cost
	  	Fair Value
	  	Cost/
Amortized Cost
	
 	  	(in millions of U.S. dollars)	
Fixed maturities	  	$	17,413	  	$	16,713	  	$	14,420	  	$	13,791	
Equity securities	  	 	460	  	 	371	  	 	411	  	 	442	
Securities on loan	  	 	596	  	 	549	  	 	293	  	 	286	
Short-term investments	  	 	2,520	  	 	2,520	  	 	1,885	  	 	1,885	
Other investments	  	 	665	  	 	625	  	 	652	  	 	622	
Cash	  	 	431	  	 	431	  	 	663	  	 	663	
 	  			  			  			  			
Total investments and cash	  	$	22,085	  	$	21,209	  	$	18,324	  	$	17,689	

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 $565 million and $603 million at September 30, 2003 and December 31, 2002, respectively. The increase of $3.8 billion in total investments and cash is due to positive cash flows from operations due to strong premium volume, increased unrealized gains and the issuance of preferred shares. Offsetting these increases were dividends paid of $167 million during the nine months ended September 30, 2003.
 
The following tables show the market value of our fixed income portfolio, short-term investments, securities on loan and cash at September 30, 2003. The first table lists elements according to type, and the second according to S&P credit rating.
 
 	  	Market Value
	  	Percentage of
Total
	 	
 	  	(in millions of
U.S. dollars)	  	 	 	
Treasury	  	$	1,010	  	4.8	%	
Agency	  	 	1,170	  	5.6	%	
Corporate	  	 	7,718	  	36.8	%	
Mortgage-backed securities	  	 	4,235	  	20.2	%	
Asset-backed securities	  	 	519	  	2.5	%	
Municipal	  	 	1,329	  	6.3	%	
Non-U.S.	  	 	2,028	  	9.7	%	
Cash and short-term investments	  	 	2,951	  	14.1	%	
 	  			  			
Total	  	$	20,960	  	100	%	

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 	  	Market Value
	  	Percentage of
Total
	 	
 	  	(in millions of
U.S. dollars)	  	 	 	
AAA	  	$	10,376	  	49.5	%	
AA	  	 	3,661	  	17.5	%	
A	  	 	3,366	  	16.1	%	
BBB	  	 	1,742	  	8.3	%	
BB	  	 	764	  	3.6	%	
B	  	 	973	  	4.6	%	
Other	  	 	78	  	0.4	%	
 	  			  			
Total	  	$	20,960	  	100	%	

At September 30, 2003, our fixed maturity investment portfolio included below-investment grade securities and non-rated securities which, in total, comprised approximately nine percent of our fixed income portfolio. Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is significantly 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 attempt to 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 incurred but not reported (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, 2003.
 
 	  	Gross
Losses
	 	 	Reinsurance
Recoverable
	 	 	Net
Losses
	 	
 	  	(in millions of U.S. dollars)	 	
Balance at December 31, 2002	  	$	24,315	 	 	$	12,997	 	 	$	11,318	 	
Losses and loss expenses incurred	  	 	7,453	 	 	 	3,192	 	 	 	4,261	 	
Losses and loss expenses paid	  	 	(6,403	)	 	 	(3,204	)	 	 	(3,199	)	
Other (including foreign exchange revaluation)	  	 	272	 	 	 	120	 	 	 	152	 	
 	  				 				 				
Balance at September 30, 2003	  	$	25,637	 	 	$	13,105	 	 	$	12,532	 	

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. As part of our evaluation of loss reserves, we annually engage independent actuarial firms to review the methods and assumptions we use in estimating unpaid losses and loss expenses. These annual reviews cover different portions of our operating businesses on a rotating basis within each year and are an independent check on our loss reserves. In addition, the Pennsylvania Insurance Department requires a biennial, external actuarial review of liabilities residing in the various subsidiaries of Brandywine Holdings (Brandywine), which we acquired when we purchased the P&C business of CIGNA in 1999 (the ACE INA Acquisition). That review was completed during the first quarter of 2003. See Asbestos and Environmental Claims, below for more information.
 
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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, 2003 is adequate, new information or trends 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. More information relating to our 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, 2002.
 
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 loss 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, 2003 and December 31, 2002.
 
 	  	September 30
2003
	 	 	December 31
2002
	 	
 	  	(in millions of U.S. dollars)	 	
Reinsurance recoverable on paid losses and loss expenses	  	$	1,297	 	 	$	1,363	 	
Bad debt reserve on paid losses and loss expenses	  	 	(385	)	 	 	(378	)	
Reinsurance recoverable on future policy benefits	  	 	15	 	 	 	9	 	
Reinsurance recoverable on unpaid losses and loss expenses	  	 	13,655	 	 	 	13,558	 	
Bad debt reserve on unpaid losses and loss expenses	  	 	(550	)	 	 	(561	)	
 	  				 				
Net reinsurance recoverable	  	$	14,032	 	 	$	13,991	 	

We evaluate the financial condition of our reinsurers and potential reinsurers on a regular basis and also monitor concentrations of credit risk with reinsurers. The provision for unrecoverable reinsurance is required principally due to the failure of reinsurers to indemnify us, primarily because of disputes under reinsurance contracts and insolvencies. Provisions have been established for amounts estimated to be uncollectible.
 
Following is a breakdown of our reinsurance recoverable on paid losses at September 30, 2003 and December 31, 2002:
 
 	  	September 30, 2003
	 	 	December 31, 2002
	 	
Category
	  	Amount
	  	Bad Debt
Reserve
	  	% of Total
Reserve
	 	 	Amount
	  	Bad Debt
Reserve
	  	% of Total
Reserve
	 	
 	  	(in millions of U.S. dollars)	 	
General collections	  	$	765	  	$	46	  	6.0	%	 	$	848	  	$	43	  	5.1	%	
Other	  	 	532	  	 	339	  	63.7	%	 	 	515	  	 	335	  	65.0	%	
 	  			  			  			 			  			  			
Total	  	$	1,297	  	$	385	  	29.7	%	 	$	1,363	  	$	378	  	27.7	%	

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. We provide bad debt reserves based primarily on the application of historical loss experience to credit categories.
 
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 takes into account the credit quality of the reinsurer, and whether we have received collateral or other credit protections such as parental guarantees.
 
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More information relating to reinsurance and our reinsurers 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, 2002.
 
Asbestos and Environmental Claims
 
Included in our liabilities for losses and loss expenses are liabilities for asbestos, environmental and latent injury damage claims and expenses (A&E). These claims are principally related to claims arising from remediation costs associated with hazardous waste sites and bodily-injury claims related to asbestos products and environmental hazards. These amounts include provision for both reported and IBNR claims. In January 2003, we completed an internal review of our A&E reserves. This review resulted in us increasing our gross A&E reserve, for the year ended December 31, 2002, by $2.2 billion, offset by $1.9 billion of reinsurance recoverable, including $533 million of reinsurance purchased from the National Indemnity Company (NICO) as part of the ACE INA Acquisition. After an addition to our bad debt provision of $145 million and our ten percent participation in the NICO cover, our net incurred loss was $516 million ($354 million after income tax) and was recorded in the fourth quarter of 2002. In addition to our internal review, the normal, biennial, reserve review by an independent, actuarial consulting firm, required by the Pennsylvania Insurance Department when Brandywine was established, was completed in February 2003. Our A&E reserves, taking into account the additions for the quarter ended December 31, 2002, represent the high end of our internal indication of range of liability and is consistent with the best estimate of the external actuary. We experienced no new A&E incurred losses for the nine months ended September 30, 2003.
 
In a lawsuit, filed in the state of California in December 1999, certain competitors of ACE USA 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. In addition, the liabilities that are the subject of this California lawsuit are included within our A&E reserves for Brandywine.
 
Congress has been working on possible legislation to move all U.S. asbestos bodily injury claims to a federal trust for compensation in accordance with an established set of medical criteria and claim values. The trust would be funded by asbestos defendants and their insurers. ACE would be one of the insurer participants and because the trust would avoid payments to unimpaired victims and obviate the need for extensive legal costs, we believe our ultimate funding obligation under the trust will be less than we would be required to pay under the current tort system. However, we cannot predict if any such proposed legislation will be modified or adopted.
 
The table below presents selected loss reserve data for A&E exposures at September 30, 2003 and December 31, 2002.
 
 	  	September 30,
2003
	  	December 31,
2002
	
 	  	Gross
	  	Net
	  	Gross
	  	Net
	
 	  	(in millions of U.S. dollars)	
Asbestos	  	$	3,027	  	$	356	  	$	3,192	  	$	446	
Environmental and other latent exposures	  	 	1,196	  	 	297	  	 	1,352	  	 	403	
 	  			  			  			  			
Total A&E	  	$	4,223	  	$	653	  	$	4,544	  	$	849	

Paid losses for the nine months ended September 30, 2003 for asbestos claims were $165 million on gross reserves and $90 million on net reserves. Environmental and other latent exposure claim payments were $156 million on gross reserves and $106 million on net reserves for the nine months ended September 30, 2003.
 
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More information relating to our A&E exposure, including our A&E reserving process 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, 2002.
 
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. During the nine months ended September 30, 2003, 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 which are discussed below.
 
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 later.
 
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 nine months ended September 30, 2003, ACE Bermuda declared and paid dividends of $281 million, compared with $260 million for the same period in 2002. We received dividends of $25 million from ACE Cap Re International Ltd. during the nine months ended September 30, 2003, compared with no dividends in 2002. We expect that a majority of our cash inflows for 2003 will be from our Bermuda subsidiaries.
 
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 and ACE Financial Services’ 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 during the nine months ended September 30, 2003 nor do we expect to receive dividends from these subsidiaries during the remainder of 2003. 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. ACE Financial Services’ U.S. insurance subsidiaries are limited in their dividend paying abilities due to their need to maintain their AA and AAA financial strength ratings.
 
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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. Our consolidated net cash flow from operating activities was $2.6 billion for the nine months ended September 30, 2003, compared with $1.6 billion for the same period last year. The positive operating cash flows were generated from an increase in net premiums written of $1.6 billion for the nine months ended September 30, 2003, offset by an increase in net losses and loss expenses paid of $474 million. Generally cash flows are affected by claim payments which, due to the nature of our operations, may comprise large loss payments on a limited number of claims and therefore 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. 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 $503 million for the nine months ended September 30, 2003, compared with $415 million for the same period in 2002, primarily due to claim payments. The run-off book of business continues to require cash to meet its liabilities and cash flows are very dependent on the timing of claim settlements.
 
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, www.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 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.
 
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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, 2003 and December 31, 2002.
 
 	  	September 30	 	 	December 31	 	
 	  	2003
	 	 	2002
	 	
 	  	(in millions of U.S. dollars)	 	
Short-term debt	  	$	146	 	 	$	146	 	
Long-term debt	  	 	1,749	 	 	 	1,749	 	
 	  				 				
Total debt	  	 	1,895	 	 	 	1,895	 	
 	  				 				
Trust preferred securities	  	 	475	 	 	 	475	 	
Mezzanine equity	  	 	—  	 	 	 	311	 	
Preferred Shares	  	 	557	 	 	 	—  	 	
Ordinary shareholders’ equity	  	 	7,789	 	 	 	6,389	 	
 	  				 				
Total shareholders’ equity	  	 	8,346	 	 	 	6,389	 	
 	  				 				
Total capitalization	  	$	10,716	 	 	$	9,070	 	
 	  				 				
Ratio of debt to total capitalization	  	 	17.7	%	 	 	20.9	%	
 
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. 
 
Shareholders’ Equity
 
In May 2003, we sold in a public offering 23 million depositary shares, each representing one-tenth of one of our 7.80 percent Cumulative Redeemable Preferred Shares for $25 per depositary share for net proceeds of $557 million. Gross proceeds from the sale of the Preferred Shares were $575 million and related expenses were $18 million. We used the net proceeds to make additional capital contributions to some of our subsidiaries and for general corporate purposes. This offering was made under our universal shelf registration statement with the SEC, which became effective in February 2003, allowing us to offer a number of different types of debt and equity securities up to a total offering price of $1.5 billion. Dividends on the Preferred Shares are payable quarterly, when and if declared by our Boards of Directors, in arrears on March 1, June 1, September 1 and December 1 of each year. On September 1, 2003 we paid dividends of $4.9292 per Preferred Share to shareholders of record on August 31, 2003. This translates to $0.49292 per depositary share. We also declared a dividend of $4.875 per Preferred Share payable on December 1, 2003 to shareholders of record at the close of business on November 30, 2003. This translates to $0.4875 per depositary share.
 
Our diluted book value per Ordinary Share increased to $27.76 at September 30, 2003 compared with $24.16 at December 31, 2002. In calculating our diluted book value per Ordinary Share, we include in the denominator in-the-money options together with the 11.8 million shares issued upon conversion of the FELINE PRIDES. The expected proceeds from the in-the-money options are included in the numerator. Shareholders’ equity increased by $2 billion during the nine months ended September 30, 2003. This increase is due to the issuance of the Preferred Shares; our net income, conversion of the FELINE PRIDES which increased shareholder’s equity by $311 million, and unrealized gains on our investment portfolio of $211 million. Partially offsetting these increases, were $172 million of dividends declared on Ordinary and Preferred Shares during the nine months ended September 30, 2003.
 
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, 2003, this authorization had not been utilized.
 
On January 10, 2003 and April 14, 2003, we paid dividends of 17 cents per Ordinary Share to shareholders of record on December 27, 2002 and March 31, 2003, respectively. On July 14, 2003 and October 14, 2003, we paid dividends of 19 cents per Ordinary Share to shareholders of record on June 30, 2003 and September 30, 2003,
 
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respectively. On November 13, 2003, we declared a dividend of 19 cents per Ordinary share payable on January 14, 2004 to shareholders of record on December 31, 2003. 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.
 
Mezzanine Equity
 
In 2000, we publicly offered and issued 6,221,000 FELINE PRIDES for aggregate net proceeds of $311 million. Each FELINE PRIDE initially consisted of a unit referred to as an Income PRIDE. Each Income PRIDE consisted of (i) one 8.25 percent Cumulative Redeemable Preferred Share, Series A, liquidation preference $50 per share, and (ii) a purchase contract pursuant to which the holder of the Income PRIDE agreed to purchase from us, on May 16, 2003, $311 million of Ordinary Shares at the applicable settlement rate. On May 16, 2003, we issued approximately 11.8 million Ordinary Shares, in satisfaction of the purchase contracts underlying our FELINE PRIDES. In consideration, on June 16, 2003, we redeemed all of our 8.25 percent Cumulative Redeemable Preferred Shares, Series A, at a rate representing an issuance of 1.8991 Ordinary Shares per preferred share.
 
Credit Facilities
 
The following table shows our credit facilities by credit line, usage, expiry date and purpose at September 30, 2003.
 
 	  	Credit Line
	  	Usage
	  	Expiry Date
	  	Purpose
	
Liquidity Facilities	  	 	 	  	 	 	  	 	  	 	
ACE Limited 1	  	$	500	  	$	—  	  	April 2004	  	General Corporate	
ACE Limited 1,2	  	 	250	  	 	64	  	May 2005	  	General Corporate	
ACE Guaranty Corp	  	 	140	  	 	—  	  	May 2004	  	General Corporate	
Secured Operational LOC Facilities	  	 	 	  	 	 	  	 	  	 	
ACE Limited	  	 	500	  	 	283	  	Sept. 2006	  	General Corporate	
Unsecured Operational LOC Facilities	  	 	 	  	 	 	  	 	  	 	
ACE Limited	  	 	500	  	 	264	  	Sept. 2004	  	General Corporate	
ACE Limited	  	 	100	  	 	84	  	Oct. 2004	  	General Corporate	
ACE Global Markets	  	 	200	  	 	200	  	Oct. 2004	  	General Corporate	
ACE Tempest Re	  	 	200	  	 	130	  	Dec. 2003	  	General Corporate	
ACE International	  	 	19	  	 	19	  	Various	  	General Corporate	
Unsecured Capital Facilities	  	 	 	  	 	 	  	 	  	 	
ACE Guaranty Corp	  	 	175	  	 	—  	  	Nov. 2009	  	Rating Agency Capital	
ACE Global Markets 3	  	 	635	  	 	635	  	Nov. 2007	  	Underwriting capacity for
Lloyd’s Syndicate 2488-2004 capacity of £550 million (approximately $919 million)	
 	  			  			  	 	  	 	
Total	  	$	3,219	  	$	1,679	  	 	  	 	
 	  			  			  	 	  	 	
1.	Commercial paper back-up facility	
2.	May also be used for LOCs	
3.	Unsecured letters of credit are placed with Lloyds as capital on behalf of ACE’s corporate capital vehicles	
 
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Some of the facilities noted above require that we maintain certain covenants, all of which have been met at September 30, 2003. These covenants include:
 
(i)    maintenance of a minimum consolidated net worth covenant of not less than $4.4 billion plus 25 per cent of Consolidated Net Income for each fiscal quarter ending on or after March 31, 2003 for which such Consolidated Net Income is positive, plus 50 percent of net proceeds of any issuance of equity interests (other than the net proceeds from any issuance of equity interests in substitution and replacement of other equity interests to the extent such net proceeds do not exceed the amount of a substantially contemporaneous redemption of equity interests) subsequent to March 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, 2003, (a) the minimum consolidated net worth requirement under the covenant described in (i) above was $5.1 billion and our actual consolidated net worth as calculated under that covenant was $7.7 billion; and (b) our ratio of debt to total capitalization was 0.18 to 1.
 
Certain facilities are guaranteed by either operating subsidiaries or ACE Limited.
 
In addition to these covenants, the ACE Global Markets capital facility requires that collateral be posted if the financial strength rating of ACE Bermuda falls to S&P BBB+ or lower.
 
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.
 
As our Bermuda subsidiaries are not admitted insurers and reinsurers in the U.S., the terms of certain 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.
 
New Accounting Pronouncements
 
In July 2003, the Accounting Standards Executive Committee issued Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (SOP 03-1). This Statement of Position provides guidance on accounting and reporting by insurance enterprises for certain nontraditional long-duration contracts and for separate accounts and is effective for financial statements for fiscal years beginning after December 15, 2003. At the date of initial application of this SOP, we are required to make various determinations, such as qualification for separate account treatment, classification of securities in separate account arrangements, significance of mortality and morbidity risk, adjustments to contract holder liabilities, and adjustments to estimated gross profits as defined in SFAS No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments”. We are currently evaluating the impact of adoption of SOP 03-1 on our financial condition and results of operations.
 
In May 2003, Financial Accounting Standards Board (FASB) issued FAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (FAS 150), which establishes standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity. FAS 150 requires the classification of a financial instrument that is within its scope as a liability (or an asset in some circumstances). The adoption of FAS No. 150 did not impact our financial condition or our results of operations.
 
In April 2003, FASB issued FAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (FAS 149), which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as
 
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derivatives) and for hedging activities under FAS No. 133. FAS 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of FAS 149 did not have a material impact on our financial condition or our results of operations. 
 
In January 2003, FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), which requires consolidation of all variable interest entities (VIE) by the primary beneficiary, as these terms are defined in FIN 46. In addition, it requires expanded disclosure for all VIEs. FIN 46 is effective immediately for VIEs created after January 31, 2003. On October 9, 2003, FASB deferred the effective date of FIN 46 for VIEs that existed prior to February 1, 2003, until the end of the first interim or annual period ending after December 15, 2003. Based on the guidance and interpretations issued to date, we do not expect the adoption of FIN 46 to have a material impact on our financial condition or our results of operations.
 
In December 2002, FASB issued FAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (FAS 148). FAS 148 provides alternative methods of transitioning for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. FAS 148 amends the disclosure requirements of FAS No. 123 (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. We continue to account for stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25 (APB 25).
 
 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. Therefore our net income is affected by changes in interest rates, equity prices and foreign currency exchange rates. We 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. 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. A hypothetical adverse parallel shift in the yield curve of 100 basis points would have resulted in a decrease in total return of 3.4 percent on our fixed income portfolio at September 30, 2003 and 3.1 percent at December 31, 2002. This equates to a decrease in market value of approximately $647 million on a fixed income portfolio valued at $19.2 billion at September 30, 2003, and approximately $488 million on a fixed income portfolio valued at $15.7 billion at December 31, 2002. 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
 
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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 $565 million at September 30, 2003. A hypothetical 10 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 a $57 million decline in fair value. 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.
 
Our exposure to foreign exchange risk is concentrated in our net invested assets denominated in foreign currencies. Our international operations use cash flows to purchase investments to match insurance reserves and other liabilities denominated in the same currencies.
 
Derivatives
 
FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities, and requires that an entity recognize all derivatives as either assets or liabilities on the consolidated balance sheet and measure those instruments at fair value.
 
We maintain investments in derivative instruments such as futures, options, interest rate swaps and foreign currency forward contracts for which the primary purposes are to manage duration and foreign currency exposure, yield enhancement or to obtain an exposure to a particular financial market. If certain conditions are met, a derivative may be specifically designated as a fair value cash flow or foreign currency hedge. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. Upon application of FAS 133, hedging relationships must be designated and documented pursuant to the provisions of this statement. We had no derivatives that were designated as hedges at September 30, 2003 and December 31, 2002.
 
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. These products consist primarily of credit-default swaps. We record these products at their fair values, which are determined principally through the use of in-house developed financial models.
 
During the nine months ended September 30, 2003, we recorded in net realized gains (losses), a pretax gain of $76 million due principally to changes in the market value of these instruments and the reclassification of losses from net realized gains (losses) to losses and loss expenses as a result of recording loss reserves on certain contracts. This compares with a pretax loss of $97 million for the same period in 2002. The level of gains and losses resulting from changes in the fair value of derivatives on a prospective basis is dependent upon a number of factors including changes in probability of default, credit spreads and other market factors. Our involvement with derivative instruments and transactions is primarily to offer protection to others or to mitigate our own risk; we do not consider such transactions to be speculative.
 
 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 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.
 
 Item 5.    Other Information
 
1.	On November 13, 2003, the Company declared a quarterly dividend of $0.19 per Ordinary Share payable on January 14, 2004, to shareholders of record on December 31, 2003.	
 
2.	On November 13, 2003, the Company declared a dividend of $4.875 per Preferred Share, payable on December 1, 2003 to shareholders of record on November 30, 2003.	
 
3.	On October 14, 2003, the Company announced the appointment of Paul Medini, as Chief Accounting Officer of ACE Limited. Paul Medini was most recently a partner in the P&C insurance practice of PricewaterhouseCoopers. Mr. Medini’s position was previously held by Robert Blee, who became ACE Limited’s Chief Compliance Officer in March 2003.	
 
 Item 6.    Exhibits and Reports on Form 8-K
 
1.	  	Exhibits	
		
10.1	  	Reimbursement agreement for $500,000,000 Letter of Credit Facility dated as of September 25, 2003, among ACE Limited, certain subsidiaries, various lenders and Wachovia Securities, Inc.	
		
10.2	  	Reimbursement agreement for $500,000,000 secured Letter of Credit Facility dated as of September 25, 2003, among ACE Limited, certain subsidiaries, various lenders and Wachovia Securities, Inc.	
		
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.	
		
2.	  	Reports on Form 8-K	
 
The Company filed a Form 8-K current report (date of earliest event reported: October 28, 2003) pertaining to ACE Limited’s press release reporting its third quarter 2003 results and the availability of its third quarter financial supplement.

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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 13, 2003	 	 	 	/ S /    B RIAN D UPERREAULT	
 	 	 		
 	 	 	 	Brian Duperreault
Chairman and Chief Executive Officer	
			
November 13, 2003	 	 	 	/ S /    P HILIP V. B ANCROFT	
 	 	 		
 	 	 	 	Philip V. Bancroft
Chief Financial Officer	
 
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ACE LIMITED
EXHIBITS
 
Exhibit
Number
	  	Description
	  	Numbered
Page

 	  	Exhibits	  	 	
			
10.1	  	Reimbursement agreement for $500,000,000 Letter of Credit Facility dated as of September 25, 2003, among ACE Limited, certain subsidiaries, various lenders and Wachovia Securities, Inc.	  	 	
			
10.2	  	Reimbursement agreement for $500,000,000 secured Letter of Credit Facility dated as of September 25, 2003, among ACE Limited, certain subsidiaries, various lenders and Wachovia Securities, Inc.	  	 	
			
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.	  	 	

64

Execution Copy

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 Issuing Bank and as Administrative Agent
and
BANK OF AMERICA, N.A.,
THE BANK OF NOVA SCOTIA,
BANK ONE, N.A., and
DEUTSCHE BANK AG, NEW YORK BRANCH,
as Co-Syndication Agents
$500,000,000 Unsecured Letter of Credit Facility
WACHOVIA CAPITAL MARKETS, LLC
Sole Book Runner and Lead Arranger
Dated as of September 25, 2003

TABLE OF CONTENTS

                                                                            Page
                                                                            ----

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01   Certain Defined Terms...........................................1
SECTION 1.02   Computation of Time Periods; Other Definitional Provisions.....16
SECTION 1.03   Accounting Terms and Determinations............................16

                                   ARTICLE II

                   AMOUNTS AND TERMS OF THE LETTERS OF CREDIT

SECTION 2.01   The Letters of Credit..........................................17
SECTION 2.02   Issuance and Renewals and Drawings, Participations and
                  Reimbursement with Respect to Letters of Credit.............18
SECTION 2.03   Repayment of Advances..........................................21
SECTION 2.04   Termination or Reduction of the LC Commitment Amounts..........22
SECTION 2.05   Fees...........................................................23
SECTION 2.06   Increased Costs, Etc...........................................23
SECTION 2.07   Payments and Computations......................................25
SECTION 2.08   Taxes..........................................................26
SECTION 2.09   Sharing of Payments, Etc.......................................28
SECTION 2.10   Use of Letters of Credit.......................................28
SECTION 2.1l   Defaulting Banks...............................................28
SECTION 2.12   Replacement of Affected Bank...................................30
SECTION 2.13   Certain Provisions Relating to the Issuing Bank and Letters
                  of Credit...................................................30
SECTION 2.14   Downgrade Event with Respect to a Bank.........................32
SECTION 2.15   Downgrade Event or Other Event with Respect to the Issuing
                  Bank........................................................34
SECTION 2.16   Non-Dollar Letters of Credit...................................34

                                   ARTICLE III

            CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT

SECTION 3.01   Conditions Precedent to Effective Date.........................36
SECTION 3.02   Conditions Precedent to Each Issuance, Extension or Increase
                  of a Letter of Credit.......................................38
SECTION 3.03   Determinations Under Section 3.01..............................38

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

SECTION 4.01   Representations and Warranties of the Account Parties .........39	

i

                                    ARTICLE V

                        COVENANTS OF THE ACCOUNT PARTIES

SECTION 5.01   Affirmative Covenants..........................................43
SECTION 5.02   Negative Covenants.............................................44
SECTION 5.03   Reporting Requirements.........................................48
SECTION 5.04   Financial Covenants............................................51

                                   ARTICLE VI

                               EVENTS OF DEFAULT

SECTION 6.01   Events of Default..............................................51
SECTION 6.02   Actions in Respect of the Letters of Credit upon Default.......54

                                   ARTICLE VII

                                  THE GUARANTY

SECTION 7.01   The Guaranty...................................................54
SECTION 7.02   Guaranty Unconditional.........................................55
SECTION 7.03   Discharge Only upon Payment in Full; Reinstatement in Certain
                  Circumstances...............................................55
SECTION 7.04   Waiver by the Account Parties..................................56
SECTION 7.05   Subrogation....................................................56
SECTION 7.06   Stay of Acceleration...........................................56
SECTION 7.07   Continuing Guaranty; Assignments...............................56

                                  ARTICLE VIII

                                   THE AGENTS

SECTION 8.01   Authorization and Action.......................................57
SECTION 8.02   Agents' Reliance, Etc..........................................57
SECTION 8.03   Wachovia and Affiliates........................................58
SECTION 8.04   Bank Credit Decision...........................................58
SECTION 8.05   Indemnification................................................58
SECTION 8.06   Successor Administrative Agent.................................59

                                   ARTICLE IX

                                  MISCELLANEOUS

SECTION 9.01   Amendments, Etc................................................59
SECTION 9.02   Notices, Etc...................................................60
SECTION 9.03   No Waiver; Remedies............................................60
SECTION 9.04   Costs and Expenses.............................................60	

ii

SECTION 9.05   Right of Set-off...............................................62
SECTION 9.06   Binding Effect.................................................62
SECTION 9.07   Assignments and Participations.................................62
SECTION 9.08   Execution in Counterparts......................................65
SECTION 9.09   No Liability of the Issuing Bank...............................65
SECTION 9.10   Confidentiality................................................65
SECTION 9.1l   Jurisdiction, Etc..............................................66
SECTION 9.12   Governing Law..................................................66
SECTION 9.13   Waiver of Jury Trial...........................................66
SECTION 9.14   Disclosure of Information......................................67

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-l           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	

iii

REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT dated as of September 25, 2003, 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 Issuing Bank (as hereinafter defined), Bank of America, N.A. ("Bank of America"), as co-syndication agent, The Bank of Nova Scotia ("Nova Scotia"), as co-syndication agent, Bank One, N.A., as co-syndication agent ("Bank One"), Deutsche Bank AG, New York Branch ("Deutsche Bank"), as co-syndication agent (Bank of America, Nova Scotia, Bank One and Deutsche Bank, together with any successor syndication agent appointed pursuant to Article VIII, the "Co-Syndication Agents"), and Wachovia, as administrative agent (together with any successor administrative agent appointed pursuant to Article VIII, the "Administrative Agent" and, together with the Co-Syndication Agents and the Documentation Agents, the "Agents") for the Banks.
PRELIMINARY STATEMENTS:
The Account Parties have requested that the Issuing Bank and the Banks make available to the Account Parties a 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 Bank 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 1
DEFINITIONS AND ACCOUNTING TERMS
SECTION 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 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, 8th 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 2.16(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 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:
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----------------------------------------------
Public Debt Rating   Applicable Commitment Fee
   S&P/Moody's              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   Applicable Margin   Applicable Margin
   S&P/Moody's       for Intercompany     for Third Party
                     Letters of Credit   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 $125,000,000, 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 $125,000,000 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.
"Arranger" means Wachovia Capital Markets, LLC.
"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 the Issuing Bank).
"Bank of America" has the meaning specified in the recital of parties to this Agreement.
"Bank One" has the meaning specified in the recital of parties to this Agreement.
"Bankruptcy Law" means any proceeding of the type referred to in Section 6.01(f) or 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.
"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, 1/2 of 1% above the Federal Funds Rate.
"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; or (c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or
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arrangement that results in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Parent.
"Commitment Amount" means an LC Commitment Amount or the Letter of Credit Issuance Commitment Amount.
"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 primary obligation in respect of which such Contingent Obligation is made (or, if less, the
5

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.
"Co-Syndication Agents" has the meaning specified in the recital of parties to this Agreement.
"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 obligations of such Person under Guaranteed Investment Contracts issued by such Person, (i) all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person and (j) all indebtedness and other payment obligations referred to in clauses (a) through (i) 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 (j) 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
6

business; 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, (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 or (z) obligations of such Person under Guaranteed Investment Contracts in an aggregate amount not to exceed $2,000,000,000 outstanding at any time.
"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) the Issuing Bank pursuant to Section 2.02(e) to purchase a portion of a Letter of Credit Advance made by the Issuing Bank and (b) any Agent or the Issuing Bank pursuant to Section 8.05 to reimburse such Agent or the Issuing Bank for such Bank's ratable share of any amount required to be paid by the Banks to such Agent or the 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(f).
"Deutsche Bank" has the meaning specified in the recital of parties to this Agreement.
"Documentation Agents" has the meaning specified in the recital of parties to this Agreement.
"Dollar Equivalent" has the meaning specified in Section 2.16(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,
7

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 the Issuing Bank 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.
8

"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 issued by Wachovia pursuant to the Existing Reimbursement Agreement and outstanding on the Effective Date, which letters of credit are listed on Schedule II hereto.
"Existing Reimbursement Agreement" means the Reimbursement Agreement, dated as of September 30, 2002, among the Account Parties (other than Tempest Life), the banks and other lenders named therein, JPMorgan Chase Bank and Bank of America, as Syndication Agents, Nova Scotia and Deutsche Bank, as Documentation 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 23, 2004.
"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 29, 2003 among the Parent, Wachovia and the Arranger, 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(n)(iv).
"Foreign Plan" has the meaning specified in Section 4.01(n)(iv).
"GAAP" has the meaning specified in Section 1.03.
"Guaranteed Investment Contract" means, with respect to any Person, a guaranteed investment contract or funding agreement or other similar agreement issued by such Person that guarantees to a counterparty a rate of return on the invested capital over the life of such contract or agreement.
"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 (i) or (j) 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 Bank" means Wachovia and any "New Issuing Bank" appointed in accordance with Section 2.15.
"Judgment Currency" has the meaning specified in Section 2.16(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.
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"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(f).
"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 Issuance Commitment Amount" means at any time the lesser of (a) $500,000,000 (or such lesser amount as may be agreed in writing among the Account Parties, the Administrative Agent and the Issuing Bank) and (b) the aggregate amount of the LC Commitment Amounts then in effect.
"Letter of Credit Participating Interest" has the meaning specified in
Section 2.02(d).
"Letter of Credit Participating Interest Commitment" has the meaning specified in Section 2.02(d).
"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.
"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 (including "Feline Prides(TM)", "Rhinos(TM)" or any substantially similar securities).
"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.
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"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, the 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 $25,000,000.
"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 2.16(a).
"Nova Scotia" has the meaning specified in the recital of parties to this Agreement.
"OECD" means the Organization for Economic Cooperation and Development.
"Other Taxes" has the meaning specified in Section 2.08(b).
"Overnight Rate" has the meaning specified in Section 2.16(h).
"Parent" has the meaning specified in the recital of parties to this Agreement.
"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
12

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 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
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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.
"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.
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"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).
"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.
"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.
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"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 Bank pursuant to Section 2.02(f) and outstanding at such time (whether held by the Issuing Bank 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.
SECTION 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.
SECTION 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
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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
SECTION 2.01 The Letters of Credit. The 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. The Issuing Bank shall have no obligation to issue, and no Account Party will request the issuance of, any Letter of Credit hereunder if either (a) at the time of issuance of such Letter of Credit and after giving effect thereto, the Letter of Credit Exposure would exceed the Letter of Credit Issuance Commitment Amount, 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 Issuing Bank as contemplated by Section 2.02). Unless all the Banks consent otherwise in writing, the Issuing Bank shall have no 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 Issuing Bank as contemplated by Section 2.02). The Issuing Bank shall have no 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 2.16, 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, but a Letter of Credit may by its terms be automatically renewable annually unless the Issuing Bank notifies the beneficiary thereof of its election not to renew such Letter of Credit (which the Issuing Bank agrees to do on and subject to the terms of Section 2.02(c)). The Issuing Bank shall have no obligation to issue any letter of credit which is unsatisfactory in form, substance or beneficiary to the 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. By their execution of this Agreement, the Banks party hereto as of the Effective Date that are also party to the Existing Reimbursement Agreement as "Banks" thereunder hereby waive, in their capacity as the "Required Banks" under the Existing Reimbursement Agreement, the requirement of three Business Days' prior written notice for the termination of the LC Commitment Amounts (as defined in the Existing Reimbursement Agreement) pursuant to Section 2.04 thereof, and agree that such notice may be given on the Effective Date of this Agreement.
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SECTION 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), the Issuing Bank to issue or renew (other than any automatic renewal thereof) a Letter of Credit by:
(i) delivering to the Issuing Bank either (x) a written request to such effect or (y) a request made in electronic form through the Issuing Bank's remote access system and in accordance with the terms and conditions (including any written agreements between the 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 the Issuing Bank a completed agreement and application with respect to such Letter of Credit as the 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 the Issuing Bank's customary practices for the issuance of letters of credit (including requirements relating to requests made through the Issuing Bank's remote access system).
The Administrative Agent shall, promptly upon receiving a copy of the notice referred to in clause (i) above, notify the Banks of such proposed Letter of Credit (which notice shall specify the Available Amount and term of such proposed Letter of Credit) or such proposed renewal of a Letter of Credit (which notice shall specify the term of such renewal), and shall determine, as of 11:00
A.M. (Charlotte, North Carolina time) on the Business Day immediately preceding such proposed issuance, whether such proposed Letter of Credit complies with the limitations set forth in Section 2.01 hereof. If such limitations set forth in
Section 2.01 are not satisfied or if the Required Banks have given notice to the Administrative Agent to cease issuing or renewing Letters of Credit as contemplated by this Agreement, the Administrative Agent shall immediately notify the Issuing Bank (in writing or by telephone immediately confirmed in writing) that the Issuing Bank is not authorized to issue or renew, as the case may be, such Letter of Credit. If the 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. The 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 the Issuing Bank to select the branch or Affiliate that will issue or process any Letter of Credit.
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(b) Request for Extension or Increase. An Account Party may from time to time request the Issuing Bank to 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. 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 the 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) Limitations on Issuance, Extension, Renewal and Amendment. As between the Issuing Bank, on the one hand, and the Agents and the Banks, on the other hand, the Issuing Bank shall be justified and fully protected in issuing or renewing a proposed Letter of Credit unless it shall have received notice from the Administrative Agent as provided in Section 2.02(a) hereof that it is not authorized to do so (and, in the case of automatic renewals, ten days shall have passed following the date of the Issuing Bank's receipt of such notice), notwithstanding any subsequent notices to the 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 the Issuing Bank, or any other event, condition or circumstance whatsoever. The 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 Issuing Bank shall notify the beneficiary thereof, in accordance with the terms specified for such notice in such Letter of Credit, of the Issuing Bank's election not to renew such Letter of Credit.
(d) 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 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 the Issuing Bank, without recourse to, or representation or warranty by, the Issuing Bank, an undivided interest, in a proportion equal to such Bank's Pro Rata Share, in all of the 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 the 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 Bank 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
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for the sole account of the Issuing Bank. 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 the Issuing Bank, the assignee Bank shall be deemed to have acquired a Letter of Credit Participating Interest from the 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(e), and the right of the 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.
(e) Payment by Banks on Account of Unreimbursed Draws. If the Issuing Bank makes a payment under any Letter of Credit and is not reimbursed in full therefor on such payment date in accordance with Section 2.03(a), the 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 the Issuing Bank, in immediately available funds, an amount equal to such Bank's Pro Rata Share of the unreimbursed portion of such payment by the Issuing Bank. Amounts received by the Administrative Agent for the account of the Issuing Bank shall be forthwith transferred, in immediately available funds, to the Issuing Bank. If and to the extent that any Bank fails to make such payment to the Administrative Agent for the account of the Issuing Bank on such date, such Bank shall pay such amount on demand, together with interest, for the Issuing Bank's own account, for each day from and including the date such payment is due from such Bank to the Issuing Bank to but not including the date of repayment to the 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 the 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(e) 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.
(f) Letter of Credit Advances. The term "Letter of Credit Advance" is used in this Agreement in accordance with the meanings set forth in this paragraph
2.02(f). The making of any payment by the Issuing Bank under a Letter of Credit is sometimes referred to herein as the making of a Letter of Credit Advance by the Issuing Bank in the amount of such payment. The making of any payment by a Bank for the account of the Issuing Bank under Section 2.02(e) on
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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.
(g) Letter of Credit Reports. The 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 tenth 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 tenth 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.
SECTION 2.03 Repayment of Advances.
(a) Account Parties' Reimbursement Obligation.
(i) Each Account Party hereby agrees to reimburse the Issuing Bank (by making payment to the Administrative Agent for the account of the Issuing Bank in accordance with Section 2.07) in the amount of each payment made by the 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 the date which is one Business Day after notice of such payment under such Letter of Credit or 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 the Issuing Bank and the Banks which have funded their respective shares of such amount remaining unpaid by such Account Party, on demand, interest thereon at a rate per annum for each day equal to 2% plus the Base Rate in effect on such day.
(ii) The obligation of each Account Party to reimburse the Issuing Bank for any payment made by the Issuing Bank under any Letter of Credit, and the obligation of each Bank under Section 2.02(e) 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
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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), the 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 the 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 the Issuing Bank on account of any Letter of Credit Advance shall be avoided, rescinded or otherwise returned or paid over by the Issuing Bank for any reason at any time, whether before or after the termination of this Agreement (or the 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 the Issuing Bank, pay over to the Administrative Agent for the account of the Issuing Bank its Pro Rata Share of such amount, together with its Pro Rata Share of any interest or penalties payable with respect thereto.
SECTION 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
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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,
(ii) shall be made ratably among the Banks in accordance with their LC Commitment Amounts and (iii) shall automatically reduce the Issuing Bank's Letter of Credit Issuance Commitment Amount, as contemplated by the definition of that term.
SECTION 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, 2003 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, 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, 2003, 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 to the Issuing Bank, for its own account, (x) the facing fee referred to the Fee Letter, on the terms set forth therein, and (y) the 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 the 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.
SECTION 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
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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 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 subsection (a) or (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.
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(d) Notwithstanding the provisions of subsections (a) and (b) above or
Section 2.08 (and without limiting subsection (c) above), if any Bank fails to notify the Account Parties of any event or circumstance that will entitle such Bank to compensation pursuant subsection (a) or (b) above or Section 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 Bank in its capacity as such.
SECTION 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 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.
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(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.
SECTION 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
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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 subsections (d) and (e) of this
Section 2.08, 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 the 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 subsection (a) of this Section 2.08 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 subsection (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 subsection (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 subsection (e) above), such Bank shall not be entitled to indemnification under subsection (a) or (c) of this
Section 2.08 with respect to Taxes imposed by the United States by reason of such failure; provided, however,
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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.
SECTION 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.
SECTION 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.
SECTION 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
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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;
(ii) second, to the Issuing Bank for any amount then due and payable to it, in its capacity as such, by such Defaulting Bank, ratably in accordance with such amounts then due and payable to the Issuing Bank; 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 subsection (a), shall be applied by the Administrative Agent as specified in subsection (b) of this Section 2.11.
(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 subsection (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 subsection (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 subsection (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
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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 Bank for any amount then due and payable to it, in its capacity as such, by such Defaulting Bank, ratably in accordance with such amounts then due and payable to such Issuing Bank; 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.
SECTION 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.
SECTION 2.13 Certain Provisions Relating to the Issuing Bank 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 the 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 the Issuing Bank and the Banks under, this Agreement and applicable law. Each Account Party acknowledges and agrees that all rights of the Issuing Bank under any Letter of
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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 Bank 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 Bank shall be read into this Agreement or shall otherwise exist. The duties and responsibilities of the Issuing Bank to the Banks and the Agents under this Agreement and the other Loan Documents shall be mechanical and administrative in nature, and the Issuing Bank shall not have a fiduciary relationship in respect of any Agent, any Bank or any other Person. The Issuing Bank shall not 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 the gross negligence or willful misconduct of the Issuing Bank, as finally determined by a court of competent jurisdiction. The Issuing Bank 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 Bank 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 Bank shall not be responsible for the execution, delivery, effectiveness, enforceability, genuineness, validity or adequacy of this Agreement or any Loan Document.
(c) Administration. The 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 the 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 the Issuing Bank shall not have any duty to verify the identity or authority of any Person giving such notice or other communication. The Issuing Bank may consult with legal counsel (including, without limitation, in-house counsel for the Issuing Bank 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 the 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 the 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 the Issuing Bank may conclusively rely upon such certificate. The Issuing Bank shall not be deemed to have any knowledge or notice of the occurrence of any Default unless the 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 Bank by Banks. Each Bank hereby agrees to reimburse and indemnify the Issuing Bank and each of its directors, officers, employees and
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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 the Issuing Bank or such other Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the 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 the 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 the Issuing Bank or such other Person, as finally determined by a court of competent jurisdiction.
(e) Issuing Bank in its Individual Capacity. With respect to its commitments and the obligations owing to it, the 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 the Issuing Bank, and the term "Banks" and like terms shall include the Issuing Bank in its individual capacity as such. The 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 the Issuing Bank were not the Issuing Bank hereunder.
SECTION 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 Issuing Bank may, by notice to such Downgraded Bank, the Administrative Agent 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:
(A) the Committed Facility shall be reduced by the amount of the LC Commitment Amount of such Downgraded Bank,
(B) the Account Parties shall prepay all amounts owed to such Downgraded Bank hereunder or in connection herewith
(C) if, upon the reduction of the Committed Facility under clause (A) above and the payment under clause (B) above, the sum of the principal amount
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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 Bank 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
(D) upon completion of the events described in clauses (A), (B)
and (C) 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 Bank and the Administrative Agent that such Downgraded Bank elects to provide (in a manner reasonably satisfactory to the Issuing Bank) cash collateral to the Issuing Bank for (or if such Downgraded Bank is unable, without regulatory approval, to provide cash collateral, a letter of credit reasonably satisfactory to the Issuing Bank covering) its contingent obligations to reimburse the Issuing Bank for any payment under any Letter of Credit as provided in Section
2.02(e) (its "LC Participation Obligations"), such Downgraded Bank shall be obligated to (and each Bank agrees that in such circumstances it will) deliver to the Issuing Bank (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 a segregated deposit account in the name of the Issuing Bank at the Issuing Bank's principal office in the United States (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(e), then the Issuing Bank 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 clause (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 Issuing Bank to fund the participation of such Downgraded Bank pursuant to the first sentence of this clause (b).
(c) Funds in a Downgrade Account shall be invested in such investments as may be agreed between the Issuing Bank 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 Issuing Bank and such Downgraded Bank. The Issuing Bank 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
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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 clause (a) or (C) the first Business Day after receipt by the Issuing Bank of evidence (reasonably satisfactory to the Issuing Bank) 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 Issuing Bank pursuant to this Section 2.14, the Issuing Bank 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 Issuing Bank to cover all LC Participation Obligations of such Downgraded Bank (including in respect of the Letter of Credit to be issued or increased).
SECTION 2.15 Downgrade Event or Other Event with Respect to the Issuing Bank. At any time that the Issuing Bank is a Downgraded Bank or at such other times as the Issuing Bank and the Account Parties may agree, the Account Parties may, upon not less than three Business Days' notice to the Issuing Bank (in this
Section sometimes referred to as the "Old Issuing Bank") and the Administrative Agent, designate any Bank (so long as such Bank has agreed to such designation) as an additional "Issuing Bank" hereunder (in this Section sometimes referred to as the "New Issuing Bank"). Such notice shall specify the date (which shall be a Business Day) on which the New Issuing Bank is to become an additional "Issuing Bank" hereunder. From and after such date, all new Letters of Credit requested to be issued hereunder shall be issued by the New Issuing Bank. From and after such date (and until the first date on which no Letters of Credit issued by the Old Issuing Bank are outstanding and no reimbursement obligations are owed to the Old Issuing Bank, on which date the Old Issuing Bank shall cease to be an Issuing Bank hereunder), references in this Agreement to the "Issuing Bank" shall be deemed to refer (a) to the Old Issuing Bank, with respect to Letters of Credit issued by it, (b) to the New Issuing Bank, with respect to Letters of Credit issued or to be issued by it, and (c) to each of the Old Issuing Bank and the New Issuing Bank, with respect to other matters. Notwithstanding the fact that an Old Issuing Bank shall cease to be an "Issuing Bank" hereunder, all of the exculpatory, indemnification and similar provisions hereof in favor of the "Issuing Bank" shall inure to such Old Issuing Bank's benefit as to any actions taken or omitted by it while it was an "Issuing Bank" under this Agreement. The Account Parties agree that after any appointment of a New Issuing Bank hereunder, the Account Parties shall use reasonable commercial efforts to promptly replace (or otherwise cause the applicable beneficiary to return to the Old Issuing Bank for cancellation) each letter of credit issued by the Old Issuing Bank with a new Letter of Credit issued by the New Issuing Bank.
SECTION 2.16 Non-Dollar Letters of Credit.
(a) The Account Parties, the Administrative Agent, the Issuing Bank and the Banks (i) agree that the Issuing Bank may (in its sole discretion) 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 paragraphs of this Section with respect to such Non-Dollar Letters of Credit.
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(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(e), 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 the 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 the Issuing Bank such Bank's Pro Rata Share of the unreimbursed portion of any payment by the Issuing Bank under Section 2.02(e) 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 (1) the date of an issuance, extension or change in the Available Amount of such Non-Dollar Letter of Credit,
(2) the date of any payment by the Issuing Bank in respect of a drawing under such Non-Dollar Letter of Credit, (3) the last Business Day of each March, June, September and December and (4) 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 clause (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 the 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 the Issuing Bank or any Bank hereunder shall, notwithstanding
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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 the Issuing Bank or such Bank of any sum adjudged to be so due in the Judgment Currency, the 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 the 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 the 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 the Issuing Bank or such Bank in such currency, the 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, "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 the Issuing Bank in accordance with its customary procedures (and giving effect to any transaction costs) at the quoted foreign exchange spot rate of the 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 the 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.
ARTICLE III
CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT
SECTION 3.01 Conditions Precedent to Effective Date. The occurrence of the Effective Date, and the obligation of the Issuing Bank to issue any Letter of Credit on the Effective Date, is subject to the satisfaction of the following conditions precedent:
(i) 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:
(A) 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.
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(B) 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.
(C) 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)(A) 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.
(D) 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.
(E) A favorable opinion 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.
(ii) 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) could 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.
(iii) No development or change shall have occurred after December 31, 2002, and no information shall have become known after such date, that has had or could reasonably be expected to have a Material Adverse Effect.
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(iv) 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.
(v) The Administrative Agent shall have received evidence satisfactory to it that all obligations of any Account Party outstanding under the Existing Reimbursement Agreement (other than fees and expenses of Wachovia's counsel) have been repaid and satisfied in full and that, concurrently with the effectiveness of this Agreement, the LC Commitment Amounts (as defined therein) under the Existing Reimbursement Agreement have been reduced to zero, and Wachovia shall have agreed, by its execution and delivery of this Agreement, that the Existing Letters of Credit issued under the Existing Reimbursement Agreement shall become Letters of Credit hereunder as of the Effective Date.
SECTION 3.02 Conditions Precedent to Each Issuance, Extension or Increase of a Letter of Credit. The obligation of the Issuing Bank 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 the Issuing Bank through the Administrative Agent may reasonably request.
SECTION 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
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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
SECTION 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 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 could 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
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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.
(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 threatened before any court, governmental agency or arbitrator that (i) could 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 sheets of the Parent and its Subsidiaries as at December 31, 2002, 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 sheets of the Parent and its Subsidiaries as at June 30, 2003, 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, 2003, 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 generally accepted accounting principles applied on a consistent basis (subject, in the case of the June 30, 2003 balance sheet and statements, to the absence of footnotes). Since December 31, 2002, there has been no Material Adverse Change.
(h) [Reserved.]
(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 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 will constitute 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.
(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
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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) Neither any Loan Party nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction that is reasonably likely to have a Material Adverse Effect.
(m) Each Loan Party is, individually and together with its Subsidiaries, Solvent.
(n) Except to the extent that any and all events and conditions under clauses (i) through (vi) below of this paragraph (n) in the aggregate are not reasonably expected to have a Material Adverse Effect:
(i) Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each Pension Plan, copies of which have been filed with the Internal Revenue Service, is complete and accurate and fairly presents the funding status of such Pension Plan, and since the date of such Schedule B there has been no material adverse change in such funding status.
(ii) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan.
(iii) Neither any Loan Party nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA.
(iv) 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"):
(x) 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.
(y) 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
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valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles.
(z) Each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities.
(v) To the extent the assets of any Loan Party are or are deemed under applicable law to be "plan assets" within the meaning of Department of Labor Regulation (S) 2510.3-101, the execution, delivery and performance of the Loan Documents and the consummation of the transactions contemplated therein will not result in a non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code.
(vi) 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.
(o) 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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(p) 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).
(q) 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
SECTION 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, in all material respects, 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.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful material claims that, if unpaid, might by law become a Lien 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 claim 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 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 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 Subsidiaries to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided, however, that the Parent and its Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(c) and provided further that 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
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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 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.
(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.
(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 Bank 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.
SECTION 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;
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(ii) Liens described on Schedule 5.02(a) hereto;
(iii) purchase money Liens upon or in real property or equipment 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 equipment or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property or equipment to be subject to such Liens, or Liens existing on any such property or equipment 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 property other than the property or equipment 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;
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(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 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 (iii) or (vi) 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. $250,000,000;
(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 Five Year 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 $800,000,000. For purposes of this clause (xviii), "Five Year Credit Agreement" shall mean the Amended and Restated Five-Year Credit Agreement dated as of May 8, 2000 among the Parent, ACE Bermuda, Tempest, ACE INA Holdings Inc. and ACE Financial Services, Inc., as borrowers, various financial institutions, and JPMorgan Chase Bank, as administrative agent, as amended, modified, supplemented or restated from time to time;
(xviii) Liens securing up to an aggregate amount of $200,000,000 of obligations of Tempest, the Parent or any wholly owned Subsidiary, arising out of catastrophe bond financing; and
(xix) Liens on proceeds delivered to any Account Party under any Guaranteed Investment Contract.
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(b) Change in Nature of Business. Make any material change in the nature of the business of the Parent and its 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 or amalgamate or consolidate with it; provided that the Person surviving such merger 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. In the case of the Parent, 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, except that, so long as no Default shall have occurred and be continuing at the time of any action described in clause (i) or (ii) below or would result therefrom:
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(i) the Parent may (A) declare and pay dividends and distributions payable only in common stock of the Parent, (B) issue and sell shares of its capital stock, (C) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests in an aggregate amount during the term of this Agreement not exceeding $300,000,000 and (D) declare and pay cash dividends to its stockholders,
(ii) (A) any Loan Party (other than the Parent) may declare and pay cash dividends to another Loan Party and (B) any Subsidiary of the Parent (other than any Loan Party) may (x) declare and pay cash dividends to the Parent or any other wholly owned Subsidiary of the Parent of which it is a Subsidiary and (y) accept capital contributions from its parent, and
(iii) a Special Purpose Trust may issue Preferred Securities and pay dividends thereon with the proceeds of payments of interest on the Debentures.
(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
SECTION 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 two 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 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
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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.
(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 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, and (to the extent not otherwise provided) copies of all certifications of the Parent's principal executive officer and principal financial officer made pursuant to Section 302 or 906 of the Sarbanes-Oxley Act of 2002, as amended.
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(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 reasonably expected to result in any Loan Party or any ERISA Affiliate incurring any material liability, fine, or penalty.
(g) [Reserved.]
(h) 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 Insurance Division of the Office of Registrar of Companies of Bermuda.
(i) 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, the Registrar of Companies or the Supervisor of Insurance 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
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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.
(j) 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.
SECTION 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 sum of (i) $4,400,000,000, plus (ii) 25% of Consolidated Net Income for each fiscal quarter of the Parent ending on or after March 31, 2003 for which such Consolidated Net Income is positive, plus (iii) 50% of the Net Proceeds of any issuance of Equity Interests (other than the Net Proceeds from any issuance of Equity Interests in substitution and replacement of other Equity Interests to the extent such Net Proceeds do not exceed the amount of a substantially contemporaneous redemption of Equity Interests permitted hereunder) subsequent to March 31, 2003.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 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 principal of any Advance when the same shall become due and payable or (ii) any Account Party shall fail to pay any interest on any Advance, or any Loan Party shall fail to make any other payment 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) or
(e), 5.02 or 5.04; or
(d) 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 30 days after the earlier of the date on which (i) a
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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
(e) the Parent or any of its Significant Subsidiaries shall fail to pay any Material Financial Obligation (but excluding Debt outstanding hereunder) of the Parent or such Significant 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
(f) any Loan Party or any of its 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 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 30 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 Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or
(g) 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
(h) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that could 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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(i) any provision of any Loan Document after delivery thereof pursuant to
Section 3.01 shall for any reason cease to be valid and binding on or enforceable against any Loan Party party to it (other than as a result of a transaction permitted hereunder), or any such Loan Party shall so state in writing; or
(j) a Change of Control shall occur; or
(k) 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 could be required to make a contribution to such Pension Plan, or could 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
(1) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan; or
(m) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Loan Parties and the ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization or termination occurs;
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 Bank 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 Bank to issue Letters of Credit shall automatically be terminated, (y) all such amounts shall automatically become and be
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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.
SECTION 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 Bank or Banks, as applicable, to the extent permitted by applicable law.
ARTICLE VII
THE GUARANTY
SECTION 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
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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.
SECTION 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; or
(vii) 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.
SECTION 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
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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.
SECTION 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.
SECTION 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, any other Loan 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.
SECTION 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.
SECTION 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
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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
SECTION 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.
SECTION 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.
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SECTION 8.03 Wachovia and Affiliates. With respect to its LC Commitment Amounts, and the Advances, Wachovia 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 Wachovia in its individual capacity. Wachovia 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 Wachovia were not an Agent and without any duty to account therefor to the Banks.
SECTION 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.
SECTION 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
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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.
SECTION 8.06 Successor Administrative Agent. Any Agent may resign at any time by giving written notice thereof to the Banks and the Parent and may be removed at any time with or without cause by the Required Banks. 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 45th 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, Nova Scotia, Bank One or Deutsche Bank ceases to be a Bank hereunder, it shall be deemed to have resigned as Co-Syndication Agent and no replacement shall be appointed.
ARTICLE IX
MISCELLANEOUS
SECTION 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 the 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, unless in writing and signed by all of the Banks (other than (A) any Bank that is, at such time, a Defaulting Bank, and (B) in the case of clauses (vi) and (vii) below, any Bank which is not and will not be (and is not and will not be owed any obligation which is or will be) affected thereby), do any of the following at any time: (i) waive any of the conditions specified in Section 3.01 or,
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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, (v) increase the LC Commitment Amounts of the Banks, extend the Expiration Date or subject the Banks to any additional obligations, (vi) 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, (vii) postpone any date fixed for any payment of principal of, or interest on, any reimbursement obligation or any fees or other amounts payable hereunder, or
(viii) limit the liability of any Loan Party under any of the Loan Documents; 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.
SECTION 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, 8th Floor NC0680, Charlotte, North Carolina 28288, Attn: Syndication Agency Services, Telecopy No. (704) 383-0288; 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.
SECTION 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.
SECTION 9.04 Costs and Expenses.
(a) Each of the Account Parties agrees to pay on demand (i) all reasonable costs and expenses of the Administrative Agent and of the Issuing Bank in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan
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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 a single counsel for the 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, the 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, the 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, the Arranger, the 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 such Indemnified Party's gross negligence or willful misconduct. 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, the 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.
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SECTION 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 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.
SECTION 9.06 Binding Effect. This Agreement shall become effective when it shall have been executed by each Account Party, the 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, the 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.
SECTION 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, 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 Issuing Bank 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 a Bank or an Affiliate of any Bank or an assignment of all of a Bank's rights and obligations under this Agreement, 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 $10,000,000 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
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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 $2,500.00.
(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 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
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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, (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, 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.
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(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.
SECTION 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.
SECTION 9.09 No Liability of the Issuing Bank. 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 the 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 the 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 the Issuing Bank, and the 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) the 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) the 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 Bank 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.
SECTION 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
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required by any state, Federal or foreign authority or examiner regulating such Bank 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.
SECTION 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 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.
SECTION 9.12 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
SECTION 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
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Documents, the Advances or the actions of any Agent or any Bank in the negotiation, administration, performance or enforcement thereof.
SECTION 9.14 Disclosure of Information. Each Account Party agrees and consents to the Administrative Agent's and the Arranger'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 or the Arranger before such disclosure is made (such approval not to be unreasonably withheld).
[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:

[SEAL]                   /s/ Peter Mear
                         -------------------------------------------------------
                         Authorized Officer
                         Peter Mear - General Counsel & Secretary

                         /s/ Philip Bancroft
                         -------------------------------------------------------
                         Authorized Officer
                         Philip Bancroft - Chief Financial Officer	

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

[SEAL]                   /s/ Mark Herman
                         -------------------------------------------------------
                         Authorized Officer - Mark Herman
                         Deputy Chairman, President & Chief Executive
                         Officer

                         /s/ Andrew Gibbs
                         -------------------------------------------------------
                         Authorized Officer - Andrew Gibbs
                         Executive Vice President, Chief Financial Officer
                         and Chief Operating Officer	

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

[SEAL]                   /s/ Christopher McKcown
                         -------------------------------------------------------
                         Authorized Officer -  Christopher McKcown
                         President & Chief Executive Officer

                         /s/ Augustin Hardart
                         -------------------------------------------------------
                         Authorized Officer
                         Augustin Hardart - Chief Financial Officer & Treasurer	

(signatures continued)
S-1

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

[SEAL]                   /s/ Christopher McKeown
                         -------------------------------------------------------
                         Authorized Officer - Christopher McKeown
                         President & Chief Executive Officer

                         /s/ Augustin Hardart
                         -------------------------------------------------------
                         Authorized Officer
                         Augustin Hardart - Chief Financial Officer & Treasurer	

Address for each Account Party:

ACE Global Headquarters
17 Woodbourne Avenue
Hamilton HM08 Bermuda
Telecopy: (441) 296-0087
(signatures continued)
S-2

WACHOVIA BANK, NATIONAL ASSOCIATION,
 as Administrative Agent, as Issuing Bank and as an
Initial Bank

By: /s/ Mark B. Felker
    ---------------------------------------------------
                MARK B. FELKER
Title:         MANAGING DIRECTOR
       WACHOVIA BANK, NATIONAL ASSOCIATION	

BANK OF AMERICA, N.A., as Co-Syndication Agent and as an Initial Bank

By: /s/ Debra Basler
    ---------------------------------------------------
       Debra Basler
Title: Principal	

THE BANK OF NOVA SCOTIA, as
Co-Syndication Agent and as an Initial Bank

By: /s/ John Alan Edwards
    ---------------------------------------------------
       John Alan Edwards
Title: Managing Director	

BANK ONE, N.A., as Co-Syndication Agent and as an Initial Bank

By: /s/ Illegible
    ---------------------------------------------------
Title: Director	

DEUTSCHE BANK, AG, NEW YORK BRANCH
as Co-Syndication Agent and as an Initial Bank

By: /s/ Illegible
    ---------------------------------------------------
Title: Managing Director

By: /s/ Charles Kohler
    ---------------------------------------------------
       Charles Kohler
Title: Managing Director	

ABN AMRO BANK, N.V., as an Initial Bank

By: /s/ Neil R. Stein
    ---------------------------------------------------
          NEIL R. STEIN
Title: GROUP VICE PRESIDENT

By: /s/ Michael DeMarco
    ---------------------------------------------------
           MICHAEL DeMARCO
Title: ASSISTANT VICE PRESIDENT	

BARCLAYS BANK PLC, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------------------
Title: President and Director	

FLEET NATIONAL BANK, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------------------
Title: Vice President	

HSBC BANK USA, as an Initial Bank

By: /s/ Jenny Chung
    ---------------------------------------------------
       Jenny Chung
Title: Assistant Vice President	

JPMORGAN CHASE BANK, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------------------
Title: Vice President	

ROYAL BANK OF CANADA, as an Initial Bank

By: /s/ Alexander Birr
    ---------------------------------------------------
       Alexander Birr
Title: Authorized Signatory	

STATE STREET BANK AND TRUST COMPANY, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------------------
Title: Vice President	

COMERICA BANK, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------------------
Title: First Vice President	

MELLON BANK, N.A., as an Initial Bank

By: /s/ Carrie Burnham
    ---------------------------------------------------
            Carrie Burnham
Title: Assistant Vice President	

BNP PARIBAS, as an Initial Bank

By: /s/ Joshua Landau
    ---------------------------------------------------
       Joshua Landau
Title: Vice President

By: /s/ Phil Truesdale
    ---------------------------------------------------
       Phil Truesdale
Title:    Director	

THE BANK OF BERMUDA LIMITED, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------------------
Title: VICE PRESIDENT, CORPORATE BANKING

    /s/ William Graham-Welton
    ---------------------------------------------------
    WILLIAM GRAHAM-WELTON
    HEAD OF CORPORATE BANKING
    CORPORATE BANKING	

THE BANK OF N.T. BUTTERFIELD & SON
LIMITED, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------------------
Title: VICE PRESIDENT	

SCHEDULE I
LC COMMITMENT AMOUNTS

Wachovia Bank, National Association          $ 43,000,000
Bank of America, N.A.                          41,000,000
The Bank of Nova Scotia                        41,000,000
Bank One, N.A.                                 41,000,000
Deutsche Bank AG, New York Branch              41,000,000
ABN AMRO Bank, N.V.                            31,500,000
Barclays Bank PLC                              31,500,000
Fleet National Bank                            31,500,000
HSBC Bank USA                                  31,500,000
JPMorgan Chase Bank                            31,500,000
Royal Bank of Canada                           31,500,000
State Street Bank and Trust Company            31,500,000
Comercia Bank                                  17,500,000
Mellon Bank, N.A.                              17,500,000
BNP Paribas                                    17,500,000
The Bank of Bermuda Limited                    10,000,000
The Bank of N.T. Butterfield & Son Limited     10,000,000

   Total                                     $500,000,000
                                             ============	

SCHEDULE I - Part 2
DOMESTIC LENDING OFFICES

--------------------------------------------------------------------------------
Wachovia Bank, National              Agency Management Group
Association                          301 South College Street, 5th 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
--------------------------------------------------------------------------------
The Bank of Nova Scotia              One Liberty Plaza, 26th Floor
                                     New York, New York 10006
                                     Attn: Dan Foote
                                     Telephone: (212) 225-5077
                                     Telecopy: (212) 225-5090
--------------------------------------------------------------------------------
Bank One, N.A.                       1 Bank One Plaza, Suite IL 1-0325
                                     Chicago, Illinois 60670
                                     Attn: Gretchen Roetzer
                                     Telephone: (312) 325-3196
                                     Telecopy: (312) 325-3190
--------------------------------------------------------------------------------
Deutsche Bank AG, New York Branch    31 West 52nd Street Mail Stop NYC01-2402
                                     New York, New York 10019
                                     Attn: Clinton M. Johnson
                                     Telephone: (212) 469-8101
                                     Telecopy: (212) 469-8366
--------------------------------------------------------------------------------
ABN AMRO Bank, N.V.                  208 South LaSalle Street, Suite 1500
                                     Chicago, Illinois 60604-1003
                                     Attn: Credit Administration
                                     Telecopy: (312) 992-5111
--------------------------------------------------------------------------------	

--------------------------------------------------------------------------------
Barclays Bank PLC                    P.O. Box 544
                                     1st 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
--------------------------------------------------------------------------------
Fleet National Bank                  777 Main Street
                                     Mail Stop CTEH40225C
                                     Hartford, Connecticut 06115
                                     Attn: George Urban
                                     Telephone: (860) 952-7565
                                     Telecopy: (860) 952-7604
--------------------------------------------------------------------------------
HSBC Bank USA                        452 Fifth Avenue, 5th Floor
                                     New York, New York 10018
                                     Attn: Anthony C. Valencourt
                                     Telephone: (212) 525-2579
                                     Telecopy: (212) 525-2573
--------------------------------------------------------------------------------
JPMorgan Chase Bank                  Financial Institutions Group
                                     270 Park Avenue, 15th Floor
                                     New York, New York 10017
                                     Attn: Helen Newcomb
                                     Telephone: (212) 270-6260
                                     Telecopy: (212) 270-1511
--------------------------------------------------------------------------------
Royal Bank of Canada                 One Liberty Plaza, 4th Floor
                                     New York, New York 10006-1404
                                     Attn: Alex Birr
                                     Telephone: (212) 428-6404
                                     Telecopy: (212) 428-6201
--------------------------------------------------------------------------------

                                        2	

--------------------------------------------------------------------------------
State Street Bank and Trust          Domestic Lending Office:
Company                              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
--------------------------------------------------------------------------------
Comerica Bank                        500 Woodward Avenue
                                     Detroit, Michigan 48226-3331
                                     Attn: Martin G. Ellis
                                     Telephone: (313) 222-9443
                                     Telecopy: (313) 222-5466
--------------------------------------------------------------------------------
Mellon Bank, N.A.                    One Mellon Center, Room 4401
                                     Pittsburgh, Pennsylvania 15258-0001
                                     Attn: Karla Maloof
                                     Telephone: (412) 236-4147
                                     Telecopy: (412) 234-8087
--------------------------------------------------------------------------------
BNP Paribas                          787 7th Avenue, 28th Floor
                                     New York, New York 10019
                                     Attn: Joshua Landau
                                     Telephone: (212) 841-3823
                                     Telecopy: (212) 841-2533
--------------------------------------------------------------------------------
The Bank of Bermuda Limited          6 Front Street
                                     Hamilton HM 11
                                     Hamilton HM DX, Bermuda
                                     Attn: A. Kerry Davison, VP-Credit Manager
                                     (North America)
                                     Telephone: (441) 299-6219
                                     Telecopy: (441) 299-6519
--------------------------------------------------------------------------------
The Bank of N.T. Butterfield & Son   65 Front Street
Limited                              Hamilton HM DX, Bermuda
                                     Attn: Jonathan Raynor, VP-Corporate Banking
                                     Telephone: (441) 298-4774
                                     Telecopy: (441) 296-0380
--------------------------------------------------------------------------------	

3

SCHEDULE II
EXISTING LETTERS OF CREDIT
1. Wachovia Letter of Credit No. SM200323 Beneficiary: Pacific Employers Insurance Company Amount: US $3,050,235.00
2. Wachovia Letter of Credit No. SM200454 Beneficiary: Pacific Employers Insurance Company Amount: US $1,636,220.00
3. Wachovia Letter of Credit No. SM201338 Beneficiary: ACE USA Companies Amount: US $677,618.68
4. Wachovia Letter of Credit No. SM201520 Beneficiary: Illinois Union Insurance Company Amount: US $450,000.00
5. Wachovia Letter of Credit No. SM201521 Beneficiary: ACE Property Casualty Amount: US $450,000.00
6. Wachovia Letter of Credit No. SM201522 Beneficiary: ACE Property Casualty Amount: US $4,800,000.00
7. Wachovia Letter of Credit No. SM201523 Beneficiary: ACE Property Casualty Amount: US $19,700,000.00
8. Wachovia Letter of Credit No. SM201851 Beneficiary: ACE American Insurance, etc. Amount: US $21,600,000.00
9. Wachovia Letter of Credit No. SM202814 Beneficiary: Pacific Employers Insurance Company Amount: US $5,500,000.00
10. Wachovia Letter of Credit No. SM204791 Beneficiary: Pacific Employers Insurance Company Amount: US $5,540,178.00

11. Wachovia Letter of Credit No. SM417961 Beneficiary: Westchester Surplus Lines Insurance Company Amount: US $452,148.40
12. Wachovia Letter of Credit No. SM417966 Beneficiary: Illinois Union Insurance Company Amount: US $1,333,050.77
13. Wachovia Letter of Credit No. SM417967 Beneficiary: ACE Guaranty Re, Inc. Amount: US $19,700,000.00
14. Wachovia Letter of Credit No. SM419119 Beneficiary: Pacific Employers Insurance Company Amount: US $4,485,547.00
15. Wachovia Letter of Credit No. SM422299 Beneficiary: Pacific Employers Insurance Company Amount: US $3,000,000.00
16. Wachovia Letter of Credit No. SM201342 Beneficiary: Jackson National Life Insurance Company Amount: US $400,000.00
17. Wachovia Letter of Credit No. SM201345 Beneficiary: Conseco Variable Insurance Company Amount: US $500,000.00
18. Wachovia Letter of Credit No. SM201398 Beneficiary: Nationwide Financial Services Amount: US $280,000.00
19. Wachovia Letter of Credit No. SM201644 Beneficiary: AllMerica Financial Life Insurance Amount: US $7,714,200.00
20. Wachovia Letter of Credit No. SM201646 Beneficiary: AllMerica Financial Life Insurance Amount: US $22,425,000.00
21. Wachovia Letter of Credit No. 202203 Beneficiary: Zuellig Insurance Management Ltd. Amount: HKD 42,500,000 (US $5,449,940.69)
5

22. Wachovia Letter of Credit No. 202228 Beneficiary: AIG Global Trade & Political Amount: US $1,430,200.00
23. Wachovia Letter of Credit No. SM203217 Beneficiary: Manufacturers Life Insurance Company Amount: US $4,000,000.00
24. Wachovia Letter of Credit No. SM418289 Beneficiary: Reliastar Life Insurance Amount: US $7,133,683.00
25. Wachovia Letter of Credit No. SM419121 Beneficiary: Protective Life Insurance Company Amount: US $22,000,000.00
26. Wachovia Letter of Credit No. SM419487 Beneficiary: Reliastar Life Insurance Amount: US $39,405,795.00
27. Wachovia Letter of Credit No. SM419579 Beneficiary: Hartford Steam Boiler Amount: US $2,199,452.00
28. Wachovia Letter of Credit No. SM419645 Beneficiary: Provident Life and Accident Insurance Amount: CAD 1,963,500 (US $1,449,139.48)
29. Wachovia Letter of Credit No. SM421259 Beneficiary: AIG Life Amount: US $5,876,458.00
30. Wachovia Letter of Credit No. SM421261 Beneficiary: AIG Life Amount: US $10,500,995.00
31. Wachovia Letter of Credit No. SM421751 Beneficiary: NC Commissioner of Insurance Amount: US $25,000,000.00
32. Wachovia Letter of Credit No. SM422302 Beneficiary: Liberty International Insurance Ltd. Amount: HKD 42,500,000 (US $5,449,940.69)
6

33. Wachovia Letter of Credit No. SM204336 Beneficiary: XL Amount: US $2,000,000.00
34. Wachovia Letter of Credit No. SM204337 Beneficiary: Ritchie Amount: US $2,500,000.00
7

SCHEDULE 4.01(B)
Subsidiaries
[attached hereto]

ACE LIMITED GROUP OF COMPANIES
 JUNE 30, 2003

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of     Percentage    Jurisdictions in which Authorized and
Name                                                          Organization       Ownership               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 Re International Ltd.                          Bermuda           100%        Bermuda, insurance/reinsurance,
                                                                                               general and long term
------------------------------------------------------------------------------------------------------------------------------------
         ACE KRE Holdings Limited                                Barbados          100%        Barbados, investment holding
------------------------------------------------------------------------------------------------------------------------------------
            ACE Capital Re USA Holdings Incorporated             Delaware          100%        Delaware, investment holding
------------------------------------------------------------------------------------------------------------------------------------
               ACE Capital Re Overseas Ltd.                      Bermuda           100%        Bermuda, insurance/reinsurance,
                                                                                               general and long term
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Capital Mortgage Reinsurance Company       New York          100%        New York, DC, mtg. guaranty
                     (EI# 06-1384770, NAIC# 10021, NY)                                         insurance/reinsurance
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Capital Title Reinsurance Company          New York          100%        CA, MI, NY, TX, title
                     (EI# 06-1434264, NAIC# 50028, NY)                                         insurance/reinsurance
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Capital Re Inc.                            New York          100%        New York, reinsurance intermediary
------------------------------------------------------------------------------------------------------------------------------------
      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%        Bermuda, investment holding
                                                                                 2%(CODA)
------------------------------------------------------------------------------------------------------------------------------------
      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   Bermuda, insurance
                                                                                8% Series B
------------------------------------------------------------------------------------------------------------------------------------
      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
------------------------------------------------------------------------------------------------------------------------------------	

1

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of     Percentage    Jurisdictions in which Authorized and
Name                                                          Organization       Ownership                Type of Business
------------------------------------------------------------------------------------------------------------------------------------
   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
------------------------------------------------------------------------------------------------------------------------------------
            ACE Leadenhall Limited                            United Kingdom        100%       UK, investment holding
------------------------------------------------------------------------------------------------------------------------------------
               ACE Underwriting Agencies Limited              United Kingdom        100%       UK, Lloyd's managing agent
------------------------------------------------------------------------------------------------------------------------------------
                  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
------------------------------------------------------------------------------------------------------------------------------------
         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
------------------------------------------------------------------------------------------------------------------------------------
      ACE Holdings (Gibraltar) Limited                          Gibraltar           100%       Gibraltar, 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
------------------------------------------------------------------------------------------------------------------------------------	

2

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of     Percentage    Jurisdictions in which Authorized and
Name                                                          Organization       Ownership                Type of Business
------------------------------------------------------------------------------------------------------------------------------------
   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
------------------------------------------------------------------------------------------------------------------------------------
   Oasis US Inc.                                                 Delaware           100%       USA, general services
------------------------------------------------------------------------------------------------------------------------------------
   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
------------------------------------------------------------------------------------------------------------------------------------
         Huatai Insurance Company of China, Limited               China           6.129%       China, property and casualty insurer
                                                                                 10% (ACE
                                                                                  Tempest
                                                                               Reinsurance
                                                                                   Ltd.)
                                                                                 6% (ACE US
                                                                                 Holdings,
                                                                                   Inc.)
------------------------------------------------------------------------------------------------------------------------------------
         ACE Seguradora S.A.                                      Brazil           99.9%       Brazil, insurance
                                                                                 0.1% (ACE
                                                                                   Prime
                                                                                 Holdings
                                                                                   Inc.)
------------------------------------------------------------------------------------------------------------------------------------
         Servicios ACE INA S.A. de C.V.                           Mexico          99.99%       Mexico, service company
                                                                                .00002% (ACE
                                                                                   Prime
                                                                                 Holdings
                                                                                   Inc.)
------------------------------------------------------------------------------------------------------------------------------------
         ACE Tempest Re USA, Inc.                                  USA              100%       CT, NJ, NY, OH, PA, SC, TX,
                                                              (Connecticut)                    reinsurance intermediary manager
------------------------------------------------------------------------------------------------------------------------------------
         INA Corporation                                           USA              100%       USA, investment holding company
                                                              (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
            ACE INA Properties, Inc.                          USA (Delaware)        100%       USA, holding company
------------------------------------------------------------------------------------------------------------------------------------
               Conference Facilities, Inc.                         USA              100%       USA, owns & operates corporate
                                                              (Pennsylvania)                   facilities
------------------------------------------------------------------------------------------------------------------------------------
            INA Tax Benefits Reporting, Inc.                  USA (Delaware)        100%       USA, tax info & 3rd 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
------------------------------------------------------------------------------------------------------------------------------------
                     Cravens, Dargan & Company, Pacific       USA (Illinois)        100%       USA, managing general agency
                        Coast of Illinois, Inc.
------------------------------------------------------------------------------------------------------------------------------------
                  Century Indemnity Company                         USA             100%       USA, insurance
                     (EI# 05-6105395, NAIC #20710, PA)        (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------	

3

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of     Percentage    Jurisdictions in which Authorized and
Name                                                          Organization       Ownership                Type of Business
------------------------------------------------------------------------------------------------------------------------------------
                  Century Reinsurance Company                      USA              100%       USA, reinsurance
                     (EI# 06-0988117, NAIC #35130, PA)        (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                  ACE American Reinsurance Company                 USA              100%       USA, reinsurance
                     (EI# 23-1740414, NAIC#22705, PA)         (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                     Brandywine Reinsurance Company S.A.         Belgium            100%       Belgium, reinsurance
                        -N.V.
------------------------------------------------------------------------------------------------------------------------------------
                     The 1792 Company                         USA (Delaware)        100%       USA, (former underwriting member of
                                                                                               New York Insurance Exchange)
------------------------------------------------------------------------------------------------------------------------------------
               Century International Reinsurance Company         Bermuda            100%       Bermuda, insurance & reinsurance
                  Ltd.
------------------------------------------------------------------------------------------------------------------------------------
            INA Holdings Corporation                          USA (Delaware)        100%       USA, holding company
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
               INATrust, fsb                                  Chartered by          100%       USA, savings bank
                                                                Office of
                                                                  Thrift
                                                               Supervision
------------------------------------------------------------------------------------------------------------------------------------
               YouDecide.com, Inc.                               Delaware           100%       Delaware, on-line financial marketing
------------------------------------------------------------------------------------------------------------------------------------
                  CFN Finance, Inc.                              Delaware           100%       Delaware, mortgage brokering
------------------------------------------------------------------------------------------------------------------------------------
                  CFN Agency, Inc.                               Delaware           100%       Delaware, nonresident insurance
                                                                                               agency
------------------------------------------------------------------------------------------------------------------------------------
               PDCN Legal Management Company, Inc.            USA (Delaware)        100%       USA, in-house law firm Administrator
------------------------------------------------------------------------------------------------------------------------------------
               INA Reinsurance Company, Ltd.                     Bermuda            100%       Bermuda, reinsurance
------------------------------------------------------------------------------------------------------------------------------------
               ACE INA Financial institution Solutions,       USA (Delaware)        100%       USA, floodplain determination & other
                  Inc.                                                                         services to financial institutions
------------------------------------------------------------------------------------------------------------------------------------
               ESIS, Inc.                                          USA              100%       USA, markets risk management
                                                              (Pennsylvania)                   Programs
------------------------------------------------------------------------------------------------------------------------------------
               NewMarkets Insurance Agency, Inc.              USA (Delaware)        100%       USA, managing general agency
------------------------------------------------------------------------------------------------------------------------------------
               ACE INA Excess and Surplus Insurance           USA (Georgia)         100%       USA, excess & surplus lines broker
                  Services, Inc.
------------------------------------------------------------------------------------------------------------------------------------
               ACE INA Excess and Surplus Insurance                USA              100%       USA, excess & surplus lines broker
                  Services, Inc.                              (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
               ACE INA Excess and Surplus Insurance                USA              100%       USA, excess & surplus lines broker
                  Services, Inc.                              (California)
------------------------------------------------------------------------------------------------------------------------------------
               ACE INA Excess and Surplus Insurance           USA (Illinois)        100%       USA, excess & surplus lines broker
                  Services, Inc.
------------------------------------------------------------------------------------------------------------------------------------
               Excess and Surplus Insurance Services, Inc.      USA (Texas)         100%       USA, managing general agency
------------------------------------------------------------------------------------------------------------------------------------
               ACE Financial Solutions, Inc.                  USA (Delaware)        100%       USA, premium finance company
------------------------------------------------------------------------------------------------------------------------------------
               ACE Risk Solutions, Inc.                        USA (NewYork)        100%       USA, reinsurance intermediary
------------------------------------------------------------------------------------------------------------------------------------
               Indemnity Insurance Company of North                USA              100%       USA, Puerto Rico, USVI, insurance
                  America (EI# 06-1016108, NAIC #43575,       (Pennsylvania)
                  PA)
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Indemnity Insurance Company                  USA              100%       USA, insurance
                     (EI#92-0040526, NAIC #10030, PA)         (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                  Allied Insurance Company                         USA              100%       USA, insurance
                     (EI# 23-2021364, NAIC #36528, CA)         (California)
------------------------------------------------------------------------------------------------------------------------------------
               ACE American Insurance Company                      USA              100%       USA, Korea, Puerto Rico USVI, Guam,
                  (EI#95-2371728, NAIC #22667, PA)            (Pennsylvania)                   Bermuda permit, Taiwan (life),
                                                                                               insurance
------------------------------------------------------------------------------------------------------------------------------------	

4

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of     Percentage      Jurisdictions in which Authorized
Name                                                          Organization       Ownership             and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
               Pacific Employers Insurance Company                 USA              100%       USA, USVI, insurance
                  (EI#95-l077060, NAIC# 22748, PA)            (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Insurance Company of Texas               USA (Texas)          100%       USA, insurance
                     (EI# 74-1480965, NAIC #22721, 22920,
                     TX)
------------------------------------------------------------------------------------------------------------------------------------
                  Illinois Union Insurance Company            USA (Illinois)        100%       USA, surplus lines insurer
                     (EI# 36-2759195, NAIC #27960, IL)
------------------------------------------------------------------------------------------------------------------------------------
                  Rain and Hail Insurance Service               USA (Iowa)           20%
                     Incorporated
------------------------------------------------------------------------------------------------------------------------------------
            INAMAR Insurance Underwriting Agency, Inc.       USA (New Jersey)       100%       USA, insurance agency
------------------------------------------------------------------------------------------------------------------------------------
               INAMAR Insurance Underwriting Agency, Inc.          USA              100%       USA, general agency
                  of Massachusetts                           (Massachusetts)
------------------------------------------------------------------------------------------------------------------------------------
               INAMAR Insurance Underwriting Agency, Inc.      USA (Texas)          100%       USA, general agency
                  of Texas
------------------------------------------------------------------------------------------------------------------------------------
               INAMAR Insurance Underwriting Agency, Inc.       USA (Ohio)          100%       USA, general agency
                  of Ohio
------------------------------------------------------------------------------------------------------------------------------------
            Insurance Company of North America                     USA              100%       USA, Guam, Northern Mariana Islands,
               (EI# 23-0723970, NA1C #22713, PA)              (Pennsylvania)                   Philippines, Puerto Rico, Taiwan
                                                                                               (p/c), insurance
------------------------------------------------------------------------------------------------------------------------------------
            Bankers Standard Insurance Company                     USA              100%       USA, insurance
               (EI# 75-1320184, NAIC #18279, PA)              (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
               Bankers Standard Fire and Marine Company            USA              100%       USA, insurance
                  EI#75-6014863, NAIC #20591, PA)             (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
            ACE Property and Casualty Insurance Company            USA              100%       USA, Puerto Rico, insurance
               (EI# 06-0237820, NAIC, #20699, PA)             (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
               ACE Employers Insurance Company                     USA              100%       USA, insurance
                  (EI# 23-2137343, NAIC #38741, PA)           (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
               ACE Insurance Company of Ohio                    USA (Ohio)          100%       USA, insurance
                  (EI#23-1859893, NAIC #22764, OH)
------------------------------------------------------------------------------------------------------------------------------------
               INA Surplus Insurance Company                       USA              100%       USA, reinsurance
                  (EI# 52-1208598, NAIC #42072, PA)           (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
               ACE Fire Underwriters Insurance Company             USA              100%       USA, insurance
                  (EI# 06-6032187, NAIC #20702, PA)           (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
               Atlantic Employers Insurance Company                USA              100%       USA, insurance
                  (EI# 23-2173820, NAIC #38938, NJ)            (New Jersey)
------------------------------------------------------------------------------------------------------------------------------------
                  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        USA (Texas)          100%       USA, Lloyds Association
                     (Sponsored Lloyds Association)
                     (EI# 75-1365570, NAIC #18511, TX)
------------------------------------------------------------------------------------------------------------------------------------
               ACE Insurance Company of Illinois              USA (Illinois)        100%       USA, insurance
                  (EI# 36-2709121, NAIC #22691, IL)
------------------------------------------------------------------------------------------------------------------------------------
               ACE Insurance Company of the Midwest           USA (Indiana)         100%       USA, insurance
                  (EI# 06-0884361, NAIC #26417, IN)
------------------------------------------------------------------------------------------------------------------------------------	

5

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of     Percentage      Jurisdictions in which Authorized
Name                                                          Organization       Ownership             and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
               ACE Structured Products, Inc.                  USA (Delaware)        100%       USA, insurance management services &
                  (formerly INAPRO, Inc.)                                                      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
------------------------------------------------------------------------------------------------------------------------------------
               American Adjustment Company, Inc.              USA (Delaware)        100%       USA, run-off of automobile guaranty
                                                                                               Loans
------------------------------------------------------------------------------------------------------------------------------------
                  American Lenders Facilities, Inc.                USA              100%       USA, collection & loan servicing for
                                                               (California)                    third parties
------------------------------------------------------------------------------------------------------------------------------------
      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 S.A.E. Egypt                  Egypt              51%       Egypt, insurance
------------------------------------------------------------------------------------------------------------------------------------
         ACE Life Insurance Company S.A.E.                        Egypt           99.98%       Egypt, life insurance
------------------------------------------------------------------------------------------------------------------------------------
         ACE Synergy Insurance Berhad                            Malaysia            51%       Malaysia, insurance
------------------------------------------------------------------------------------------------------------------------------------
         ACE Insurance S.A.-N.V.                                 Belgium          .0523%       Europe, insurance/reinsurance
                                                                               99.9477% (ACE
                                                                                INA Overseas
                                                                                  Holdings,
                                                                                    Inc.)
------------------------------------------------------------------------------------------------------------------------------------
         ACE Seguros S.A.                                         Chile        66.53% (AIIH)   Chile, insurance
                                                                                18.70% (AFIA
                                                                                  Finance
                                                                                Corporation)
                                                                               13.90% -(AFIA
                                                                               Finance Corp.
                                                                                   Chile
                                                                                 Limitada)
------------------------------------------------------------------------------------------------------------------------------------
         ACE Seguros S.A.                                        Colombia         99.7595%     Colombia, insurance
                                                                                  55.1532%
                                                                                   (INA)
                                                                                  24.0163%
                                                                                   (AIIH)
                                                                                  9.2649%
                                                                                   (INA
                                                                                 Financial)
                                                                                  6.6923%
                                                                               (AFIA Finance
                                                                               Corporation)
                                                                                  4.6329%
                                                                                   (CIRC)
------------------------------------------------------------------------------------------------------------------------------------
         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%       Thailand, insurance
                                                                                   50.99%
                                                                                  (Nam Ek)
------------------------------------------------------------------------------------------------------------------------------------
            ACE Life Assurance Co. Ltd.                          Thailand            70%       Thailand, life insurance
                                                                                     25%
                                                                                (Oriental)
------------------------------------------------------------------------------------------------------------------------------------
         Nam Ek Company Limited                                  Thailand            49%       Thailand, insurance
------------------------------------------------------------------------------------------------------------------------------------
         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
------------------------------------------------------------------------------------------------------------------------------------	

6

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of     Percentage      Jurisdictions in which Authorized
Name                                                          Organization       Ownership              and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
         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, corporation
------------------------------------------------------------------------------------------------------------------------------------
            INACAP Reaseguros, Sociedad Anonima                 Nicaragua           100%       Nicaragua, corporation
------------------------------------------------------------------------------------------------------------------------------------
         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%       Europe, insurance/reinsurance
                                                                               .0523% (AIIH)
------------------------------------------------------------------------------------------------------------------------------------
         ACE Insurance Company                                 Puerto Rico          100%       Puerto Rico, insurance
            (EI# 66-0437305, NAIC #30953, PR)
------------------------------------------------------------------------------------------------------------------------------------
         ACE Insurance Limited                                  Hong Kong           100%       Hong Kong, insurance
------------------------------------------------------------------------------------------------------------------------------------
         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        100%       BVI, holding company
                                                                 Islands
------------------------------------------------------------------------------------------------------------------------------------
            ACE Life Assurance Co. Ltd.                          Thailand            25%       Thailand, insurance
                                                                               70% (Eksupsiri)
------------------------------------------------------------------------------------------------------------------------------------
         AFIA Finance Corporation                             USA (Delaware)        100%       Delaware, insurance holding
------------------------------------------------------------------------------------------------------------------------------------
               AFIA Venezolana C.A.                             Venezuela           100%       Venezuela, inactive claims & settling
                                                                                               agent
------------------------------------------------------------------------------------------------------------------------------------	

7

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of     Percentage      Jurisdictions in which Authorized
Name                                                          Organization        Ownership           and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
               ACE ICNA Italy Societa a Responsabilita            Italy            99.7%       Italy, legal representative for CIGNA
                  Limitata                                                       0.3% (AIIH)   Insurance Company of Europe,
                                                                                               S.A.-N.V.
------------------------------------------------------------------------------------------------------------------------------------
               Siam Liberty Company Limited                     Thailand          49% (AFC)    Thailand, broker, surveyor & claims
                                                                                 45% (Nam EK)  settling agency
------------------------------------------------------------------------------------------------------------------------------------
               ACE Servicios, S.A.                              Argentina           100%       Argentina, insurance holding
------------------------------------------------------------------------------------------------------------------------------------
               AFIA Finance Corp. Chile Limitada                  Chile              98%       Chile, claims & settling agent
                                                                                  2% (AIIH)
------------------------------------------------------------------------------------------------------------------------------------
               Fire, Equity and General Insurance                Nigeria           6.25%       Nigeria, insurance
               Company Limited
------------------------------------------------------------------------------------------------------------------------------------
               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          60%       Association for international
                                                              Association                      insurance
------------------------------------------------------------------------------------------------------------------------------------
         AFIA (ACE) Corporation, Limited                      USA (Delaware)        100%       Delaware, holding company
------------------------------------------------------------------------------------------------------------------------------------
            AFIA                                              Unincorporated         40%       Association for international
                                                               Association                     insurance
------------------------------------------------------------------------------------------------------------------------------------
         Compania Anonima de Seguros "AVILA"                    Venezuela           0.6%       Venezuela, insurance
------------------------------------------------------------------------------------------------------------------------------------
         ACE Seguros S.A.                                        Colombia         99.86%       Colombia, insurance
                                                                                 14.097%
                                                                                (other ACE
                                                                                 entities)
------------------------------------------------------------------------------------------------------------------------------------
         INAVEN, C.A. "Venezuela"                               Venezuela           100%       Venezuela, corporation
------------------------------------------------------------------------------------------------------------------------------------
         La Positiva Compania Nacional de Seguros                 Peru           7.6869%       Peru, insurance
            Sociedad Anonima
------------------------------------------------------------------------------------------------------------------------------------
         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.           USA (Delaware)        100%       USA, investment holding
            (f/k/a ACE Financial Solutions International,
            Inc.)
------------------------------------------------------------------------------------------------------------------------------------
         ACE USA, Inc.                                        USA (Delaware)        100%       USA, investment holding
------------------------------------------------------------------------------------------------------------------------------------
            CRC Creditor Resources Canada Limited                 Canada             60%       Canada, warranties business
                                                                (British
                                                                Columbia)
------------------------------------------------------------------------------------------------------------------------------------
            Industrial Underwriters Insurance Company           USA (Texas)         100%       USA, insurance
               (EI# 75-6015738, NAIC# 21075, TX)
------------------------------------------------------------------------------------------------------------------------------------
            Rhea International Marketing (L), Inc.               Malaysia            60%       Malaysia, general services
------------------------------------------------------------------------------------------------------------------------------------
            Westchester Fire Insurance Company                USA (New York)        100%       USA, Bermuda permit, insurance
               (EI# 13-5481330, NAIC# 21121, NY)
------------------------------------------------------------------------------------------------------------------------------------
            Westchester Surplus Lines Insurance Company       USA (Georgia)         100%       USA, insurance
               (EI# 58-2139927, NAIC# 10172, GA)
------------------------------------------------------------------------------------------------------------------------------------	

8

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of     Percentage      Jurisdictions in which Authorized
Name                                                          Organization       Ownership            and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
            Westchester Specialty Services, Inc.              USA (Florida)         100%       USA, warranties
------------------------------------------------------------------------------------------------------------------------------------
            Westchester Specialty Insurance Services,         USA (Nevada)          100%       USA, insurance services, brokering,
               Inc.                                                                            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           USA (Delaware)        100%       Delaware, insurance holding company
         Corporation)
------------------------------------------------------------------------------------------------------------------------------------
         ACE Finance Overseas Limited                        United Kingdom         100%
------------------------------------------------------------------------------------------------------------------------------------
         AGR Financial Products Inc.                         USA (Delaware)         100%       Delaware, financial products
------------------------------------------------------------------------------------------------------------------------------------
         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 Guaranty Corp. (EI# 52-1533088, NAIC #30180,        Maryland           100%       AK, AL, AR, CA, CO, CT,
            MD)                                                                                DC, FL, HI, ID, IL, KS,
                                                                                               KY, MA, MD, MI, MO, NE,
                                                                                               NY, NC, ND, NM, NV, OH,
                                                                                               OK, OR, PA, RI, SC, TN, TX,
                                                                                               UT, VA, WA,
                                                                                               Primary financial
                                                                                               guaranty insurance company
------------------------------------------------------------------------------------------------------------------------------------
            ACE Guaranty (UK), Ltd.                          United Kingdom         100%       UK, property/casualty insurer
------------------------------------------------------------------------------------------------------------------------------------
            ACE Risk Assurance Company (EI# 13-4027591,          Maryland           100%       Maryland, reinsurance
               NAIC #10943, MD)
------------------------------------------------------------------------------------------------------------------------------------
         ACE Asset Management Inc.                              Delaware            100%       Delaware, Bermuda permit corporation
------------------------------------------------------------------------------------------------------------------------------------
   ACE (Barbados) Holdings Limited                               Barbados           100%       Barbados, holding company
------------------------------------------------------------------------------------------------------------------------------------	

9

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 Third Amendment and Restatement of Letter of Credit Facility Agreement dated November 19, 2002 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 25, 2003 among the Parent and other Account Parties party thereto, the Assignor and the other Banks party thereto, the Co-Syndication Agents party thereto and the Administrative Agent (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.

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

Execution Copy

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 Issuing Bank and as Administrative Agent
and
BANK OF AMERICA, N.A.,
THE BANK OF NOVA SCOTIA,
BANK ONE, N.A., and
DEUTSCHE BANK AG, NEW YORK BRANCH,
 as Co-Syndication Agents,
$500,000,000 Secured Letter of Credit Facility
WACHOVIA CAPITAL MARKETS, LLC
Sole Book Runner and Lead Arranger
Dated as of September 25, 2003

TABLE OF CONTENTS

                                                                                       Page
                                                                                       ----
                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01   Certain Defined Terms......................................................1
SECTION 1.02   Computation of Time Periods; Other Definitional Provisions................16
SECTION 1.03   Accounting Terms and Determinations.......................................16

                                   ARTICLE II

                   AMOUNTS AND TERMS OF THE LETTERS OF CREDIT

SECTION 2.01   The Letters of Credit.....................................................17
SECTION 2.02   Issuance and Renewals and Drawings, Participations and
                  Reimbursement with Respect to Letters of Credit........................18
SECTION 2.03   Repayment of Advances.....................................................21
SECTION 2.04   Termination or Reduction of the LC Commitment Amounts.....................23
SECTION 2.05   Fees......................................................................23
SECTION 2.06   Increased Costs, Etc......................................................24
SECTION 2.07   Payments and Computations.................................................25
SECTION 2.08   Taxes.....................................................................26
SECTION 2.09   Sharing of Payments, Etc..................................................28
SECTION 2.10   Use of Letters of Credit..................................................29
SECT1ON 2.11   Defaulting Banks..........................................................29
SECTION 2.12   Replacement of Affected Bank..............................................30
SECTION 2.13   Certain Provisions Relating to the Issuing Bank and Letters of Credit.....31
SECTION 2.14   Downgrade Event with Respect to a Bank....................................32
SECTION 2.15   Downgrade Event or Other Event with Respect to the Issuing Bank...........34
SECTION 2.16   Non-Dollar Letters of Credit..............................................35
SECTION 2.17   Collateral................................................................36

                                   ARTICLE III

            CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT

SECTION 3.01   Conditions Precedent to Effective Date....................................37
SECTION 3.02   Conditions Precedent to Each Issuance, Extension or Increase of a
                  Letter of Credit.......................................................39
SECTION 3.03   Determinations Under Section 3.01.........................................39	

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

SECTION 4.01   Representations and Warranties of the Account Parties.....................40

                                    ARTICLE V

                        COVENANTS OF THE ACCOUNT PARTIES

SECTION 5.01   Affirmative Covenants.....................................................44
SECTION 5.02   Negative Covenants........................................................46
SECTION 5.03   Reporting Requirements....................................................50
SECTION 5.04   Financial Covenants.......................................................53

                                   ARTICLE VI

                                EVENTS OF DEFAULT

SECTION 6.01   Events of Default.........................................................54
SECTION 6.02   Actions in Respect of the Letters of Credit upon Default..................57

                                   ARTICLE VII

                                  THE GUARANTY

SECTION 7.01   The Guaranty..............................................................57
SECTION 7.02   Guaranty Unconditional....................................................58
SECTION 7.03   Discharge Only upon Payment in Full; Reinstatement in Certain
                  Circumstances..........................................................59
SECTION 7.04   Waiver by the Account Parties.............................................59
SECTION 7.05   Subrogation...............................................................59
SECTION 7.06   Stay of Acceleration......................................................60
SECTION 7.07   Continuing Guaranty; Assignments..........................................60

                                  ARTICLE VIII

                                   THE AGENTS

SECTION 8.01   Authorization and Action..................................................60
SECTION 8.02   Agents' Reliance, Etc.....................................................60
SECTION 8.03   Wachovia and Affiliates...................................................61
SECTION 8.04   Bank Credit Decision......................................................61
SECTION 8.05   Indemnification...........................................................61
SECTION 8.06   Successor Administrative Agent............................................62
SECTION 8.07   Collateral Matters........................................................63	

ii

                                   ARTICLE IX

                                  MISCELLANEOUS

SECTION 9.01   Amendments, Etc...........................................................63
SECTION 9.02   Notices, Etc..............................................................64
SECTION 9.03   No Waiver; Remedies.......................................................64
SECTION 9.04   Costs and Expenses........................................................64
SECTION 9.05   Right of Set-off..........................................................65
SECTION 9.06   Binding Effect............................................................66
SECTION 9.07   Assignments and Participations............................................66
SECTION 9.08   Execution in Counterparts.................................................69
SECTION 9.09   No Liability of the Issuing Bank..........................................69
SECTION 9.10   Confidentiality...........................................................69
SECTION 9.11   Jurisdiction, Etc.........................................................70
SECTION 9.12   Governing Law.............................................................70
SECTION 9.13   Waiver of Jury Trial......................................................70
SECTION 9.14   Disclosure of Information.................................................70	

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-l           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 25, 2003, 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 Issuing Bank (as hereinafter defined), Bank of America, N.A. ("Bank of America"), as co-syndication agent, The Bank of Nova Scotia ("Nova Scotia"), as co-syndication agent, Bank One, N.A., as co-syndication agent ("Bank One"), Deutsche Bank AG, New York Branch ("Deutsche Bank"), as co-syndication agent (Bank of America, Nova Scotia, Bank One and Deutsche Bank, together with any successor co-syndication agent appointed pursuant to Article VIII, the "Co-Syndication Agents"), and Wachovia, as administrative agent (together with any successor administrative agent appointed pursuant to Article VIII, the "Administrative Agent" and, together with the Co-Syndication Agents and the Documentation Agents, the "Agents") for the Banks.
PRELIMINARY STATEMENTS:
The Account Parties have requested that the Issuing Bank 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 Bank 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
SECTION 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

an amount equal to 15% of Total Capitalization, the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible 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, 8th 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 2.16(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.
"Arranger" means Wachovia Capital Markets, LLC.
"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.
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"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 the Issuing Bank).
"Bank of America" has the meaning specified in the recital of parties to this Agreement.
"Bank One" has the meaning specified in the recital of parties to this Agreement.
"Bankruptcy Law" means any proceeding of the type referred to in Section 6.01(f) or 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.
"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, 1/2 of 1% above the Federal Funds Rate.
"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; or (c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that results in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Parent.
"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.
"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
3

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 2.17(b).
"Commitment Amount" means an LC Commitment Amount or the Letter of Credit Issuance Commitment Amount.
"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
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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.
"Co-Syndication Agents" has the meaning specified in the recital of parties to this Agreement.
"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
5

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 obligations of such Person under Guaranteed Investment Contracts issued by such Person, (i) all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person and (j) all indebtedness and other payment obligations referred to in clauses (a) through (i) 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 (j) 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; 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, (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 or (z) obligations of such Person under Guaranteed Investment Contracts in an aggregate amount not to exceed S2,000,000,000 outstanding at any time.
"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) the Issuing Bank pursuant to Section 2.02(e) to purchase a portion of a Letter of Credit Advance made by the Issuing Bank and (b) any Agent or the Issuing Bank pursuant to Section 8.05 to reimburse such Agent or the Issuing Bank for such Bank's ratable share of any amount required to be paid by the Banks to such Agent or the Issuing Bank as provided therein.
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"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(f).
"Deutsche Bank" has the meaning specified in the recital of parties to this Agreement.
"Documentation Agents" has the meaning specified in the recital of parties to this Agreement.
"Dollar Equivalent" has the meaning specified in Section 2.16(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 the Issuing Bank 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
7

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.
"Events of Default" has the meaning specified in Section 6.01.
"Existing Letters of Credit" means, collectively, the letters of credit issued by Wachovia pursuant to the Existing Reimbursement Agreement and outstanding on the Effective Date, which letters of credit are listed on Schedule II hereto.
"Existing Reimbursement Agreement" means the Reimbursement Agreement, dated as of September 30, 2002, among the Account Parties, the banks and other lenders named therein, JPMorgan Chase Bank and Bank of America, as Syndication Agents, Nova Scotia and Deutsche Bank, as Documentation Agents, and Wachovia, as Issuing Bank and as Administrative Agent, as amended, providing for a $350,000,000 secured letter of credit facility for the benefit of the Account Parties.
"Expiration Date" shall mean September 25, 2006.
"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
8

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 29, 2003 among the Parent, Wachovia and the Arranger, 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(n)(iv).
"Foreign Plan" has the meaning specified in Section 4.01(n)(iv).
"GAAP" has the meaning specified in Section 1.03.
"Guaranteed Investment Contract" means, with respect to any Person, a guaranteed investment contract or funding agreement or other similar agreement issued by such Person that guarantees to a counterparty a rate of return on the invested capital over the life of such contract or agreement.
"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,
9

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 (i) or (j) 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 Bank" means Wachovia and any "New Issuing Bank" appointed in accordance with Section 2.15.
"Judgment Currency" has the meaning specified in Section 2.16(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(f).
"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 Issuance Commitment Amount" means at any time the lesser of (a) $500,000,000 (or such lesser amount as may be agreed in writing among the Account Parties, the Administrative Agent and the Issuing Bank) and (b) the aggregate amount of the LC Commitment Amounts then in effect.
"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
10

the maximum amount available for drawings under any Letter of Credit taking effect on such date.
"Letter of Credit Participating Interest" has the meaning specified in
Section 2.02(d).
"Letter of Credit Participating Interest Commitment" has the meaning specified in Section 2.02(d).
"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.
"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 (including "Feline Prides(TM)", "Rhinos(TM)" or any substantially similar securities).
"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, the 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 $25,000,000.
"Moody's" means Moody's Investors Service, Inc.
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"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 2.16(a).
"Nova Scotia" has the meaning specified in the recital of parties to this Agreement.
"OECD" means the Organization for Economic Cooperation and Development.
"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 2.16(h).
"Parent" has the meaning specified in the recital of parties to this Agreement.
"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 Collateral Liens" has the meaning specified in Section 5.02(a).
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"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).
"Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.
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"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 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
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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 1NA 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, each dated as of December 14, 2001, 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).
"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 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.
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"Uniform Commercial Code" has the meaning specified in the Pledge and Security Agreement.
"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 Bank pursuant to Section 2.02(f) and outstanding at such time (whether held by the Issuing Bank 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.
SECTION 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.
SECTION 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
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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
SECTION 2.01 The Letters of Credit. The 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. The Issuing Bank shall have no obligation to issue, and no Account Party will request the issuance of, any Letter of Credit hereunder if either (a) at the time of issuance of such Letter of Credit and after giving effect thereto, the Letter of Credit Exposure would exceed the lesser of (x) the Letter of Credit Issuance Commitment Amount and (y) the aggregate Collateral Value, 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 Issuing Bank as contemplated by
Section 2.02). Unless all the Banks consent otherwise in writing, the Issuing Bank shall have no 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 Issuing Bank as contemplated by Section 2.02). The Issuing Bank shall have no 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 2.16, 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, but a Letter of Credit may by its terms be automatically renewable annually unless the Issuing Bank notifies the beneficiary thereof of its election not to renew such Letter of Credit (which the Issuing Bank agrees to do on and subject to the terms of
Section 2.02(c)). The Issuing Bank shall have no obligation to issue any letter of credit which is unsatisfactory in form, substance or beneficiary to the 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. By their execution of this Agreement, the Banks party hereto as of the Effective Date that are also party to the Existing Reimbursement Agreement as "Banks" thereunder hereby waive, in their capacity as the "Required Banks" under the Existing
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Reimbursement Agreement, the requirement of three Business Days' prior written notice for the termination of the LC Commitment Amounts (as defined in the Existing Reimbursement Agreement) pursuant to Section 2.04 thereof, and agree that such notice may be given on the Effective Date of this Agreement.
SECTION 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), the Issuing Bank to issue or renew (other than any automatic renewal thereof) a Letter of Credit by:
(i) delivering to the Issuing Bank either (x) a written request to such effect or (y) a request made in electronic form through the Issuing Bank's remote access system and in accordance with the terms and conditions (including any written agreements between the 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 the Issuing Bank a completed agreement and application with respect to such Letter of Credit as the 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 the Issuing Bank's customary practices for the issuance of letters of credit (including requirements relating to requests made through the 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.
The Administrative Agent shall, promptly upon receiving a copy of the notice referred to in clause (i) above, notify the Banks of such proposed Letter of Credit (which notice shall specify the Available Amount and term of such proposed Letter of Credit) or such proposed renewal of a Letter of Credit (which notice shall specify the term of such renewal), and shall determine, as of 11:00
A.M. (Charlotte, North Carolina time) on the Business Day immediately preceding such proposed issuance, whether such proposed Letter of Credit complies with the limitations set forth in Section 2.01 hereof. If such limitations set forth in
Section 2.01 are not satisfied or if the Required Banks have given notice to the Administrative Agent to cease issuing or renewing Letters of Credit as contemplated by this Agreement, the Administrative Agent shall immediately notify the Issuing Bank (in writing or by telephone immediately confirmed in writing) that the Issuing Bank is not authorized to issue or renew, as the case may be, such Letter
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of Credit. If the 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. The 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 the 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 the Issuing Bank to 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. 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 the 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) Limitations on Issuance, Extension, Renewal and Amendment. As between the Issuing Bank, on the one hand, and the Agents and the Banks, on the other hand, the Issuing Bank shall be justified and fully protected in issuing or renewing a proposed Letter of Credit unless it shall have received notice from the Administrative Agent as provided in Section 2.02(a) hereof that it is not authorized to do so (and, in the case of automatic renewals, ten days shall have passed following the date of the Issuing Bank's receipt of such notice), notwithstanding any subsequent notices to the 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 the Issuing Bank, or any other event, condition or circumstance whatsoever. The 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 Issuing Bank shall notify the beneficiary thereof, in accordance with the terms specified for such notice in such Letter of Credit, of the Issuing Bank's election not to renew such Letter of Credit.
(d) 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 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 the Issuing Bank, without recourse to, or representation or warranty by, the Issuing Bank, an undivided interest, in a proportion equal to such Bank's Pro Rata Share, in all of the 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
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each Bank being referred to herein as a "Letter of Credit Participating Interest", it being understood that the Letter of Credit Participating Interest of the 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 Bank 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 Bank. 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 the Issuing Bank, the assignee Bank shall be deemed to have acquired a Letter of Credit Participating Interest from the 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(e), and the right of the 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.
(e) Payment by Banks on Account of Unreimbursed Draws. If the Issuing Bank makes a payment under any Letter of Credit and is not reimbursed in full therefor on such payment date in accordance with Section 2.03(a), the 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 the Issuing Bank, in immediately available funds, an amount equal to such Bank's Pro Rata Share of the unreimbursed portion of such payment by the Issuing Bank. Amounts received by the Administrative Agent for the account of the Issuing Bank shall be forthwith transferred, in immediately available funds, to the Issuing Bank. If and to the extent that any Bank fails to make such payment to the Administrative Agent for the account of the Issuing Bank on such date, such Bank shall pay such amount on demand, together with interest, for the Issuing Bank's own account, for each day from and including the date such payment is due from such Bank to the Issuing Bank to but not including the date of repayment to the 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 the 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(e) shall continue from and after the Expiration
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Date until the expiration or termination of all Letters of Credit, subject to and in accordance with the terms hereof.
(f) Letter of Credit Advances. The term "Letter of Credit Advance" is used in this Agreement in accordance with the meanings set forth in this paragraph
2.02(f). The making of any payment by the Issuing Bank under a Letter of Credit is sometimes referred to herein as the making of a Letter of Credit Advance by the Issuing Bank in the amount of such payment. The making of any payment by a Bank for the account of the Issuing Bank under Section 2.02(e) 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.
(g) Letter of Credit Reports. The 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 tenth 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 tenth 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.
SECTION 2.03 Repayment of Advances.
(a) Account Parties' Reimbursement Obligation.
(i) Each Account Party hereby agrees to reimburse the Issuing Bank (by making payment to the Administrative Agent for the account of the Issuing Bank in accordance with Section 2.07) in the amount of each payment made by the 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 the date which is one Business Day after notice of such payment under such Letter of Credit or 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 the Issuing Bank and the Banks which have funded their respective shares of such amount remaining unpaid by such Account Party, on demand, interest thereon at a rate per annum for each day equal to 2% plus the Base Rate in effect on such day, 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
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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 the Issuing Bank for any payment made by the Issuing Bank under any Letter of Credit, and the obligation of each Bank under Section 2.02(e) 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), the 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 the 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.
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(b) Rescission. If any amount received by the Issuing Bank on account of any Letter of Credit Advance shall be avoided, rescinded or otherwise returned or paid over by the Issuing Bank for any reason at any time, whether before or after the termination of this Agreement (or the 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 the Issuing Bank, pay over to the Administrative Agent for the account of the Issuing Bank its Pro Rata Share of such amount, together with its Pro Rata Share of any interest or penalties payable with respect thereto.
SECTION 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, (ii) shall be made ratably among the Banks in accordance with their LC Commitment Amounts and (iii) shall automatically reduce the Issuing Bank's Letter of Credit Issuance Commitment Amount, as contemplated by the definition of that term.
SECTION 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, 2003 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, 2003 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.
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(ii) The Account Parties jointly and severally agree to pay to the Issuing Bank, for its own account, (x) the facing fee referred to the Fee Letter, on the terms set forth therein, and (y) the 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 the 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.
SECTION 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 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.
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(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 subsection (a) or (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 subsections (a) and (b) above or
Section 2.08 (and without limiting subsection (c) above), if any Bank fails to notify the Account Parties of any event or circumstance that will entitle such Bank to compensation pursuant subsection (a) or (b) above or Section 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 Bank in its capacity as such.
SECTION 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
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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 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.
SECTION 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").
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(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 subsections (d) and (e) of this
Section 2.08, 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 the 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 subsection (a) of this Section 2.08 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
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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 subsection (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 subsection (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 subsection (e) above), such Bank shall not be entitled to indemnification under subsection (a) or (c) of this
Section 2.08 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.
SECTION 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
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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.
SECTION 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.
SECTION 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;
(ii) second, to the Issuing Bank for any amount then due and payable to it, in its capacity as such, by such Defaulting Bank, ratably in accordance with such amounts then due and payable to the Issuing Bank; 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 subsection (a), shall be applied by the Administrative Agent as specified in subsection (b) of this Section 2.11.
(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
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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 subsection
(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 subsection (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 subsection (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 Bank for any amount then due and payable to it, in its capacity as such, by such Defaulting Bank, ratably in accordance with such amounts then due and payable to such Issuing Bank; 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.
SECTION 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,
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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.
SECTION 2.13 Certain Provisions Relating to the Issuing Bank 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 the 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 the Issuing Bank and the Banks under, this Agreement and applicable law. Each Account Party acknowledges and agrees that all rights of the 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 Bank 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 Bank shall be read into this Agreement or shall otherwise exist. The duties and responsibilities of the Issuing Bank to the Banks and the Agents under this Agreement and the other Loan Documents shall be mechanical and administrative in nature, and the Issuing Bank shall not have a fiduciary relationship in respect of any Agent, any Bank or any other Person. The Issuing Bank shall not 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 the gross negligence or willful misconduct of the Issuing Bank, as finally determined by a court of competent jurisdiction. The Issuing Bank 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 Bank 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 Bank shall not be responsible for the execution, delivery, effectiveness, enforceability, genuineness, validity or adequacy of this Agreement or any Loan Document.
(c) Administration. The 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 the 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 the Issuing Bank shall not have any duty to verify the identity or authority of any Person giving such notice or other communication. The Issuing Bank may consult with legal
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counsel (including, without limitation, in-house counsel for the Issuing Bank 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 the 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 the 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 the Issuing Bank may conclusively rely upon such certificate. The Issuing Bank shall not be deemed to have any knowledge or notice of the occurrence of any Default unless the 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 Bank by Banks. Each Bank hereby agrees to reimburse and indemnify the 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 the Issuing Bank or such other Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the 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 the 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 the Issuing Bank or such other Person, as finally determined by a court of competent jurisdiction.
(e) Issuing Bank in its Individual Capacity. With respect to its commitments and the obligations owing to it, the 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 the Issuing Bank, and the term "Banks" and like terms shall include the Issuing Bank in its individual capacity as such. The 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 the Issuing Bank were not the Issuing Bank hereunder.
SECTION 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 Issuing Bank may, by notice to such Downgraded Bank, the Administrative Agent and the Parent within 45 days after such Downgrade Event (any such notice, a "Downgrade Notice"), request
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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:
(A) the Committed Facility shall be reduced by the amount of the LC Commitment Amount of such Downgraded Bank,
(B) the Account Parties shall prepay all amounts owed to such Downgraded Bank hereunder or in connection herewith
(C) if, upon the reduction of the Committed Facility under clause (A) above and the payment under clause (B) 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 Bank 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
(D) upon completion of the events described in clauses (A), (B)
and (C) 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 Bank and the Administrative Agent that such Downgraded Bank elects to provide (in a manner reasonably satisfactory to the Issuing Bank) cash collateral to the Issuing Bank for (or if such Downgraded Bank is unable, without regulatory approval, to provide cash collateral, a letter of credit reasonably satisfactory to the Issuing Bank covering) its contingent obligations to reimburse the Issuing Bank for any payment under any Letter of Credit as provided in Section
2.02(e) (its "LC Participation Obligations"), such Downgraded Bank shall be obligated to (and each Bank agrees that in such circumstances it will) deliver to the Issuing Bank (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 a segregated deposit account in the name of the Issuing Bank at the Issuing Bank's principal office in the United States (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(e), then the Issuing Bank shall apply the funds deposited in the applicable Downgrade Account by such Downgraded Bank (or any drawing
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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 clause (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 Issuing Bank to fund the participation of such Downgraded Bank pursuant to the first sentence of this clause (b)
(c) Funds in a Downgrade Account shall be invested in such investments as may be agreed between the Issuing Bank 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 Issuing Bank and such Downgraded Bank. The Issuing Bank 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 clause (a) or (C) the first Business Day after receipt by the Issuing Bank of evidence (reasonably satisfactory to the Issuing Bank) 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 Issuing Bank pursuant to this Section 2.14, the Issuing Bank 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 Issuing Bank to cover all LC Participation Obligations of such Downgraded Bank (including in respect of the Letter of Credit to be issued or increased).
SECTION 2.15 Downgrade Event or Other Event with Respect to the Issuing Bank. At any time that the Issuing Bank is a Downgraded Bank or at such other times as the Issuing Bank and the Account Parties may agree, the Account Parties may, upon not less than three Business Days' notice to the Issuing Bank (in this
Section sometimes referred to as the "Old Issuing Bank") and the Administrative Agent, designate any Bank (so long as such Bank has agreed to such designation) as an additional "Issuing Bank" hereunder (in this Section sometimes referred to as the "New Issuing Bank"). Such notice shall specify the date (which shall be a Business Day) on which the New Issuing Bank is to become an additional "Issuing Bank" hereunder. From and after such date, all new Letters of Credit requested to be issued hereunder shall be issued by the New Issuing Bank. From and after such date (and until the first date on which no Letters of Credit issued by the Old Issuing Bank are outstanding and no reimbursement obligations are owed to the Old Issuing Bank, on which date the Old Issuing Bank shall cease to be an Issuing Bank hereunder), references in this Agreement to the "Issuing Bank" shall be deemed to refer (a) to the Old Issuing Bank, with respect to Letters of Credit issued by it, (b) to the New Issuing Bank, with respect to Letters of Credit issued or to be issued by it, and (c) to each of the Old Issuing Bank and the New Issuing Bank, with respect to other matters. Notwithstanding the fact that an Old Issuing Bank shall cease to be an "Issuing Bank" hereunder,
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all of the exculpatory, indemnification and similar provisions hereof in favor of the "Issuing Bank" shall inure to such Old Issuing Bank's benefit as to any actions taken or omitted by it while it was an "Issuing Bank" under this Agreement. The Account Parties agree that after any appointment of a New Issuing Bank hereunder, the Account Parties shall use reasonable commercial efforts to promptly replace (or otherwise cause the applicable beneficiary to return to the Old Issuing Bank for cancellation) each letter of credit issued by the Old Issuing Bank with a new Letter of Credit issued by the New Issuing Bank.
SECTION 2.16 Non-Dollar Letters of Credit.
(a) The Account Parties, the Administrative Agent, the Issuing Bank and the Banks (i) agree that the Issuing Bank may (in its sole discretion) 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 paragraphs of this Section 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(e), 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 the 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 the Issuing Bank such Bank's Pro Rata Share of the unreimbursed portion of any payment by the Issuing Bank under Section 2.02(e) 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 (1) the date of an issuance, extension or change in the Available Amount of such Non-Dollar Letter of Credit,
(2) the date of any payment by the Issuing Bank in respect of a drawing under such Non-Dollar Letter of Credit, (3) the last Business Day of each March, June, September and December and (4) 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
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permitted to the extent that, after making a calculation pursuant to this clause
(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 the 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 the 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 the Issuing Bank or such Bank of any sum adjudged to be so due in the Judgment Currency, the 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 the 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 the 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 the Issuing Bank or such Bank in such currency, the 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, "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 the Issuing Bank in accordance with its customary procedures (and giving effect to any transaction costs) at the quoted foreign exchange spot rate of the 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 the 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.
SECTION 2.17 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
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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
SECTION 3.01 Conditions Precedent to Effective Date. The occurrence of the Effective Date, and the obligation of the Issuing Bank to issue any Letter of Credit on the Effective Date, is subject to the satisfaction of the following conditions precedent:
(i) 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:
(A) Copies of the Pledge and Security Agreement, duly completed and executed by each Account Party that is a party thereto, the State Street Control Agreements, each duly completed and executed by State Street and by the Account Party that is a party thereto, and the State Street Custodial Agreements.
(B) 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.
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(C) 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.
(D) 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)(B) 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.
(E) 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.
(F) A favorable opinion of (1) Maples and Calder, Cayman Islands counsel for the Parent, in substantially the form of Exhibit C-l 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.
(ii) 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) could 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.
(iii) No development or change shall have occurred after December 31, 2002, and no information shall have become known after such date, that has had or could reasonably be expected to have a Material Adverse Effect.
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(iv) 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.
(v) The Administrative Agent shall have received evidence satisfactory to it that all obligations of any Account Party outstanding under the Existing Reimbursement Agreement (other than fees and expenses of Wachovia's counsel) have been repaid and satisfied in full and that, concurrently with the effectiveness of this Agreement, the LC Commitment Amounts (as defined therein) under the Existing Reimbursement Agreement have been reduced to zero, and Wachovia shall have agreed, by its execution and delivery of this Agreement, that the Existing Letters of Credit issued under the Existing Reimbursement Agreement shall become Letters of Credit hereunder as of the Effective Date.
SECTION 3.02 Conditions Precedent to Each Issuance, Extension or Increase of a Letter of Credit. The obligation of the Issuing Bank 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 the Issuing Bank through the Administrative Agent may reasonably request.
SECTION 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
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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
SECTION 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 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 could 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
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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.
(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 threatened before any court, governmental agency or arbitrator that (i) could 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 sheets of the Parent and its Subsidiaries as at December 31, 2002, 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 sheets of the Parent and its Subsidiaries as at June 30, 2003, 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, 2003, 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 generally accepted accounting principles applied on a consistent basis (subject, in the case of the June 30, 2003 balance sheet and statements, to the absence of footnotes). Since December 31, 2002, 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 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).
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(j) Margin Stock will constitute 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) Neither any Loan Party nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction that is reasonably likely to have a Material Adverse Effect.
(m) Each Loan Party is, individually and together with its Subsidiaries, Solvent.
(n) Except to the extent that any and all events and conditions under clauses (i) through (vi) below of this paragraph (n) in the aggregate are not reasonably expected to have a Material Adverse Effect:
(i) Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each Pension Plan, copies of which have been filed with the Internal Revenue Service, is complete and accurate and fairly presents the funding status of such Pension Plan, and since the date of such Schedule B there has been no material adverse change in such funding status.
(ii) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan.
(iii) Neither any Loan Party nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA.
(iv) 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"):
(x) 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.
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(y) 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.
(z) Each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities.
(v) To the extent the assets of any Loan Party are or are deemed under applicable law to be "plan assets" within the meaning of Department of Labor Regulation (S) 2510.3-101, the execution, delivery and performance of the Loan Documents and the consummation of the transactions contemplated therein will not result in a non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code.
(vi) 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.
(o) 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
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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.
(p) 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).
(q) 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
SECTION 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, in all material respects, 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.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful material claims that, if unpaid, might by law become a Lien 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 claim 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 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 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).
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(d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided, however, that the Parent and its Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(c) and provided further that 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 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.
(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.
(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 Bank 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 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
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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.
SECTION 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 or in real property or equipment 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 equipment or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property or equipment to be subject to such Liens, or Liens existing on any such property or equipment 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 property other than the property or equipment being acquired, constructed or
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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;
(xii) the replacement, extension or renewal of any Lien permitted by clause (iii) or (vi) 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,
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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. $250,000,000;
(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 Five Year 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 $800,000,000. For purposes of this clause (xviii), "Five Year Credit Agreement" shall mean the Amended and Restated Five-Year Credit Agreement dated as of May 8, 2000 among the Parent, ACE Bermuda, Tempest, ACE INA Holdings Inc. and ACE Financial Services, Inc., as borrowers, various financial institutions, and JPMorgan Chase Bank, as administrative agent, as amended, modified, supplemented or restated from time to time;
(xviii) Liens securing up to an aggregate amount of $200,000,000 of obligations of Tempest, the Parent or any wholly owned Subsidiary, arising out of catastrophe bond financing; and
(xix) Liens on proceeds delivered to any Account Party under any Guaranteed Investment Contract.
Notwithstanding the foregoing provisions of this subsection (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 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").
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(b) Change in Nature of Business. Make any material change in the nature of the business of the Parent and its 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 or amalgamate or consolidate with it; provided that the Person surviving such merger 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. In the case of the Parent, 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, except that, so long as no Default shall have occurred and be continuing at the time of any action described in clause (i) or (ii) below or would result therefrom:
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(i) the Parent may (A) declare and pay dividends and distributions payable only in common stock of the Parent, (B) issue and sell shares of its capital stock, (C) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests in an aggregate amount during the term of this Agreement not exceeding $300,000,000 and (D) declare and pay cash dividends to its stockholders,
(ii) (A) any Loan Party (other than the Parent) may declare and pay cash dividends to another Loan Party and (B) any Subsidiary of the Parent (other than any Loan Party) may (x) declare and pay cash dividends to the Parent or any other wholly owned Subsidiary of the Parent of which it is a Subsidiary and (y) accept capital contributions from its parent, and
(iii) a Special Purpose Trust may issue Preferred Securities and pay dividends thereon with the proceeds of payments of interest on the Debentures.
(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.
SECTION 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 two 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.
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(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 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 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
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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 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, and (to the extent not otherwise provided) copies of all certifications of the Parent's principal executive officer and principal financial officer made pursuant to Section 302 or 906 of the Sarbanes-Oxley Act of 2002, as amended.
(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);
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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 Insurance Division of the Office of Registrar of Companies of Bermuda.
(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, the Registrar of Companies or the Supervisor of Insurance 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.
SECTION 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 sum of (i) $4,400,000,000, plus (ii) 25% of Consolidated Net Income for each fiscal quarter of the Parent ending on or after March 31, 2003 for which such Consolidated Net Income is positive, plus (iii) 50% of the Net Proceeds of any issuance of Equity Interests (other than the Net Proceeds from any issuance of Equity Interests in substitution and replacement of other Equity Interests to the extent such Net Proceeds do not exceed the amount of a substantially contemporaneous redemption of Equity Interests permitted hereunder) subsequent to the Effective Date.
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ARTICLE VI
EVENTS OF DEFAULT
SECTION 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 principal of any Advance when the same shall become due and payable or (ii) any Account Party shall fail to pay any interest on any Advance, or any Loan Party shall fail to make any other payment 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) or
(e), 5.02 (other than 5.02(g)) or 5.04; or
(d) 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 (1) in the case of any covenant contained in Section 5.02(g), three Business 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, and (2) in all other cases, 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
(e) the Parent or any of its Significant Subsidiaries shall fail to pay any Material Financial Obligation (but excluding Debt outstanding hereunder) of the Parent or such Significant 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
(f) any Loan Party or any of its 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
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general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Loan Party or any of its 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 30 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 Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or
(g) 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
(h) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that could 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
(i) any provision of any Loan Document after delivery thereof pursuant to
Section 3.01 shall for any reason cease to be valid and binding on or enforceable against any Loan Party party to it (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
(j) a Change of Control shall occur; or
(k) 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 could be required to make a contribution to such Pension Plan, or could incur a liability or obligation; or
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(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
(l) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan; or
(m) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Loan Parties and the ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization or termination occurs; 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 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;
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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 Bank 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 Bank 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.
SECTION 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 Bank or Banks, as applicable, to the extent permitted by applicable law.
ARTICLE VII
THE GUARANTY
SECTION 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
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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.
SECTION 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;
(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; or
(vii) 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
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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.
SECTION 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.
SECTION 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.
SECTION 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, any other Loan 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
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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.
SECTION 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.
SECTION 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
SECTION 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.
SECTION 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
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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.
SECTION 8.03 Wachovia and Affiliates. With respect to its LC Commitment Amounts, and the Advances, Wachovia 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 Wachovia in its individual capacity. Wachovia 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 Wachovia were not an Agent and without any duty to account therefor to the Banks.
SECTION 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.
SECTION 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
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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.
SECTION 8.06 Successor Administrative Agent. Any Agent may resign at any time by giving written notice thereof to the Banks and the Parent and may be removed at any time with or without cause by the Required Banks. 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 45th 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, Nova Scotia, Bank One or Deutsche Bank ceases to be a Bank hereunder, it shall be deemed to have resigned as Co-Syndication Agent and no replacement shall be appointed.
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SECTION 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 subsection (b).
ARTICLE IX
MISCELLANEOUS
SECTION 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 the 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, unless in writing and signed by all of the Banks (other than (A) any Bank that is, at such time, a Defaulting Bank, and (B) in the case of clauses (vi) and (vii) below, any Bank which is not and will not be (and is not and will not be owed any obligation which is or will be) affected thereby), do any of the following at any time: (i) waive any of 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, (v) increase the LC Commitment Amounts of the Banks, extend the Expiration Date or subject the Banks to any additional obligations, (vi) 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, (vii) postpone any date fixed for any payment of principal of, or interest on, any reimbursement obligation or any fees or other amounts payable hereunder, (viii) limit the liability of any Loan Party under any of the Loan Documents, or (ix) release any of the Collateral if such release would cause the aggregate Collateral Value to be less than the Letter of Credit Outstandings; provided further that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the
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Banks required above to take such action, affect the rights or duties of such Agent under this Agreement or the other Loan Documents.
SECTION 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, 8th Floor NC0680, Charlotte, North Carolina 28288, Attn: Syndication Agency Services, Telecopy No. (704) 383-0288; 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.
SECTION 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.
SECTION 9.04 Costs and Expenses.
(a) Each of the Account Parties agrees to pay on demand (i) all reasonable costs and expenses of the Administrative Agent and of the 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 a single counsel for the 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, the 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
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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, the 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, the Arranger, the 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 such Indemnified Party's gross negligence or willful misconduct. 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, the 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.
SECTION 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
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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 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.
SECTION 9.06 Binding Effect. This Agreement shall become effective when it shall have been executed by each Account Party, the 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, the 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.
SECTION 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, 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 Issuing Bank 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 a Bank or an Affiliate of any Bank or an assignment of all of a Bank's rights and obligations under this Agreement, 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 $10,000,000 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
66

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 $2,500.00.
(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 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
67

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, (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, 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.
(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.
68

SECTION 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.
SECTION 9.09 No Liability of the Issuing Bank. 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 the 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 the 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 the Issuing Bank, and the 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) the 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) the 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 Bank 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.
SECTION 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 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
69

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.
SECTION 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 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.
SECTION 9.12 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
SECTION 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.
SECTION 9.14 Disclosure of Information. Each Account Party agrees and consents to the Administrative Agent's and the Arranger'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 or the Arranger before such disclosure is made (such approval not to be unreasonably withheld).
[Remainder of page intentionally left blank]
70

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.

[SEAL]                               ACE LIMITED

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

                                     /s/ Peter Mear
                                     -------------------------------------------
                                     Authorized Officer
                                     Peter Mear - General Counsel & Secretary

                                     /s/ Philip Bancroft
                                     -------------------------------------------
                                     Authorized Officer
                                     Philip Bancroft - Chief Financial Officer

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

                                     /s/ Mark Herman
                                     -------------------------------------------
                                     Authorized Officer - Mark Herman
                                     Deputy Chairman, President & Chief
                                     Executive Officer

                                     /s/ Andrew Gibbs
                                     -------------------------------------------
                                     Authorized Officer - Andrew Gibbs
                                     Executive Vice President, Chief Financial
                                     Officer and Chief Operating Officer

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

                                     /s/ Christopher McKeown
                                     -------------------------------------------
                                     Authorized Officer - Christopher McKeown
                                     President & Chief Executive Officer

                                     /s/ Augustin Hardart
                                     -------------------------------------------
                                     Authorized Officer
                                     Augustin Hardart - Chief Financial Officer
                                     & Treasurer

                             (signatures continued)	

S-1

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

                                     /s/ Christopher McKeown
                                     -------------------------------------------
                                     Authorized Officer - Christopher McKeown
                                     President & Chief Executive Officer

                                     /s/ Augustin Hardart
                                     -------------------------------------------
                                     Authorized Officer
                                     Augustin Hardart - Chief Financial Officer
                                     & Treasurer

                                     Address for each Account Party:
                                     ACE Global Headquarters
                                     17 Woodbourne Avenue
                                     Hamilton HM08 Bermuda
                                     Telecopy: (441) 296-0087

                             (signatures continued)	

S-2

WACHOVIA BANK, NATIONAL
 ASSOCIATION, as Administrative Agent, as
Issuing Bank and as an Initial Bank

By: /s/ MARK B. FELKER
    ---------------------------------------
       MARK B. FELKER
Title: MANAGING DIRECTOR
       WACHOVIA BANK, NATIONAL ASSOCIATION	

BANK OF AMERICA, N.A., as Co-Syndication Agent and as an Initial Bank

By: /s/ Debra Basler
    ---------------------------------------
       Debra Basler
Title: Principal	

THE BANK OF NOVA SCOTIA, as
Co-Syndication Agent and as an Initial Bank

By: /s/ John Alan Edwards
    ---------------------------------------
       John Alan Edwards
Title: Managing Director	

BANK ONE, N.A., as Co-Syndication Agent and as an Initial Bank

By: /s/ Illegible
    ---------------------------------------
Title: Director	

DEUTSCHE BANK AG, NEW YORK BRANCH
 as Co-Syndication Agent and as an Initial
Bank

By: /s/ Illegible
    ---------------------------------------
Title: Managing Director

    /s/ Charles Kohler
    ---------------------------------------
    Charles Kohler
    Managing Director	

ABN AMRO BANK, N.V., as an Initial Bank

By: /s/ NEIL R. STEIN
    ---------------------------------------
       NEIL R. STEIN
Title: GROUP VICE PRESIDENT

By: /s/ MICHAEL DeMARCO
    ---------------------------------------
       MICHAEL DeMARCO
Title: ASSISTANT VICE PRESIDENT	

BARCLAYS BANK PLC, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------
Title: Illegible	

FLEET NATIONAL BANK, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------
Title: Vice President	

HSBC BANK USA, as an Initial Bank

By: /s/ Jenny Chung
    ---------------------------------------
       Jenny Chung
Title: Assistant Vice President	

JPMORGAN CHASE BANK, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------
Title: Vice President	

ROYAL BANK OF CANADA, as an Initial Bank

By: /s/ Alexander Birr
    ---------------------------------------
       Alexander Birr
Title: Authorized Signatory	

STATE STREET BANK AND TRUST
COMPANY, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------
Title: Vice President	

COMERICA BANK, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------
Title: First Vice President	

MELLON BANK, N.A., as an Initial Bank

By: /s/ Carrie Burnham
    ---------------------------------------
       Carrie Burnham
Title: Assistant Vice President	

BNP PARIBAS, as an Initial Bank

By: /s/ Joshua Landau
    ---------------------------------------
       Joshua Landau
Title: Vice President

By: /s/ Phil Truesdale
    ---------------------------------------
       Phil Truesdale
Title: Director	

THE BANK OF BERMUDA LIMITED, as an
Initial Bank

By: /s/ Illegible
    ------------------------------------
Title: Vice President, Corporate Banking

    /s/ WILLIAM GRAHAM-WELTON
    ---------------------------------------
    WILLIAM GRAHAM-WELTON
    HEAD OF CORPORATE BANKING
    CORPORATE BANKING	

THE BANK OF N.T. BUTTERFIELD & SON
LIMITED, as an Initial Bank

By: /s/ Illegible
    ---------------------------------------
Title: Vice President	

SCHEDULE I
LC COMMITMENT AMOUNTS

Wachovia Bank, National Association          $ 43,000,000
Bank of America, N.A.                          41,000,000
The Bank of Nova Scotia                        41,000,000
Bank One, N.A.                                 41,000,000
Deutsche Bank AG, New York Branch              41,000,000
ABN AMRO Bank, N.V.                            31,500,000
Barclays Bank PLC                              31,500,000
Fleet National Bank                            31,500,000
HSBC Bank USA                                  31,500,000
JPMorgan Chase Bank                            31,500,000
Royal Bank of Canada                           31,500,000
State Street Bank and Trust Company            31,500,000
Comercia Bank                                  17,500,000
Mellon Bank, N.A.                              17,500,000
BNP Paribas                                    17,500,000
The Bank of Bermuda Limited                    10,000,000
The Bank of N.T. Butterfield & Son Limited     10,000,000

   Total                                     $500,000,000
                                             ============	

SCHEDULE 1 - Part 2
DOMESTIC LENDING OFFICES

--------------------------------------------------------------------------------
Wachovia Bank, National Association   Agency Management Group
                                      301 South College Street, 5th 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
--------------------------------------------------------------------------------
The Bank of Nova Scotia               One Liberty Plaza, 26th Floor
                                      New York, New York 10006
                                      Attn: Dan Foote
                                      Telephone: (212) 225-5077
                                      Telecopy: (212) 225-5090
--------------------------------------------------------------------------------
Bank One, N.A.                        1 Bank One Plaza, Suite IL1-0325
                                      Chicago, Illinois 60670
                                      Attn: Gretchen Roetzer
                                      Telephone: (312) 325-3196
                                      Telecopy: (312) 325-3190
--------------------------------------------------------------------------------
Deutsche Bank AG, New York Branch     31 West 52nd Street Mail Stop NYC01-2402
                                      New York, New York 10019
                                      Attn: Clinton M. Johnson
                                      Telephone: (212) 469-8101
                                      Telecopy: (212) 469-8366
--------------------------------------------------------------------------------
ABN AMRO Bank, N.V.                   208 South LaSalle Street, Suite 1500
                                      Chicago, Illinois 60604-1003
                                      Attn: Credit Administration
                                      Telecopy: (312) 992-5111
--------------------------------------------------------------------------------
Barclays Bank PLC                     P.O. Box 544
                                      1st 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
--------------------------------------------------------------------------------
Fleet National Bank                   777 Main Street
                                      Mail Stop CTEH40225C
                                      Hartford, Connecticut 06115
                                      Attn: George Urban
                                      Telephone: (860) 952-7565
                                      Telecopy: (860) 952-7604
--------------------------------------------------------------------------------
HSBC Bank USA                         452 Fifth Avenue, 5th Floor
                                      New York, New York 10018
                                      Attn: Anthony C. Valencourt
                                      Telephone: (212) 525-2579
                                      Telecopy: (212) 525-2573
--------------------------------------------------------------------------------
JPMorgan Chase Bank                   Financial Institutions Group
                                      270 Park Avenue, 15th Floor
                                      New York, New York 10017
                                      Attn: Helen Newcomb
                                      Telephone: (212) 270-6260
                                      Telecopy: (212) 270-1511
--------------------------------------------------------------------------------
Royal Bank of Canada                  One Liberty Plaza, 4th Floor
                                      New York, New York 10006-1404
                                      Attn: Alex Birr
                                      Telephone: (212) 428-6404
                                      Telecopy: (212) 428-6201
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
Comerica Bank                         500 Woodward Avenue
                                      Detroit, Michigan 48226-3331
                                      Attn: Martin G. Ellis
                                      Telephone: (313) 222-9443
                                      Telecopy: (313) 222-5466
--------------------------------------------------------------------------------
Mellon Bank, N.A.                     One Mellon Center, Room 4401
                                      Pittsburgh, Pennsylvania 15258-0001
                                      Attn: Karla Maloof
--------------------------------------------------------------------------------

                                        2	

--------------------------------------------------------------------------------
                                      Telephone: (412) 236-4147
                                      Telecopy: (412) 234-8087
--------------------------------------------------------------------------------
BNP Paribas                           787 7th Avenue, 28th Floor
                                      New York, New York 10019
                                      Attn: Joshua Landau
                                      Telephone: (212) 841-3823
                                      Telecopy: (212) 841-2533
--------------------------------------------------------------------------------
The Bank of Bermuda Limited           6 Front Street
                                      Hamilton HM 11
                                      Hamilton HM DX, Bermuda
                                      Attn: A. Kerry Davison, VP-Credit Manager
                                      (North America)
                                      Telephone: (441) 299-6219
                                      Telecopy: (441) 299-6519
--------------------------------------------------------------------------------
The Bank of N.T. Butterfield & Son    65 Front Street
Limited                               Hamilton HM DX, Bermuda
                                      Attn: Jonathan Raynor, VP-Corporate
                                      Banking
                                      Telephone: (441) 298-4774
                                      Telecopy: (441) 296-0380
--------------------------------------------------------------------------------	

3

SCHEDULE II
EXISTING LETTERS OF CREDIT
1. Wachovia Letter of Credit No. SM419401 Beneficiary: UNUM Life Insurance Company of America Amount: US $148,607,168.00
2. Wachovia Letter of Credit No. SM200611 Beneficiary: State Compensation Insurance Fund Amount: US $83,096,339.00
3. Wachovia Letter of Credit No. SM201865 Beneficiary: Liberty Re (Bermuda) Limited Amount: US $51,700,000.00

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                                     95% of Market
   Maturity over 2 years                                        90% of Market
--------------------------------------------------------------------------------
Investment-grade municipal bonds (Rating Aaa/AAA -
   Baa3/BBB-)
   Maturity 5 years or less                                     85% of Market
   Maturity over 5 years                                        80% of Market
--------------------------------------------------------------------------------
Investment-grade corporate bonds (Rating Aa3/AA- or
   better, non-convertible, NYSE-traded)
   Maturity 2 years or less                                     90% of Market
   Maturity over 2 years                                        85% of Market
--------------------------------------------------------------------------------
Investment-grade corporate bonds (Rating A1/A+ to
   Baa3/BBB-, non-convertible, NYSE-traded)
   Maturity 2 years or less                                     85% of Market
   Maturity over 2 years                                        80% of Market
--------------------------------------------------------------------------------
Commercial paper (Rating A1-A2, P1-P2)                          85% of Market
--------------------------------------------------------------------------------	

SCHEDULE 4.01(B)
Subsidiaries
[attached hereto]

ACE LIMITED GROUP OF COMPANIES
 JUNE 30, 2003

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of      Percentage       Jurisdictions in which Authorized
Name                                                           Organization        Ownership             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 Re International Ltd.                          Bermuda              100%         Bermuda, insurance/reinsurance,
                                                                                                   general and long term
------------------------------------------------------------------------------------------------------------------------------------
         ACE KRE Holdings Limited                                Barbados             100%         Barbados, investment holding
------------------------------------------------------------------------------------------------------------------------------------
            ACE Capital Re USA Holdings Incorporated             Delaware             100%         Delaware, investment holding
------------------------------------------------------------------------------------------------------------------------------------
               ACE Capital Re Overseas Ltd.                      Bermuda              100%         Bermuda, insurance/reinsurance,
                                                                                                   general and long term
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Capital Mortgage Reinsurance Company       New York             100%         New York, DC, mtg. guaranty
                  (EI# 06-1384770, NAIC# 10021, NY)                                                insurance/reinsurance
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Capital Title Reinsurance Company          New York             100%         CA, MI, NY, TX, title
                  (EI# 06-1434264, NAIC# 50028, NY)                                                insurance/reinsurance
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Capital Re Inc.                            New York             100%         New York, reinsurance
                                                                                                   intermediary
------------------------------------------------------------------------------------------------------------------------------------
      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%         Bermuda, investment holding
                                                                                   2% (CODA)
------------------------------------------------------------------------------------------------------------------------------------
      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     Bermuda, insurance
                                                                                   8% Series B
------------------------------------------------------------------------------------------------------------------------------------
      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
------------------------------------------------------------------------------------------------------------------------------------	

1

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of      Percentage       Jurisdictions in which Authorized
Name                                                           Organization        Ownership              and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
   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
------------------------------------------------------------------------------------------------------------------------------------
            ACE Leadenhall Limited                           United Kingdom           100%         UK, investment holding
------------------------------------------------------------------------------------------------------------------------------------
               ACE Underwriting Agencies Limited             United Kingdom           100%         UK, Lloyd's managing agent
------------------------------------------------------------------------------------------------------------------------------------
                  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
------------------------------------------------------------------------------------------------------------------------------------
         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
------------------------------------------------------------------------------------------------------------------------------------
      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
------------------------------------------------------------------------------------------------------------------------------------	

2

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of      Percentage       Jurisdictions in which Authorized
Name                                                           Organization        Ownership              and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
   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
------------------------------------------------------------------------------------------------------------------------------------
   Oasis US Inc.                                                 Delaware             100%         USA, general services
------------------------------------------------------------------------------------------------------------------------------------
   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
------------------------------------------------------------------------------------------------------------------------------------
         Huatai Insurance Company of China, Limited              China              6.129%         China, property and casualty
                                                                               10% (ACE Tempest    insurer
                                                                               Reinsurance Ltd.)
                                                                                 6% (ACE US
                                                                                Holdings, Inc.)
------------------------------------------------------------------------------------------------------------------------------------
         ACE Seguradora S. A.                                    Brazil              99.9%         Brazil, insurance
                                                                               0.1% (ACE Prime
                                                                                Holdings Inc.)
------------------------------------------------------------------------------------------------------------------------------------
         Servicios ACE INA S.A. de C.V.                          Mexico             99.99%         Mexico, service company
                                                                                   .00002%
                                                                                  (ACE Prime
                                                                                 Holdings Inc.)
------------------------------------------------------------------------------------------------------------------------------------
         ACE Tempest Re USA, Inc.                                 USA                 100%         CT, NJ, NY, OH, PA, SC, TX,
                                                              (Connecticut)                        reinsurance intermediary
                                                                                                   manager
------------------------------------------------------------------------------------------------------------------------------------
         INA Corporation                                          USA                 100%         USA, investment holding company
                                                              (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
            ACE INA Properties, Inc.                          USA (Delaware)          100%         USA, holding company
------------------------------------------------------------------------------------------------------------------------------------
               Conference Facilities, Inc.                         USA                100%         USA, owns & operates corporate
                                                              (Pennsylvania)                        facilities
------------------------------------------------------------------------------------------------------------------------------------
            INA Tax Benefits Reporting, Inc.                  USA (Delaware)          100%         USA, tax info & 3rd 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
------------------------------------------------------------------------------------------------------------------------------------
                     Cravens, Dargan & Company, Pacific       USA (Illinois)          100%         USA, managing general agency
                        Coast of Illinois, Inc.
------------------------------------------------------------------------------------------------------------------------------------
                  Century Indemnity Company                       USA                 100%         USA, insurance
                  (EI# 05-6105395, NAIC #20710, PA)          (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------	

3

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of      Percentage       Jurisdictions in which Authorized
Name                                                           Organization        Ownership              and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
                     Century Reinsurance Company                  USA                 100%         USA, reinsurance
                     (EI# 06-0988117, NAIC #35130, PA)       (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                     ACE American Reinsurance Company             USA                 100%         USA, reinsurance
                     (EI# 23-1740414, NAIC#22705, PA)        (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                        Brandywine Reinsurance Company           Belgium              100%         Belgium, reinsurance
                           S.A.-N.V.
------------------------------------------------------------------------------------------------------------------------------------
                        The 1792 Company                      USA (Delaware)          100%         USA, (former underwriting member
                                                                                                   of New York Insurance Exchange)
------------------------------------------------------------------------------------------------------------------------------------
                  Century International Reinsurance              Bermuda              100%         Bermuda, insurance & reinsurance
                     Company Ltd.
------------------------------------------------------------------------------------------------------------------------------------
               INA Holdings Corporation                       USA (Delaware)          100%         USA, holding company
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
                  INA Trust, fsb                               Chartered by           100%         USA, savings bank
                                                                Office of
                                                                  Thrift
                                                                Supervision
------------------------------------------------------------------------------------------------------------------------------------
                  YouDecide.com, Inc.                            Delaware             100%         Delaware, on-line financial
                                                                                                   marketing
------------------------------------------------------------------------------------------------------------------------------------
                     CFN Finance, Inc.                           Delaware             100%         Delaware, mortgage brokering
------------------------------------------------------------------------------------------------------------------------------------
                     CFN Agency, Inc.                            Delaware             100%         Delaware, nonresident insurance
                                                                                                   agency
------------------------------------------------------------------------------------------------------------------------------------
                  PDCN Legal Management Company, Inc.         USA (Delaware)          100%         USA, in-house law firm
                                                                                                   Administrator
------------------------------------------------------------------------------------------------------------------------------------
                  INA Reinsurance Company, Ltd.                  Bermuda              100%         Bermuda, reinsurance
------------------------------------------------------------------------------------------------------------------------------------
                  ACE INA Financial Institution               USA (Delaware)          100%         USA, floodplain determination
                     Solutions, Inc.                                                               & other services to financial
                                                                                                   institutions
------------------------------------------------------------------------------------------------------------------------------------
                  ESIS, Inc.                                       USA                100%         USA, markets risk management
                                                              (Pennsylvania)                       Programs
------------------------------------------------------------------------------------------------------------------------------------
                  NewMarkets Insurance Agency, Inc.           USA (Delaware)          100%         USA, managing general agency
------------------------------------------------------------------------------------------------------------------------------------
                  ACE INA Excess and Surplus Insurance        USA (Georgia)           100%         USA, excess & surplus lines
                     Services, Inc.                                                                broker
------------------------------------------------------------------------------------------------------------------------------------
                  ACE INA Excess and Surplus Insurance             USA                100%         USA, excess & surplus lines
                     Services, Inc.                           (Pennsylvania)                       broker
------------------------------------------------------------------------------------------------------------------------------------
                  ACE INA Excess and Surplus Insurance             USA                100%         USA, excess & surplus lines
                     Services, Inc.                            (California)                        broker
------------------------------------------------------------------------------------------------------------------------------------
                  ACE INA Excess and Surplus Insurance        USA (Illinois)          100%         USA, excess & surplus lines
                     Services, Inc.                                                                broker
------------------------------------------------------------------------------------------------------------------------------------
                  Excess and Surplus Insurance                 USA (Texas)            100%         USA, managing general agency
                     Services, Inc.
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Financial Solutions, Inc.               USA (Delaware)          100%         USA, premium finance company
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Risk Solutions, Inc.                    USA (New York)          100%         USA, reinsurance intermediary
------------------------------------------------------------------------------------------------------------------------------------
                  Indemnity Insurance Company of North             USA                100%         USA, Puerto Rico, USVI,
                     America                                  (Pennsylvania)                       insurance
                  (EI# 06-1016108, NAIC #43575, PA)
------------------------------------------------------------------------------------------------------------------------------------
                     ACE Indemnity Insurance Company               USA                100%         USA, insurance
                     (EI#92-0040526, NAIC #10030, PA)         (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                     Allied Insurance Company                      USA                100%         USA, insurance
                     (EI# 23-2021364, NAIC #36528, CA)        (California)
------------------------------------------------------------------------------------------------------------------------------------
                  ACE American Insurance Company                   USA                100%         USA, Korea, Puerto Rico USVI,
                  (EI#95-2371728, NAIC# 22667, PA)            (Pennsylvania)                       Guam, Bermuda permit, Taiwan
                                                                                                   (life), insurance
------------------------------------------------------------------------------------------------------------------------------------	

4

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of      Percentage       Jurisdictions in which Authorized
Name                                                           Organization        Ownership              and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
                     Pacific Employers Insurance Company            USA               100%         USA, USVI, insurance
                     (EI#95-1077060, NAIC# 22748, PA)          (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                        ACE Insurance Company of Texas          USA (Texas)           100%         USA, insurance
                        (EI# 74-1480965, NAIC #22721,
                           22920, TX)
------------------------------------------------------------------------------------------------------------------------------------
                        Illinois Union Insurance Company       USA (Illinois)         100%         USA, surplus lines insurer
                        (EI# 36-2759195, NAIC #27960, IL)
------------------------------------------------------------------------------------------------------------------------------------
                        Rain and Hail Insurance Service          USA (Iowa)           20%
                           Incorporated
------------------------------------------------------------------------------------------------------------------------------------
                  INAMAR Insurance Underwriting                     USA               100%         USA, insurance agency
                     Agency, Inc.                               (New Jersey)
------------------------------------------------------------------------------------------------------------------------------------
                  INAMAR Insurance Underwriting                    USA               100%         USA, general agency
                     Agency, Inc. of Massachusetts           (Massachusetts)
------------------------------------------------------------------------------------------------------------------------------------
                  INAMAR Insurance Underwriting                 USA (Texas)           100%         USA, general agency
                     Agency, Inc. of Texas
------------------------------------------------------------------------------------------------------------------------------------
                  INAMAR Insurance Underwriting                  USA (Ohio)           100%         USA, general agency
                     Agency, Inc. of Ohio
------------------------------------------------------------------------------------------------------------------------------------
               Insurance Company of North America                   USA               100%         USA, Guam, Northern Mariana
               (EI# 23-0723970, NAIC#22713, PA)                (Pennsylvania)                      Islands, Philippines, Puerto
                                                                                                   Rico, Taiwan (p/c), insurance
------------------------------------------------------------------------------------------------------------------------------------
               Bankers Standard Insurance Company                   USA               100%         USA, insurance
               (EI# 75-1320184, NAIC #18279, PA)               (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                  Bankers Standard Fire and Marine Company          USA               100%         USA, insurance
                  (EI#75-6014863, NAIC #20591, PA)             (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
               ACE Property and Casualty Insurance Company          USA               100%         USA, Puerto Rico, insurance
               (EI# 06-0237820, NAIC, #20699, PA)              (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Employers Insurance Company                   USA               100%         USA, insurance
                  (EI#23-2137343, NAIC #38741, PA)             (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Insurance Company of Ohio                  USA (Ohio)           100%         USA, insurance
                  (EI# 23-1859893, NAIC #22764, OH)
------------------------------------------------------------------------------------------------------------------------------------
                  INA Surplus Insurance Company                     USA               100%         USA, reinsurance
                  (EI# 52-1208598, NAIC #42072, PA)            (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Fire Underwriters Insurance Company           USA               100%         USA, insurance
                  (EI# 06-6032187, NAIC #20702, PA)            (Pennsylvania)
------------------------------------------------------------------------------------------------------------------------------------
                  Atlantic Employers Insurance Company              USA               100%         USA, insurance
                  (EI# 23-2173820, NAIC #38938, NJ)             (New Jersey)
------------------------------------------------------------------------------------------------------------------------------------
                     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      USA (Texas)           100%         USA, Lolyds Association
                     (Sponsored Lloyds Association)
                     (EI# 75-1365570, NAIC #18511, TX)
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Insurance Company of Illinois            USA (Illinois)         100%         USA, insurance
                  (EI# 36-2709121, NAIC #22691, IL)
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Insurance Company of the Midwest         USA (Indiana)          100%         USA, insurance
                  (EI# 06-0884361, NAIC #26417, IN)
------------------------------------------------------------------------------------------------------------------------------------	

5

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of      Percentage       Jurisdictions in which Authorized
Name                                                           Organization        Ownership              and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
               ACE Structured Products, Inc.                  USA (Delaware)          100%         USA, insurance management
               (formerly INAPRO, Inc.)                                                             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
------------------------------------------------------------------------------------------------------------------------------------
               American Adjustment Company, Inc.              USA (Delaware)          100%         USA, run-off of automobile
                                                                                                   guaranty Loans
------------------------------------------------------------------------------------------------------------------------------------
                  American Lenders Facilities, Inc.                 USA               100%         USA, collection & loan servicing
                                                                (California)                       for third parties
------------------------------------------------------------------------------------------------------------------------------------
         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 S.A.E. Egypt               Egypt                51%         Egypt, insurance
------------------------------------------------------------------------------------------------------------------------------------
            ACE Life Insurance Company S.A.E.                     Egypt             99.98%         Egypt, life insurance
------------------------------------------------------------------------------------------------------------------------------------
            ACE Synergy Insurance Berhad                         Malaysia              51%         Malaysia, insurance
------------------------------------------------------------------------------------------------------------------------------------
            ACE Insurance S.A.-N.V.                              Belgium            .0523%         Europe, insurance/reinsurance
                                                                                  99.9477%
                                                                               (ACE INA Overseas
                                                                                Holdings, Inc.)
------------------------------------------------------------------------------------------------------------------------------------
            ACE Seguros S.A.                                      Chile             66.53%         Chile, insurance
                                                                                    (AIIH)
                                                                                    18.70%
                                                                                 (AFIA Finance
                                                                                  Corporation)
                                                                                    13.90%-(AFIA
                                                                                 Finance Corp.
                                                                                Chile Limitada)
------------------------------------------------------------------------------------------------------------------------------------
            ACE Seguros S.A.                                    Colombia          99.7595%         Colombia, insurance
                                                                                  55.1532%(INA)
                                                                                  24.0163%(AIIH)
                                                                                   9.2649%
                                                                                (INA Financial)
                                                                                   6.6923%
                                                                                 (AFIA Finance
                                                                                  Corporation)
                                                                                   4.6329%(CIRC)
------------------------------------------------------------------------------------------------------------------------------------
            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%         Thailand, insurance
                                                                                    50.99%
                                                                                   (Nam Ek)
------------------------------------------------------------------------------------------------------------------------------------
               ACE Life Assurance Co. Ltd.                      Thailand               70%         Thailand, life insurance
                                                                                       25%
                                                                                  (Oriental)
------------------------------------------------------------------------------------------------------------------------------------
            Nam Ek Company Limited                              Thailand               49%         Thailand, insurance
------------------------------------------------------------------------------------------------------------------------------------
            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
------------------------------------------------------------------------------------------------------------------------------------	

6

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of      Percentage       Jurisdictions in which Authorized
Name                                                           Organization        Ownership              and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
            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, corporation
------------------------------------------------------------------------------------------------------------------------------------
               INACAP Reaseguros, Sociedad Anonima              Nicaragua             100%         Nicaragua, corporation
------------------------------------------------------------------------------------------------------------------------------------
            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%         Europe, insurance/reinsurance
                                                                                    .0523%
                                                                                    (AIIH)
------------------------------------------------------------------------------------------------------------------------------------
            ACE Insurance Company
            (El# 66-0437305, NAIC #30953, PR)                  Puerto Rico            100%         Puerto Rico, insurance
------------------------------------------------------------------------------------------------------------------------------------
            ACE Insurance Limited                               Hong Kong             100%         Hong Kong, insurance
------------------------------------------------------------------------------------------------------------------------------------
            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          100%         BVI, holding company
                                                                Islands
------------------------------------------------------------------------------------------------------------------------------------
               ACE Life Assurance Co. Ltd.                      Thailand               25%         Thailand, insurance
                                                                                       70%
                                                                                  (Eksupsiri)
------------------------------------------------------------------------------------------------------------------------------------
            AFIA Finance Corporation                          USA (Delaware)          100%         Delaware, insurance holding
------------------------------------------------------------------------------------------------------------------------------------
                  AFIA Venezolana C.A.                          Venezuela             100%         Venezuela, inactive claims &
                                                                                                   settling agent
------------------------------------------------------------------------------------------------------------------------------------	

7

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of       Percentage      Jurisdictions in which Authorized
Name                                                           Organization         Ownership             and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
                  ACE ICNA Italy Societa a Responsabilita        Italy               99.7%         Italy, legal representative for
                  Limitata                                                            0.3%(AIIH)   CIGNA Insurance Company of
                                                                                                   Europe, S.A. - N.V.
------------------------------------------------------------------------------------------------------------------------------------
                  Siam Liberty Company Limited                  Thailand               49% (AFC)   Thailand, broker, surveyor &
                                                                                       45%         claims settling agency
                                                                                     (Nam EK)
------------------------------------------------------------------------------------------------------------------------------------
                  ACE Servicios, S.A.                           Argentina             100%         Argentina, insurance holding
------------------------------------------------------------------------------------------------------------------------------------
                  AFIA Finance Corp. Chile Limitada               Chile                98%         Chile, claims & settling agent
                                                                                        2%
                                                                                      (AIIH)
------------------------------------------------------------------------------------------------------------------------------------
                  Fire, Equity and General Insurance             Nigeria             6.25%         Nigeria, insurance
                  Company Limited
------------------------------------------------------------------------------------------------------------------------------------
                  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            60%         Association for international
                                                              Association                          insurance
------------------------------------------------------------------------------------------------------------------------------------
            AFIA (ACE) Corporation, Limited                   USA(Delaware)           100%         Delaware, holding company
------------------------------------------------------------------------------------------------------------------------------------
               AFIA                                          Unincorporated            40%         Association for international
                                                              Association                          insurance
------------------------------------------------------------------------------------------------------------------------------------
            Compania Anonima dc Seguros "AVILA"                Venezuela              0.6%         Venezuela, insurance
------------------------------------------------------------------------------------------------------------------------------------
            ACE Seguros S.A.                                    Colombia            99.86%         Colombia, insurance
                                                                                   14.097%
                                                                                  (other ACE
                                                                                   entities)
------------------------------------------------------------------------------------------------------------------------------------
            INAVEN, C.A. "Venezuela"                           Venezuela              100%         Venezuela, corporation
------------------------------------------------------------------------------------------------------------------------------------
            La Positiva Compania Nacional de Seguro   s           Peru             7.6869%         Peru, insurance
            Sociedad Anonima
------------------------------------------------------------------------------------------------------------------------------------
            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.          USA (Delaware)           100%         USA, investment holding
         (f/k/a ACE Financial Solutions International,
         Inc.)
------------------------------------------------------------------------------------------------------------------------------------
         ACE USA, Inc.                                       USA (Delaware)           100%         USA, investment holding
-----------------------------------------------------------------------------------------------------------------------------------
           CRC Creditor Resources Canada Limited            Canada (British            60%         Canada, warranties business
                                                               Columbia)
------------------------------------------------------------------------------------------------------------------------------------
           Industrial Underwriters Insurance Company           USA (Texas)            100%         USA, insurance
           (El# 75-6015738, NAIC# 21075, TX)
------------------------------------------------------------------------------------------------------------------------------------
           Rhea International Marketing (L), Inc.               Malaysia               60%         Malaysia, general services
------------------------------------------------------------------------------------------------------------------------------------
           Westchester Fire Insurance Company                     USA                 100%         USA, Bermuda permit, insurance
           (EI# 13-5481330, NAIC# 21121, NY)                   (New York)
------------------------------------------------------------------------------------------------------------------------------------
           Westchester Surplus Lines Insurance Company        USA (Georgia)           100%         USA, insurance
           (EI# 58-2139927, NAIC #10172, GA)
------------------------------------------------------------------------------------------------------------------------------------	

8

------------------------------------------------------------------------------------------------------------------------------------
                                                             Jurisdiction of      Percentage       Jurisdictions in which Authorized
Name                                                           Organization        Ownership              and Type of Business
------------------------------------------------------------------------------------------------------------------------------------
           Westchester Specialty Services, Inc.                USA (Florida)          100%         USA, warranties
------------------------------------------------------------------------------------------------------------------------------------
           Westchester Specialty Insurance                     USA (Nevada)           100%         USA, insurance services,
           Services, Inc.                                                                          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.                             USA (Delaware)          100%         Delaware, insurance holding
      (f/k/a Capital Re Corporation)                                                               company
------------------------------------------------------------------------------------------------------------------------------------
         ACE Finance Overseas Limited                        United Kingdom           100%
------------------------------------------------------------------------------------------------------------------------------------
         AGR Financial Products Inc.                          USA (Delaware)          100%         Delaware, financial products
------------------------------------------------------------------------------------------------------------------------------------
         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 Guaranty Corp.                                     Maryland              100%         AK, AL, AR, CA, CO, CT, DC, FL,
            (EI# 52-1533088, NAIC #30180, MD)                                                      HI, ID, IL, KS, KY, MA, MD, MI,
                                                                                                   MO, NE, NY, NC, ND, NM, NV, OH,
                                                                                                   OK, OR, PA, RI, SC, TN, TX, UT,
                                                                                                   VA, WA,
                                                                                                   Primary financial guaranty
                                                                                                   insurance company
------------------------------------------------------------------------------------------------------------------------------------
            ACE Guaranty (UK), Ltd.                          United Kingdom           100%         UK, property/casualty insurer
------------------------------------------------------------------------------------------------------------------------------------
            ACE Risk Assurance Company (EI# 13-4027591,         Maryland              100%         Maryland, reinsurance
            NAIC #10943, MD)
------------------------------------------------------------------------------------------------------------------------------------
         ACE Asset Management Inc.                              Delaware              100%         Delaware, Bermuda permit
                                                                                                   corporation
------------------------------------------------------------------------------------------------------------------------------------
   ACE (Barbados) Holdings Limited                               Barbados             100%         Barbados, holding company
------------------------------------------------------------------------------------------------------------------------------------	

9

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 Third Amendment and Restatement of Letter of Credit Facility Agreement dated November 19, 2002 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 25, 2003 among the Parent and other Account Parties party thereto, the Assignor and the other Banks party thereto, the Co-Syndication Agents party thereto and the Administrative Agent (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.

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, 8th Floor NC0680 Charlotte, North Carolina 28288
Attn: Syndication Agency Services
Ladies and Gentlemen:
Reference is made to the Reimbursement Agreement dated as of September 25, 2003 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 2.17(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 2.17(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):

----------------------------------------------------------------------------------------
                                                  Amount/       Eligible      Collateral
           Type of Security                    Market Value    Percentage        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                                   95% of Market
   Maturity over 2 years                                      90% of Market
----------------------------------------------------------------------------------------
Investment Grade Municipal Bonds (Rating
Aaa-Baa3)
   Maturity 5 years or less                                   85% of Market
----------------------------------------------------------------------------------------	

----------------------------------------------------------------------------------------
                                                  Amount/       Eligible      Collateral
           Type of Security                    Market Value    Percentage       Value
----------------------------------------------------------------------------------------
   Maturity over 5 years                                      80% of Market
----------------------------------------------------------------------------------------
Investment Grade Corporate Bonds (Rating Aa3
   or better, Non-convertible, NYSE)
   Maturity 2 years or less                                   90% of Market
   Maturity over 2 years                                      85% of Market
----------------------------------------------------------------------------------------
Investment Grade Corporate Bonds (Rating
   Baa3 to A1, Non-convertible, NYSE)
   Maturity 2 years or less                                   85% of Market
   Maturity over 2 years                                      80% of Market
----------------------------------------------------------------------------------------
Commercial Paper (Rating A1-A2, P1-P2)                        85% of Market
----------------------------------------------------------------------------------------
Total                                                                         $
----------------------------------------------------------------------------------------	

Outstanding Letters of Credit

                                                           Unreimbursed
      Beneficiary       Date         Undrawn Amount          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, 8th Floor NC0680 Charlotte, North Carolina 28288
Attn: Syndication Agency Services
Ladies and Gentlemen:
Reference is made to the Reimbursement Agreement, dated as of September 25, 2003, 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.
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 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 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 (and we agree that they may rely hereon and are 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 31.1
 
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Brian Duperreault, 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 13, 2003

/ S /    B RIAN D UPERREAULT	
	
Chairman 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 13, 2003

/ S /    P HILIP V. B ANCROFT	
	
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, 2003, 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 13, 2003	 	 	 	 	 	/s/    B RIAN D UPERREAULT	
 	 	 	 	 		
 	 	 	 	 	 	 	 	Brian Duperreault
Chairman 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, 2003, 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 13, 2003	 	 	 	 	 	/s/    P HILIP V. B ANCROFT	
 	 	 	 	 		
 	 	 	 	 	 	 	 	Philip V. Bancroft
Chief Financial Officer